Robert Westerburg, Administrator of the Estate of R.D. West A/K/A Randy Dixon Westerburg v. Western Royalty Corporation ( 2015 )

In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-15-00082-CV
ROBERT WESTERBURG, ADMINISTRATOR OF THE ESTATE OF
R.D. WEST A/K/A RANDY DIXON WESTERBURG, APPELLANT
V.
WESTERN ROYALTY CORPORATION, APPELLEE
On Appeal from the 99th District Court
Lubbock County, Texas
Trial Court No. 2014-510,562, Honorable William C. Sowder, Presiding
December 11, 2015
MEMORANDUM OPINION
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.
Robert Westerburg, as administrator of the estate of his deceased brother, R.D.
West a/k/a Randy Dixon Westerburg, and Western Royalty Corporation each appeal a
final order of the trial court, rendered pursuant to sections 21.218 and 21.222 of the
Texas Business Organizations Code.1 The order required Western to produce records
1
TEX. BUS. ORGS. CODE Ann. §§ 21.218, 21.222 (West 2012).
for valuation of its shares owned by West, and denied Westerburg’s request for
statutory attorney’s fees. We will affirm.
Background
West, a resident of California, died on August 22, 2013, and Westerburg was
appointed the administrator of the probate estate. At the time of West’s death, and for
at least the preceding twenty years, he owned 350 shares of Western stock. It appears
without dispute that Western is a closely held corporation with fewer than thirty-five
shareholders. According to Westerburg, California law requires him as administrator to
file an inventory and appraisal of the property administered in his brother’s estate.
Westerburg retained his law partner, Steven Thornton, to represent him.
In a January 3, 2014 letter, Westerburg stated to Tom Whiteside, president of
Western,2 that the California probate referee had requested the following information
regarding West’s interest in Western:
1. A brief history of the business and prospects for the future;
2. A description of the role of the decedent in the company;
3. Income and expense statements for three years prior to the date of
death;
4. A balance sheet at or near the date of death, August 22, 2013;
5. A complete description of any underlying assets reported on the
balance sheet such as real property, stocks or partnership
interests, with copies of any appraisals of these assets within five
years of the valuation date;
2
Whiteside, an attorney, also represented Western in the trial court and on
appeal.
2
6. An estimate of the fair market value of any assets owned by the
business;
7. The collectability of any accounts receivable;
8. The dividend history of the company;
9. A list of any stock sales including number of shares, date sold and
price/share;
10. Copies of any buy-sell agreements.
Westerburg sent a letter dated January 29, 2014, labeled “Second Request,” in
which he explained to Whiteside, “the Probate Referee needs the financial information
in order to appraise West’s interest in Western. Without sufficient information, the
Probate Referee cannot make an accurate appraisal.”
Whiteside sent a letter dated February 4, 2014, responding as follows to the
categories of information listed in Westerburg’s January 3 request:
1. We are a corporation with stockholders who receive dividends
based on royalties we collect which will continue for the foreseeable
future.
2. Decedent was a shareholder.
3. We have no income and expense statements.
4. We have no balance sheet.
5. We own royally interests. There are no appraisals.
6. Unknown.
7. None.
8. You are aware of the dividends that the decedent received.
9. We have repurchased some shares from shareholders, but we
don’t have a list of the dates sold or price.
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10. There are no buy/sell agreements.
By letter to Whiteside dated February 18, 2014, Thornton demanded Western
allow examination and copying of an expanded list of documents. The letter asserted
Western did not respond to Westerburg’s informal requests. The letter made no
mention of the information needed for the probate referee’s valuation of West’s shares.
The February 18 letter demanded production of the following:
1. The document(s) reflecting compensation paid to each officer, each
director, and/or each shareholder during the period 2001 to the
present.
2. The records containing the names and addresses of all past and
current shareholders of the corporation and the number and class
or series of shares issued by the corporation held by each of them.
3. The records containing the names and last known mailing
addresses of shareholders entitled to vote at any shareholders
meeting.
4. The minutes of directors and shareholders meetings for the period
2001 to the present.
5. The notices of directors and shareholders meetings for the period
2001 to the present.
6. The tax returns and schedules filed for 2009, 2010, 2011 and 2012,
including all Schedules
7. Income Tax Schedules L, M-1, and M-2 that Western Royalty Corp.
filed with IRS for the years 2009, 2010, 2011 and 2012.
8. The agreements among one or more shareholders and the
corporation restricting the transfer or registration of shares.
9. The voting trust agreements.
10. The shareholders voting agreements.
11. The bank statements and cancelled checks for the period January
1, 2009, to the present.
