R.D. Clark & Sons, Inc. v. Clark ( 2019 )

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R.D. CLARK & SONS, INC., ET AL. v.
JAMES CLARK ET AL.
(AC 40592)
DiPentima, C. J., and Devlin and Sullivan, Js.
Syllabus
The plaintiff R Co. sought to recover damages from the defendant J, a
minority shareholder of R. Co., for alleged breach of fiduciary duty.
Since 1984, R Co., which was founded by R, the late father of the
individual parties, who are all siblings, has operated as a specialty freight
trucking business. When R died, C assumed R’s shares of R Co., and
the siblings managed R Co.’s operations until they had a falling out in
2011, and J resigned from his positions as an officer and director of
R Co. After the plaintiffs commenced the underlying action, J filed a
counterclaim seeking dissolution of R Co. on the ground that the individ-
ual plaintiffs had engaged in illegal, oppressive and fraudulent conduct
to J’s detriment. In lieu of dissolution, R Co. elected to purchase J’s
shares in it at fair value, and the plaintiffs withdrew their complaint. J
thereafter filed a second amended counterclaim alleging that R Co. had
engaged in oppressive conduct because for many years it provided
shareholders with funds to pay federal income tax liabilities incurred
as a result of the pass-through of R Co.’s profits to them, but J had not
received any such payments for the years of 2012, 2013, and 2014, even
though he remained a shareholder. Because the parties could not agree
as to the fair value of J’s shares or to the terms of R Co.’s purchase of
them, those issues were presented to the court, which, after a trial,
determined the value of R Co. and the fair value of J’s shares, and
concluded that because R Co., through its majority shareholders,
engaged in oppressive conduct toward J, J’s interest in R Co. would not
be subject to a minority discount. The court held further evidentiary
hearings and determined that J’s shares would not be reduced by a
marketability discount and that J was entitled to attorney’s fees and
expert witness fees, and the court ordered R Co. to pay J certain sums.
R Co. appealed to this court from the judgment of the trial court determin-
ing the fair value of J’s shares, establishing the terms of payment for
the purchase of those shares, and awarding attorney’s fees and expert
witness fees. J, on cross appeal, claimed that the trial court erred in
not awarding attorney’s fees in the amount of one third of the value of
his interest in R Co. pursuant to a contingency fee agreement that he
had signed with his counsel. Held:
1. R Co. could not prevail on its claim that the trial court erred by not tax
affecting its earnings in analyzing its valuation; the court did not abuse
its discretion in declining to tax affect R’s future cash flow, as the court,
in the absence of binding authority, carefully considered cases from
other jurisdictions, which provided considerable support for its
approach, the court was tasked with determining fair value, as opposed
to fair market value, and the present case was ill-suited to tax affecting
earnings in light of R Co.’s practice of extending loans to shareholders
to cover their tax liabilities and then retiring those loans through the
payment of bonuses, and it was entirely foreseeable that such a practice
would continue after R Co. purchased J’s shares.
2. The trial court did not err in declining to apply a minority discount to
the value of J’s shares, or in awarding attorney’s fees and expert witness
fees on the ground that J suffered oppression at the hands of R Co.’s
majority shareholders: there was no basis in the record to support R
Co.’s claim that J did not have a reasonable expectation of assistance
from R Co. to cover his tax liabilities, and even though R Co. claimed
that the decision of whether to assist J in covering his tax liabilities
was made by its financial advisory board, not by the majority sharehold-
ers, that claim rested on the testimony of M, a financial advisor, who
the court expressly found not credible; moreover, although R Co. claimed
that J failed to establish his tax obligations for the years in question,
the record supported the court’s finding that R Co. provided tax adjust-
ments to shareholders who had a potential tax liability, not only to those
who proved an actual tax liability, and the court properly rejected R
Co.’s claim that any oppression occurred only after J petitioned for
dissolution, as the court’s finding of oppression was not limited to the
2014 tax year, but began in 2011, when J resigned as an officer and
director, and, therefore, the court’s finding of minority oppression was
not clearly erroneous, it did not abuse its discretion by not applying a
minority discount to the value of J’s shares in R Co., and R Co.’s challenge
to the court’s award of attorney’s fees and expert witness fees failed.
3. R. Co. could not prevail on its claim that the trial court erred in declining
to apply a marketability discount to the value of J’s shares, which was
based on its claim that the court’s failure to do so caused an undue
financial burden: the court examined R Co.’s finances and the value of
J’s shares, and determined that there were no extraordinary circum-
stances that warranted a marketability discount, and even though J’s
one-third share of R Co. was substantial, that did not mean that R Co.
should not be required to pay fair value for J’s shares; moreover, the
court focused on the financial burden of its judgment on R Co., as well
as on R Co.’s financial viability, when it fashioned the ten year payment
plan afforded to R Co. to satisfy the judgment, and, therefore, R Co.
could not prevail on a claim of unfair financial burden simply because
it might experience difficulty satisfying the court’s judgment.
4. The trial court did not abuse its discretion in accounting for a certain
loan due to R Co. from J and in ordering that certain sums be paid to
J within thirty days of the date of judgment; given the irregular bookkeep-
ing employed by R Co., the court’s treatment of those sums was reason-
able and equitable, as the court included J’s loan balance as an asset
of R Co., adding it, along with the loan balances of other shareholders,
to the capitalized cash flow in arriving at R Co.’s total value, and it
essentially credited J for the bonus provided to the two other sharehold-
ers in 2014 and reduced the value of J’s share in R Co., and the court’s
decision to add the loan balance to the overall value of R Co. while
reducing the value of J’s shares by the credit was an imperfect, but
justifiable treatment of those sums.
5. J could not prevail on his claim on cross appeal that the trial court abused
its discretion by declining to award attorney’s fees in the amount of
one third of the value of J’s shares in R Co. in accordance with a
contingency fee agreement that he had signed with his counsel; although
J claimed that the court did not first analyze the terms of the fee agree-
ment before departing from its terms to prevent substantial unfairness
to R Co., because the court reached the issue of substantial unfairness,
the court necessarily first analyzed the terms of the contingency fee
agreement and found that its terms were reasonable, and the court did
not err in finding that adherence to the agreement would be substantially
unfair to R Co., as the court did not hold that the agreement was
unreasonable but, rather, found that the resulting award was unreason-
able because it was over $100,000 more than an award based upon the
actual services rendered by J’s attorneys, and that finding was sufficient
to sustain the court’s determination that adhering to the agreement
would be substantially unfair.
Argued September 9—officially released December 10, 2019
Procedural History
Action seeking damages for, inter alia, breach of fidu-
ciary duty, and for other relief, brought to the Superior
Court in the judicial district of Hartford, where the
named defendant filed a counterclaim seeking, inter
alia, dissolution of the named plaintiff corporation;
thereafter, the named plaintiff elected to purchase the
named defendant’s stock in the named plaintiff at fair
value; subsequently, the plaintiffs withdrew their com-
plaint; thereafter, the named defendant filed a second
amended counterclaim; subsequently, the matter was
tried to the court, Hon. Joseph M. Shortall, judge trial
referee; judgment determining the fair value of the
named defendant’s shares in the named plaintiff and
establishing terms of payment; thereafter, the court
awarded the named defendant attorney’s fees and
expenses, and the plaintiffs appealed to this court and
the named defendant filed a cross appeal; subsequently,
the defendant Carolyn Manchester et al. withdrew their
claims on appeal. Affirmed.
