Opinion
No. C5-99-1755.
Filed: November 18, 2003.
Appeal from Hennepin County District Court, File No. 9722393.
John F. Bonner, III, Robert J. Borhart, Bonner Borhart, LLP, (for appellant)
Richard T. Ostlund, Randy G. Gullickson, Anthony Ostlund Baer, P.A., (for respondents Richard Anderson, Walter Gervais and Walter G. Anderson Corp.)
Eric J. Magnuson, Patrick J. Rooney, John J. Wackman, Rider Bennett, LLP, (for respondents Walter G. Anderson, Inc., AP Partnership and Estate of Walter G. Anderson)
Considered and decided by Stoneburner, Presiding Judge, Willis, Judge, and Shumaker, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant Jacquelin Powell, a shareholder and director of closely-held respondent Walter G. Anderson, Inc. (Anderson, Inc.), and an equal partner in respondent AP Partnership with respondent Richard Anderson (Anderson), initiated this action alleging that Anderson, majority shareholder and C.E.O. of Anderson, Inc., and respondent Walter E. Gervais, president of Anderson, Inc., violated Minn. Stat. § 302A.751, subd. 1, by acting fraudulently and in a manner unfairly prejudicial to Powell in her capacity as shareholder of Anderson, Inc. Powell also alleged common law fraud, misrepresentation, breach of fiduciary duty, and usurpation of corporate opportunity. And Powell asserted claims against Anderson for violation of Minnesota's Uniform Partnership Act, breach of fiduciary duties as a partner, and breach of contract.
Respondents counterclaimed, requesting a declaration that a share retirement agreement signed by Powell and her husband was valid, binding, and enforceable. On respondents' motion for summary judgment, the district court found the share retirement agreement valid and enforceable but awarded Powell equitable damages equal to the difference between the agreement price for her shares and fair value of the shares.
The district court summarily determined the percentage of Powell's interest in Anderson, Inc., and, based on documents that are not part of the record, calculated fair value of Powell's shares. The district court also dissolved the AP Partnership and ordered an equal division of its assets. In a subsequent order, the district court dismissed claims for breach of fiduciary duty, misrepresentation and fraud, leaving only the usurpation claim for trial. Later the district court granted Powell's motion for summary judgment on the usurpation claim, leaving only damages for that claim for trial. After trial on damages, the district court calculated Powell's usurpation damages based on an imputed interest in Anderson Corp., and applying a marketability and minority discount to the fair value of Anderson Corp. shares.
On appeal, Powell challenges the district court's summary dismissal of her claims of fraud, misrepresentation, and breach of corporate fiduciary duty, denial of discovery requests, determination of the percentage of her ownership interest in Anderson, Inc., valuation of her share of Anderson, Inc., valuation of her imputed share of Anderson Corp., denial of her request for a partnership accounting, and denial of her request for attorney fees and costs. By notice of review, respondents challenge the district court's refusal to limit Powell's damages to the buy-out value of her shares of Anderson, Inc. and her imputed interest in Anderson Corp.
Because we conclude that the district court did not err by dismissing Powell's claims for fraud, misrepresentation, and breach of fiduciary duty or by denying a partnership accounting, we affirm the district court on those issues. But we conclude that the district court erred by awarding equitable relief under Minn. Stat. § 302A.751, subd. 1, and by summarily determining the percentage of Powell's interest in Anderson, Inc. and summarily calculating the fair value of Anderson, Inc. shares based on documents that are not in the record. Therefore we reverse and remand the district court's determination that Powell is entitled to equitable relief under Minn. Stat. § 302A.751, subd. 1, the determination of her percentage interest in Anderson, Inc. and the calculation of the fair value of Anderson, Inc. And, because the district court's determinations on remand may have a bearing on Powell's entitlement to attorney fees and costs, we reverse denial of those fees and remand for an exercise of the district court's discretion consistent with its decision on remand.
