LARRY D. McMILLAN , Plaintiff - Appell ee/Cross - Appellant , vs. HARKER' S DISTRIBUTION, INC. , Defendant - Appell ant/Cross - Appellee .
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IN THE COURT OF APPEALS OF IOWA
No. 8-308 / 07-0477
Filed October 1, 2008
LARRY D. McMILLAN,
Plaintiff-Appellee/Cross-Appellant,
vs.
HARKER'S DISTRIBUTION, INC.,
Defendant-Appellant/Cross-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Plymouth County, Edward A.
Jacobson, Judge.
Harker’s Distribution, Inc., appeals and Larry D. McMillan cross-appeals
from the district court’s judgment in favor of McMillan. AFFIRMED.
Stanley J. Thompson of Davis Brown Law Firm, Des Moines, for
appellant/cross-appellee.
Sharese Manker and Timothy A. Clausen of Klass Law Firm, L.L.P., Sioux
City, for appellee/cross-appellant.
Heard by Mahan, P.J., and Vaitheswaran and Doyle, JJ.
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MAHAN, P.J.
Harker’s Distribution, Inc., appeals and Larry D. McMillan cross-appeals
from the district court’s order finding Harker’s Distribution breached its
shareholders’ agreement. We affirm.
I. Background Facts and Prior Proceedings
McMillan began working for Harker’s Leasing Corporation in 1975. The
company changed hands several times, and McMillan eventually progressed to
the position of vice president of operations.
In 1990 McMillan and other
members of the management team purchased the company, renamed it Harker’s
Distribution, Inc. (HDI), and operated it as a privately held corporation. In doing
so, McMillan purchased 3600 shares of common stock. McMillan was eventually
“awarded” another 1600 shares of common stock by the board of directors. At
some point, he purchased an additional ninety-seven shares of stock from a
shareholder who was redeeming some of his shares in the company.
This
brought McMillan’s total number of shares of common stock to 5297. In 1997
McMillan was elected to sit on the board of directors.
HDI utilized outside companies for equity and debt financing. Some of
these companies required that HDI amend its original articles of incorporation
and shareholders’ agreement prior to financing. In 1999 McMillan signed a new
shareholders’ agreement pursuant to one of these financing transactions.
In September 2000 HDI repurchased common stock from one employee
for $150 per share.
In October 2000 HDI repurchased common stock from
another employee for $160 per share—its best estimate of the fair market value
of the shares. Approximately six months later, in April 2001, HDI terminated
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McMillan’s employment. As part of the severance agreement, McMillan agreed
to resign from the board of directors. At the time of his termination, McMillan
claims he told Ron Geiger, the president of HDI, that he wanted to redeem his
shares of common stock in the company. Geiger allegedly told McMillan that he
would talk to the board of directors and get back to McMillan. Geiger did not
present the request to the board of directors and did not get back to McMillan.
In 2003 Geiger sent a letter to McMillan and twelve other former
employees inquiring whether they were interested in selling their shares back to
HDI for fifty dollars per share.1 McMillan did not express any interest in selling
his shares back to HDI for only fifty dollars per share.
On August 22, 2005, McMillan filed a petition alleging HDI had breached
its articles of incorporation when it did not redeem his shares. McMillan claimed
he should have received $842,223 for his common stock, plus “pre-judgment and
post-judgment interest.”
HDI responded by claiming it was not required to
repurchase the shares of a terminated employee pursuant to the 1999
shareholder agreement. HDI also claimed that, because McMillan had waited
more than four years to request a repurchase, he was now estopped from raising
this claim.
At trial McMillan claimed he, unlike all other involuntarily terminated
employees, was not given the opportunity to redeem his shares upon
termination. He also argued HDI had failed to follow the procedure set forth in
the 1999 shareholder agreement, which set forth a process whereby if HDI
1
This letter expressly stated that it was “not an offer to redeem any shares” and there
was “no guarantee that any shares will be redeemed.” Instead, the letter stated it was
“only intended to gather interest in possibly redeeming some shares.”
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refused to repurchase the shares of a terminated employee, it was required to
offer the sale of those shares to the company’s remaining stockholders.
HDI countered by claiming the 1999 shareholder agreement gave it
unfettered discretion to choose whether or not to repurchase McMillan’s shares.
HDI also argued it was in such a poor financial position at the time of McMillan’s
termination that his 5297 shares of common stock were worth nothing. McMillan
countered by pointing out that HDI had redeemed another shareholders’ stock six
months prior to McMillan’s termination for $160 a share.
On January 31, 2007, the district court entered an order finding that HDI
had breached the 1999 shareholder agreement because Geiger never presented
McMillan’s request for repurchase to the board of directors or inquired about the
possibility of outside financing to purchase his shares and HDI did not notify all
other shareholders of the opportunity to purchase McMillan’s shares. 2 The court
determined McMillan’s shares had a market value of $120 at the time of his
termination and ordered HDI to repurchase McMillan’s remaining 5297 shares at
$120 per share within thirty days of its ruling.
