Gries v. Plaza Del Rio Management Corp. ( 2014 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
HAROLD GRIES, a single man; GRIES FAMILY LIMITED
PARTNERSHIP, an Arizona limited partnership;
and HAROLD E. GRIES TRUST DATED MARCH 4, 2012,
Plaintiffs/Appellants/Cross-Appellees,
v.
PLAZA DEL RIO MANAGEMENT CORPORATION, an Arizona
corporation; SHARON HARPER AND OLIVER HARPER, wife and
husband; HARPER FAMILY LIMITED PARTNERSHIP, an Arizona
limited partnership; and OLIVER J. HARPER AND SHARON J. HARPER
AS CO-TRUSTEES OF THE HARPER FAMILY REVOCABLE TRUST
DATED NOVEMBER 15, 1998,
Defendants/Appellees/Cross-Appellants.
No. 1 CA-CV 13-0091
FILED 9-9-14
Appeal from the Superior Court in Maricopa County
No. CV2011-007462
The Honorable Mark H. Brain, Judge
AFFIRMED
COUNSEL
Tiffany & Bosco, PA, Phoenix
By Robert A. Royal, Aaron T. Lloyd
Jones Skelton & Hochuli, PLC, Phoenix
By Eileen Dennis GilBride
Counsel for Plaintiffs/Appellants/Cross-Appellees
Aiken Schenk Hawkins & Ricciardi, PC, Phoenix
By Shawn K. Aiken, Joseph A. Schenk
Law Offices of Thomas A. Zlaket, PLLC, Tucson
By Thomas A. Zlaket
Counsel for Defendants/Appellees/Cross-Appellants
OPINION
Judge Randall M. Howe delivered the opinion of the Court, in which
Presiding Judge Samuel A. Thumma and Judge John C. Gemmill joined.
H O W E, Judge:
¶1 Harold Gries appeals and Sharon Harper cross-appeals
various provisions of the superior court’s dismissal of Gries’s amended
complaint against Plaza del Rio Management Corporation (PDR). Among
other issues, the parties contest whether the statutory dissolution of a
closely held corporation may be halted when the superior court finds it
equitable to do so. We hold that it may and affirm.
FACTS AND PROCEDURAL HISTORY
¶2 In November 1984, Gries and Harper formed PDR—a closely
held real estate management and development company. In July 1985, they
executed a shareholder’s agreement that provided that Harper-controlled
and Gries-controlled entities owned PDR equally. The shareholder’s
agreement also included a buy-sell provision (“Shotgun Provision”), which
stated in pertinent part:
[N]o Stockholder shall transfer or encumber his stock in
[PDR] without first obtaining the written consent of [PDR]
and all of the then existing Stockholders. Notwithstanding the
foregoing, the shareholders of either group acting collectively
may submit a written offer to the shareholders of the other
group acting collectively of a price at which they are willing
to sell their shares or purchase the shares of the shareholders
of the other group.
¶3 Until Gries retired in 2000, Harper and Gries were PDR’s sole
officers, directors, and employees. On June 30, 2000, Harper and Gries met
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Opinion of the Court
to establish the terms of Gries’s retirement (“Retirement Agreement”). The
Retirement Agreement provided that Harper would manage PDR, receive
a $200,000 base salary, and receive 90% of net profits. The Retirement
Agreement also provided that Gries, as a retiree, would receive 10% of net
profits. The Retirement Agreement‘s terms were memorialized in minutes
signed by both Gries and Harper, in their capacities as President and
Secretary, respectively.
¶4 In August 2011, Gries sued PDR. In his complaint, Gries
(1) sought a declaratory judgment that the Retirement Agreement was a
shareholder’s agreement pursuant to Arizona Revised Statutes (“A.R.S.”)
section 10–732 and therefore had expired as of June 30, 2010 (Count 1);
(2) alleged that Harper breached fiduciary duties and breached statutory
standards of conduct pursuant to A.R.S. §§ 10–830 and –842 by paying
herself pursuant to the expired shareholder’s agreement (Count 2); and
(3) requested judicial dissolution of PDR because PDR shareholders and
directors were deadlocked and Harper controlled the company and acted
oppressively or fraudulently (Count 3). Gries also sought compensatory
damages, claiming that because the Retirement Agreement was a
shareholder’s agreement that had expired, Harper had received salary and
profits to which she was not entitled. In response, Harper moved pursuant
to A.R.S. § 10-1434 to purchase Gries’s PDR shares in lieu of dissolution.