Richard P. Weinstein, with whom, on the brief, was
Sarah Lingerheld, for the appellant-cross appellee
(named plaintiff).
Jack G. Steigelfest, with whom was Christopher M.
Harrington, for the appellee-cross appellant (named
defendant).
Opinion
DEVLIN, J. In this case involving the buyout of minor-
ity shares of a closely held corporation, the plaintiff,
R.D. Clark & Sons, Inc. (corporation),1 appeals, and
the defendant James Clark2 cross appeals, from the
judgment of the trial court determining the fair value
of those shares, establishing the terms of payment for
the purchase of those shares, and awarding attorney’s
fees to the defendant. On appeal, the corporation
asserts that the trial court erred in determining the
value of the defendant’s shares by (1) not tax affecting
the corporation’s earnings in analyzing its valuation, (2)
not applying a minority discount to the value of the
defendant’s shares, and awarding the defendant attor-
ney’s and expert witness fees and costs, on the ground
that the defendant suffered minority oppression at the
hands of the plaintiffs, (3) not applying a marketability
discount to the value of the defendant’s shares, and (4)
incorrectly accounting for a certain loan due to the
corporation from the defendant and ordering that cer-
tain sums be paid to the defendant within thirty days
of the date of judgment. On cross appeal, the defendant
claims that the court erred by not awarding him attor-
ney’s fees in the amount of one third of the value of
his shares in the corporation in accordance with the
retainer agreement that he had signed with his counsel.
We affirm the judgment of the trial court.
The following factual and procedural history is rele-
vant to the issues on appeal. Since 1984, the corpora-
tion, which was founded by Robert D. Clark, the late
father of the individual parties, who are all siblings,
has operated as a specialty freight trucking business,
transporting primarily gasoline, kerosene and water.
Robert D. Clark owned one third of the shares of the
corporation, and John Clark and the defendant also
each owned one third. When Robert D. Clark died in
May, 2011, Carolyn Manchester assumed his shares of
the corporation. The three siblings served as officers
and directors of the corporation, and managed the oper-
ations of the corporation until they had a falling out
later in 2011, and the defendant was terminated from
his position as a driver and occasional dispatcher. The
defendant resigned from his positions as an officer and
director of the corporation in February, 2012.
On April 2, 2014, the plaintiffs commenced the under-
lying action against the defendant and Smart Choice.
In their five count complaint, the plaintiffs alleged, inter
alia, that the defendant, after being terminated from his
employment with the corporation in 2011, improperly
utilized certain proprietary information to start a new
business, Smart Choice, and undermined the corpora-
tion’s business operations.
On September 19, 2014, the defendant and Smart
Choice filed an answer and special defenses, and the
defendant, alone, filed a five count counterclaim seek-
ing, inter alia, dissolution of the corporation pursuant
to General Statutes § 33-896 (a),3 on the ground that
the individual plaintiffs had engaged in illegal, oppres-
sive and/or fraudulent conduct to his detriment.
On November 21, 2014, the corporation elected, in
lieu of dissolution, to purchase the defendant’s shares
in it at the fair value of those shares, pursuant to General
Statutes § 33-900.4
On February 24, 2016, the plaintiffs withdrew their
complaint against the defendant and Smart Choice. Also
on that date, the defendant filed a second amended
counterclaim alleging that the corporation had a prac-
tice for many years of providing shareholders with
funds to pay the federal income tax liabilities incurred
by them as a result of the pass-through of the corpora-
tion’s profits to them, but that the defendant had not
received any such payments from the corporation for
the years 2012, 2013 and 2014, although he remained a
shareholder of the corporation. The defendant claimed
that said conduct by the plaintiffs was oppressive.
The parties were unable to reach an agreement as
to the fair value of the defendant’s shares in the corpora-
tion and the terms of the corporation’s purchase of
them, so those issues were presented to the court for
determination. After a trial spanning several days in
December, 2015, and February, 2016, the court issued
a memorandum of decision on August 30, 2016,
determining that (1) as of December 31, 2014,5 the value
of the corporation was $3,708,413, and the fair value
of the defendant’s shares of the corporation was
$1,236,138, and (2) because the corporation, through
the actions of its majority shareholders, engaged in
oppressive conduct toward the defendant, the value
of the defendant’s interest in the corporation was not
subject to a minority discount. The court further
ordered that it would hold another hearing on the issues
of whether there were extraordinary circumstances to
justify the application of a marketability discount to
the value of the defendant’s shares, the terms according
to which the corporation would purchase those shares,
and whether the defendant was entitled to an award of
reasonable attorney’s and expert witness fees and
expenses.
On September 8, 2016, the corporation filed a motion
for reargument and reconsideration. On October 24,
2016, the court issued a memorandum of decision grant-
ing in part and denying in part that motion, determining
that, upon reconsideration, the value of the corporation
as of December 31, 2014, was $2,356,719, and the fair
value of the defendant’s shares in the corporation
was $785,573.
On December 30, 2016, following another evidentiary
hearing, the trial court issued a memorandum of deci-
sion determining, inter alia, that the value of the defen-
dant’s shares of the corporation should not be reduced
by a marketability discount, the defendant was entitled
to statutory attorney’s and expert witness fees and
expenses pursuant to § 33-900 (e),6 and the defendant
was not entitled to prejudgment interest, but was enti-
tled to postjudgment interest.
On June 19, 2017, the trial court issued a memoran-
dum of decision, following another hearing held on
April 27, 2017, rendering judgment against the corpora-
tion and in favor of the defendant, holding that the
defendant was entitled to a total sum of $983,028.09,
including statutory attorney’s fees and expert witness
fees and expenses. The court also found that the defen-
dant was entitled to postjudgment interest at the rate
of 2.25 percent. The court ordered the corporation to
pay $87,653 to the defendant within thirty days and,
further, to pay $8339.29 per month to the defendant for
a period of ten years, and to maintain a performance
bond to secure payment of the judgment. The court
also dismissed the defendant’s counterclaim seeking a
dissolution of the corporation.
On June 28, 2017, the corporation filed a motion for
reconsideration limited to the portions of the trial
court’s June 19, 2017 decision requiring it to pay $87,653
to the defendant within thirty days and ordering it to
obtain a performance bond. The court held an eviden-
tiary hearing on these issues on August 24, 2017. On
September 14, 2017, the court issued a memorandum
of decision declining to modify its order that the corpo-
ration pay $87,653 to the defendant within thirty days.
The court, however, vacated its order requiring the cor-
poration to obtain a performance bond, but ordered
that the corporation satisfy its monthly installments on
the first of each month and that it be assessed a late
charge if it did not timely satsisfy that obligation.