FACTS
Walter G. Anderson, Inc., (Anderson, Inc.), a closely held Minnesota corporation founded in 1950, prints and manufactures paper boxes. Founder Walter G. Anderson was the father of appellant Jacquelin Powell (Powell) and respondent Richard Anderson (Anderson). At the time this litigation started, Anderson was Board Chairman and CEO and owned 37.65% of the shares of Anderson, Inc.; Powell was a board member and owned 24.73% of the shares; and the remaining 37.62% of the shares, owned by George W. Anderson at the time of his death, were in a trust created by George W. Anderson's will. At the time relevant to this litigation, Walter E. Gervais was the president of Anderson, Inc. Powell and Anderson were also 50/50 general partners in respondent AP Partnership, which owned real estate that was leased to Anderson, Inc.
Powell and her husband signed a Share Retirement Agreement on November 1, 1976. The agreement provided that Powell did not expect to participate in management or operation of Anderson, Inc., and that when Walter G. Anderson or his wife died (whoever died last), Anderson, Inc. would redeem Powell's shares at a price equaling the aggregate book value as of the end of the fiscal year immediately preceding the redemption date.
Walter G. Anderson survived his wife and in 1988, Powell and her husband signed an Amended Share Retirement Agreement (buy-out agreement) under which the obligation of Anderson, Inc. to purchase Powell's shares became an option exercisable by Anderson, Inc. on the day following the day of the last distribution from the Estate of Walter G. Anderson.
A 1990 stock redemption agreement between Walter G. Anderson and Anderson, Inc. required Anderson, Inc. to redeem a sufficient amount of Walter G. Anderson's shares at his death to pay his estate taxes. Such a redemption would have increased both Powell's and Anderson's percentage of ownership in Anderson, Inc., by reducing the number of outstanding shares.
Gervais and Anderson founded respondent Anderson Corp. in 1991. Anderson Corp. is also engaged in the paperboard packaging industry. Anderson owns 60% and Gervais owns 40% of Anderson Corp.'s shares. For purposes of this litigation, Anderson and Gervais admit that founding Anderson Corp. usurped a corporate opportunity of Anderson, Inc., entitling Powell to claim damages for the usurpation.
Walter G. Anderson died in 1997. Powell asserts that she first became aware of the provisions of the agreement after Walter G. Anderson's death. Powell, who admits that she signed all corporate documents brought to her by Walter G. Anderson and Anderson without reading them and without knowing their content, asserts that neither she nor her husband were aware of the terms of the buy-out agreement. Powell attempted to "cancel" the buy-out agreement and then initiated this action, claiming a right to a fair-market-value buy-out under Minn. Stat. § 302A.751, subd. 1, due to fraudulent and unfairly prejudicial acts of Anderson, Gervais, and respondent Estate of Walter G. Anderson (estate). Powell also asserted claims for fraud, misrepresentation, breach of corporate and partnership fiduciary duty, usurpation of corporate opportunity, and breach of the partnership contract.
Anderson, Inc. and Anderson counterclaimed for a declaratory judgment that the buy-out agreement was valid, binding, and enforceable. Powell sought a temporary restraining order (TRO) to prevent Anderson, Inc. from exercising its option to redeem her shares under the buy-out agreement. The district court denied Powell's motion for a TRO and stayed discovery pending mediation. Mediation failed.
Anderson and Anderson, Inc. moved for summary judgment on the validity and enforceability of the buy-out agreement. Powell opposed the motion and her attorney filed two affidavits claiming additional discovery was necessary to support Powell's claim that she owned shares in Anderson, Inc. prior to 1976, and "to determine the full effect of . . . apparent misconduct." The district court denied further discovery.
On appeal, Powell is no longer asserting ownership of shares prior to 1976. Her claim for an increased percentage of ownership at this time is based solely on Anderson's failure to redeem a portion of Walter G. Anderson's shares prior to enforcing Anderson, Inc.'s buy-out option for Powell's shares.
The day before the hearing on the summary judgment motion, the district court conducted a settlement conference to which the parties were ordered to bring appraisers' reports regarding the value of Anderson, Inc. Settlement was not successful.
