Thomas A. SWOPE, Judy N. Swope, Estate of O.W. Schneider, Jr., by and through personal representatives for the Estate of O.W. Schneider, Jr., Tracy Leigh Schneider Morris; O.W. Schneider, III; Kris Douglas Schneider; Melody Dawn Schneider; Mark William Schneider; Tracy Leigh Schneider Morris; O.W. Schneider, III, Appellees/Cross-Appellants, v. SIEGEL-ROBERT, INC., a Nevada Corporation, Appellant/Cross-Appellee.
No. 99-3114, 99-3178 and 00-2234
United States Court of Appeals, Eighth Circuit
Submitted: June 12, 2000. Filed: Feb. 26, 2001.
243 F.3d 486
If we were to exclude the 1994 and 1996 events from the sentencing calculation, Mr. Anderson would have an offense level of 35 and a criminal history level of IV, and a corresponding sentencing range of 235 to 293 months. The increase in Randy Anderson‘s sentence to 360 months is not, we think under the standard enunciated in McMillan, so significant as to raise due process concerns that would require a heightened standard of proof. We therefore affirm his sentence.
V.
For the foregoing reasons, the judgments of the district court are affirmed.
Lawrence C. Friedman, St. Louis, MO, argued (John R. Musgrave, Jordan B. Cherrick and Thomas J. Green, St. Louis, MO, on the brief), for appellee.
Before WOLLMAN, Chief Judge, and MCMILLIAN and BYE, Circuit Judges.
MCMILLIAN, Circuit Judge.
Siegel-Robert, Inc. (hereinafter “the Company“), a closely-held corporation headquartered in St. Louis, Missouri, appeals from a final order entered in the United States District Court1 for the Eastern District of Missouri following a bench trial, holding that the Company‘s valuation of its minority shares did not reflect the “fair value” of the shares pursuant to
Jurisdiction
Jurisdiction in the district court was proper based upon
Background
The following facts are undisputed based on evidence introduced at trial. Bruce Robert formed the Company in 1946 as a part-time chrome-plating business. O.W. Schneider, Jr. worked for the Company for 40 years, helped build the Company through his technical expertise, and eventually acquired an ownership interest in the business, buying shares in the 1970s and 1980s. In the 1980s, the Company began to diversify by acquiring manufacturing companies with non-retail customers, and experienced substantial growth. The Company, now comprised of six units, has continued to grow through an aggressive acquisition policy. The district court determined that the growth of the Company is not likely to continue at its current rate absent the continuation of an aggressive acquisition policy, a factor unable to be reflected in the valuation of the Company. See Swope v. Siegel-Robert, Inc., 74 F.Supp.2d 876, 900-01 (E.D.Mo.1999).
Halvor B. Anderson became associated with the Company in August 1981. He gradually rose within the Company until he became its Chief Executive Operating Officer in October 1996. Anderson actively participates in the day-to-day management of each division and the Company as a whole.
On July 19, 1997, Anderson proposed a merger which would change the Company‘s corporate status to a Subchapter S election in an attempt to reduce corporate taxes. Under that arrangement, the Company could allocate income directly to the shareholders, who would pay the tax as individuals and shield the corporation from paying tax at the corporate level. Two days later, the Board of Directors voted to recommend the merger to the shareholders. That same day, Anderson mailed to the shareholders a notice of vote on the merger proposal. In order for a company to achieve and maintain Subchapter S status, it may not have more than 75 shareholders. At the time of the Board meeting, the Company had 63 shareholders: 40 were Robert family members and 23 were non-family members. Anderson explained that, while it would have been possible to attain Subchapter S status without squeezing out the minority shareholders, the Company might then be at risk of reopening the tax issue, because 100% of shareholders had to agree to the election. Anderson asserted that the merger action was taken to assure that the Subchapter S election could be made and preserved into the future without being repealed, even though he also admitted that the bylaws could have been amended to provide that no person could transfer their shares in violation of the Subchapter S election.
