Estate of Elliott Ex Rel. Elliott v. a & B Welding Supply Co.

ELLIOTT, J. OF Fredris The ESTATE through

deceased, its Execu- Raymond

tor, ELLIOTT Plaintiff D. Appellant, COMPANY,

A & B WELDING SUPPLY Corporation,

INC., Dakota a South Supply Company,

Dakota Corporation,

Inc., a South Dakota individual, Elliott, an

Donald W. individual, P. an De- Appellees.

fendants

No. 20601. Dakota.

Supreme Court of South 14, 1999.

Argued Jan.

Decided Fredris, Welding.

kota Donald and Rob- ert both were shareholders of businesses. death, After her husband’s Fredris became participant family’s an active weld- ing businesses and the stockholders’ meet- ings almost until time of her death. January On an “Agree- Among ment Stockholders To Purchase Stock,” B regarding A Welding was & Fredris, entered into Donald and Rob- Eiesland, Reynolds Quinn, Michael P. Among ert. provisions was the formu- Barker, Dakota, Day City, & Rapid South la for determining purchase price Attorneys plaintiff appellant. for shares, any deceased stockholder’s and an instruction that the executor the estate Costello, Porter, Hill, William A. May of promptly should sell and transfer the stock Bushnell, Heisterkamp Rapid City, & company. title to the The document also Dakota, Attorneys South for defendants shareholders, provided majority that B appellees Welding A & and Donald any any at at meeting annual other time Elliott. W. at a regularly meeting, may called change Woods, Fuller, Tim Shattuck of Shultz & price. this Smith, Falls, Attorneys Sioux for defen- January 27, On “Agree- [¶ 1973 an 5.] appellees Welding dants Dakota Among ment To Stockholders Purchase' Robert P. Elliott. Stock,” regarding Welding Dakota was en- by Fredris, into tered Robert Donald. MARTIN, Judge. Circuit agreement This also contained the formula Elliott, by [¶ 1.] Estate of Fredris J. determining purchase price of a executor, through Raymond its D. El- shares, deceased stockholder’s and an in- (Estate), appeals summary judgment liott that struction executor of the estate in favor of A B Welding Supply & Com- and promptly should sell transfer the stock (A B pany, Inc. Welding), & Dakota the company. title to The document also (Dakota Welding Supply Company, Inc. provided majority Elliott, Welding), W. Donald and Robert any at at meeting any annual other time Defendants) (collectively, P. Elliott re- a regularly meeting, may at called change garding agreements among shareholders price. price this The per share of this purchase for the of stock. We affirm changed by agreement in Janu- B judgment regarding A & ary share, per 1977 to in $400.00 Janu- Welding and reverse all other ary per share. $639.26 defendants. January 1974 corporate 6.] Welding minutes Dakota reflected that FACTS buy-sell agreement written dated Janu- January [¶ 2.] Fredris J. Elliott died ary 1973 with the share value at age predeceased by She was per approved. share $300.00 husband, her Harold who died provided, minutes further “This would be a sons, Rapid City the 1972 flood. Four agreement continued that was lost Ha- Robert, Donald, Jack, Raymond sur- Rapid City rold P. Elliott flood.” parents. vived both entry There is no similar the corporate for A Welding. & B minutes 1960’s, Harold, a dominant person who his family controlled and the that testified to his best businesses, family B established A & knowledge buy-sell recollection City, in Rapid purchased Da- pertaining stock of both Donald deceitfully to the induced and Robert not exist corporations did buy/sell agreements, same to enter two ex- his asked the death of father. When January 1973 and ratified in ecuted answered that he did question, January repre- and based on their agreements have buy-sell No know. such buy/sell however, agreements sentations located; will does Harold’s been Donald, by one into mimicked entered buyout of Harold’s stock provide the prior Robert and Harold Harold’s to and Donald Robert. alleged II that and death. Count February on deposed 8.] When fraudulently deceitfully Robert and any buy-sell agree- and 1998 asked about corporate usurped opportunities which flood, lost in Donald wasn’t sure ment the negatively affected the value of Fredris’ flood, in the and didn’t anything was lost buyout the of a under purposes stock for min- got into the know how that reference buy/sell the terms conditions the utes. A count the re- agreements. sought third on deposed April When [¶ 9.] damages. covery punitive any buy-sell agreement and asked about counterclaimed, alleg- [¶ 13.] Defendants minutes, corporate the words ing buy/sell agreements that the constitut- ‘Well, stated, I take that to Robert would They ed valid and enforceable contracts. I because see the assumption be an didn’t requested requiring an order the executor asked Buy agreement.” Sell When to speci- of the Estate transfer stock at the explanation got an of how this sentence price. fied minutes, he answered corporate into to a motion Defen- response [¶ 14.] supposed quoted by “it was me as he dants, discovery trial court ordered no I had seen the trying justify why to never III, II pending on Counts decision further Buy Agreement.” and Sell Thereafter, I. the trial court on Count understanding an oral stated there was as granted summary judgment to all three would among the that if one shareholders to counts and counterclaims Defendants. die, be leave or his or her stock would appeals. initial bought back at the shareholder’s investment. STANDARD OF REVIEW 5, 1998, By May affidavit dated [¶ 10.] to applied The standard of review [¶ 15.] that after Dakota Robert stated summary judg- grant or denial of a prior Harold’s purchased, was involving tort ment motion lawsuits death, en- the directors stockholders settled, again recently claims is well buy-sell agreement. tered an oral in Julson v. Federated Mutual Ins. stated historical- same as Co., SD 562 N.W.2d 117: in A ly Welding. done B& ‘if the Summary judgment is authorized By affidavit dated inter- pleadings, depositions, answers to that it was his recollection Donald stated file, on to- rogatories, and admissions death, orally “it was Harold’s affidavits, if show gether any, with the of the agreed between stockholders any is genuine that there no issue as if a desired corporations that stockholder moving party material died, retire, or if a stockholder that his judgment as a matter of is entitled to purchased be either 15-6-56(c). affirm law.’ We will SDCL corporation, the individual genuine only when are no issues there on for the of the stock as reflected value legal questions material fact and books.” correctly Bego decided. have been (S.D.1987). Gordon, brought causes of ac-