After the hearing on respondents' summary judgment motion, in an order dated September 18, 1998, the district court granted summary judgment to Anderson and Anderson, Inc., holding that the buy out agreement was valid and enforceable. But the district court concluded that because of "ample evidence" to permit the district court to exercise its equitable powers, it would award Powell, as equitable relief under Minn. Stat. § 302A.751, subd. 2, the difference between the value set out in the buy-out agreement and the fair value of her shares of Anderson, Inc. The district court summarily determined that Powell's percentage interest in Anderson, Inc. was 24.73% and, using the appraisal reports submitted at the settlement conference but which are not in the record, calculated the fair value of the shares of Anderson, Inc., and entered judgment for a buy-out of Powell's shares for $3,464,449. The order implicitly rejects Powell's claim that there are fact questions about the amount of her interest in Anderson, Inc. The district court also ordered the partnership dissolved and the assets equally divided. The district court did not address Powell's request for a partnership accounting, but in a later order expressly denied an accounting. The district court concluded that "numerous factual issues" precluded summary judgment on Powell's claims for usurpation, fraud, and breach of fiduciary duty.
Both parties sought clarification regarding what claims remained after the district court's order of September 18, 1998, what procedures would be used for the partnership dissolution, and the scope of the remaining discovery. After a hearing on the clarification requests, the district court issued an order that detailed the partnership dissolution process, limited discovery to non-parties, and stated that the only issue remaining for trial was Powell's claim for usurpation of a corporate opportunity because "[a]ll other claims are either dismissed or dealt with in the September 18 Order."
Anderson and Gervais then stipulated, for purposes of this litigation, that formation of Anderson Corp. constituted usurpation of a corporate opportunity of Anderson, Inc., and moved to have Anderson, Inc., AP Partnership and the estate dismissed. Powell moved for summary judgment on the usurpation claim, requested that Anderson, Inc. and Anderson Corp. be treated as a single entity for the purpose of calculating her usurpation damages and requested appointment of a special master to determine the value of the augmented business. The district court granted Powell's motion for partial summary judgment on the usurpation claim, dismissed Anderson, Inc., AP Partnership, and the estate from the lawsuit, and denied Powell's motion to have the value of Anderson, Inc. and Anderson Corp. combined for purposes of valuation by a special master, based on the fact that the district court had already awarded her damages for her interest in Anderson, Inc.
The only issue at trial was the amount of Powell's damages for usurpation. Experts testified as to the value of Powell's imputed interest in Anderson Corp., applying a minority shareholder and marketability discount as required by the district court. The opinions on value varied from $327,266.93 to $605,390.40. The court found that the fair market value of Powell's 24.73% interest in Anderson Corp. was $605,390.40 and awarded that amount.
The district court imputed the same 24.73% ownership that it had determined for Anderson, Inc.
Both appellant and respondents moved for amended findings or a new trial. Anderson respondents sought application of either the buy-out agreement Powell had with Anderson, Inc., or a similar agreement that bound Anderson and Gervais as shareholders of Anderson Corp., to Powell's interest in Anderson Corp. to limit her damages to the book value of her percentage of Anderson Corp. shares. Powell and Anderson both moved for a valuation of AP Partnership and Powell again requested a partnership accounting. Anderson, Inc. sought an order forcing Powell to sell her shares as previously ordered.
The district court ordered Powell to tender her shares and provided that if she failed to do so, Anderson, Inc. could pay the purchase price determined on September 18, 1998, to the court and cancel Powell's stock certificates. The district court denied Powell's request for a partnership accounting as unnecessary, noting that Powell already possessed "substantially every document and record necessary to evaluate the partnership's financial history." The district court assigned a value of $7,150,000 to the partnership and divided it between Powell and Anderson, and denied Powell's request for reimbursement of legal fees incurred by the partnership. The district court also denied Powell's request for fees under Minn. Stat. §§ 302A.467, .751 subd. 4.
Anderson, Inc. has paid the amount ordered to into the court and cancelled Powell's shares under this order.
Powell appealed the denial of her discovery requests, summary determination of her percentage interest in Anderson, Inc., summary determination of the value of her shares of Anderson, Inc., summary dismissal of her claims for fraud, misrepresentation and breach of corporate fiduciary duty, denial of her request for a partnership accounting, application of minority shareholder and marketability discounts to determine her award on the usurpation claim, and denial of attorney fees. Respondents, by notice of review, challenged the district court's decision not to limit Powell's damages to the book value formula provided for in the buy-out agreement Powell had with Anderson, Inc.