If HDI did not redeem these
shares, the court indicated it would enter judgment against HDI for $635,640.
HDI now appeals, claiming the district court erred when it (1) did not
dismiss
the
claim
under
the
doctrine
of
estoppel
by
acquiescence,
(2) disregarded and rewrote the plain language of the 1999 shareholder
agreement, and (3) determined the stock was worth $120 per share on the date
of McMillan’s termination.
2
In doing so, the court rejected McMillan’s claims relating to whether he was treated
differently than other stockholders in violation of the third amended articles of
incorporation.
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McMillan cross-appeals, claiming the court should have assigned the
shares a value of $160. McMillan also claims the district court erred when it
failed to grant him pre-judgment interest on the value of the judgment.
II. Standard of Review.
The construction and interpretation of a contract is generally reviewed as
a matter of law. Longfellow v. Sayler, 737 N.W.2d 148, 153 (Iowa 2007). We are
not bound by the construction or interpretation made by the district court. Id.
However, if the district court’s interpretation was predicated upon extrinsic
evidence, the findings of the court are binding on appeal if supported by
substantial evidence. Id. Thus, the district court’s findings of fact have the effect
of a jury verdict and are binding on us if supported by substantial evidence.
Grinnell Mut. Reins. Co. v. Voeltz, 431 N.W.2d 783, 785 (Iowa 1988).
We
construe these findings broadly and liberally. Id. In case of doubt or ambiguity,
we construe them to uphold, rather than defeat, the judgment. Id. A corollary
rule prohibits us from weighing the evidence or the credibility of the witnesses.
Id.
III. Merits.
A. Estoppel by Acquiescence.
HDI argues the court should have found McMillan waived his claim under
the doctrine of estoppel by acquiescence because he did not request to redeem
his shares until he filed the present lawsuit in August 2005.
Estoppel by
acquiescence focuses on whether the actions or inaction of the right-holder
indicate an intention to waive a known, enforceable right.
Davidson v. Van
Lengen, 266 N.W.2d. 436, 438 (Iowa 1978). This branch of estoppel law applies
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“where a person knows or ought to know that he is entitled to enforce his right
. . . and neglects to do so for such a length of time as would imply that he
intended to waive or abandon his right.” Humboldt Livestock Auction, Inc. v.
B & H Cattle Co., 261 Iowa 419, 432, 155 N.W.2d 478, 487 (1967).
HDI claims the doctrine of acquiescence applies to this case because
McMillan “waited more than four years after his termination to request that HDI
purchase his stock.”
The record contains conflicting evidence as to when
McMillan first requested that HDI repurchase his stock. McMillan testified that he
told Geiger he wanted HDI to repurchase his shares on the day of his termination
and then repeated his request the following day when he turned in his keys.
Geiger testified that he did not remember having any conversations with
McMillan about redeeming his shares.
In its ruling, the district court resolved this factual dispute by finding “the
more credible evidence supports [McMillan’s] contention that he asked to have
his shares redeemed at the time of his termination.” We have no reason to doubt
the court’s credibility finding. In light of the court’s role in weighing evidence and
assessing the credibility of witness, Grinnell, 431 N.W.2d at 785, we conclude the
record contains substantial evidence to support the court’s determination that
McMillan first informed HDI he wanted to redeem his shares on the day of his
termination, not four years later when he filed the present lawsuit. Because we
find McMillan did not wait four years to try and redeem his shares, the doctrine of
estoppel by acquiescence is not applicable to this case.
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B. Breach.
HDI contends the district court rewrote the 1999 shareholder agreement
and took express contractual language that said HDI may purchase stock and
“simply turned it on its head” to say HDI must buy McMillan’s stock.
We find this argument meritless. The district court did not “rewrite” the
1999 shareholder agreement or interpret it to mean that HDI must buy McMillan’s
stock. Instead, the court found HDI breached its contractual duty when Geiger
did not present the request for repurchase to the board of directors and when it
did not notify all other shareholders that they had the opportunity to purchase
McMillan’s shares of stock. The court determined McMillan was “damaged by
that failure to fulfill contractual duties” and concluded the only way to compensate
him for that damage was to require the corporation to redeem his shares at their
market value as of the date of the termination.
HDI also claims the district court erred when it determined Geiger
breached its “contractual duty” to present McMillan’s repurchase request to the
board of directors and/or investigate whether HDI could obtain financing to pay
for McMillan’s shares.
HDI contends that, pursuant to its bylaws, the board
provided Geiger with the authority to decide whether the company would redeem
a manager’s stock under the 1999 shareholders’ agreement and if so, at what
price.