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12. The cash flow report(s) and/or check register and/or check stubs
reflecting the monies received and the expenditures made for the
period January 1, 2009, to the present. ·
13. The documents describing the mineral interest and/or legal
description of each mineral interest presently owned by Western
Royalty Corp.
14. The deeds evidencing Western Royalty Corp.’s ownership of
mineral or royalty interests.
15. The documents evidencing ownership, leasehold, or royalty interest
in real or personal property owned by Western Royalty Corp.
16. The Division Orders reflecting mineral interests owned by Western
Royalty Corp.
The letter went on to state that should litigation ensue Westerburg would seek costs,
expenses, and attorney’s fees under Texas Business Organizations Code section
21.222.
Westerburg sued Western the next month, seeking examination and copying of
the sixteen categories of documents stated in the February 18 demand letter. 3 The
action was based on section 21.2184 and also sought recovery of costs, expenses, and
3
The suit was brought in the form of a petition for writ of mandamus. See Uvalde
Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 820 (Tex. 1968) (“A method for the
enforcement of the right of inspection or examination of the books and records of a
corporation is by mandamus”).
4
In part, this section provides a holder of corporate shares may on written
demand stating a proper purpose examine and copy the corporation’s “relevant books,
records of account, minutes, and share transfer records.” TEX. BUS. ORGS. CODE ANN. §
21.218(b) (West 2012). See also TEX. BUS. ORGS. CODE ANN. § 3.151(a) (West 2012)
(entities shall keep books, records of account, minutes of certain proceedings, a current
record of the name and mailing address of each owner, and other books as required); §
3.153 (owner may examine books and records maintained under § 3.151).
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attorney’s fees under section 21.222.5 The pleading alleged a reasonable attorney fee
in the trial court for enforcing Westerburg’s right to inspect and copy Western’s
corporate records was $10,000. In its answer, Western defended with, inter alia, claims
that Westerburg was not suing for a proper purpose and the claim was brought in bad
faith and for the purpose of harassment.
Both parties served discovery requests, and by June 2014 both parties sought a
hearing regarding the other’s discovery responses. In late June 2014, the court held a
hearing concerning the parties’ discovery disputes. Through an e-mail correspondence
to the court dated June 25, 2014, Whiteside provided, among other things, a chart
listing the percentages of Western’s shares owned by each of its shareholders 6 and the
dividends paid to each for 2012 and 2013. Also attached was a copy of Internal
5
This section is entitled “Penalty for Refusal to Permit Examination of Certain
Records.” In relevant part it provides:
A corporation that refuses to allow a person to examine and make copies
of account records, minutes, and share transfer records under Section
21.218 is liable to the shareholder for any cost or expense, including
attorney's fees, incurred in enforcing the shareholder's rights under
Section 21.218. The liability imposed on a corporation under this
subsection is in addition to any other damages or remedy afforded to the
shareholder by law.
TEX. BUS. ORGS. CODE ANN. § 21.222(a) (West 2012). It is a defense to an action under
section 21.222 that the person suing “was not acting in good faith or for a proper
purpose in making the person’s request for examination.” TEX. BUS. ORGS. CODE ANN.
§ 21.222(b)(4).
6
Shareholders were not identified by name.
6
Revenue Service revenue ruling 59-60, which concerns valuation of stock in closely
held corporations for estate and gift tax purposes.7
In a July 28, 2014 e-mail to the parties, the court stated among other things,
“[t]here seems to be no real reason to question the good faith need for [Westerburg] to
have sufficient information to value the stock in question.” The court indicated it found
the revenue ruling “to be a good, common sense approach to use in this case.” The
reference was apparently to the factors listed in the ruling’s section four. The court
added, “The interest in question is small and the initial information requested seems in
part excessive and there seems to be some personal dynamics driving this case.”8
7
The trial court later made reference to the items listed in section four of the
revenue ruling, entitled “factors to consider.” According to this section:
It is advisable to emphasize that in the valuation of the stock of closely
held corporations or the stock of corporations where market quotations are
either lacking or too scarce to be recognized, all available financial data,
as well as all relevant factors affecting the fair market value, should be
considered. The following factors, although not all-inclusive are
fundamental and require careful analysis in each case:
(a) The nature of the business and the history of the enterprise from its
inception.
(b) The economic outlook in general and the condition and outlook of the
specific industry in particular.
(c) The book value of the stock and the financial condition of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other intangible value.
(g) Sales of the stock and the size of the block of stock to be valued.
(h) The market price of stocks of corporations engaged in the same or a
similar line of business having their stocks actively traded in a free and
open market, either on an exchange or over-the-counter.