This court issued an unpublished opinion affirming in part, as modified, and remanding in part. Powell v. Anderson, C5-99-1775, 2000 WL 943824, at *5, *6 (Minn.App. July 11, 2000), review denied (Minn. Sept. 7, 2000). More than a year later, the supreme court, for reasons unrelated to the merits of the case, vacated the opinion of the
Court of Appeals and remanded for redetermination. Powell v. Anderson, 660 N.W.2d 107, 113 (Minn. 2003).
DECISION
Powell and respondents both challenge portions of the decision of the district court issued in response to respondents' motion for summary judgment, but, significantly, none of the parties challenge the district court's determination that the buy-out agreement was valid, binding and enforceable. Respondents challenge the award of equitable relief and Powell challenges the summary determination of her ownership interest in Anderson, Inc., and summary calculation of the value of Anderson, Inc.'s shares based on documents not in the record. On an appeal from summary judgment, this court asks two questions: (1) whether there are any genuine issues of material fact and (2) whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).
1. Powell's interest in Anderson, Inc.
The parties do not dispute that Powell owned 24.73% of Anderson, Inc. as a result of stock gifted to her by her father beginning in November 1976. But Powell claims that there is a genuine issue of fact as to whether Anderson breached his fiduciary duty by failing to redeem a portion of shares owned by Walter G. Anderson that were subject to a mandatory redemption agreement requiring that Anderson, Inc. redeem sufficient shares at the time of Walter Anderson's death to pay his estate taxes and expenses. Powell argues that Anderson's refusal to redeem those shares prior to exercising Anderson, Inc.'s option to buy her shares adversely affected her ownership interest, because on redemption of Walter G. Anderson's shares, her percentage of ownership would have increased.
Implicit in Powell's claim is that she is entitled to equitable relief under Minn. Stat. § 302A.751, subds. 1, 2 (1998), in the form of assigning her the percentage of ownership interest she would have had in Anderson, Inc., had Walter G. Anderson's shares been redeemed pursuant to his redemption agreement with Anderson, Inc., before Anderson, Inc. exercised the option to redeem her shares. The result would be an increase in her ownership interest from 24.73% to 33.60%. Anderson acknowledged that redeeming Walter G. Anderson's shares would technically increase Powell's ownership interests but asserted that there would be simultaneous reduction of the book value of Powell's shares such that she was not prejudiced by the failure to redeem.
We conclude that Powell has raised a material fact question: whether the failure to redeem Walter G. Anderson's shares before exercising the option to buy Powell's shares, which did not mature until the day after the final distribution of the estate, constitutes an act "unfairly prejudicial toward" Powell in her capacity as shareholder, entitling Powell to equitable relief under Minn. Stat. § 302A.751, subd. 1(b)(3), in the form of determining her ownership interest as if the redemption of Walter G. Anderson's shares preceded buy-out of Powell's shares.
Respondents argue that Powell is precluded from pursuing this claim because of an opinion of this court issued in the probate litigation over the estate. In In re Estate and Trust of Anderson, we held that Anderson did not violate the terms of George W. Anderson's will or breach his fiduciary duty as trustee of a trust created by the will by transferring George W. Anderson's shares in Anderson, Inc., to the trust before Anderson, Inc. redeemed sufficient shares to pay his estate taxes and costs, or by failing to pay the estate taxes immediately. 654 N.W.2d 682, 688 (Minn.App. 2002). But that litigation did not involve the issue of whether the delay in redeeming the shares constituted a breach of Anderson's fiduciary duty to Powell under Minn. Stat. § 302A.751, subd. 1(b)(3). This issue has never been litigated. The district court's determination that there was no genuine factual issue as to Powell's percentage ownership interest in Anderson, Inc. is therefore reversed and remanded.
2. Award of equitable relief under Minn. Stat. § 302A.751
Minn. Stat. § 302A.751, subd. 1, provides:
A court may grant any equitable relief it deems just and reasonable in the circumstances or may dissolve a corporation and liquidate its assets and business:
. . . .
(b) In an action by a shareholder when it is established that:
. . . .
(2) the directors or those in control of the corporation have acted fraudulently or illegally toward one or more shareholders in their capacities as shareholders or directors, or as officers or employees of a closely held corporation;
(3) the directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities . . . as officers or employees of a closely held corporation.
