Summary
affirming the trial court's findings where plaintiff sought and received a declaratory judgment determining the respective ownership shares that the plaintiff and individual defendant had in the defendant corporation and further sought dissolution of the defendant corporation
Summary of this case from Rothgeb v. Axis Grp. Holdings, LLCOpinion
No. 2-809 / 01-1899.
Filed December 30, 2002.
Appeal from the Iowa District Court for Linn County, DOUGLAS S. RUSSELL, Judge.
Terry Smith and T S Auto Imports, Inc. appeal the district court's decision in this case involving a dispute over the ruins of a business venture. AFFIRMED.
Jonathan Hammond of Klinger, Robinson Ford, L.L.P., Cedar Rapids, for appellants.
Ronald Fadness of Moyer Bergman, P.L.C., Cedar Rapids, for appellee.
Considered by HABHAB, HARRIS, and BROWN, Senior Judges.
Senior Judges assigned by order pursuant to Iowa Code section 602.9206 (2001).
This appeal involves a dispute over the ruins of a business venture. The trial court ruled as follows.
The plaintiff [Michael Threlkeld] seeks a declaratory judgment to determine the respective ownership shares of Threlkeld and [defendant] Terry Smith in T S Auto Imports, Inc., to declare the nature of a cash contribution to the corporation by Threlkeld and to dissolve the business.
Threlkeld and Smith both experienced auto dealers, formed T S Auto Imports, Inc., in 1991, for the purpose of opening and operating an automobile sales business. The parties' agreement was set out in a writing dated August 29, 1991, and signed by the parties. The court finds that they intended to be equal partners with equal financial contributions to the business and sharing equally in any profits or losses.
The court concludes . . . that the parties intended and agreed that each would make an initial capital contribution of $150,000. Threlkeld's contribution was a letter of intent or "open point" from Honda Motor Company which was, in effect, a document granting him the right to open a Honda dealership in the Middletown, Ohio, market. The parties agreed that the "open point" was to be valued at $150,000. Smith was to contribute $150,000 at such time as the partnership began to incur expenses for land acquisition, construction of a building or other costs. The court concludes that Threlkeld's contribution was worth $150,000 and that Smith's contribution of $150,000 was to be made before either party contributed more than the initial amount.
As it happened, Smith contributed $77,213.92. Because the land the parties wanted to buy cost more than that, Threlkeld contributed an additional $57,229.93. The court concludes that this additional cash contribution by Threlkeld was an acquisition of additional equity in the business by Threlkeld and that the shares of the parties should be based on their total actual contributions.
After purchasing the land, the parties sought but did not obtain financing for the construction of a building to house their automobile dealership. After that, the plans to open the business stalled. Negotiations to sell the "open point," the business, or the real estate to a third person or to have Smith buy out Threlkeld were not successful. Eventually, the "open point" expired and the parties were left with the real estate parcel but no Honda dealership to operate and no likelihood there would ever be one.
The corporation never held organizational or annual meetings and never issued shares. The Secretary of State of Iowa administratively dissolved the corporation pursuant to Sections 490.1420(1) and 490.1421, The Code, effective August 3, 2000, for failure to meet statutory reporting requirements. This was due to the parties' lack of cooperation.
Smith, acting on behalf of the corporation, leased a portion of the real estate to a billboard company in 1996 for a period of ten years. He divided the income from the lease with Threlkeld, keeping 62% for himself and sending 38% to Threlkeld. Smith also saw to the maintenance of the property and payment of real estate taxes and expenses which he apportioned between the parties on the same percentages. But for the acts of Smith, the corporation would never have received the money necessary to pay for maintenance and taxes and the parties would have received no income at all from their joint venture. The court finds that [Smith] should be allowed to keep the $1,000 leasing fee he billed the corporation for negotiating the lease. He should also be reimbursed for the $675.00 title insurance fee he paid at the time the property was purchased. The court does not find that the cashing of the lease income checks by Threlkeld constituted an amendment to the August 29, 1991, agreement or estops Threlkeld from challenging the shares calculated by Smith.
. . . [T]he court concludes that a declaratory judgment should issue declaring the relative ownership shares of the parties in their business dividing past and future income between them, and ordering the sale of the real estate.
Pursuant to Section 490.1430, The Code, the court finds that the corporation should be dissolved because the officers of the corporation are deadlocked in the management of the corporation's affairs and the shareholders are unable to break the deadlock and, further, that the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock.
IT IS, THEREFORE, DECLARED that the cash contribution of $57,229.93 made by Michael Threlkeld was a cash contribution and not a loan and that the capital contribution increased his ownership share in the corporation from that contemplated by the parties' initial agreement.
IT IS FURTHER DECLARED that Michael Threlkeld is owner of 72.85% and Terry Smith is owner of 27.15% of T S Auto Imports, Inc., and its assets.
IT IS FURTHER ORDERED that the parties shall cooperate in the sale of the real estate owned by the corporation in Middletown, Warren County, Ohio, as soon as practicable. Pending sale of the real estate, any income received from the lease of a portion of the property shall be divided according to the ownership shares of the corporation declared above. When the sale is concluded, an accounting shall be made and Michael Threlkeld shall receive reimbursement for the share of lease income he was underpaid from 1996 until the date of the sale and Terry Smith shall receive $675.00 to reimburse him for the title insurance fee he paid on behalf of the corporation. After these adjustments have been made, the net proceeds of the sale of the real estate shall be divided according to the shares in the corporation declared by this judgment. At that time, the parties shall cooperate in the voluntary dissolution of T S Auto Imports, Inc., pursuant to Chapter 490, The Code.
IT IS FURTHER ORDERED that if the parties cannot take cooperative steps necessary to sell the real estate and dissolve the corporation, either party may make application for the appointment of a receiver, the cost of which they shall share according to their ownership shares. The receiver shall have the authority set out in Section 490.1421, The Code, to complete the accounting of the corporate assets, conclude the real estate owned by the corporation, and, when the accounting sale and payout of corporate assets to Threlkeld and Smith is completed, present to the court an appropriate decree under Section 490.1433, The Code, for dissolution of the corporation. The fees and expenses of the receiver shall be paid by the corporation before its dissolution and before distribution of the net corporate assets to the shareholders. The effective date of the dissolution of the corporation shall be determined by the court following receipt of the report of the receiver.
We concur, adopt the decision of the trial court as our own, and affirm.