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The record indicates the Whiteside and Westerburg families have been
acquainted for many years, and are long-time shareholders of Western. Western was
formed in the mid-1950s. West owned just over 0.46 percent of the company’s shares,
and received dividends of $154 in 2012 and $231 in 2013.
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On August 26, 2014, the trial court signed a document entitled “final judgment.”
According to a recital, the judgment resulted from the June discovery hearing. The
judgment ordered Western to produce the following:
1. Financial documents detailing the book value of the stock;
2. Any financial statements from the last four years;
3. Profit or loss statements from the last four years;
4. Loan applications made by Western from the last four years;
5. Western’s federal and state tax returns for the last four years.
Production was also ordered of: “all existing oil and gas leases and corresponding
division orders and royalty payments for the last four years[;] a sworn statement that the
company has no good will or intangible value; [and] any details of any stock sold,
including purchase price and amount of stock, that has occurred in the last seven
years.” The court further ordered that “based on the totality of the circumstances of the
issues in this case, that no attorney fees be awarded to [Westerburg].”
On September 11, 2014, Western responded to the court’s order by producing
some ninety-six documents, consisting mostly of tax returns and mineral ownership
documents. It stated no documents existed responsive to categories 1, 2, 3 and 4, and
that no shares were sold during the preceding seven years.
On Westerburg’s motion, the court vacated its August 26 judgment and granted a
new trial. The parties then filed cross-motions for summary judgment. In his motion,
Westerburg sought an order requiring Western to make available for inspection and
copying:
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1. The records evidencing all assets of the corporation
including, but not limited to, cash, cash equivalents,
Certificate of Deposits, deeds, mineral interest and any other
assets.
2. The records containing the names and addresses of all past
and current shareholders of the corporation and the number
and class or series of shares issued by the corporation held
by each of them.
3. The records containing the names and last known mailing
addresses of shareholders entitled to vote at any
shareholders meeting.
4. The bank statements and cancelled checks for the period
January 1, 2009, to the present.
5. The cash flow report(s) and/or check register and/or check
stubs reflecting the monies received and the expenditures
made for the period January 1, 2009, to the present.
6. The documents describing the mineral interest and/or legal
description of each mineral interest presently owned by
Western Royalty Corp.
7. The deeds evidencing Western Royalty Corp.'s ownership of
mineral or royalty interests.
8. The documents evidencing ownership, leasehold, or royalty
interest in real or personal property owned by Western
Royalty Corp. including Certificates of Deposit.
9. The Division Orders reflecting mineral interests owned by
Western Royalty Corp.
Westerburg sought attorney’s fees of $13,487.50 as well as appellate fees,
should an appeal follow.
On December 8, 2014, the trial court signed a “final summary judgment” granting
“in part” Westerburg’s motion and denying “in part” Western’s motion. The judgment
ordered Western to produce:
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1. The records containing the names and addresses of all past
and current shareholders of the corporation and the number
and class or series of shares issued by the corporation held
by each of them.
2. The records containing the names and last known mailing
addresses of shareholders entitled to vote at any
shareholders meeting.
3. The bank statements and cancelled checks for the period
January 1, 2009, to the present.
4. The cash flow report(s) and/or check register and/or check
stubs reflecting the monies received and the expenditures
made for the period January 1, 2009, to the present.
5. The documents describing the mineral interest and/or legal
description of each mineral interest presently owned by
Western Royalty Corp.
6. The deeds evidencing Western Royalty Corp.'s ownership of
mineral or royalty interests.
7. The documents evidencing ownership, leasehold, or royalty
interest in real or personal property owned by Western
Royalty Corp.
8. The Division Orders reflecting mineral interests owned by
Western Royalty Corp.
The order denied Westerburg’s request for attorney’s fees.
Analysis
Standard of Review
The case is before us in an unusual posture. As noted, some information was
provided in connection with the June 2014 discovery hearing, and additional information
after the August 26 judgment. And after the trial court granted Westerburg’s motion for
new trial, the parties presented the case on cross-motions for summary judgment. The
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judgment appealed is entitled “Final Summary Judgment.” There is no reporter’s
record. But the issues and argument on appeal are not couched in terms typical of
those following a summary judgment. At oral argument, counsel for Westerburg
explained the procedure the parties followed in the trial court. He stated that for the
sake of saving time and expense the parties agreed to present the case on cross-
motions for summary judgment but “waived” the summary judgment standard.
Whiteside, at oral argument, noted that procedurally the case is “a bit of a mess.”
After review of the record, and considering the issues presented and the parties’
representations at oral argument, we find the proper standard of review focuses on
sufficiency of the evidence, rather than the de novo standard by which summary
judgments are reviewed. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)
(evidentiary sufficiency); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.
2005) (summary judgment).