The district court stated in the order granting respondents' summary judgment on the validity and enforceability of the agreement that "there is ample evidence to exercise the equitable powers granted to [the court] by Minn. Stat. § 302A.751. It is clear that [respondents] Richard Anderson, Walter Gervais, and the Estate of Walter G. Anderson may have acted in a manner unfairly prejudicial to [Powell] as a shareholder in Walter G. Anderson, Inc."
Respondents Anderson, Inc., AP Partnership and the estate argue that the district court erred in exercising its equitable power because no unfairly prejudicial conduct existed. They argue that there was no genuine issue of material fact to show that any of respondents' acts violated Powell's reasonable expectations and that they were entitled to summary judgment on Powell's claims for equitable relief.
Minn. Stat. § 302A.751, subd. 3a, provides that if a court determines that a circumstance exists requiring judicial intervention, the court is required to consider certain factors when deciding whether to grant equitable relief:
[T]he court shall take into consideration the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of all the shareholders as they exist at the inception and develop during the course of the shareholders' relationship with the corporation and with each other. For purposes of this section, any written agreements, including . . . buy-sell agreements . . . are presumed to reflect the parties' reasonable expectations concerning matters dealt with in the agreements.
Respondents Anderson, Inc., AP Partnership and the estate point out that Powell's expectation from the beginning of her shareholder relationship with Anderson, Inc., as stated in the buy-out agreement, was that she would have no active participation in the company and that her shares would be redeemed under the formula set out in the agreement. Therefore, they assert, her complaints that she was denied active participation in Anderson, Inc. as a matter of law do not amount to unfairly prejudicial conduct and they were entitled to summary judgment. But Anderson and Gervais allowed summary judgment to be entered against them on the usurpation claim, and none of the respondents argue that Powell could have reasonably expected the usurpation or that she was not damaged by the usurpation. We do not agree that respondents were entitled to summary judgment on Powell's claims under Minn. Stat. § 302A.751, subd. 1.
But the district court awarded equitable relief without specifying what act or acts of respondent or respondents were fraudulent or illegal or unfairly prejudicial to Powell. The act on which equitable relief was predicated could not, at the time the district court awarded equitable relief, have been usurpation, because that issue was specifically reserved for trial. The predicate act could not have been one of Powell's allegations of fraud, misrepresentation, or breach of fiduciary duty because the district court initially found that "numerous factual issues" prevented summary judgment to either party on those claims, and later declared that all of those claims were "either dismissed or dealt with" in its previous order, leaving only usurpation for trial. Therefore, at the time the district court ordered equitable relief, the district court had not identified any circumstance that would trigger a grant of equitable relief, making the award of such relief an abuse of discretion. We reverse the district court's award of equitable relief and remand for a trial to determine whether the usurpation of a corporate opportunity of Anderson, Inc., triggers equitable relief under Minn. Stat. § 302A.751, subd. 1.
Respondents, other than Anderson and Gervais, also assert, for the first time on appeal, that the usurpation claim is a derivative claim that cannot trigger equitable relief under Minn. Stat. § 302A.751. This court will generally not consider matters not argued and considered in the district court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). We therefore decline to address this issue.
3. Summary determination of Powell's right to fair value
Minn. Stat. § 302A.751, subd. 2, states that if a circumstance warranting judicial intervention is established, the court may "order the sale . . . of all shares of the corporation held by the plaintiff or defendant to either the corporation or the moving shareholders," at the price set forth in any existing agreements, " unless the court determines that the price or terms are unreasonable under all the circumstances of the case." (emphasis added). The district court abused its discretion by summarily determining that it would award equitable relief in the form of damages in the amount of the difference between the share price set out in the agreement and fair value of the shares without any explicit determination that the buy-out agreement was unreasonable.