¶5 Gries moved for summary judgment on Count 1, asking the
court to find that the Retirement Agreement was a shareholder’s
agreement. Harper opposed Gries’s motion, arguing that the Retirement
Agreement was not a shareholder’s agreement but instead a “valid
employment agreement” that had never expired. Harper moved to stay the
proceedings to valuate Gries’s PDR shares so that she could purchase his
shares in lieu of dissolving PDR. Granting a stay, the superior court ordered
the parties to submit two fair market valuations of Gries’s PDR shares as of
August 2, 2011—one assuming that the Retirement Agreement was a valid
shareholder’s agreement, and the second assuming that it was not.
¶6 At the fair market valuation hearing, Harper’s expert testified
that Gries’s PDR shares were worth $157,000 if the Retirement Agreement
was a valid shareholder’s agreement and $117,600 if it was not. Gries’s
expert testified that Gries’s PDR shares were worth $668,000 under a valid
Retirement Agreement and $3,066,000 under an invalid Retirement
Agreement. Gries also claimed $468,484 in damages.
¶7 After the valuation hearing, the superior court determined
that the Retirement Agreement was a shareholder’s agreement that had
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Opinion of the Court
expired on June 30, 2010 (ten years after the agreement was formed). The
court valued Gries’s PDR stock at $157,100 and his damages claim at
$200,000, totaling $357,100. Although the court had granted Harper’s
motion to stay Gries’s lawsuit, it denied Harper’s motion to dismiss Gries’s
claim for $468,484 in damages, finding that “the net amount [PDR] would
likely recover against Harper on this claim is $400,000, half of which would
be allocable to Gries’[s] 50% share of [PDR].”
¶8 After the superior court made these rulings, Gries offered to
purchase Harper’s PDR stock for $157,100 under the Shotgun Provision.
Claiming that Harper had accepted his offer, Gries attempted to oust
Harper as PDR’s president by holding his own board of directors meeting.
Harper then moved for a temporary restraining order against Gries. The
superior court granted Harper’s motion and held a hearing where the
parties agreed that Harper’s motion would be treated as a request for
injunctive relief. The court dismissed Gries’s “recent ‘offer’ to buy
[Harper’s] shares” for $157,100, finding that although either party could
invoke the Shotgun Provision, the parties could not use the court’s
valuation of the PDR shares as the sales price.
¶9 Gries moved for reconsideration of the court’s share value
ruling, arguing that the court’s valuation contained “factual/mathematical
errors.” Before the court ruled on the motion, Gries offered to purchase
Harper’s PDR shares for $1.5 million pursuant to the Shotgun Provision.
Harper asked the court to declare that Gries could not invoke the Shotgun
Provision. She argued that Gries had surrendered his contractual remedies
to resolve their business dispute by seeking judicial dissolution of PDR;
once that procedure had begun, A.R.S. § 10–1434(E) bound the court to
direct Gries to sell his stock to Harper at the court’s determined value. Gries
responded that he had not surrendered his contractual rights because under
A.R.S. § 10–732(A), the rights and obligations set forth in a shareholder’s
agreement take precedence over Arizona’s corporation statutes.
¶10 At the hearing on the matter, Harper argued that allowing
Gries to invoke the Shotgun Provision would be inequitable because her
emotional attachment to PDR would force her to buy Gries’s shares at a
price much higher than the court’s determination of the shares’ value. The
court responded that it could not recognize Harper’s emotional attachment
to the corporate form of PDR and noted that Harper was free under the
Shotgun Provision to sell her PDR shares to Gries for the same amount that
he had offered to sell to her. The court found that allowing the exercise of
the Shotgun Provision in lieu of the dissolution proceedings was equitable
because Gries and Harper were better able than the court to determine the
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Opinion of the Court
shares’ value, and Harper had the right under the provision to sell her
shares to Gries if she so chose.