Westerburg’s Issue
In his only issue, Westerburg asserts the trial court erred by denying his request
for attorney’s fees under section 21.222. On the record before us, we disagree error is
shown.
Section 21.222 authorizes recovery of costs or expenses, including attorney’s
fees, incurred in enforcing a shareholder’s rights under section 21.218. A corporation is
liable for such costs or expenses if it “refuses” to allow examination and copying of
records the shareholder is entitled to examine under section 21.218. Under section
21.222, Westerburg thus had the burden to persuade the fact finder of his entitlement to
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recovery of his attorney’s fees. Reviewing the conflicting evidence on the issue, we
determine whether, in light of the entire record, the trial court’s implicit conclusion
Westerburg failed to demonstrate his entitlement is so against the overwhelming weight
of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176
(Tex. 1986).
Chapter 21 does not define the word “refuse.” In such instances we afford the
word its common, ordinary meaning, City of Rockwall v. Hughes, 246 S.W.3d 621, 625-
26 (Tex. 2008), as stated in a dictionary. See Epps v. Fowler, 351 S.W.3d 862, 873
(Tex. 2011) (Hecht, J., dissenting) (“The place to look for the ordinary meaning of words
is . . . a dictionary”). When a word has more than one common meaning, we apply the
meaning most consistent with its statutory context. State v. $1,760.00 in U.S. Currency,
406 S.W.3d 177, 180-81 (Tex. 2013); see also TEX. GOV’T CODE Ann. § 311.011(a)
(West 2013). According to Black’s Law Dictionary, refuse means, “To deny, decline,
reject. ‘Fail’ is distinguishable from ‘refuse’ in that ‘refuse involves an act of the will,
while ‘fail’ may be an act of inevitable necessity.” BLACK’S LAW DICTIONARY, 1282 (6th
ed. 1990). Among the meanings of “refuse,” another dictionary provides, “to show or
express unwillingness to do or comply with.” MERRIAM-W EBSTER’S COLLEGIATE
DICTIONARY 1047 (11th ed. 2003). Fail may be defined as falling short. Id. at 449.
Before Westerburg sent his February 18 demand letter pursuant to section
21.218, he sent Western informal requests for information. Whiteside responded with
his February 4 letter. Although that letter provided only general information and
responded that Western had none of the specific financial statements Westerburg
requested, those being income and expense statements, a balance sheet and
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appraisals of company assets, the trial court was not required to see the letter as a
refusal to allow access to such information.
The record contains no evidence of any response from Western to Westerburg’s
February 18 demand letter. Westerburg’s petition, filed March 10, contains the
allegations that Western and Whiteside “refused to allow the examination” requested by
the demand letter, and that Western “continues to refuse [Westerburg] the exercise of
this right.” The only evidence supporting the allegation, however, is Westerburg’s
statement in his affidavit included in the record, which merely repeats the allegation.
The record perhaps demonstrates that Western failed to provide information
Westerburg believed was necessary to value the shares, but the court’s implicit
conclusion the record does not demonstrate Western’s refusal is not so against the
overwhelming weight of the evidence as to be clearly wrong and unjust.
Western’s Issue
In its sole issue, Western argues the trial court erred by vacating the August 26
judgment and ordering production of additional documents through the December 8 final
judgment because Westerburg was “‘not acting in good faith or for a proper purpose in
making the person’s request for examination’ in violation of [section] 21.222(b)(4).” As
noted, that section provides a defense to an award of costs, including attorney’s fees.
Because we have found the trial court did not err by denying Westerburg attorney’s fees
under section 21.222, consideration of whether Western proved its affirmative defense
is unnecessary to disposition of the appeal. TEX. R. APP. P. 47.1.
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Moreover, Western concedes the court properly ordered production of the
documents listed in its August 26 judgment. As noted, the record demonstrates that
Western produced documents in response to that judgment but produced no documents
under the categories of “financial document detailing the book value of the stock,” “any
financial statements from the last four years,” “profit or loss statements from the last four
years,” and “loan applications from the last four years.” Western’s response merely
stated “none” for those four categories. The additional records the court ordered
produced in its December 8 judgment, over and above those listed in the August 26
judgment, were pertinent to a determination of the book value of the corporation’s
shares and the corporation’s financial condition. Having acknowledged that it
possessed no financial statements or records from which the book value of its stock
could be estimated, Western can hardly complain that the court ordered production of
banking and shareholder records to substitute for financial documents and statements.
For that reason, we overrule Western’s appellate issue even though our action is not
strictly necessary to disposition of the appeal.
Conclusion
Having disposed of the parties’ issues in the manner described, we affirm the
judgment of the trial court.
James T. Campbell
Justice
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