The corporation appeals from the judgment of the
trial court determining the value of the defendant’s
shares and its award of attorney’s and expert witness
fees and expenses to the defendant. The defendant does
not quarrel with the trial court’s determination of the
value of his interest in the corporation, but challenges,
by way of cross appeal, the court’s decision not to
award attorney’s fees in the amount of one third of the
value of his interest in the corporation pursuant to
the contingency fee agreement that he had signed with
his counsel.
I
APPEAL
Because all of the claims raised by the corporation
on appeal stem from the valuation of the defendant’s
shares in it, we begin by setting forth the following
general applicable legal principles. As noted herein, the
corporation elected to purchase the defendant’s shares
at the fair value of those shares pursuant to § 33-900
(a). Section 33-900 (d) provides that, if the parties are
unable to reach an agreement as to the fair value of
the shares, the court shall determine the fair value of
them as of the day before the date on which the petition
was filed or as of such other date as the court deems
appropriate under the circumstances.
‘‘Fair value’’ is not defined in § 33-900. It is, however,
defined in a separate provision of the Connecticut Busi-
ness Corporation Act, which encompasses General Stat-
utes §§ 33-600 to 33-998. General Statutes § 33-855 (3)7
provides in relevant part: ‘‘ ‘Fair value’ means the value
of the corporation’s shares determined . . . (B) using
customary and current valuation concepts and tech-
niques generally employed for similar businesses in the
context of the transaction requiring appraisal, and (C)
without discounting for lack of marketability or minor-
ity status . . . .’’ This definition is identical to the defi-
nition of ‘‘fair value’’ contained in its counterpart under
§ 13.01 (4) of the American Bar Association’s Model
Business Corporation Act.8 Given this definition, it
seems evident that neither a minority discount nor a
marketability discount would apply to the determina-
tion of the fair value of shares that are being purchased
by a corporation, versus being sold on the market. This
position is supported by the widely accepted principle
that ‘‘fair value’’ is not synonymous with ‘‘fair market
value.’’ See, e.g., Pueblo Bancorporation v. Lindoe, Inc.,
63 P.3d 353, 363 (Colo. 2003); Brynwood Co. v.
Schweisberger, 393 Ill. App. 3d 339, 353, 913 N.E.2d 150(2009); Franks v. Franks, Court of Appeals of Michigan,
Docket No. 343290, N.W.2d , 2019 WL 4648446,
*15 (Mich. App. September 24, 2019); Balsamides v.
Protameen Chemicals, Inc., supra, 160 N.J. 374–77;
Columbia Management Co. v. Wyss, 94 Or. App. 195,
202–206, 765 P.2d 207 (1988); HMO-W, Inc. v. SSM
Health Care System, 234 Wis. 2d 707, 717–23, 611
N.W.2d 250 (2000). Accordingly, most courts disfavor
the application of minority or marketability discounts
in situations such as the one presented in this case.
Connecticut has no appellate authority on this issue.
Here, the trial court did not make a pronouncement
regarding the allowance or prohibition of minority or
marketability discounts as a matter of law. Rather, the
trial court presumed the propriety of their application,
but declined to apply either given the facts presented
in this case. We thus limit our analysis to the holdings
of the trial court and the corporation’s specific chal-
lenges to them.
There is no appellate authority mandating that a par-
ticular methodology be employed in determining fair
value when a corporation elects to buy out a minority
shareholder in lieu of dissolution. It is, however, well
settled that ‘‘valuation is a factual determination. In
assessing the value of . . . property . . . the trier
arrives at [its] own conclusions by weighing the opin-
ions of the appraisers, the claims of the parties, and
[its] own general knowledge of the elements going to
establish value, and then employs the most appropriate
method of determining valuation. . . . The trial court
has the right to accept so much of the testimony of the
experts and the recognized appraisal methods which
they employed as [it] finds applicable; [its] determina-
tion is reviewable only if [it] misapplies, overlooks, or
gives a wrong or improper effect to any test or consider-
ation which it was [its] duty to regard. . . . In
determining whether the trial court reasonably could
have concluded as it did on the basis of the evidence
before it, we will give every reasonable presumption
in favor of the correctness of [its] action.’’ (Citation
omitted; internal quotation marks omitted.) Siracusa
v. Siracusa, 30 Conn. App. 560, 568–69, 621 A.2d 309(1993). ‘‘The trial court’s findings are binding upon this
court unless they are clearly erroneous in light of the
evidence and the pleadings in the record as a whole.
. . . A finding of fact is clearly erroneous when there
is no evidence in the record to support it . . . or when
although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed.
. . . Therefore, to conclude that the trial court abused
its discretion, we must find that the court either incor-
rectly applied the law or could not reasonably conclude
as it did.’’ (Internal quotation marks omitted.) Britto v.
Britto, 166 Conn. App. 240, 245–46, 141 A.3d 907 (2016).
The methodology used by the trial court in this case,
as well as the parties’ expert witnesses, to determine
the value of the corporation as a going concern as of
December 31, 2014, was (1) to make a projection of
future cash flow, (2) to make adjustments to normalize
this cash flow and (3) to apply a capitalization rate to
arrive at a value for the business. Both parties presented
expert testimony in support of their respective posi-
tions. The trial court expressly considered the various
opinions of both expert witnesses, but, for the most
part, agreed with the valuation methods and calcula-
tions utilized by the corporation’s expert witness.
Despite the multitude of factors considered by the
trial court in calculating the fair value of the defendant’s
shares in the corporation, and the complexity of those
calculations, the corporation challenges the trial court’s
valuation on only three grounds. The corporation claims
that the trial court erred by (1) not tax affecting the
corporation’s earnings in connection with its cash flow
valuation analysis, (2) not making a downward adjust-
ment in the value of the defendant’s shares because
the defendant was a minority shareholder, and (3) not
making a downward adjustment in the value of the
defendant’s shares because of the limited marketability
of shares in a closely held corporation. We address each
of these claims, in addition to the plaintiff’s challenge
to the trial court’s award of attorney’s and expert wit-
ness fees to the defendant, in turn.
A
The corporation first challenges the trial court’s deci-
sion not to tax affect earnings in its analysis of the
corporation’s cash flow valuation. In performing their
respective analyses of the value of the corporation, both
of the parties’ expert witnesses decreased the corpora-
tion’s normalized earnings to reflect a pass-through tax
rate; the corporation’s expert applied a 25 percent tax
rate and the defendant’s expert applied a 12.6 percent
tax rate. The trial court declined to apply any tax affect-
ing adjustment. The corporation argues that ‘‘the [trial
court’s] failure to apply any tax adjustment results in
an artificially inflated value of the corporation because
it fails to take into account that shareholders will not
receive the full benefit of the corporation’s earnings
because they must pay income tax on same.’’9 (Empha-
sis omitted.) In other words, the corporation contends
that the trial court should have reduced its projected
future income by deducting hypothetical corporate
income taxes even though, as an S corporation,10 it does
not pay taxes. We disagree.
‘‘[V]aluation is a fact specific task exercise; tax affect-
ing is but one tool in accomplishing that task.’’ (Internal
quotation marks omitted.) D. Tinkelman et al., ‘‘Sub S
Valuation: To Tax Effect, or Not to Tax Effect, Is Not
Really the Question,’’ 65 Tax Law. 555, 587 (2012). Tax
affecting ‘‘is the discounting of estimated future corpo-
rate earnings on the basis of an assumed future tax
burden imposed on those earnings . . . .’’ Dallas v.