[¶ 12.] Estate two All inferences drawn based fraud and deceit. Count reasonable tion on facts viewed favor of fraudulently must be alleged Baldwin, non-moving party. Morgan v. “Questions of fraud and de (S.D.1990). N.W.2d ceit are generally questions of fact and as moving party clearly they burden is on the such are to be by jury; determined furthermore, an any genuine show absence of issue of a party whether relied on the judg- material fact and an entitlement to alleged fraud to its detriment is a fact question ment as a matter of law. Wilson v. jury.” for the Dede v. Rushmore Ry. Great N. 83 S.D. 157 Nat. Ins. Life (1968). (S.D.1991). However, fraud and dishones Moody v. St. with sufficient fantasy.’ more ing party ‘must Id. at fact. lenging summary judgment, possibility is never sufficient to establish a 16 N.W.2d ¶ than ¶ 5, Hodkinson permit a ” (8th 569 N.W.2d Himrich v. a Cir.1994)). Charles substantiate his However, proof speculation, conjecture, probative finding v. Parker, (1944). at 119. Carpenter, County, evidence that his favor on 573 (quoting 70 S.D. “When the nonmov- allegations of a mere Noel, 23 F.3d 1997 SD chal therefrom, which there exist and the reasonable law). counterclaim, is affirmed. & Cas. Co. New ty may never (8thCir.1971) (decided under South Dakota (1913); ^[7] [¶ 20.] The speculation 32 S.D. [¶ 21.] As to all other General Finance A of genuine & summary B must be decided York, Welding, presumed issues of material conjecture. 143 N.W. inferences drawn judgment granted 439 F.2d Corp. including its and left to defendants, v. Fidelity Roper v. by fact, 986 jury. Bego, supra. summary judg- [¶ 17.] “Statute of limitations ment, counterclaim, including the granted questions normally are jury.” Kee to all other defendants is reversed. Falls, gan v. First Bank Sioux (S.D.1994). “Further, N.W.2d MILLER, Justice, Chief summary judgment is proper on the issue KONENKAMP, Justice, concur. of statute only of limitations applica when tion of in question. the law is Summary AMUNDSON, judgment is therefore improper where GILBERTSON, Justices, dissent. dispute there is a material fact MARTIN, Judge, Circuit application