Even if we assume, arguendo, Geiger did not have a “contractual duty” to
present the repurchase request to the board of directors or investigate whether
HDI could obtain additional financing to pay for the shares, there is still no
question that HDI breached the 1999 shareholders’ agreement when it did not
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offer McMillan’s shares to HDI other security holders. Section 2.1 of the 1999
shareholders’ agreement states that the company “may, but shall not be
obligated to” repurchase the shares from a terminated manager “at a purchase
price equal to the Market Value Per Share determined as of the applicable
Termination Date.” Section 2.2(a) states the company has ninety days to decide
whether it will repurchase the shares at this market value price. Section 2.2(a)
goes on to state that, in the event the company does not elect to repurchase the
terminated employee’s stock, “the Company shall deliver written notice . . . to
each Securityholder” and within fifteen days, the remaining shareholders “may
elect . . . to repurchase all or any portion” of the terminated employee’s stock “at
the same prices as the Company would have paid” for that stock.
McMillan requested that HDI repurchase his shares on April 21, 2001.
HDI did not establish a “Market Value Per Share” price for McMillan’s shares and
did not, within ninety days, elect to repurchase these shares. HDI did not deliver
written notice to the remaining shareholders of their option to purchase
McMillan’s shares. This is a clear breach of the terms of the 1999 shareholder
agreement.
Because HDI is a privately held corporation and the 1999 shareholder
agreement places restrictions on the timing and sale of his shares of common
stock, McMillan’s shares are not easily marketable or readily transferable. If
McMillan were able to find an acceptable buyer today, the market value for these
shares would likely be far different than their market value on the date of his
termination—April 21, 2001. Therefore, even if we found the district court was
incorrect when it determined Geiger, in his role as president of HDI, had a
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“contractual duty” to present the repurchase request to the board of directors and
investigate whether HDI could obtain additional financing to pay for the shares,
this finding would not change the disposition of this case because McMillan was
still damaged when HDI breached its own shareholders’ agreement by not
offering the shares to current shareholders at the “Market Value” price. We find
no reversible error here.
C. Stock Value.
Both parties argue the district court erred when it determined the market
value of the stock at the date of McMillan’s termination was $120 per share. HDI
claims the stock was worthless at the time of his termination because the
company was in an extremely poor financial condition. HDI also claims that this
award was excessive in light of the relatively small amount of money McMIllan
had initially invested when he purchased the stock eleven years earlier.
McMillan claims the court should have determined the stock was worth $160 per
share because that was the amount HDI gave to another employee just six
months prior to McMillan’s termination.
After a thorough review of the record and all arguments set forth on
appeal, we find the market value assigned by the district court was well within the
permissible range of the evidence. Therefore, we will not disturb it on appeal.
See Hum v. Ulrich, 458 N.W.2d 615, 618 (Iowa Ct. App. 1990) (affirming trial
court’s valuation of property within a partnership as it “was well within the
permissible range of evidence”).
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D. Pre-judgment Interest.
On cross-appeal, McMillan claims the district court erred when it failed to
grant him pre-judgment interest on the value of the judgment from the date of his
termination. To support this claim, McMillan cites to the following language from
Midwest Management Corp. v. Stephens, 353 N.W.2d 76, 83 (Iowa 1984):
Generally, interest runs from the time money becomes due and
payable, and in the case of unliquidated claims this is the date they
become liquidated, ordinarily the date of judgment. . . . One
exception to this rule is recognized in cases in which the entire
damage for which recovery is demanded was complete at a definite
time before the action was begun. In cases where investments
were made in reliance upon false representations, this court has
given a broad definition to the word “complete” and has allowed
pre-commencement interest from the date the money was invested.
(Internal citations and quotations omitted.) McMillan claims he should be entitled
to pre-judgment interest from the date of his termination because, pursuant to the
amended articles of incorporation, he should have been treated the same as the
other employees whose shares were redeemed after they were terminated.
The district court denied McMillan’s request for pre-judgment interest
because it found there was a genuine dispute as to whether HDI was required to
redeem McMillan’s stock under the amended articles of incorporation and a
genuine dispute as to the value of that stock at the time of his termination.
Indeed, the district court rejected McMillan’s articles of incorporation argument
and rejected his claim that the shares were worth $160 at the time of the
termination. Instead, the court determined McMillan was entitled to damages
because HDI failed to offer the shares to existing share holders and determined
the shares were only worth $120 at the time of his termination. Based on the
genuine dispute regarding liability and the market value of the shares as of the
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date of McMillan’s termination, we agree with the district court’s conclusion that
this case does not fall within the aforementioned exception and therefore find no
error in the court’s decision to deny McMillan’s requested pre-judgment interest.
See Flom v. Stahly, 569 N.W.2d 135, 143 (Iowa 1997) (affirming the district
court’s decision to deny pre-filing interest because there was a genuine dispute
as to the plaintiffs’ right to recover and as to the amount of damages).
IV. Conclusion.
Having considered all issues raised on appeal, whether or not specifically
addressed in this opinion, we affirm the district court’s order in this case.
AFFIRMED.
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