Commissioner of Internal Revenue, T. C. Memo 2006-
212, 92 T.C.M. (CHH) 313, 315 n.3 (T.C. 2006). The
application of tax affecting to S corporations is compli-
cated by the fact that S corporations do not pay taxes.
See 26 U.S.C. § 1363 (a). Rather, the S corporation pas-
ses its income through to its shareholders who report
their pro rata shares of that income on their individual
tax returns. See 26 U.S.C. § 1366. Indeed, in the view
of the United States Tax Court (tax court) and the
Internal Revenue Service, the principal benefit enjoyed
by S corporation shareholders is the reduction in the
total tax burden imposed on the enterprise, a burden
that should be considered when valuing an S corpora-
tion. Gross v. Commissioner of Internal Revenue, T.
C. Memo. 1999-254, 78 T.C.M. (CCH) 201, 209 (T.C.
1999), aff’d, 272 F.3d 333 (6th Cir. 2001). Accordingly
in Gross, the tax court approved, and the United States
Court of Appeals for the Sixth Circuit affirmed, a valua-
tion of stock in an S corporation that did not tax affect
future earnings. Id., 335. Subsequent to Gross, the tax
court has repeatedly refused to tax affect estimated
earnings to determine the value of an S corporation. See,
e.g., Estate of Gallagher v. Commissioner of Internal
Revenue, T. C. Memo 2011-148, p. 12, 101 T.C.M. (CCH)
1702 (T.C. 2011) (‘‘we will not impose an unjustified
fictitious corporate tax rate burden on [the company’s]
future earnings’’)
The propriety of the application of tax adjustments
has been, and remains, the subject of considerable
debate, and there is no Connecticut law that mandates
a specific approach to tax affecting. Like the tax court,
some courts have chosen to reject an adjustment to
S corporation cash flows based on taxes. See In re
Radiology Assocsiates, Inc. Litigation, 611 A.2d 485,
495 (Del. Ch. 1991) (ignoring taxes altogether is only
way discounted cash flow analysis can reflect accu-
rately value of cash flow to investors); In the Matter
of the Dissolution of Bambu Sales, Inc., New York
Supreme Court, 177 Misc. 2d 459, 464–66, 672 N.Y.S.
2d 613 (N.Y. Sup. December 17, 1997) (use of income
method approach to value interest of minority share-
holder without adjusting for taxes); Vicario v. Vicario,
901 A.2d 603, 609 (R.I. 2000) (trial court did not abuse
discretion in not tax affecting earnings of S corpo-
ration).
Some courts, however, take a different view. The
Delaware Court of Chancery approved the tax affecting
of S corporation earnings in Delaware Open MRI Radi-
ology Associates, P.A. v. Kessler, 898 A.2d 290 (Del. Ch.
2006). In Kessler, the court rejected both tax affecting
at corporate rates and not tax affecting at all. Id. 326–30.
Instead, comparing the income that could be received
by shareholders in an S corporation and a C corporation
after consideration of corporate taxes, dividend taxes
and individual taxes, the court calculated a tax adjust-
ment that would equalize the after-tax income each
shareholder would receive. Id. The Kessler opinion
cited to and acknowledged the earlier decision of the
Delaware Chancery Court, In re Radiology Associates,
Inc. Litigation, supra, 611 A.2d 485, and embraced its
reasoning that the tax advantages of an S corporation
should be given weight in the valuation analysis. Dela-
ware Open MRI Radiology Associates, P.A. v. Kessler,
supra, 327–28. Kessler, however, disagreed that the
proper method to implement the S corporation tax ben-
efits was to ignore taxes. Id.The Supreme Judicial Court of Massachusetts
approved of this approach in a case involving the valua-
tion of an S corporation in a marital dissolution matter.
Bernier v. Bernier, 449 Mass. 774, 782–83 n.15, 873
N.E. 2d 216 (2007). Some experts on corporate finance
continue to advocate for tax affecting despite criticism
by the tax court. Wall v. Commissioner of Internal
Revenue, T. C. Memo 2001-75, 81 T.C.M. (CCH) 1425,
1439 n.25 (T.C. 2001).
Against this complicated legal backdrop, the trial
court in the present case decided not to tax affect the
future cash flow of the corporation. In this regard, the
trial court did not abuse its discretion for several rea-
sons. First, such an approach finds considerable sup-
port in the previously cited tax cases as well as Gross,
the only reported decision on tax affecting by a United
States Court of Appeals. Second, the trial court in the
present case was tasked with determining fair value, not
fair market value. Kessler, in particular, was concerned
with how willing buyers and sellers in a free market
would value the stock in question. Bernier likewise
involved a fair market valuation. Third, the issue of tax
affecting continues to be an open debate among experts
in the field. See D. Tinkelman, supra, 65 Tax Law. 557(appraisal profession considers this controversial area,
with some experts believing no S corporation premium
is appropriate, and others endorsing use of one of num-
ber of different models to measure S corporation pre-
mium). Finally, the present case seems particularly ill-
suited to tax affecting earnings in light of the corpora-
tion’s practice of extending loans to shareholders to
cover their tax liabilities and then retiring those loans
through the payment of bonuses. It was entirely foresee-
able that such a practice would continue after the defen-
dant’s shares were purchased by the corporation.
Our decision that the trial court did not abuse its
discretion in not tax affecting projected future earnings
is based on the facts of this case. We discern no bright
line rule in this area. A trial court facing the issue of
tax affecting in the future would certainly be able to
consider cases such as Gross, Kessler and Bernier to
decide whether tax affecting is appropriate under the
circumstances. We conclude that, in the absence of
binding authority, the trial court carefully considered
the approaches employed by other jurisdictions and
properly exercised its broad discretion by declining to
tax affect the corporation’s earnings.
B
The corporation next asserts that the trial court erred
in not applying a discount to the value of the defendant’s
shares because of his status as a minority shareholder.
The idea behind this so-called minority discount is that
in an arms-length transaction, a willing buyer would
pay less for a noncontrolling interest in a closely held
corporation. Pueblo Bancorporation v. Lindoe, Inc.,
supra, 63 P.3d 360. The trial court declined to reduce
the value of the defendant’s shares by a minority dis-
count on the basis of its determination that the defen-
dant had been subjected to oppressive conduct at the
hands of the majority shareholders of the corporation.
The corporation claims on appeal that the evidence
presented at trial did not support the trial court’s finding
of minority oppression. The corporation also argues
that the court improperly awarded attorney’s fees and
expert witness fees and expenses pursuant to § 33-900
(e) on the basis of that erroneous finding of oppression.