would affect the of the statute SABERS, Justice, disqualified. (emphasis limitations.” Id. original). AMUNDSON, Justice (concurring in DECISION part, dissenting part). [¶ 18.] Estate claims Fredris was [¶25.] How can we find that fraud is fraudulently signing buy/ induced into speculative as to A & B Welding, but not sell of A B Welding by & virtue regard with to Dakota Welding? would of the statement contained cannot, hold that we and would affirm the minutes of Dakota Welding, and that there trial court’s granting decision were meetings various among the same judgment. participants around the same time. How 26.] essential elements of fraud ever, probative there is no evidence to are: substantiate that this statement was re

peated to to or at the time of representation [T]hat a was made as a the execution of the A B Welding buy/ & statement of which was untrue and agreement, thereby sell allegedly inducing known to be party untrue making her signing it, the same. It is mere recklessly made; or else that it was speculation conjecture. made with intent to deceive and for the controlling her as a party very the other to who “described inducing

purpose it; strong with manipulative person [or she] that he did will upon act thereby induced rely fact on it and was who herself those she would distance from injury damage. control[,]” act to his that, her] [or could not “Fredris easily at could influenced.” Id. Mut. Ins. v. State Farm Stene re- This Court determined the record ¶ 404; Dahl v. N.W.2d SD flected, ultimately own up made her “[S]he (S.D.1991); Sittner, 897, 900 474 N.W.2d mind and she Id. did whatever wished.” Huether, 308 Holy Cross Parish v. Further, at 663. “evidence of Fredris’ (S.D.1981). previously We have “ independence strength’ ‘mental stated, ‘allegations fraud and deceit Elliott offered Fredris’ specific material facts substanti without Thorstenson, attorney, whom Mr. both of prevent summary judg them will not ate Stene, testified Fredris was of sound mind 95, ¶26, ment.”’ competent at all relevant times.” Id. Taggart (quoting at 404 v. Ford Testimony 665-66. Elliott Motor Credit that, during “his mother deposition (S.D.1990)); see Cas. also Western & Sur. had even until her (S.D. penny knew ever she 100, 102 Gridley, Co. in num- ‘sharp death that she was 1985). ” 666. bers.’ Id. at allegation of fraud Plaintiff bases buy-sell one statement on clearly person 29.] Here is a who was a “This would be agreement states: found to be in control of her and not assets that was lost Ha- continued I, susceptible to undue in Elliott influence City Rapid P. Elliott in the flood.” rold now she but we are believe was defraud- corporate one in the minutes This sentence ed. establishing not rise to the level of does was an participant [¶ 30.] Fredris active Accepting argument fraud. Plaintiffs family’s welding in the and the businesses require jury guess specu- a would meetings until her stockholders’ almost Fredris this late as whether heard I, death. 537 N.W.2d at 661. The Elliott entering the agree- statement present record discloses ments, not and that she would have en- corporate meetings, they adjust- where agreements tered the absent state- buy-sell agreement, ed the valuation of the recently stated, ment. As this Court when expressed and at no with displeasure time opposing judgment, a motion for Further, Fredris was such valuation. nonmoving party “must substantiate cylinders of of practice owning aware probative allegations his with ‘sufficient and, in received rental income permit finding evidence [that] cylinders. speculation, on favor more than [his] ” above, allegations [¶ 31.] As stated conjecture, fantasy.’ Himrich v. Car- fraud a mo- are insufficient withstand ¶ 18, 1997 SD penter, summary judgment, must be tion there County, (citing Moody v. St. Charles allega- material facts to substantiate such Cir.1994) (8th (citations F.3d ¶95, Stene, tions. omitted)). failed has to sub- plaintiff facts. at 404. This record is devoid of such fraud with allegation stantiate its suffi- cient facts. Elliott, executor, Raymond D. prob- that he had no 537 testified under oath [¶ 28.] Matter (Elliott (S.D.1995) I), buy-sell agreement with contained we lem records. Numerous person very who is found Fredris to be willed, buy-sell easily agreements courts held that strong influenced. have certificates, I, by-laws, on stock accepted testimony In Elliott from contained we among shareholders are valid long-time neighbor friend and and made Fredris’ corp enforceable, especially in a close 1999 SD 64 This witness further testified oration.* BRIDGEWATER, CITY OF that his dissatisfaction was with the meth Appellee, Plaintiff and odology in valuing used the stock under v. buy-sell agreements. This is the first MORRIS, INC., twenty years time in there has been such a Defendant object Appellant, claim. It is obvious Fredris did not to valuation. There has been no showing methodology or formula used was Schmucker, Paul, Associates, &Nohr dissatisfaction, fraudulent. Mere based on Party Defendant and Third hindsight, carry plaintiffs does not burden Plaintiff, to show fraud. court, granting