4. Summary determination of fair value of Anderson, Inc. shares
Powell asserts that the district court improperly resolved the disputed issue of the fair value of the shares of Anderson, Inc. on summary judgment. Respondents assert that the district court determined fair value properly, as an exercise of its broad discretion in formulating an equitable remedy under Minn. Stat. § 302A.751. Because we have concluded that the district court erred in awarding equitable relief and in rejecting the buy-out agreement without an examination of its reasonableness under the circumstances, we also conclude that the district court erred in determining the disputed fair value of Anderson, Inc. shares on summary judgment, based on documents not in the record. The statute sets out procedures for determining fair value, and specifically permits the parties 40 days to agree on a value before the court intervenes. Minn. Stat. § 302A.751, subd. 2. If the parties cannot agree, the court is to proceed under the provisions of section 302A.473, subd. 7. Id. We reverse the district court's determination of the fair value of Anderson, Inc.'s shares. On remand, should it be necessary for the district court to determine fair value of these shares, it shall follow the statutory procedures for such valuation.
5. Limitation on discovery
The district court "has wide discretion to issue discovery orders and, absent clear abuse of that discretion, normally its order with respect thereto will not be disturbed." Shetka v. Kueppers, Kueppers, Von Feldt, Salmen, 454 N.W.2d 916, 921 (Minn. 1990).
Powell asserts that the district court abused its discretion by limiting discovery.
But Powell has not identified specific information or documents that she requested that were not provided. We cannot say that the district court abused its discretion on the record before us, but because we are remanding for consideration of issues that were not previously addressed, we direct the district court on remand to permit such further discovery, by any party, that, in the district court's discretion, is shown by the requesting party to be relevant and necessary to its determination of remanded issues.
6. Summary dismissal of Powell's claims for fraud and breach of fiduciary duty
After limiting Powell's claims to the claim for usurpation, the district court, in an order dated February 22, 1999, stated:
[Powell] alleges that her claims against [Anderson] and [Gervais] for fraud, misrepresentation, and breach of fiduciary duty have not been resolved and should be resolved at trial. The Court agrees that, in its ruling upon [respondent's] motion for summary judgment, the Court concluded that [appellant] may have valid claims against [respondents] Anderson and Gervais for fraud, misrepresentation and/or breach of fiduciary duty with respect to the alleged usurpation of a corporate opportunity in the formation and operation of [Anderson Corp.] This claim will be resolved at trial, except to the extent that liability on the corporate opportunity issue was previously determined by the Court upon [Powell's] motion for partial summary judgment. The Court, however, has found, on the record before it, that [Powell] has no factual basis for any further or additional claims of fraud, misrepresentation or breach of fiduciary duty.
(emphasis added). This language is quite different from the order issued on September 18, 1998, that did not limit the fraud, misrepresentation and breach of fiduciary duty claims to the alleged usurpation. And the district court did not explain what factual issues existed in September 1998 or why those issues no longer existed in February 1999. But respondents have consistently argued that Powell has failed to allege any acts that constitute fraud or misrepresentation and has failed to present any evidence of breach of fiduciary duty other than usurpation of a corporate opportunity. We therefore address whether Powell has presented genuine issues of material fact as to her fraud, misrepresentation or breach of fiduciary duty claims.
Powell's complaint lists the following acts as forming the basis of her claims for equitable relief under Minn. Stat. § 302A.751, subd. 1:
siphoning Anderson, Inc., assets and income to Anderson and Gervais through Anderson Corp. excluding Powell from participation in Anderson, Inc. failing to fully disclose material information and to obtain the fully informed consent of Powell as a director and shareholder for material corporate acts obtaining Powell's signature on corporate documents by intimidation, deception and other illegal means failing to distribute available cash while paying significant compensation to themselves secretly and unlawfully transferring shares in violation of the Articles of Incorporation and possibly in a manner designated to avoid payment of federal gift tax attempting to force buy-out of Powell's shares at unreasonably low values unlawfully altering the Articles of Incorporation and Bylaws to materially and adversely affect the rights and preferences of Powell enriching themselves through excess compensation, disability plans, employee benefit plans and profit sharing schemes manipulating the estate in order to further usurp control of Anderson, Inc. seizing control of the board by nominating and electing a director entirely under the control of Anderson attempting to force Powell to sell her shares by denying her distributions from companies she owns excluding her from the corporation withholding financial information misapplying and wasting corporate assets by transferring them without consideration to Anderson Corp. siphoning Anderson, Inc. assets and income to Anderson and Gervais through Anderson Corp. enriching themselves through excess compensation, disability plans, employee benefit plans and profit sharing schemes in Anderson, Inc. and Anderson Corp.