1
We first address the corporation’s argument that the
trial court erroneously determined that the majority
shareholders engaged in oppressive conduct against
the defendant. In addressing the defendant’s claim of
minority oppression, the trial court explained: ‘‘In his
second amended counterclaim, seeking dissolution of
the corporation pursuant to . . . § 33-896 (a) (1) [(B)],
[the defendant] limits his claim of oppression to the
allegation that, even though he remained a shareholder
after his firing in September, 2011, John [Clark] and
Carolyn [Manchester] excluded him from the corpora-
tion’s long-standing policy of providing shareholders
with funds to pay the federal tax liabilities they incurred
as shareholders in an S corporation.’’ Noting that the
defendant’s claim of oppression impacted both the cor-
poration’s claim for a minority discount and the defen-
dant’s claim for attorney’s fees and expert witness fees
and expenses, the court set forth the following defini-
tion of oppression, which is applied in numerous juris-
dictions and has been accepted by the parties in this
case: ‘‘Oppression in the context of a dissolution suit
suggests a lack of probity and fair dealing in the affairs
of a company to the prejudice of some of its members,
or a visible departure from the standards of fair dealing
and a violation of fair play as to which every shareholder
who entrusts his money to a company is entitled. . . .
[O]ppressive conduct in the corporate dissolution con-
text . . . arise[s] when the controlling directors’ con-
duct substantially defeats expectations that, objectively
viewed, were both reasonable under the circumstances
and were central to the petitioner’s decision to join
the firm.’’ (Citation omitted; internal quotation marks
omitted.) See, e.g., Rullan v. Goden, 134 F. Supp. 3d
926, 949 (D. Md. 2015); Natale v. Espy Corp., 2 F. Supp.
3d 93, 104 (D. Mass. 2014); Bontempo v. Lare, 444 Md.
344, 365–66, 119 A.3d 791 (2015); Muellenberg v. Bikon
Corp., 143 N.J. 168, 178–80, 669 A.2d 1382 (1996); Matter
of Kemp & Beatley, Inc., 64 N.Y.2d 63, 73, 473 N.E.2d
1173, 484 N.Y.S.2d 799 (1984); Scott v. Trans-System,
Inc., 148 Wash. 2d 701, 710–11, 64 P.3d 1 (2003).
With the foregoing definition in mind, the court set
forth the following findings and reasoning: ‘‘The facts
underlying [the defendant’s] claim are not in dispute.
[The defendant] testified that his father had begun the
practice of making funds available to the shareholders
to cover their income tax liabilities on their share of
the corporation’s profits right from the establishment of
the corporation. Brian McAnneny, a financial consultant
who has served as the corporation’s chief financial offi-
cer for many years, affirmed that in 2009, John [Clark]
and [the defendant] received approximately $60,000–
$70,000 each from the corporation to pay federal
income taxes on their share of the corporation’s profits.
No such payments were made to them in 2010 because
the corporation lost money that year. That loss provided
both John [Clark] and [the defendant] with a loss car-
ryforward for succeeding years’ taxes. . . . McAnneny
estimated the amount of the carryforward for each at
$200,000, but he provided no documentation of those
amounts. Moreover, though he assumed that both John
[Clark] and [the defendant] enjoyed the tax benefits of
those carryforwards in 2013 and 2014, he had no first-
hand knowledge. And, other evidence revealed that
John [Clark] received funds from the corporation in
2013 and 2014 to defray his federal income tax liabilities.
‘‘Carolyn [Manchester] received no funds from the
corporation prior to 2011 because she did not become
a shareholder until after her father’s death that year.
Thereafter, she received substantial payments from the
corporation for her use in paying her federal tax liability
on the corporation’s profits.
‘‘For example, in 2014, the corporation’s most suc-
cessful year ever, the pass-through of corporate taxes
to each of John [Clark], Carolyn [Manchester] and [the
defendant] was $233,786. While John [Clark] and Car-
olyn [Manchester] received $180,000 each to defray the
taxes they were required to pay, [the defendant]
received nothing even though, by virtue of his continu-
ing status as a shareholder, he was liable for taxes due
on corporate profits. . . .
‘‘John [Clark] and Carolyn [Manchester] seek to jus-
tify this disparity in treatment by characterizing the
payments to them as ‘loans’ from the corporation even
though no notes were ever signed, no interest was ever
charged, no due dates for repayment were ever speci-
fied, and the ‘loans’ were repaid via ‘bonuses’ they
received for that purpose from the corporation. As
explained by . . . McAnneny, ‘bonuses’ were voted by
an ‘advisory board,’ composed of . . . McAnneny and
Attorneys Michael McDonald, corporate counsel, and
Thomas Generis, counsel for selected corporate mat-
ters, specifically for the purpose of allowing John
[Clark] and Carolyn [Manchester] to pay down ‘loans’
they had previously received. Funds sufficient to pay
their income taxes on the ‘bonuses’ were deducted and
paid to the government by the corporation. The balance
of the ‘bonuses’ was credited to the loan account for
each shareholder carried on the corporation’s books.
John [Clark] and Carolyn [Manchester] received no cash
from these transactions.
‘‘These ‘loans’ were carried as receivables on the
corporation’s books, including those made to [the
defendant] prior to 2012. . . . At the end of 2014, John
[Clark’s] ‘loan’ balance was $234,333; Carolyn [Man-
chester’s], $203,594. Unless and until the advisory board
votes additional ‘bonuses’ to John [Clark] and Carolyn
[Manchester], these ‘loans’ will remain unpaid.
‘‘According to . . . McAnneny, these ‘loans’ were
made to John [Clark] and Carolyn [Manchester] in their
capacity as officers of the corporation, not as sharehold-
ers. Further, he testified, were the corporation to make
such a ‘loan’ to [the defendant], who resigned as an
officer early in 2012, the [Internal Revenue Service
(IRS)] would have forced the corporation to treat it as
a dividend, which would have triggered covenants in
its outstanding loans, ‘probably’ resulting in the loans
being called. This would have been a ‘disaster’ for the
corporation, he testified.
‘‘The court places little weight on this testimony. . . .
McAnneny more than once in his testimony disavowed
familiarity with IRS regulations, but he now relied on
some unspecified IRS demand to explain why [the
defendant] could not be treated the same as his fellow
shareholders. He provided no documentation to sup-
port his vague testimony that a loan to [the defendant]
would have triggered some unspecified covenants in
the corporation’s outstanding loans and what would be
the effect for the corporation. . . .
‘‘McAnneny never explained to the court’s satisfac-
tion why the corporation could not make a genuine
loan to [the defendant] for the purpose of defraying
the potential tax liability on his share of the corporate
profits in 2012, 2013 and 2014, memorialized in a promis-
sory note, with a market interest rate and a specified
payoff date. The court concludes that the corporation
never seriously considered such a mechanism as a vehi-
cle to treat [the defendant] the same as John [Clark]
and Carolyn [Manchester].
‘‘John [Clark] and Carolyn [Manchester] also contend
that they did not make the decision whether to provide
funds to pay [the defendant’s] taxes; rather, the advisory
board made that decision, just as the same board
decided what salaries to pay John [Clark] and Carolyn
[Manchester] and whether to award them ‘bonuses’ for
the purpose of paying down their loan accounts. The
court considers this argument disingenuous. Suffice it
to say that, should John [Clark] and Carolyn [Manches-
ter], as majority shareholders, be dissatisfied with any
of the advisory board’s decisions, such as a refusal by
the board to ‘loan’ them more money to pay their taxes,
it is entirely within their authority to replace the mem-
bers of the board with others who would bend to
their will.