[¶ 38.] The trial Morris, Inc., Party motion, Third summary judgment Defendant laid to rest Appellant. family affirm, this war. would so that it posture. could remain in such No. 20560. I am authorized to state that Supreme Court of South Dakota. joins Justice special GILBERTSON this Argued Jan. 1999.

writing.

Decided * Mills, valid); Rowland, See Miller Mackay, 534, Waste Inc. v. Rowland v. 102 Idaho 490, (Minn.Ct.App.1994) (stating, 599, (1981) 633 P.2d (finding 606-07 reason corporation’s right repurchase "A shares by-law able requiring shareholders to first upon a shareholder's death ais common value); corporation offer stock to the at book transfer many up restriction that courts have 221, Colo.App. Ginter v. Palmer & held.”); Sales, Pipe Dixie Perry, Inc. v. 1358, (1977) P.2d (upholding provi S.W.2d (Tex.Ct.App.1992) (up 493-94 incorporation sion in the requiring articles of holding a restriction on the transfer of stock corporation option pur have the closely in a corporation); held Bruns v. Ren chase upon stock at book value the death of a Stores, Inc., Drug nebohm 151 Wis.2d shareholder), grounds, rev’d on other Ginter v. (rul (Wis.Ct.App.1989) 595-96 (Colo.1978); Palmer & 585 P.2d 583 In re ing right purchase that a of first of stock in a Brown, Ill.App.2d enforced); corporation closed should be Sor (1970) N.E.2d (enforcing sharehold Ness, (N.D. lie v. 844-47 agreement granting er companies option first 1982) (writing that a option, first-refusal purchase upon death of shareholder may granted corporation, to the value); at book Allen Corp., v. Biltmore Tissue both, its universally is 2 N.Y.2d 161 N.Y.S.2d valid); F.H.T., 141 N.E.2d accepted legally as Inc. v. (1957) Feuerhelm, 815-16 (recognizing that courts 211 Neb. (1982) uniformly have (ruling by-law 776-77 held valid charter that a stock transfer provisions requiring requiring restriction shareholders to first offer stockholder to first offer company their shares to the corporation shareholders). at book value stock to and other

Case Details

Case Name: Estate of Elliott Ex Rel. Elliott v. a & B Welding Supply Co.

Court Name: South Dakota Supreme Court

Date Published: May 12, 1999

Citation: 594 N.W.2d 707

Docket Number: None

Court Abbreviation: S.D.