Powell's claims for fraud and misrepresentation do not allege any additional acts by respondents and her claim for breach of corporate fiduciary duty merely asserts that Anderson and Gervais and Walter G. Anderson owed her a fiduciary duty as persons in control and directors of Anderson, Inc., and that she relied on them to her detriment, individually and as a shareholder in Anderson, Inc.
Powell admits that she signed corporate documents without reading them or ascertaining their content and she has alleged that she was forced to sign these documents by intimidation, deception or other illegal means, or that she was prevented from reading the documents. Powell is bound by the buy-out agreement that expressly indicates her expectation not to be involved in corporate management. For over twenty years she expressed no interest in obtaining information about or documents from Anderson, Inc. Consequently, our review of the record leads us to conclude that Powell has not produced material fact issues that would preclude summary judgment on her allegations of improper transfer of funds, unjustified retention of cash, improper transfer of shares, alteration of corporate documents, improper enrichment, or improper election of a director. Further, in her brief to this court Powell has not identified any specific acts or evidence supporting allegations of any specific acts that would present a material fact question precluding summary judgment on the claims for fraud, misrepresentation and breach of corporate fiduciary duty that were dismissed by the district court. And after trial on damages for usurpation, the district court noted that there was no evidence presented that Anderson or Gervais "ever acted in a malicious or fraudulent manner in relation to Ms. Powell and the formation of Anderson Corp." Therefore, on the record before us, we cannot conclude that the district court erred by granting summary judgment to respondents on Powell's claims of fraud, misrepresentation, and breach of corporate fiduciary duty.
7. Applicability of minority shareholder and marketability discounts to usurpation damages
After the trial on Powell's usurpation damages, the district court awarded Powell "fair market value for her representative share of the lost corporate opportunity." To arrive at the fair market value of Powell's interest, the court applied a 10% marketability discount and a 20% minority shareholder discount to the value of Anderson Corp. shares. Powell asserts that application of the discounts constitutes error.
Application of a minority shareholder discount in the context of a court-ordered buy-out is improper because the legislature enacted Minn. Stat. § 302A.751 to protect minority shareholders who have been unfairly prejudiced. Pooley v. Mankato Iron Metal, Inc., 513 N.W.2d 834, 838 (Minn.App. 1994), review denied (Minn. May 17, 1994). The district court concluded that Pooley does not apply to this case because the damages are for Powell's separate claim of usurpation, and the relief granted was not a buy-out. But logically, the district court was determining that Powell was entitled to damages because she had been prejudiced by Anderson and Gervais's usurpation of a corporate opportunity of Anderson, Inc. And the remedy fashioned by the district court was, in fact, a buy-out of Powell's imputed interest in Anderson Corp. We therefore conclude that the concern for protecting a minority shareholder expressed in Pooley is equally applicable in this case, and the district court abused its discretion by applying a minority shareholder discount to determine the value of Powell's interest in Anderson Corp. See id. at 835.
The supreme court recently addressed whether a marketability discount should be applied in the context of a court-ordered fair value buy-out. Advanced Communication Design, Inc. v. Follett, 615 N.W.2d 285 (Minn. 2000). We find this opinion, like the opinion in Pooley, to be instructive on the question of whether to apply such a discount in the context of this usurpation claim.
The supreme court first stated that the question of whether to apply a marketability discount in a court-ordered buy-out is a question of law reviewed de novo. Id. at 289. But, in Follett, the supreme court declined to adopt a bright-line rule regarding the applicability of a marketability discount in the context of a court-ordered fair value buy-out under Minn. Stat. § 302A.751, subd. 1., and held that "absent extraordinary circumstances, fair value in a court-ordered buy-out pursuant to section § 302A.751 means a pro rata share of the value of the corporation as a going concern without discount for lack of marketability." Id. at 292. The overriding concern must be whether the buy-out is fair and equitable to all parties pursuant to Minn. Stat. § 302A.751, subd. 2. Id. at 293. Elaborating on the "application of the extraordinary circumstances exception to avoid an unfair wealth transfer," the supreme court stated:
[M]aximum flexibility can be achieved by taking into account factors relevant to fair value, including whether the buying or selling shareholder has acted in a manner that is unfairly oppressive to the other or has reduced the value of the corporation, whether the oppressed shareholder has additional remedies . . . or whether any condition of the buy-out, including price, would be unfair to the remaining shareholders because it would be unduly burdensome on the corporation. The overarching policy however, is to ensure the buy-out is "fair and equitable to all parties." Minn. Stat. § 302A.751, subd. 2.