‘‘They also point to a lack of proof that [the defendant]
had any actual tax liability in 2012, 2013 or 2014. . . .
But, the advisory board did not ‘loan’ John [Clark] and
Carolyn [Manchester] money only when it was satisfied
that they had an actual tax liability. The board made
these ‘loans’ because John [Clark] and Carolyn [Man-
chester] were shareholders who had a potential tax
liability by virtue of the corporation’s status as an S
[corporation]. [The defendant] occupied the same sta-
tus, yet he was treated differently.
‘‘The court finds that [the defendant] has proven by
a preponderance of the evidence that the corporation,
through the actions of its majority shareholders, John
[Clark] and Carolyn [Manchester], acted in an oppres-
sive manner toward [the defendant], within the meaning
of § 33-896 (a) (1). The disparate treatment of [the
defendant] deviated from the standard of ‘fair dealing’
to which he was entitled and ‘substantially defeat[ed]
[his] expectation,’ based on the corporation’s estab-
lished practice, that funds would be made available to
him to defray any tax obligation he had as a shareholder
in an ‘S [corporation].’ ’’ (Footnotes omitted.) On the
basis of the foregoing, the court declined to apply a
minority discount to the value of the defendant’s shares
in the corporation.
The corporation now challenges the trial court’s find-
ing of oppressive conduct. In support of its claim that
the court’s finding of oppression was erroneous, the
corporation asserts four arguments, all of which were
considered and rejected by the trial court, and require
little additional discussion. First, the corporation argues
that the evidence presented at trial demonstrated that
it was the customary practice of the corporation to
provide loans only to officers and directors, not to
shareholders, to help cover their pass-through tax liabil-
ities. The corporation contends that there was ‘‘no basis
to conclude that [the defendant] had any reasonable
expectation that as merely a shareholder, he would
receive loan payment[s] to defray taxes.’’ The corpora-
tion asserted this same argument at trial, relying only
upon McAnneny’s testimony that its practice was to
afford the tax benefit only to officers and directors, not
shareholders. The court found McAnneny not credible,
and rejected the corporation’s argument. The corpora-
tion failed to establish that it was the custom and prac-
tice of the corporation to afford tax assistance only
to officers and directors, and not to shareholders. We
therefore agree that there is no basis in the record to
support the corporation’s argument that the defendant
did not have a reasonable expectation of assistance
from the corporation to cover his pass-through tax lia-
bilities.
Second, the corporation argues that the decision of
whether to afford the defendant assistance to cover
his pass-through tax liabilities was not made by the
majority shareholders but, rather, was made by the
corporation’s financial advisory board, and that that
decision was founded on the belief that ‘‘any such loans
to shareholders would be a red flag to the IRS and the
loans would be construed as dividends.’’ These argu-
ments also rested on the testimony of McAnneny, who
the trial court expressly found not credible. Because it
is not the role of this court to second-guess the trial
court’s credibility determinations, we cannot conclude
that the trial court erred in finding the corporation’s
argument in this regard disingenuous.
Third, the corporation argues that the trial court erred
in finding oppressive conduct by the majority share-
holders because the defendant failed to establish his
tax obligations for the years in question. As the trial
court aptly found, it had not been the practice of the
corporation to provide loans to officers only after indi-
vidual tax liabilities were determined. The record sup-
ports the trial court’s finding that the corporation pro-
vided tax adjustments to shareholders who had a
potential tax liability, not only to those who proved
that they had an actual tax liability.
Finally, the corporation contends that any alleged
oppression occurred only after the defendant petitioned
for its dissolution because any tax assistance that the
defendant may have received for his 2014 tax obliga-
tions would not have been awarded until after the valua-
tion date of December 31, 2014. Because the trial court’s
finding of oppression was not limited to the 2014 tax
year, but began in 2011, when the defendant resigned
from his position as an officer and director of the corpo-
ration, the corporation’s argument is unavailing.
On the basis of the foregoing, we conclude that the
trial court’s finding of minority oppression was not
clearly erroneous and, thus, that it did not abuse its
discretion by not applying a minority discount to the
value of the defendant’s shares in the corporation.
2
The corporation also claims that the court erred in
awarding attorney’s fees and expert witness fees and
expenses to the defendant. On the basis of the trial
court’s finding that the defendant suffered from minor-
ity oppression at the hands of the plaintiffs, the court
held that he had ‘‘probable grounds for relief’’ and was
therefore entitled to attorney’s fees and expert witness
fees and expenses under § 33-900 (e). The corporation
claims that the court erred in awarding those fees and
expenses to the defendant on the ground that its deter-
mination of minority oppression was erroneous.
Because we have concluded, as discussed previously,
that the trial court’s finding of oppression was sup-
ported by the record and, therefore, was not clearly
erroneous, the corporation’s challenge to the award of
attorney’s fees and expert witness fees and expenses
must fail.
C
The corporation next claims that the trial court erred
in not applying a marketability discount to the value of
the defendant’s shares. The corporation claims that the
trial court erred in failing to apply a marketability dis-
count to the value of the defendant’s shares because
such failure resulted in an ‘‘undue financial burden’’ on
the corporation.11 We are not persuaded.
As noted herein, the application of a marketability
discount is generally disfavored when determining the
fair value, versus the fair market value, of the shares
of a closely held corporation when the shares at issue
are to be purchased in lieu of dissolution and where
there is to be no actual sale of the shares on the open
market. This position is supported by the language of
§ 33-855. Here, in addressing the corporation’s claim
that the value of the defendant’s shares should be dis-
counted for lack of marketability, the court explained
that such a discount contemplates ‘‘the lack of liquidity
on the open market of an ownership interest in a closely
held corporation . . . .’’ The court noted that Connecti-
cut law is ‘‘silent on whether and under what circum-
stances a marketability discount should be applied in
valuing a dissenting shareholder’s interest in a corpora-
tion,’’ but observed that some courts have applied such
a discount in the presence of extraordinary circum-
stances in order to ‘‘promote fairness and equity to all
parties . . . .’’ The court then contrasted the facts pre-
sented in this case to other cases in which a marketabil-
ity discount was applied on the basis of extraordinary
circumstances where ‘‘the full value of a buyout greatly
exceeded certain measures of the corporation’s finan-
cial condition . . . .’’ That was not the case here.
The court further reasoned: ‘‘[T]here is no basis in
the evidence or in reason for this court to adopt a certain
percentage reduction for a marketability discount in
this case. . . . There is no question from the evidence
that 2015 was a bad year for the corporation financially,
and 2016 appears to have been just as difficult. The
court recognizes that requiring a buyout at full value for
[the defendant’s] share could place unrealistic financial
demands on the corporation and reduce the cash flow
and earnings necessary for future growth or even sur-
vival, especially in view of the large debt load the corpo-
ration carries. The way to deal with this issue is in
setting the terms and conditions of purchase not in
applying an arbitrary percentage discount.’’ (Citations
omitted; footnote omitted.) The court thus declined
to apply a marketability discount to the value of the
defendant’s shares of the corporation.