The merger was approved on July 31, 1997, and Siegel-Robert, Inc., a Missouri corporation, merged with Siegel-Robert, Inc., a Nevada corporation (the surviving corporation). Eleven of the minority shareholders accepted the $20 per share as fair value for their stock. The others, including appellees, made a written demand on the Company for the “fair value” of their stock. When negotiations failed, appellees filed a “Complaint for Stock Appraisal” in the district court pursuant to
The district court, sitting without a jury, heard testimony for seven days, including many expert witnesses from both sides. All the experts agreed that there are three potential levels of valuation for stock in closely-held corporations: (1) “enterprise interest,” which attempts to replicate the price that would be paid for the entire corporation by a third party; (2) “marketable minority interest,” which accounts for the fact that the shares do not represent control of the company but assumes they are readily marketable; and (3) “non-marketable minority interest,” which discounts for lack of control and also for lack of liquidity. The expert witnesses valued the Company according to these premises, and their valuations of the stock ranged from $98.40 per share to $30.00 per share. In addition, the Company submitted evidence that when O.W. Schneider, Jr. died in 1997, his estate valued his shares of Company stock at $18.50 per share for estate and inheritance tax purposes.
On June 23, 1999, the district court issued a Memorandum and Order which held that a minority discount was appropriate but that a lack of marketability discount was inappropriate, and valued the shares at $63.36 per share. The district court concluded that appellees were entitled to prejudgment interest and awarded simple interest at the rate of 5.115% per year, to reflect the 52-week T-Bill rate set forth in
Discussion
This case arises from appellees’ proper exercise of their appraisal rights as dissenting shareholders under
Appeal No. 99–3114
I. Application of Marketability Discount
The Company argues that the district court failed to consider all relevant facts and circumstances when it refused to consider the lack of liquidity of the stock, and that the district court erroneously failed to discount the stock for lack of marketability. We disagree.
The “fair value” appraisal statute,
The appraisal statute provides an equitable remedy, compensating minority shareholders for their lack of control and ensuring that they retain the same proportionate value of their stock regardless of undesired changes dictated by majority vote. Dreiseszun, 577 S.W.2d at 907 (“the underlying purpose [of the appraisal statute] is to assure such dissenting minority shareholders an equitable, just, and ‘fair value’ for their stock“); Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383, 734 A.2d 738, 748 (1999) (Lawson Mardon Wheaton) (“[t]he very nature of the term ‘fair value’ suggests that courts must take fairness and equity into account in deciding whether to apply a discount to the value of the dissenting shareholders’ stock in an appraisal action“). Therefore, the proper valuation of minority stock must calculate the value of the corporation as a whole and award a pro-rata share of that value to the dissenting shareholders. See Hunter, 721 F.Supp. at 1106 (declaring that “[f]air value means on-going business value, and a dissenting shareholder is entitled to his proportional or pro-rata share of the company‘s on-going value“); Dreiseszun, 577 S.W.2d at 908 (“a share of common stock is evidence of unit ownership of the whole, each unit being of equal value such that the sum equals the value of the whole.” (citing 18 C.J.S. Corporations § 515, p. 1194)); see also Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1145 (Del. 1989) (Cavalier Oil) (holding that a minority shareholder is entitled to a proportionate interest in the corporation appraised as an entity); In re Valuation of Common Stock of McLoon Oil Co., 565 A.2d 997, 1004 (Me.1989) (McLoon) (“[i]n the statutory appraisal proceeding, the involuntary change of ownership caused by a merger requires as a matter of fairness that a dissenting shareholder be compensated for the loss of his proportionate interest in the business as an entity“). This valuation reflects the shareholder‘s actual interest in the company prior to the corporate change, independent of market variables or influences, and dictates that the fair value of a dissenter‘s minority share should remain equal to the value of the majority shares. See Dreiseszun, 577 S.W.2d at 906 (holding that the classification of stock as minority or majority shares must not affect actual value).