¶11 Harper then elected to purchase Gries’s PDR shares for $1.5
million. Harper also moved to dismiss Gries’s amended complaint as moot
because Harper would purchase Gries’s PDR shares pursuant to the
Shotgun Provision. Gries argued that dismissal was improper because his
request for attorneys’ fees and motion for reconsideration had not been
ruled upon. The court nevertheless dismissed Gries’s amended complaint
with prejudice “on the grounds that the claims asserted therein are now
moot,” vacated all interlocutory rulings, and awarded Harper $459 in costs.
¶12 The court denied Gries’s motion for reconsideration of the
share valuation ruling. The court further held that Gries was not entitled to
overpayments made to Harper after the Retirement Agreement expired as
a shareholder’s agreement because “[s]uch a claim was owned by the
company (and by extension, its shareholders), and the right to what
amounts to ‘withheld dividends’ passed to Harper when she purchased the
shares for the price set by Gries.”
¶13 Gries timely appealed the dismissal of his claim for damages.
Harper timely cross-appealed (1) the order declaring the Retirement
Agreement a shareholder’s agreement; (2) the order denying Harper’s
motion for declaratory relief and granting Gries’s “Cross-Motion for
Declaratory Relief;” and (3) “the [superior] court’s refusal to award
[Harper] reasonable attorney’s fees under A.R.S. § 12–341.01.”
DISCUSSION
I. Motion to Dismiss Gries’s Appeal as Moot
¶14 Harper argues that Gries’s appeal should be dismissed as
moot because “[Gries has] voluntarily accepted the benefit of the
[j]udgment from which [he] ha[s] appealed.” We reject Harper’s argument
because Gries is an aggrieved party who has the right to appeal. Arizona
Rule of Civil Appellate Procedure 1 provides that “[a]n appeal may be taken
by any party aggrieved by the judgment.” A party is aggrieved if the
judgment has denied the party a personal or property right. In re Strobel,
149 Ariz. 213, 216, 717 P.2d 892, 895 (1986). The judgment here dismissed
Gries’s amended complaint for damages, an action Gries opposed. Because
the judgment, if incorrect, deprived Gries of a property right to seek
damages, Gries is aggrieved under Rule 1. Gries’s success at executing the
Shotgun Provision and selling his shares in PDR to Harper is irrelevant to
the judgment and does not prevent him from being an aggrieved party.
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II. A.R.S. § 10–1434 Dissolution Proceeding
¶15 Harper argues that the superior court erred in finding that
discontinuing the dissolution proceedings under A.R.S. § 10–1434 was
equitable because the parties had exercised the Shotgun Provision, making
the dissolution proceeding unnecessary. We review a grant of equitable
relief for an abuse of discretion. See Flying Diamond Airpark, LLC v.
Meienberg, 215 Ariz. 44, 50 ¶ 27, 156 P.3d 1149, 1155 (App. 2007). A
discretionary decision involves assessing “conflicting procedural, factual or
equitable considerations which vary from case to case and which can be
better determined or resolved by the trial judge.” City of Phoenix v. Geyler,
144 Ariz. 323, 329, 697 P.2d 1073, 1079 (1985) (quoting State v. Chapple,
135 Ariz. 281, 297 n.18, 660 P.2d 1208, 1224 n.18 (1983), superseded in part by
statute, A.R.S. § 13–756, as recognized in State v. Benson, 232 Ariz. 452, 467
¶ 66, 307 P.3d 19, 34 (2013)). We defer because a trial court “has a more
immediate grasp of all the facts of the case, an opportunity to see the parties,
lawyers and witnesses, and . . . can better assess the impact of what occurs”
in court. Id. Only when the facts and the inferences from those facts are
undisputed and the resolution of the issue “is one of law or logic” may we
substitute our judgment for the trial court’s. Id.¶16 A shareholder may petition to dissolve a corporation if the
corporation’s directors are deadlocked in the management of corporate
affairs and the corporation cannot conduct its business and affairs. A.R.S.
§ 10–1430(B)(1). In a dissolution proceeding, “one or more shareholders
may elect to purchase all shares owned by the petitioning shareholder at
the fair value of the shares” if the corporation has no shares listed on a
national securities exchange “or regularly traded in a market maintained
by one or more members of a national or affiliated securities association.”