Here, it is clear that the trial court carefully examined
the relative finances of the corporation and the value
of the defendant’s shares, and determined that there
were no extraordinary circumstances that warranted
the application of a marketability discount. To be sure,
the value of the defendant’s one-third share of the cor-
poration is substantial. That is not to say, however, that
the corporation should not be required to pay fair value
for those shares simply because they are valuable. Of
course, the payment for the purchase of the defendant’s
shares, a purchase voluntarily elected by the corpora-
tion, undoubtedly would have some negative impact on
the corporation’s operations going forward. With that
in mind, the court carefully considered the financial
burden of its judgment on the corporation, and focused
on that burden and the financial viability of the corpora-
tion when it fashioned the ten year payment plan
afforded to the corporation to satisfy the judgment. The
corporation cannot prevail on a claim of extraordinary
circumstance and unfair financial burden simply
because it might experience difficulty satisfying the
court’s judgment. We therefore cannot conclude that
the court abused its discretion by declining to apply
a marketability discount to reduce the value of the
defendant’s shares in the corporation.
D
The corporation finally claims that the trial court
incorrectly accounted for a $92,365 loan due to the
corporation from the defendant and erred in ordering
it to pay the defendant $87,635 within thirty days of the
date of judgment. At trial, the defendant asserted that
the $87,635 should be paid, but not deducted from the
value of his one-third interest in the corporation. On
appeal, the defendant conceded that the trial court’s
determination was justifiable. We agree with the defen-
dant’s position on appeal.
In 2014, the corporation made payments to John
Clark and Carolyn Manchester in the amount of
$180,000 each for their respective tax liabilities. The
defendant received nothing, although his loan account
supposedly received a $180,000 credit. The defendant’s
loan account at that time had carried a balance of
$92,365. Theoretically, the $180,000 credit should have
resulted in the payoff of the $92,365 loan, leaving a
credit balance of $87,635. The corporation, however,
did not account for it in that manner. Instead, it main-
tained on its books both a loan balance of $92,365, and
a credit to the defendant of $87,635 that was held in a
restricted account.
The trial court was dubious of the genuineness of
the ‘‘loans’’ extended by the corporation, as well as the
subsequent ‘‘bonuses’’ issued to repay them. In
addressing the defendant’s loan balance and credit bal-
ance reflected on the corporation’s books, the trial
court did three things. First, it included the $92,365 loan
balance as an asset of the corporation and added it,
along with the loan balances of other shareholders, to
the capitalized cash flow in arriving at the corporation’s
total value. Second, it essentially gave the defendant
credit for the $180,000 bonus provided to the other two
shareholders in 2014 by (1) reducing to zero the $92,365
loan balance, and (2) ordering payment to the defendant
of the credit balance of $87,635. Third, and importantly,
the trial court reduced the value of the defendant’s one-
third share in the corporation by $87,635.
Given the irregular bookkeeping employed by the
corporation, the trial court’s treatment of these sums
was reasonable and equitable. It neither reduced the
value of the defendant’s shares to reflect the value of
the repaid ‘‘loan’’ as requested by the corporation, nor
treated the credit balance as an independent nonop-
erating asset to be paid in addition to the value of his
one-third interest as requested by the defendant. The
trial court’s decision to add the loan balance to the
overall value of the corporation while reducing the
value of the defendant’s shares by the credit was an
imperfect, but justifiable treatment of these sums. In
this regard, the trial court did not abuse its discretion.
II
CROSS APPEAL
On cross appeal, the defendant claims that the trial
court erred in not awarding him legal fees in accordance
with the contingency fee based retainer agreement that
he had signed with his counsel. We disagree.
On April 14, 2014, the defendant signed a retainer
agreement providing that his counsel would be paid
fees in the amount of one third of the amount that he
recovered from the plaintiffs. After the court found the
value of the defendant’s shares of the corporation to
be $785,573, the defendant sought attorney’s fees from
the corporation of one third of that award pursuant to
the contingency fee agreement.
In addressing the defendant’s request for attorney’s
fees, the trial court held: ‘‘An award of $261,596 for
counsel fees, i.e., one third of the value of [the defen-
dant]’s share of the corporation as found by the court,
is patently unreasonable when the time sheets kept
by his counsel demonstrate that the services rendered
costed out at a maximum of $158,620. For that reason
and because adhering to the contingency fee agreement
entered into by [the defendant] would be ‘substantially
unfair’ to the corporation that will have to pay his ‘rea-
sonable’ fees; Schoonmaker v. Lawrence Brunoli, Inc.,
265 Conn. 210, 270–71, [828 A.2d 64] (2003); the court
will depart from the agreement in determining what are
the fees to be awarded [the defendant].’’ The court
proceeded to consider the time sheets and affidavits
submitted by the defendant’s counsel, and ruled that
the defendant was entitled to attorney’s fees for services
rendered by his counsel for the time period of June 18,
2015, to October 31, 2016, to be calculated at an hourly
rate of $350. The court ordered the defendant’s attorney
to file a statement of claimed attorney’s fees consistent
with its ruling.
The defendant thereafter moved for reargument or
for reconsideration of the court’s decision not to
enforce the contingency fee agreement, and the court
summarily denied that motion. The court subsequently
ruled, by way of written memorandum of decision filed
on June 19, 2017, that the defendant was entitled, inter
alia, to attorney’s fees in the amount of $150,045. The
defendant now challenges the trial court’s award of
attorney’s fees on the ground that it erred in departing
from the contingency fee agreement.
‘‘In reviewing the defendant[’s] claim, we are mindful
of the delicate nature of the trial court’s duty in calculat-
ing reasonable attorney’s fees, and that [t]he amount
of attorney’s fees to be awarded rests in the sound
discretion of the trial court and will not be disturbed
on appeal unless the trial court has abused its discre-
tion. . . . The trier is always in a more advantageous
position to evaluate the services of counsel than are
we. . . .
‘‘Moreover, as discussed previously, Connecticut fol-
lows the American rule, a general principle under
which, attorney’s fees and ordinary expenses and bur-
dens of litigation are not allowed to the successful party
absent a contractual or statutory exception.’’ (Citations
omitted; internal quotation marks omitted.) Schoon-
maker v. Lawrence Brunoli, Inc., supra, 265 Conn.
268–69.
In Schoonmaker, our Supreme Court held that ‘‘when
a contingency fee agreement exists, a two step analysis
is required to determine whether a trial court permissi-
bly may depart from it in awarding a reasonable fee
pursuant to statute or contract. The trial court first
must analyze the terms of the agreement itself. . . . If
the agreement is, by its terms, reasonable . . . the trial
court may depart from its terms only when necessary
to prevent substantial unfairness to the party, typically
a defendant, who bears the ultimate responsibility for
payment of the fee. . . . By contrast, if the trial court
concludes that the agreement is, by its terms, unreason-
able, it may exercise its discretion and award a reason-
able fee in accordance with the factors enumerated
in rule 1.5 (a) of the Rules of Professional Conduct.’’
(Citations omitted; footnotes omitted; internal quota-
tion marks omitted.) Id., 270–72.