The American Law Institute explicitly confirms the interpretation of fair value as the proportionate share of the value of 100 percent of the equity, by entitling a dissenting shareholder to a “proportionate interest in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.” American Law Institute, Standards for Determining Fair Value, Principles of Corporate Governance: Analysis and Recommendations (ALI) § 7.22(a) (1994). See also Business Valuation Selected Advanced Topics, Model 2.5 Dissenting Shareholder Actions and Fair Value, American Society of Appraisers (1997) (declaring a trend towards “defining fair value as a pro-rata share of the value of 100 percent of the equity“). Comment e to § 7.22 explains that in an appraisal proceeding, absent extraordinary circumstances, the corporation should be valued as a whole and allocated proportionately. ALI § 7.22 cmt. e.
Contrary to the Company‘s contention, “fair value” in minority stock appraisal cases is not equivalent to “fair market value.” Dissenting shareholders, by nature, do not replicate the willing and ready buyers of the open market. Rather, they are unwilling sellers with no bargaining power. See Harry J. Haynsworth, Valua-
The purpose of a marketability discount is to “adjust for a lack of liquidity in one‘s interest in an entity, on the theory that there is a limited supply of potential buyers for stock in a closely-held corporation.” Lawson Mardon Wheaton, 734 A.2d at 747. Because “fair market value” is irrelevant to the determination of fair value, market forces, such as the availability of buyers for the stock, do not affect the ultimate assessment of fair value in an appraisal proceeding. The American Law Institute interprets “fair value” as not including any discount, “absent extraordinary circumstances,” for “lack of marketability.” ALI § 7.22(a). Comment e to § 7.22 further clarifies that extraordinary circumstances must consist of more than an absence of a trading market in the shares. Id. at cmt. e. See also Advanced Communication Design, Inc. v. Follett, 615 N.W.2d 285, 292 (Minn.2000) (Follett) (allowing a marketability discount only in an extraordinary circumstance where an unfair wealth transfer occurred from the remaining shareholders to the dissenting shareholder).
The marketability discount is incompatible with the purpose of the appraisal right, which provides dissenting shareholders with a forum for recapturing their complete investment in the corporation after they are unwillingly subjected to substantial corporate changes beyond their control. See Hunter, 721 F.Supp. at 1107 (“the purpose of the appraisal statute is to award the dissenter the value of what he owned” before a significant corporate change); see also Cavalier Oil, 564 A.2d at 1145 (“the appraisal process is not intended to reconstruct a pro forma sale but to assume that the shareholder was willing to maintain his investment position, however slight, had the merger not occurred“). A discount for lack of marketability is inappropriate because the minority shareholders are not willing sellers. See First Western Bank Wall v. Olsen, 621 N.W.2d 611 (S.D.2001) (First Western Bank) (observing that a marketability “discount is especially inapplicable in a dissenters’ rights context, as a ready market does exist for the dissenters’ shares, namely the majority shareholder or the corporation itself“); Columbia Management Co. v. Wyss, 94 Or.App. 195, 765 P.2d 207, 213 (1988) (noting that “because a dissenting shareholder is exercising a right designed for his or her protection, and because the purchaser of the shares will be the corporation, not an outsider, this recognition of decreased market value may not be appropriate“). Imposing a marketability discount would benefit the majority shareholders at the expense of the minority shareholders, in direct conflict with the purpose of the statute. See Follett, 615 N.W.2d at 292 (noting that marketability discounts might create “[a] result that allows majority shareholders to reap a windfall by buying out or that encourages corporate squeeze-outs,” which “is contrary to
In fact, no Missouri court has ever applied a discount for lack of marketability in a dissenting shareholders’ appraisal action. On the contrary, most courts have refused to apply a marketability discount in fair value cases. See Cavalier Oil, 564 A.2d at 1144-45 (rejecting under Delaware law application of a marketability discount as contrary to the requirement that the company be valued as a going concern); Arnaud v. Stockgrowers State Bank, 268 Kan. 163, 992 P.2d 216, 217 (1999) (holding that under Kansas law neither minority nor marketability discounts are appropriate when the purchaser of the stock is either the majority shareholder or the corporations, because the sale results in a windfall to those already in control); Lawson Mardon Wheaton, 716 A.2d at 563 (New Jersey) (“[t]he history and policies behind dissenters’ rights and appraisal statutes lead us to conclude that marketability discounts generally should not be applied when determining the ‘fair value’ of dissenters’ shares in a statutory appraisal action“); First Western Bank, 621 N.W.2d 611 (South Dakota) (deciding that a non-marketability discount may not be applied to the valuation of shares in an appraised proceeding).