A.R.S. § 10–1434(A). An election to purchase the corporation’s shares “is
irrevocable unless the court determines that it is equitable to set aside or
modify the election.” Id. Once the election is filed and the corporation has
sent out proper notice, the dissolution proceeding “shall not be
discontinued or settled[] . . . unless the court determines that it would be
equitable to the corporation and the shareholders other than the petitioner
to permit this discontinuance, settlement, sale or other disposition.” A.R.S.
§ 10–1434(B).
¶17 The shareholders have sixty days from the date of the election
to agree on the fair value and terms of purchase of the shares. A.R.S. § 10–
1434(C). If they cannot agree, the court determines the fair value of the
shares as of the day before the day that the dissolution petition was filed.
A.R.S. § 10–1434(D). Once the court has determined the value of the shares,
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the court directs the purchase of the shares “on the terms and conditions as
the court deems appropriate,” A.R.S. § 10–1434(E), and dismisses the
petition for dissolution, A.R.S. § 10–1434(F).
¶18 Gries began dissolution proceedings of PDR under A.R.S. §
10–1430 claiming director deadlock. Harper then elected to purchase
Gries’s PDR shares in lieu of dissolution under A.R.S. § 10–1434(A). Because
Harper and Gries could not agree on the value of Gries’s shares, the court
held a hearing and determined their fair value. At that point, however,
Gries opted to exercise the Shotgun Provision to resolve their dispute: either
Gries would buy Harper’s share in PDR for $1.5 million, or allow Harper to
buy his shares for $1.5 million. The court then stopped the dissolution
proceeding, finding that the exercise of the Shotgun Provision equitably
resolved the dispute. The court had the statutory authority to do so. Section
10-1434(B) provides that once a shareholder has elected to purchase a
corporation’s shares in lieu of dissolution, the dissolution proceedings
cannot be “discontinued or settled” unless the superior court “determines
that it would be equitable to the corporation and the shareholders.”
¶19 Harper contends, however, that the superior court had no
authority to do so. She argues that the court was required to order Gries to
sell his shares to Harper under A.R.S. § 10–1434(E) once it determined the
shares’ fair value because the statute says so: “On determining the fair value
of the shares, the court shall enter an order directing the purchase . . . [of the
shares].” (Emphasis added.) She believes that the word “shall” removes any
discretion the court may have had earlier in the proceedings.
¶20 Although “shall” may be used in a statute in a mandatory
sense, it may also be used in a “directory”—permissive—sense if it
comports with the statute’s purpose. Ariz. Downs v. Ariz. Horsemen’s Found.,
130 Ariz. 550, 554–55, 637 P.2d 1053, 1057–58 (1981); HCZ Const., Inc. v. First
Franklin Fin. Corp., 199 Ariz. 361, 364 ¶ 11, 18 P.3d 155, 158 (App. 2001).
“Shall” in the context of A.R.S. § 10–1434(E) does not mandate the share
purchase; it merely establishes the order of events. Once the court has
determined the shares’ value, the next step is ordering the purchase “on the
terms and conditions as the court deems appropriate.” A.R.S. § 10–1434(E).
Reading “shall” as mandatory would eliminate the court’s discretion under
A.R.S. § 10–1434(B) to provide for a different resolution of the proceedings
if that “would be equitable to the corporation and the shareholders.” Such
a reading contradicts the statutory construction rule that related statutes
must be “read together and harmonized[] to avoid rendering any clause,
sentence or word ‘superfluous, void, contradictory or insignificant.’” State
v. Cid, 181 Ariz. 496, 499–500, 892 P.2d 216, 219–220 (App. 1995) (quoting
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State v. Johnson, 171 Ariz. 39, 42, 827 P.2d 1134, 1137 (App. 1992)) (citations
omitted). Moreover, determining the fair value of shares does not preclude
the court from halting proceedings in an election to purchase in lieu of
dissolution under A.R.S. § 10–1434(A) if doing so is equitable to the
shareholders or the corporation.