Here, the defendant claims that the trial court ‘‘omit-
ted the first step [of the analysis required under Schoon-
maker] and never undertook an analysis of the terms
of the fee agreement itself. Instead, the sole basis for
the trial court’s determination that the fee awardable
under the [retainer] agreement was unreasonable was
[its] comparison to counsel’s time sheets, a comparison
that was irrelevant to the first step of the analysis.’’ The
defendant acknowledges that ‘‘the trial court recited
compliance with this standard,’’ but that ‘‘no analysis
was provided’’ and that ‘‘the record does not support
[the trial court’s] conclusion [that an award of attorney’s
fees based upon the retainer agreement would be sub-
stantially unfair].’’ To the contrary, because the trial
court reached the issue of substantial unfairness, the
court necessarily first analyzed the terms of the contin-
gency agreement itself, and found that those terms were
reasonable. Inferring that the trial court considered the
first step required in Schoonmaker before moving to
the second step of substantial unfairness is consistent
with the well settled principle that ‘‘[i]n determining
whether there has been an abuse of discretion, every
reasonable presumption should be given in favor of the
correctness of the court’s ruling.’’ (Internal quotation
marks omitted.) Wethersfield v. PR Arrow, LLC, 187
Conn. App. 604, 645, 203 A.3d 645, cert. denied, 331
Conn. 907, 202 A.3d 1022 (2019).12
The defendant also argues that the court erred in
finding that adherence to the contingency fee agree-
ment would be substantially unfair to the corporation.
The defendant contends that ‘‘[i]t is not substantially
unfair for the corporation to satisfy a reasonable contin-
gency fee owed by [the defendant]’’ and that the court
failed to set forth any factual findings in support of its
determination that a fee awarded under the contingency
fee agreement would be substantially unfair. In so
arguing, the defendant overlooks the trial court’s find-
ing that ‘‘[a]n award of $261,596 for counsel fees, i.e.,
one-third of the value of [the defendant’s] share of the
corporation as found by the court, is patently unreason-
able when the time sheets kept by his counsel demon-
strate that the services rendered costed out at a maxi-
mum of $158,620.’’ In so doing, the court was not holding
that the contingency fee agreement itself was unreason-
able, but, rather, that the award resulting from that
agreement was unreasonable in light of the fact that it
was over $100,000 more than an award based upon the
amount of and cost of services actually rendered by
the defendant’s attorneys. That finding is sufficient to
sustain the trial court’s determination that adhering to
the contingency fee agreement would be substantially
unfair to the corporation. Moreover, it is clear from the
several memoranda of decision issued by the trial court
in this case that the court was guided in those decisions
by an overarching goal of ensuring fairness to both
parties, including ensuring the future financial viability
of the corporation. We therefore conclude that the court
did not abuse its discretion in declining to award attor-
ney’s fees pursuant to the contingency fee agreement
between the defendant and his counsel.
The judgment is affirmed.
In this opinion the other judges concurred.
1
Carolyn Manchester and John Clark also were plaintiffs in this action,
and, initially, were parties to this appeal. They subsequently withdrew their
claims on appeal, leaving the corporation as the sole appellant. Any reference
herein to the plaintiffs includes the corporation, Carolyn Manchester and
John Clark.
2
Smart Choice Trucking, LLC (Smart Choice), also was a defendant in
this action. Because the claims against Smart Choice were withdrawn, all
references herein to the defendant refer only to James Clark.
3
General Statutes § 33-896 (a) provides in relevant part: ‘‘The superior
court for the judicial district where the corporation’s principal office or, if
none in this state, its registered office, is located may dissolve a corporation:
‘‘(1) In a proceeding by a shareholder if it is established that: (A) (i) The
directors are deadlocked in the management of the corporate affairs, (ii)
the shareholders are unable to break the deadlock, and (iii) irreparable
injury to the corporation is threatened or being suffered or the business
and affairs of the corporation can no longer be conducted to the advantage
of the shareholders generally, because of the deadlock; (B) the directors
or those in control of the corporation have acted, are acting or will act in
a manner that is illegal, oppressive or fraudulent; (C) the shareholders are
deadlocked in voting power and have failed, for a period that includes at
least two consecutive annual meeting dates, to elect successors to directors
whose terms have expired; or (D) the corporate assets are being misapplied
or wasted . . . .’’
4
General Statutes § 33-900 (a) provides in relevant part: ‘‘In a proceeding
under subdivision (1) of subsection (a) of section 33-896 to dissolve a
corporation, the corporation may elect or, if it fails to elect, one or more
shareholders may elect to purchase all shares owned by the petitioning
shareholder at the fair value of the shares. . . .’’
5
This date was agreed upon by the parties.
6
General Statutes § 33-900 (e) provides in relevant part: ‘‘In a proceeding
under subdivision (1) of subsection (a) of section 33-896, if the court finds
that the petitioning shareholder had probable grounds for relief under said
subdivision, it may award to the petitioning shareholder reasonable fees
and expenses of counsel and of any experts employed by him.’’
7
Although § 33-855 applies in the context of a determination of the rights
of a dissenting shareholder, it has been observed, and we agree, that ‘‘there
is no reason to believe that ‘fair value’ means something different when
addressed to dissenting shareholders . . . than it does in the context of
oppressed shareholders . . . .’’ (Citations omitted.) Balsamides v. Prota-
meen Chemicals, Inc., 160 N.J. 352, 374, 734 A.2d 721 (1999); see also Robblee
v. Robblee, 68 Wash. App. 69, 77–80, 841 P.2d 1289 (1992) (holding that
‘‘fair value’’ means same in oppressed shareholder action as in dissenting
shareholder action [internal quotation marks omitted]).
8
‘‘Connecticut’s corporate law is substantially similar to the provisions
of the American Bar Association’s Model Business Corporation Act; see,
e.g., Trevek Enterprises, Inc. v. Victory Contracting Corp., 107 Conn. App.
574, 583 n.4, 945 A.2d 1056 (2008) ([i]n 1994, the General Assembly enacted
. . . a comprehensive revision . . . designed to bring our corporations stat-
utes into conformity with the American Bar Association’s revised Model
Business Corporation Act) . . . .’’ (Internal quotation marks omitted.)
Financial Freedom Acquisition, LLC v. Griffin, 176 Conn. App. 314, 329,
170 A.3d 41, cert. denied, 327 Conn. 931, 171 A.3d 454 (2017).
9
The corporation also argues that ‘‘[b]ecause both experts applied a tax
adjustment, it was error for the trial court to substitute its own judgment and
fail to apply any tax adjustment.’’ This argument is belied by the axiomatic
principle that the court is not bound by the opinions of expert witnesses.
See, e.g., Johnson v. Healy, 183 Conn. 514, 516–17, 440 A.2d 765 (1981).
10
An S corporation is a corporation with no more than 100 shareholders
that passes through net income or losses to those shareholders in accordance
with Internal Revenue Code, Chapter 1, Subchapter S.
11
We note that this argument has nothing to do with the actual marketabil-
ity of the shares at issue.
12
Indeed, the parties did not dispute the reasonableness of the terms of
the contingency fee agreement itself.