We conclude that the market for minority stock in a dissenting shareholders’ appraisal proceeding, absent extraordinary circumstances, is not a relevant fact or circumstance to consider when determining fair value. We hold that the facts of the present case do not constitute extraordinary circumstances warranting a discount for lack of marketability in the determination of the fair value of the stock. Rather, the illiquid nature of the stock is precisely the type of minority stock held in a close corporation which Missouri‘s appraisal statute is designed to protect. To remain consistent with this purpose of compensating the dissenting shareholders for the full proportionate value of their stock, we affirm the decision of the district court to refrain from discounting the minority stock for lack of marketability.
II. Methodology of Evaluation
The Company also argues that the district court erred in failing to provide a precise mathematical calculation of its determination of fair value. The ultimate determination of fair value is an issue of fact, so we review for clear error. See Flarsheim, 432 S.W.2d at 255 (proclaiming that under Missouri law, the judgment of the trial court will not be set aside unless clearly erroneous). The district court has wide discretion in determining fair value, King, 765 S.W.2d at 306, and may ascertain “proof of value by any techniques or methods which are generally acceptable in the financial community and otherwise admissible in court.” Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del.1983).
Because the district court‘s determination of the stock price falls within the range proposed by the experts discussed in its opinion, we hold that there has been no error. The district court issued an extraordinarily thorough memorandum, summarizing the different valuation methods proposed by each expert and weighing the pros and cons of each method. The district court explained that it generally agreed with the expert Reilly‘s valuation of the company, with the exception that Reilly‘s price reflected too much optimism about the future growth prospects for the Company. Consequently, the district court adjusted its valuation of the entire company downward.
It is unfortunate that, after performing such a well-reasoned and thorough review of the record, the district court was not more explicit in elaborating how it reached its final calculation of price per share. Regardless, the district court is not required to provide explicit detail or mathematical precision in fair value cases, since “the very nature of most cases precludes proof of value and damage with the
Cross-Appeal No. 99-3178
I. Application of Minority Discount
Appellees argue that the district court erred by discounting the value of the Company‘s stock to account for its minority status. We agree.
The purpose of a minority discount is to “adjust for lack of control over the business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm‘s value because they lack voting power to control corporate actions.” Lawson Mardon Wheaton, 734 A.2d at 747 (citing Edwin T. Hood et al., Valuation of Closely Held Business Interests, 65 UMKC L.Rev. 399, 438 (1997)). However, like a marketability discount, the application of a minority discount is not appropriate in an appraisal action, where the minority sellers are unwilling to dispose of their stock. See HMO-W, Inc., 611 N.W.2d at 256 (concluding that “the application of a minority discount in determining the fair value of a dissenter‘s shares frustrates the equitable purpose to protect minority shareholders“). As discussed above, such a discount injects a market factor into the determination of fair value, which we have concluded is not “a relevant fact or circumstance” to be included in the calculation of the value of minority stock under an appraisal statute. The market cannot adequately reflect the position of dissenting minority shareholders. See Hansen v. 75 Ranch Co., 288 Mont. 310, 957 P.2d 32, 41 (1998) (Hansen) (“[s]ince there is no ‘market’ involved in an inside transfer of shares, the minority discount should not be applied“). Rather, minority shareholders are entitled to receive the full value of their shares as if they were able to retain the stock.