¶21 The court acted within its discretion in finding that stopping
the dissolution proceedings and allowing the exercise of the Shotgun
Provision was equitable. Allowing Gries and Harper to exercise the
provision respected their freedom of contract—to provide by private
contract a method of resolving their business disputes. Freedom to contract
“has long been considered a valuable right.” Consumers Intern., Inc. v. Sysco
Corp., 191 Ariz. 32, 34, 951 P.2d 897, 899 (App. 1997) (“[I]f there is one thing
which more than another public policy requires it is that [people] of full age
and competent understanding shall have the utmost liberty of contracting,
and that their contracts when entered into freely and voluntarily shall be
held sacred and shall be enforced by Courts of justice.”) (quoting Wood
Motor Co. v. Nebel, 238 S.W.2d 181, 185 (1951)). “Our law generally
presumes, especially in commercial contexts, that private parties are best
able to determine if particular contractual terms serve their interests.” 1800
Ocotillo, LLC v. WLB Group, Inc., 219 Ariz. 200, 202 ¶ 8, 196 P.3d 222, 224
(2008). Consistent with that principle, A.R.S. § 10–732(A) recognizes that
shareholders may arrange their rights and obligations between each other
and their corporation as they see fit, even if the arrangements differ from
the provisions of Arizona’s corporation statutes: “An agreement among the
shareholders of a corporation that complies with this section is effective
among the shareholders and the corporation even though it is inconsistent
with one or more other provisions of chapters 1 through 17 of this title if it
meets . . . [certain conditions].” Allowing the exercise of the Shotgun
Provision honored Gries and Harper’s agreement.
¶22 Moreover, as the superior court recognized, exercising the
Shotgun Provision fairly resolved Gries and Harper’s business dispute. A
shotgun provision in a shareholder’s agreement allows one party to set the
purchasing price of other party’s shares, and the other party the option of
buying or selling the shares at that price. If the first party sets the share price
below its fair value, that party risks the other party buying the shares too
cheaply. If the first party sets the price above fair value, that party risks the
other party selling the shares at an inflated price. To avoid selling too
cheaply or buying too dearly, the first party will set a price at the fair value
and will receive or give fair value, depending on the other party’s decision
to buy or sell. The other party, likewise, will buy or sell at the fair value, as
the party deems appropriate. In this way, the shareholders of a company
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guarantee that any business dispute they may have will result in a
financially fair resolution.
¶23 The Shotgun Provision here operated as Gries and Harper
had intended. Gries was in a better position than the court to assess the
value of PDR’s shares and offered to buy Harper’s shares for $1.5 million.
Pursuant to the Shotgun Provision, Harper had the choice of accepting
Gries’s offer or buying Gries’s shares herself. This resulted in a financially
fair outcome because Harper’s power to choose to sell her shares to Gries
or to buy Gries’s shares at the price Gries initially set required Gries to set
a fair price. The Shotgun Provision ensured a fair resolution to their
business dispute.
¶24 Harper nevertheless argues that allowing Gries to exercise the
Shotgun Provision was inequitable because her need to preserve her
noneconomic interest in PDR forced her to buy his shares. Although Harper
may have had personal motivations to buy Gries’s shares to maintain
control and involvement over PDR, such motivations do not constitute
improper coercion. See Reichenberger v. Salt River Project, 50 Ariz. 144, 156,
70 P.2d 452, 457 (1937) (“The reasons which induce parties to enter into a
contract are generally immaterial as a matter of law. If there be a legal
consideration for the contract, then the question for the court is not ‘why
did the parties make the contract,’ but ‘what contract did they make.’”).
Harper freely chose to enter into a shareholder’s agreement that contained
the Shotgun Provision—which she knew would require her to choose
between selling her shares to Gries or buying Gries’s shares if a dispute
arose. Pursuant to the Shotgun Provision, Harper freely chose to buy
Gries’s shares. The motivations behind her choice are irrelevant. Because
Harper’s choice was voluntary, holding her to her contractual obligation to
buy Gries’s shares—which in return gave her complete ownership and
control of the company—was equitable. The court thus did not abuse its
discretion in allowing the exercise of the Shotgun Provision and dismissing
the dissolution action.
III. The Dismissal of Gries’s Amended Complaint for Damages
¶25 Gries argues that the superior court erred in dismissing his
claim for damages despite its finding that the Retirement Agreement was a
shareholder’s agreement. The basis of Gries’s claim is that Harper
improperly continued to pay herself pursuant to the Retirement Agreement
when it had expired as a shareholder’s agreement after ten years. See A.R.S.
