NO. 95416
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
MCCANN RANCH, INC.,
a Montana corporation,
Plaintiff and Respondent,
SHARON QUIGLEY-MCCANN,
Defendant and Appellant.
APPEAL FROM: District Court of the Fifteenth Judicial District,
In and for the County of Roosevelt,
The Honorable John Warner, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
K. Dale Schwanke and Francis X. Clinch,
Jardine, Stephenson, Blewett & Weaver,
Great Falls, Montana
For Respondent:
Patrick M. Sullivan, Poore, Roth & Robinson,
Butte, Montana
Submitted on Briefs: February 29, 1996
Decided: April 18, 1996
Filed:
Chief Justice J. A. Turnage delivered the Opinion of the Court.
Sharon Quigley-McCann (Sharon) appeals the valuation of her
stock in McCann Ranch, Inc. (MRI), by the Fifteenth Judicial
District Court, Roosevelt County. We affirm.
Sharon raises the following issues on appeal:
1. Did the District Court err in applying a 25 percent
minority discount in determining the value of Sharon's 600 shares
of MRI stock?
2. Did the District Court err in refusing to award Sharon
attorney fees and costs?
MRI is a Montana corporation, originally incorporated in 1965.
MRI owns agricultural real estate and improvements in Roosevelt
county, Montana. In 1992, Thomas McCann owned 1200 of the 2400
shares of MRI stock. In that year, Thomas and Sharon McCann
divorced after a thirty-seven-year marriage. Pursuant to their
Colorado divorce decree, Sharon was awarded one-half of Thomas's
MRI stock.
Shortly after the McCanns' 1992 divorce, MRI, acting through
its board of directors, decided to pay off two outstanding debts to
Florian and Virginia McCann. The directors in turn determined that
MRI would stop paying dividends to MRI shareholders as it had done
in the past.
The shareholders then reincorporated MRI to make it a Montana
statutory close corporation, which designation carries with it a
restriction on the alienability of corporate stock. Sharon, as a
shareholder of MRI, voted against the amended articles of incorpo-
ration. Sharon was not notified by MRI that she was entitled to
assert dissenter's rights as required by 5 35-g-103, MCA.
2
MRI had leased its land and improvements to Robert Anderson
since 1978. The initial lease was for seven years. Before the
first lease expired, MRI renewed the lease for an additional ten
years. In 1993, after the filing of this lawsuit, but prior to the
final disposition in District Court, MRI again renewed the Anderson
lease for an additional ten years. When the lease was renewed in
1993, approximately ten months remained on the existing lease.
Following a brief and unsuccessful series of negotiations
between MRI and Sharon concerning MRI's purchase of Sharon's
shares, MRI instituted this lawsuit pursuant to the Montana
Declaratory Judgment Act. MRI asked the District court to
determine the value of Sharon's 600 shares of MRI stock and compel
the sale of said stock to MRI. Sharon and MRI stipulated to allow
the District Court, sitting in equity, to determine the value of
Sharon's shares. Sharon agreed to transfer her shares of stock to
MRI upon MRI's payment to her of the court-determined value of her
stock. The stipulation read, in part:
Subject to the parties' right to appeal the amount of the
court ' s valuation determination and any evidentiary
irregularities occurring during the conduct of the trial,
the parties agree and stipulate as follows:
1. The Court may exercise its equitable powers to
grant equitable relief by declaring the value of Sharon
Quigley-McCann's shares and ordering the sale of the
shares to occur;
2 . Sharon Quigley-McCann agrees to sell and McCann
Ranch agrees to purchase Sharon Quigley-McCann's 600
shares in McCann Ranch in the amount determined by the
Court to be the value of the shares;
3. The Court's valuation of Sharon Quigley-McCann's
shares shall be binding on the partiesL.1
3
Following a two-day trial, the District Court determined the
value of Sharon's shares to be $162,144. This valuation was
established by applying a 25 percent minority discount to Sharon's
interest in MRI. The court refused to grant either party attorney
fees. The court did, however, add MRI's litigation expenses to the
value of the corporation prior to calculating Sharon's share of the
corporate assets, under the rationale that Sharon, as a quarter
owner of MRI, should not be required to pay for MRI's litigation
expenses.
Section 3-2-204(5), MCA, sets forth this Court's standard for
reviewing equitable cases.