The application of a minority discount undermines the purpose of a fair value appraisal statute by penalizing minority shareholders for their lack of control and encouraging majority shareholders to take advantage of their power. The overriding principle holds that “to fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders who may reap a windfall from the appraisal process.” Cavalier Oil, 564 A.2d at 1145. See, e.g., Hunter, 721 F.Supp. at 1106 (observing that fair value cannot be obtained by permitting majority shareholders to set a hypothetical market price for the stock because it “would impermissibly allow the majority shareholders to determine the value of the minority stock based on the price the majority shareholders are willing to pay for the minority shares“); McLoon, 565 A.2d at 1005 (noting that “[a]ny rule of law that gave the shareholders less than their proportionate share of the whole firm‘s fair value would produce a transfer of wealth from the minority shareholders to the shareholders in control“); Hansen, 957 P.2d at 41 (stating that “requiring the application of a minority discount when selling to an ‘insider’ would result in a windfall to the transferee” because it “simply consolidates or increases the interests of those already in control“); HMO-W, Inc., 611 N.W.2d at 256 (warning that “otherwise, the majority may ‘squeeze out’ minority shareholders to the economic advantage of the majority” and inflict a “double penalty” because “[t]he shareholder not only lacks control over corporate decision making, but also upon the application of a minority discount receives less than proportional value for loss of that control“).
Most courts addressing the issue have refused to apply minority discounts, reasoning that “using discounts injects specu-
The Company asserts that this court does not have the authority to disallow minority or marketability discounts because only the Missouri state courts are capable of rendering such interpretations of Missouri statutes under the Erie doctrine. Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). While it is true that Missouri‘s state court precedents have permitted minority and marketability discounts at the discretion of the trial court, the Missouri Supreme Court has not considered the issue. We agree with the general proposition that “a federal court with diversity jurisdiction is bound only by state law as determined by the highest state court.” Foy v. Klapmeier, 992 F.2d 774, 780 (8th Cir.1993). However, where the state‘s highest court has not ruled, we must follow the decisions of the state‘s intermediate courts when they are the best evidence of what the state‘s law is. See Marvin Lumber and Cedar Co. v. PPG Industries, 223 F.3d 873, 883 (8th Cir.2000); Bureau of Engraving, Inc. v. Federal Ins. Co., 5 F.3d 1175, 1176 (8th Cir.1993); Garnac Grain Co., Inc. v. Blackley, 932 F.2d 1563, 1570 (8th Cir.1991).
In the present case, we are not bound by Missouri‘s intermediate appellate court decisions because we are “convinced by other persuasive data that the highest court of the state would decide otherwise.” See Marvin Lumber, 223 F.3d at 883 (quoting Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967)). Specifically, we find Delaware‘s decisions on this matter persuasive, not only because of Delaware‘s expertise in analyzing issues of corporate law, but also for its reasoning in the seminal case of Cavalier Oil, in which the Delaware Supreme Court convincingly justified the rejection of minority and lack of marketability discounts. We are also influenced by the logic of other state courts who have interpreted their similarly-worded appraisal statutes to disallow minority and lack of marketability discounts. See Security State Bank v. Ziegeldorf, 554 N.W.2d 884 (Iowa); see also Arnaud v. Stockgrowers State Bank, 268 Kan. 163, 992 P.2d 216 (Kansas); McLoon, 565 A.2d 997 (Maine); Hansen v. 75 Ranch Co., 288 Mont. 310, 957 P.2d 32 (Montana); Rigel Corp. v. Cutchall, 245 Neb. 118, 511 N.W.2d 519 (Nebraska); First Western Bank, 621 N.W.2d 611 (South Dakota); Trapp Family, 169 Vt. 82, 725 A.2d 927 (Vermont). While the district court correctly observed that many states have held that the application of discounts is discretionary, only one of those decisions was issued after the influential Cavalier Oil decision. See Stanton v. Republic Bank, 144 Ill.2d 472, 163 Ill.Dec. 524, 581 N.E.2d 678, 682 (1991) (approving minority and lack of marketability discounts applied
Because the district court‘s final determination of the minority shareholders’ price-per-share presumably reflected a discount for minority status based on an erroneous assumption of law, we remand to the district court for a re-evaluation of the fair value of the stock consistent with this opinion.
II. Rate of Prejudgment Interest
Appellees contend that the district court erred in applying a federal prejudgment interest rate rather than the state statutory rate. Whether the rate of prejudgment interest in a diversity case should be that specified by state law rather than the federal prejudgment rate is a question of law and should be reviewed de novo. See Kisco Co., Inc. v. Verson Allsteel Press Co., 738 F.2d 290 (8th Cir.1984).
Although postjudgment interest is a procedural matter governed by federal law, Weitz Co., Inc. v. Mo-Kan Carpet, Inc., 723 F.2d 1382, 1385-86 (8th Cir.1983), state law determines the rate of prejudgment interest. Nodaway Valley Bank v. Continental Cas. Co., 916 F.2d 1362, 1367 (8th Cir.1990); Kisco Co., Inc., 738 F.2d 290. As a result, the district court erred in applying the federal rate of interest under
The Company argues that
Appeal No. 00-2234
I. Rule 60(b) Motion
The district court possesses broad discretion over whether to grant a hearing or make specific findings regarding a Rule 60(b) motion, Atkinson v. Prudential Property Co., 43 F.3d 367, 374 (8th Cir.1994), and its decision will be reviewed only for abuse of discretion. Brooks v. Ferguson-Florissant School Dist., 113 F.3d 903, 905 (8th Cir.1997). A district court‘s Rule 60(b) determination will not be overturned unless “exceptional circumstances” exist. Watkins v. Lundell, 169 F.3d 540, 544 (8th Cir.1999).
A Rule 60(b) motion will be granted only if there is newly discovered evidence sufficient to justify setting aside the original judgment. Rule 60(b) permits consideration only of facts which were in existence at the time of trial, not opinions, which can be formulated at any time. See Lapiczak v. Zaist, 54 F.R.D. 546, 548 (D.Vt.1972) (witness opinions developed after trial were not permitted under Rule 60(b)(2)). The Company submitted an IRS appraisal of a minority shareholder‘s stock for estate tax purposes. The IRS report, as evidence that was not in existence at the time of the trial but was prepared after trial, does not constitute newly discovered evidence. Here, not only did the Company fail to procure this estate tax appraisal before trial, it obtained a protective order prohibiting full discovery of gift and estate tax appraisals. If this type of evidence were essential to a fair trial, then the Company should have obtained it and submitted it at that time, rather than deliberately removing it from consideration. Regardless, appraisals for estate tax purposes are not relevant to the determination of fair value pursuant to a dissenters’ appraisal proceeding. See Lawson Mardon Wheaton, 734 A.2d at 747 (noting that valuation principles used in tax or equitable distribution appraisal actions are of limited assistance in determining fair value in a dissenting shareholders’ appraisal action); McLoon, 565 A.2d at 1004 (finding stock valuation used in tax and probate cases inapplicable); Trapp Family, 725 A.2d at 931 (stating that “methods of stock valuation used in tax, probate, or divorces cases to determine fair market value are inapposite to the determination of “fair value” under the dissenters’ rights statute“).
Moreover, the IRS report provides an opinion on the fair market value of the stock, which is irrelevant for two reasons: (1) the date in question is different from the date used for evaluation purposes under the shareholder appraisal statute, and (2) the valuation was based on
Conclusion
For the reasons we have stated, we affirm in part and reverse in part and remand the case to the district court for further proceedings consistent with this opinion.
UNITED STATES of America, Plaintiff-Appellee, v. Jim Guy TUCKER, Defendant-Appellant.
No. 99-1832
United States Court of Appeals, Eighth Circuit.
Submitted: Sept. 13, 1999. Filed: Feb. 27, 2001.