§ 10–732(B)(3). Harper, however, argues that Gries had no claim for
damages because the Retirement Agreement was not a shareholder’s
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agreement and thus did not expire after ten years. Harper contends that the
Retirement Agreement does not satisfy the statutory requirements of a
shareholder’s agreement set forth in A.R.S. § 10-732(B) because (1) the
minutes from that meeting do not contain the signatures of the Gries Family
Limited Partnership and the Harper Family Limited Partnership; (2) the
Retirement Agreement was created during the director’s portion of that
meeting and not during the shareholder’s portion; and (3) Gries and Harper
signed the Retirement Agreement as officers of PDR.
¶26 We review questions of statutory interpretation de novo. City
of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, 178 ¶ 5, 181 P.3d 219,
225 (App. 2008). “In construing a statute, we look to the plain language of
the statute, giving effect to every word and phrase, and assigning to each
word its plain and common meaning.” Ponderosa Fire Dist. v. Coconino Cnty.,
1 CA-CV 13-0545, 2014 WL 3608597, at *5 ¶ 24 (Ariz. App. July 2014). If the
language is clear and unambiguous, we apply it without considering other
methods of statutory interpretation. Id.¶27 Section 10–732 governs the formation of a shareholder’s
agreement. Subsection A identifies the possible subjects that a shareholder
may determine or regulate in shareholder agreements, including
“establish[ing] the terms and conditions of employment of shareholders.”
A.R.S. § 10–732(A)(8). Subsection B identifies the requirements of a valid
shareholder’s agreement. The agreement must be set forth in either (1) “the
articles of incorporation or bylaws and approved by all persons who are
shareholders at the time of the agreement,” A.R.S. § 10–732(B)(1)(a), or (2)
“a written agreement that is signed by all persons who are shareholders at
the time of the agreement that is filed with the corporation,” A.R.S. § 10–
732(B)(1)(b). If these requirements are met, the agreement is valid for ten
years, unless the agreement provides otherwise. A.R.S. § 10–732(B)(3).
¶28 The Retirement Agreement did not satisfy A.R.S. § 10–
732(B)’s requirements. Although the Retirement Agreement falls within the
scope of A.R.S. § 10–732(A)(8) by establishing the terms and conditions of
Gries’s and Harper’s employment, it falls short of A.R.S. § 10–732(B)(1)’s
requirement that the agreement be signed by “all persons who are
shareholders” in two ways. First, the Retirement Agreement was signed
only by Gries and Harper in their corporate capacities as PDR’s Chairman
and Secretary—not as shareholders. Second, unlike the 1985 shareholder’s
agreement, the Retirement Agreement did not contain the signatures of the
Harper Family Limited Partnership and the Gries Family Partnership,
which each owned fifty shares of PDR stock. Because the Retirement
Agreement was not “signed by all persons who are shareholders,” the
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Retirement Agreement is not a shareholder’s agreement and thus not
subject to expiration after ten years. Rather, the Retirement Agreement is a
valid employment agreement that established Gries’s and Harper’s
compensation in light of Gries’s retirement from PDR. Thus, the trial court
did not err in dismissing Gries’s amended complaint for damages because
his claim was predicated on a finding that the Retirement Agreement had
expired after ten years, which it did not. In re Estate of Reynolds, 235 Ariz.
80, 85 ¶ 26, 327 P.3d 213, 218 (App. 2014) (stating that an appellate court
will affirm the trial court’s ruling if correct for any reason).
IV. Attorneys’ Fees At Trial
¶29 We next consider Harper’s argument that the superior court
failed to award her attorneys’ fees under A.R.S. § 12–349, which provides
for an award of attorneys’ fees as a sanction for an unjustified action. Café
Valley, Inc. v. Navidi, 235 Ariz. 252, 256 ¶ 15, ___ P.3d___, ___ (App. 2014).
The record is devoid of evidence that Gries’s claim was unjustified. We
therefore affirm the superior court’s decision to not award Harper
attorneys’ fees.
V. Attorneys’ Fees On Appeal
¶30 Both parties request an award of attorneys’ fees on appeal
pursuant to A.R.S. § 12–341.01(A). In our discretion, we deny both requests
for attorneys’ fees.
CONCLUSION
¶31 For the foregoing reasons, we affirm.
:JT
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