In equity cases and in matters and proceedings of an
equitable nature, the supreme court shall review all
questions of fact arising upon the evidence presented in
the record, whether the same be presented by specifica-
tions of particulars in which the evidence is alleged to
be insufficient or not, and determine the same, as well
as questions of law, unless for good cause a new trial or
the taking of further evidence in the court below be
ordered.
We have determined that
review of findings of fact in an equitable case must
comply with not only § 3-2-204(5), MCA, but also with
Rule 52(a), M.R.Civ.P., which requires that findings of
fact be upheld unless they are clearly erroneous.
Westfall v. Anderson (1990), 244 Mont. 113, 115, 795 P.2d 976, 977
(citing Rase v. Castle Mountain Ranch, Inc. (1981), 193 Mont. 209,
216, 631 P.2d 680, 684). A finding is clearly erroneous if it is
not supported by substantial evidence, if the district court
misapprehended the effect of the evidence, or if this Court is left
with the definite and firm conviction that a mistake has been made.
4
Interstate Production Credit v. DeSaye (1991), 250 Mont. 320, 323,
820 P.Zd 1285, 1287.
Issue 1
Did the District Court err in applying a 25 percent minority
interest discount in determining the value of Sharon's 600 shares
of MRI stock?
Sharon argues that the District Court should not have applied
a 25 percent discount in calculating the value of her shares. She
argues that pursuant to 5 35-g-501, MCA, a shareholder may petition
the court for relief if the actions of a Montana statutory close
corporation were illegal, oppressive, fraudulent, or unfairly
prejudicial. The relief available includes the purchase of the
petitioner's shares at "fair value." Section 35-9-503(Z), MCA.
Sharon maintains that MRI's conduct was illegal, oppressive,
fraudulent and unfairly prejudicial and she is therefore entitled
to "fair value" which she further maintains is the value of the
stock without application of the 25 percent discount.
Sharon also contends that the court erred in applying the 25
percent discount to the value of her stock by refusing to apply the
dissenter's rights provisions of Montana's codes. Section 35-9-
103(2), MCA, states that when a corporation reincorporates to
become a statutory close corporation, any individual voting against
close corporation status may assert dissenter's rights pursuant to
§§ 35-l-826 through -839, MCA. Section 35-l-827, MCA, states that
when a shareholder dissents, the shareholder may obtain "fair
value" of his or her shares from the corporation. Section 35-U
829 (11, MCA, provides that when a shareholder will be entitled to
5
dissenter's rights, the corporation must notify the shareholder
that he or she may assert dissenter's rights prior to the vote of
the shareholders. MRI did not notify Sharon of her right to assert
dissenter's rights. Sharon argues that the District Court sitting
in equity should have afforded her "fair value" for her shares of
the corporation. Again, Sharon asserts that "fair value" means the
value of her shares without application of the 25 percent discount.
Sharon's arguments fail for several reasons. First, in regard
to her arguments under 5 35-g-501, MCA, a review of the record
reveals that the corporation's actions were not illegal, oppres-
sive, fraudulent or unfairly prejudicial. The District Court
correctly noted that debts MRI paid to Florian and Virginia McCann
were legally binding debts which the corporation had an obligation
to pay. Paying the debts did not adversely affect Sharon's
distribution from MRI because payment of the debts served to reduce
the indebtedness of the corporation which otherwise would have been
deducted from the total value of the corporation in determining the
corporation's net value.
Nor did MRI's decision to cease paying shareholder dividends
violate § 35-g-501, MCA. MRI properly accounted for all monies
which would have been paid as dividends. Elimination of dividends
again increased MRI's net worth, which was reflected in the value
of Sharon's stock.
Renewal of the Anderson lease was clearly a business decision
and not a fraudulent or oppressive act. MRI's agricultural
holdings had been leased to Anderson for nearly two decades at the
6
time of the lease renewal. The Anderson lease did not decrease the
value of MRI's holdings, but instead provided financial security
for MRI's shareholders. Renewal of such a lease cannot be viewed
as oppressive or fraudulent. A careful review of the record does
not support these or any other contentions that MRI acted illegal-
lY, oppressively, fraudulently or with unfair prejudice toward
Sharon.