Id. at 292-93. We conclude that the holding in Follett is applicable to the damages calculation in this case. On remand, the district court shall determine whether extraordinary circumstances exist such that the marketability discount should be applied.
Powell has also appealed the district court's denial of her motion to have Anderson, Inc. and Anderson Corp. valued as a single entity. The district court rejected this approach only because it had already determined the value of the shares of Anderson, Inc. But we have reversed that determination. Because, on remand, the district court must consider all of the circumstances and determine if the share retirement price is unreasonable, the district court may, but is not required to, consider Powell's proposal to value the corporations together. Such a valuation may have a bearing on whether application of the buy-out agreement price formula is unreasonable under all of the circumstances.
8. Partnership claims
Regarding the dissolution of the partnership, Powell only challenges the court's denial of her request for a partnership accounting. "An action for an accounting is equitable." Tjernlund v. Kadrie, 425 N.W.2d 292, 298 (Minn.App. 1988) (citation omitted), review denied (Minn. Aug. 24, 1988). "Granting equitable relief is within the sound discretion of the trial court. Only a clear abuse of that discretion will result in reversal." Nadeau v. County of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979). Powell asserts that she is entitled to an accounting under Minn. Stat. § 323.21 (1998) (providing that partner has right to formal partnership accounting if wrongfully excluded from partnership business or possession of property by copartners).
The Minnesota Uniform Partnership Act, Minn. Stat. §§ 323.01-.47, was repealed and replaced by the Uniform Partnership Act of 1994, Minn. Stat. §§ 323A.1-01-.12-03 (2002), effective January 1, 2002. 1997 Minn. Laws ch. 174, art. 12, § 69. Because the effective date of chapter 323A is almost three years after appellant commenced this action, we apply chapter 323 to this action. See Maus v. Galic, 699 N.W.2d 38, 44, n. 2 (Minn.App. 2003).
Here, early in the litigation, the district court concluded that Powell was entitled to dissolution of the partnership and ordered an equal division of partnership assets. When the district court later addressed Powell's request for an accounting, the district court concluded that Powell had received adequate information from which she could construct an accounting of the partnership, including tax records, bank statements, ledgers, leases, and loan documents. The real property owned by the partnership was appraised and the court ordered an equal division of partnership assets, including any rents due. We cannot say that the district court abused its discretion by denying Powell's request for an accounting. At this point in the litigation, the assets of the partnership have already been divided, and Powell has not presented any evidence or argument to counter the district court's determination that an accounting is now largely irrelevant and a waste of resources. The district court did not abuse its discretion by denying Powell's request for a partnership accounting in this case.
Powell also argues that she should not be liable as a partner for the legal fees incurred by the partnership. But under Minn. Stat. § 323.14 (1998), all partners are jointly liable for all of the debts and obligations of the partnership. The district court did not abuse its discretion by making Powell responsible for the partnership's legal fees. See Becker v. Alloy Hardfacing Eng'g Co., 401 N.W.2d 655, 661 (Minn. 1987) (award or denial of attorney fees will not be reversed absent an abuse of discretion).
9. Attorney fees
Powell argues that the district court abused its discretion by failing to award her attorney fees under Minn. Stat. § 302A.467, which provides that if an officer or director of a corporation violates a section of chapter 302A, the court "may, in an action brought by a shareholder of the corporation . . . award expenses, including attorney's fees . . ." And Minn. Stat. § 302A.751, subd. 4 provides that if a party acts "arbitrarily, vexatiously, or otherwise not in good faith, [the court] may in its discretion award reasonable expenses including attorneys' fees . . ." Because the district court will be reconsidering Powell's right to equitable relief under Minn. Stat. § 302A, it may choose to exercise its discretion differently regarding Powell's request for costs and fees on remand. We therefore remand the issue of attorney fees.