Secondly, Sharon did not institute an action pursuant to 5 35-
9-501, MCA. This section provides that a shareholder "may petition
the district court for any of the relief described in 35-g-502
through 35-9-504[ .I” This action was not commenced by a petition
by Sharon seeking relief as an oppressed shareholder. Rather, this
action is a declaratory judgment action commenced by MRI. In the
course of litigating MRI's declaratory judgment action, the parties
entered into a stipulation by which the court was to determine the
value of Sharon's 600 shares of MRI stock. Sharon agreed to sell
and MRI agreed to purchase said shares of MRI stock at the value
established by the District Court. Therefore, the subject
litigation was confined to these stipulated topics, and not the
relief provided in 5 35-g-501, MCA, et. seq.
Sharon likewise did not assert her dissenter's rights nor did
she institute proceedings to challenge MRI's failure to notify her
of such dissenter's rights. Rather, Sharon stipulated to exchange
her shares of MRI stock for a price established by the District
Court.
Alternatively, Sharon has not established to the satisfaction
of this Court that "fair value" necessarily excludes an application
of a minority discount. Section 35-l-826(4), MCA, states:
"Fair value," with respect to a dissenter's shares, means
the value of the shares immediately before the effectua-
tion of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion
would be inequitable. [Emphasis added. 1
While the corporate conduct which led to the dissenter's suit
should not be considered, nothing in this section prohibits
considering a minority shareholder's lack of control and the lack
of marketability for minority shares when establishing "fair
value. " Thus, the value of Sharon's 600 shares prior to the
complained of conduct may still be less than one-fourth of the
total assets of MRI as a whole.
We have determined that minority discounts are appropriate
under certain circumstances. In approving a 25 percent minority
discount, we concluded:
A discount for a minority interest is appropriate when
the minority shareholder has no ability to control
salaries, dividends, profit distributions and day-to-day
corporate operations.
In re Marriage of Milesnick (1988), 235 Mont. 88, 97, 765 P.Zd 751,
757 (citing In re Marriage of Jorgensen (19791, 180 Mont. 294, 300,
590 P.2d 606, 610). In valuing Sharon's shares, the District Court
applied the specific methodology recommended by Sharon's own expert
share appraiser. The District Court correctly noted in its
findings of fact:
The stock held by defendant is insufficient to
control the activities of the corporation. While
8
minority shareholders in a corporation must be treated
fairly, especially those in a closely held corporation,
the lack of control makes such shares less valuable.
This is a known fact, which is reasonably contemplated by
every person who holds a minority interest in a small
corporation.
We agree with the District Court's findings in these regards
We conclude that the District Court did not err in applying a
minority discount in calculating the value of Sharon's 600 shares
of MRI stock. Sharon has not established that those in control of
MRI acted in an illegal, oppressive, fraudulent or unfairly preju-
dicial manner. She has not established any prejudice to her from
the corporation's failure to notify her of her dissenter's rights,
because all she was entitled to, in any event, was the "fair value"
of her shares. Further, she has not established that "fair value"
precludes the application of a minority discount. We hold that the
court's findings of fact were not clearly erroneous.
Issue 2
Did the District Court err in refusing to award Sharon attor-
ney fees and costs?
Sharon argues that the court erred in refusing to award her
attorney fees and costs, again basing her arguments on §§ 35-g-501
and 35-l-826 through -839, MCA. We reiterate that this is not a
dissenter's right action or an oppressed shareholder petition.
Regardless, the above statutory provisions vest the District Court
with discretion concerning an award of attorney fees. If not oth-
erwise specified by statute, an award of costs is left to the sound
discretion of the court. Section 25-10-103, MCA
9
The record reveals that the District Court did not abuse its
discretion in requiring Sharon and MRI to bear their respective
costs of litigation. This action was of a declaratory nature, with
both parties stipulating to the scope of the litigation. Neither
party can be considered the "prevailing" party in this equitable
proceeding.
Sharon also challenges the District Court's calculations of
MRI's direct litigation expenses, these costs being added to the
corporation's assets prior to determining the value of Sharon's 600
shares. Sharon maintains that MRI's costs and fees were $22,550,
rather than the $15,846 established by the court. However,
Sharon's valuation of MRI's costs and fees spent as a direct result
of litigation is based on speculative trial testimony and unsup-
ported by the record.
The District Court's findings of fact were supported by sub-
stantial evidence, the court did not misapprehend the effect of the
evidence, and we are not left with the definite and firm conviction
that a mistake has been committed. We hold that the court did not
err in its determination concerning attorney fees and costs.
We affirm the decision of the District Court.
' Chief Justice
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we concur:
,: