RV Central, Inc. v. Stanley Vander Plaats

IN THE COURT OF APPEALS OF IOWA
No. 19-1812
Filed July 22, 2020
RV CENTRAL, INC.,
Plaintiff-Appellant,
vs.
STANLEY VANDER PLAATS,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for O'Brien County, Carl J. Petersen,
Judge.
RV Central, Inc. appeals the district court order determining the fair value
of a dissenting shareholder’s shares of the corporation after a reverse stock split
and awarding the dissenter attorney fees. AFFIRMED.
Daniel E. DeKoter of DeKoter, Thole, Dawson & Rockman, P.L.C., Sibley,
for appellant.
Amanda J. Bahena of Woods, Fuller, Shultz & Smith P.C., Sioux Center, for
appellee.
Considered by Bower, C.J., and Greer and Ahlers, JJ.
2
GREER, Judge.
After a reverse stock split, RV Central, Inc. sued to determine the fair value
of a dissenting shareholder’s shares of the corporation. The district court relied on
a June 2018 appraisal to value the corporation’s land, found RV Central acted
arbitrarily in omitting the value of crops on the land from its share valuation
estimate, and awarded attorney fees to the dissenting shareholder. RV Central
appeals. The dissenting shareholder asks us to affirm the district court order and
award appellate attorney fees.
I. Background Facts and Proceedings.
In 1991, Stanley Vander Plaats and Donald Roetman incorporated RV
Central, Inc. At the time of incorporation, Donald had an 88.11% ownership
interest and Stanley had an 11.89% interest. The company operated as a
recreational vehicle sales and repair company in Sheldon, Iowa, until it began
liquidating in 2015.
In April 2017, Stanley sued RV Central; Donald; and Donald’s wife, Dianna;
claiming that his ownership percentage of RV Central was 50% and requesting
damages. Stanley amended his complaint to add several additional claims,
including a claim for rent that RV Central owed on a building that Stanley and
Donald owned as tenants in common. The court later granted RV Central, Donald,
and Dianna’s motion for summary judgment, establishing Stanley’s ownership
percentage at 11.89%. The lawsuit remained pending on Stanley’s other claims.
The parties later settled all claims except for the rent claim, which merged with this
pending valuation case.
3
In December 2017, the parties agreed to have RV Central’s building and
land appraised. They hired Richard Vander Werff, an appraiser with over thirty-
five years of experience, who had appraised RV Central’s property before. The
appraisal categorized the existing building site as commercial property and the rest
of the property as agricultural use. The appraisal valued the building site at
$305,000. The farmland was valued at $985,000, or $13,412.31 per acre. In his
appraisal, Vander Werff discussed the development possibilities near the property,
stating,
Since the opening of the Highway 60 bypass, very little new
development has occurred along old Highway 60 [near RV Central].
This signals that development within the city of Sheldon will continue
to be primarily in eastern Sheldon near the Highway 60 bypass.
This would suggest that the subject has no added value for
future commercial, industrial or residential development.
Also, there is ample land available to the north and east of the
subject, closer to city development which would likely be developed
before the subject.
The subject property would likely not be developed within the
foreseeable future.
After the appraisal, Vander Werff gave both Donald and Stanley the
opportunity to meet with him to discuss his conclusions. Stanley was very
dissatisfied and met with Vander Werff on at least two occasions to discuss his
concerns that the appraisal was too low. Donald did not take Vander Werff up on
his offer.
Two months after the appraisal, on February 1, 2018, Maintainer
Corporation, a business located about one-eighth of a mile from RV Central,
bought the building site and some land for $435,000. The purchase price was
almost thirty-five percent more than the appraised value.
4
After hearing about the sale, Vander Werff, with Stanley and Donald’s
permission, issued a second appraisal on June 19. The second appraisal
reclassified 7.37 acres of land next to Old Highway 60 and directly south of RV
Central’s former building site as commercial land and reclassified the remaining
land as transitional agricultural land. The appraisal found the total value of the
land to be $1,241,000, with the commercial land valued at $221,000 and the
transitional agricultural land at $1,020,000. In the new appraisal, Vander Werff
stated,
[T]he old Highway 60 thoroughfare has seen limited
development since 2006, in fact prior to the sale of the RV Central
shop/office building and site, there seemed to be little appetite for
commercial property in this area. However, given the sale[] price and
demand for this facility and the surrounding site (when it was listed)
which sold with it, we as the appraisers have taken a 2nd look at this
location and its potential for development. It does appear there may
be demand for development land in this area. Likely development
would not be of a retail nature, however more of a light industrial
demand along with some commercial uses such as shop, service
etc. It is physically possible residential development could occur in
this area. Conversations with market participants have led us to
opine, residential development may be a potential usage for all or a
portion of this site as well.
However, there has been no actual development of larger
parcels of land in this part of Sheldon, for at least the past 10 years.
Any interim use, prior to development would likely be
agricultural.
In July, having established his majority ownership, Donald initiated a
reverse stock split. Stanley objected, but on July 23, Donald, by proxy, approved
the stock split at a special meeting. As a result, the number of outstanding shares
was reduced and the shareholders had to sell the company any fractional shares
they owned after the reduction. Through the reclassification of shares, all of
5
Stanley’s shares and some of Donald’s shares became fractional and subject to
sale to the company. Donald became the sole shareholder.
On August 21, RV Central paid Donald $44,135.63 and Stanley $93,115.32
for their fractional shares. On September 26, Stanley sent a notice demanding
further payment and a computation of the value of his share of the corporation.
Stanley submitted his own share valuation computation, alleging the company
value was $1,104,115.14 plus the value of the “2018 crop” and the “tax credit
estimate value.” He left the value of those two items open claiming a lack of access
to company information. He later amended his valuation to include the value of
the crop and an estimated value of the tax loss carryforward. The parties also
engaged in settlement discussions during this time.
On October 5, RV Central started this lawsuit to determine the value of
Stanley’s shares. The parties stipulated to several facts but could not agree on
various valuation issues or the rent issue that merged from the first lawsuit, so the
case proceeded to a bench trial on July 19, 2019.
The court entered its ruling in October. The court accepted Vander Werff’s
second appraisal to determine the land value and determined that the 2018 crop
was worth $33,646.64. The court entered judgment in favor of Stanley for
$33,098.22 and awarded him $11,751 in attorney fees under Iowa Code section
490.1331 (2018), concluding that RV Central’s failure to include the crop in its initial
valuation was “arbitrary” under the statute.
RV Central appeals. Stanley moved to strike a document in the appendix
as well as RV Central’s arguments in its reply brief based on this document. The
6
Iowa Supreme Court determined this motion to strike should be submitted with the
appeal before transferring the case to us.
II. Standard of Review.
“Actions to determine the value of dissenters’ shares pursuant to section
490.1330 are at law.” Sec. State Bank v. Ziegeldorf, 554 N.W.2d 884, 888 (Iowa
1996). This case, however, was tried in equity. “We have said we will review a
case on appeal in the same manner as it was tried in the district court.” Id.
“Therefore our review is de novo. Nevertheless, we give considerable deference
to the trial court’s factual determinations.” Id. (citation omitted).
III. Analysis.
A. Stanley’s Motion to Strike. At the outset we address Stanley’s motion
to strike RV Central’s inclusion of the Uniform Standards of Professional Appraisal
Practice (USPAP) in the appendix and the arguments relating to these standards
in RV Central’s reply brief. RV Central resists, arguing that the USPAP was
adopted into the Iowa Administrative Code to apply to all licensed appraisers. See
Iowa Admin. Code r. 193F-7.2 (“The standards of practice governing all real
property appraisal activities shall be the [USPAP], including Provisions, Rules,
Comments, and Statements . . . .”). That said, as RV Central notes, this
administrative rule does not list the specific USPAP standards. RV Central argues
we may take judicial notice of the standards as legislative facts.
Iowa Rule of Appellate Procedure 6.801 provides that “[o]nly the original
documents and exhibits filed in the district court case from which the appeal is
taken, the transcript of proceedings, if any, and a certified copy of the related
docket and court calendar entries prepared by the clerk of the district court
7
constitute the record on appeal.” Vander Werff referred to these standards in his
appraisals and during his testimony at trial, but these standards were not offered
or admitted as an exhibit to the district court, nor did RV Central make any
arguments to the district court about these standards.
We decline RV Central’s request to take judicial notice of the USPAP
standards as legislative facts. See generally Varnum v. Brien, 763 N.W.2d 862,
881 (Iowa 2009) (discussing legislative facts). We grant Stanley’s motion to strike
and will not consider the USPAP standards or RV Central’s arguments based on
these standards in our opinion.
B. Trial Court Attorney Fees. “An award of attorney fees and expenses
[in a stock valuation case] is a two-step process under section 490.1331.” Sec.
State Bank, 554 N.W.2d at 893. “As a prerequisite for such an award, the trial
court must make a factual finding that the corporation did not substantially comply
with chapter 490 or acted arbitrarily, vexatiously or not in good faith.” Id.; see also
Iowa Code § 490.1331. But as noted above, because the case was tried in equity,
we review this district court’s factual findings under a de novo review. Sec. State
Bank, 554 N.W.2d at 893–94. “If a factual basis for an award of attorney fees
exists . . . we then examine the trial court’s decision to award or not award fees for
an abuse of discretion.” Id. at 893. “The amount of any award is also reviewed for
an abuse of discretion.” Id. at 894.
RV Central was required, under Iowa Code section 490.1324(1), to pay
Stanley “the amount the corporation estimates to be the fair value of [his] shares,
plus interest.” To do so, the corporation must use “customary and current valuation
8
concepts and techniques generally employed for similar businesses in the context
of the transaction requiring appraisal.” Iowa Code § 409.1301(4)(b).
RV Central argues its decision to leave the crop value out of its valuation
had a legal and factual basis because at the time of valuation, RV Central did not
know how many bushels would be harvested, whether harvesting would occur, or
the value of the harvest because crop markets fluctuate day to day. In preparation
for trial, RV Central estimated the crop was worth $24,330.47, noting that the value
“should be computed using a formula similar to that used for Iowa’s inheritance tax
purposes.” This formula used the price per bushel on August 21, 2018, the date
RV Central paid Stanley for his fractional shares.
But certainly, RV Central knew there were crops in the field, that they had
value of some amount, and that the crop impacted Stanley’s valuation.1 So we
agree with the district court that RV Central acted arbitrarily in failing to include an
estimate of the crop’s value in its valuation of Stanley’s share. “‘[A]rbitrary’ means
an unreasoned decision made without regard to law or facts.” Sec. State Bank,
554 N.W.2d at 894. This case highlighted at least two ways to estimate a crop’s
value—the inheritance tax formula RV Central suggested at trial or the probable-
yield method Stanley suggested and the court ultimately used. See Iowa Admin.
Code r. 701-86.11(7) (using proration formula to value a decedent’s growing crops
for inheritance tax purposes); Martin v. Jaekel, 188 N.W.2d 331, 335 (Iowa 1971)
(using probable-yield valuation in a negligent-destruction-of-crops case); In re
Marriage of Martin, 436 N.W.2d 374, 376 (Iowa Ct. App. 1988) (using probable-
1 RV Central also insured the crop in the event of some crop failure.
9
yield valuation to determine equitable division of property in a dissolution case).
Rather than use a common formula to estimate the crop’s value, RV Central
omitted it from the estimate of Stanley’s share. This decision was unreasoned and
made without regard to the law or facts.
RV Central argues that even if it did act arbitrarily, the district court should
not have awarded Stanley attorney fees for the entire case based on only one of
many valuation issues. Instead, RV Central argues we should only award 11.8%
of the total fees requested, proportionate to Stanley’s recovery on the crop
valuation issue. RV Central points to factors the district court failed to consider.
The factors important to an award of fees are “the time expended, the nature of
the services rendered, the amount in controversy, the relative difficulty and
importance of the issues raised, and the results obtained.” Beckman v. Kitchen,
599 N.W.2d 699, 702 (Iowa 1999). We need only determine whether the court
“has applied an improper standard, failed to follow established legal rules, or has
based the decision on a record devoid of facts to support the decision.” See Edson
v. Chambers, 519 N.W.2d 832, 834 (Iowa Ct. App. 1994). And the charge once
Iowa Code section 490.1331 is implicated is to fashion an equitable award.
To aid the court, Stanley’s attorney submitted an updated fee affidavit that
included only attorney fees and costs incurred during “the determination of the
value of his shares.” Stanley’s attorney confirmed that the affidavit did not include
attorney fees incurred for prosecuting the rent claim or for amounts incurred before
Stanley received notice of the reverse stock split. The attorney stated, “I have
done my best to deduct any charges on the attached statements related to the jury
10
trial and any charges not directly involving the squeeze-out and corporate
valuation.”
In its ruling, the court noted that the parties stipulated to several facts and
that various valuation issues did not require legal conclusions. Only the crop
valuation, a tax loss carryforward, and the amount of the parties’ attorney fees
required any sort of extended legal analysis. RV Central’s request to award a
percentage of the attorney fees based on Stanley’s recovery on the crop-valuation
issue does not bear any relation to the work Stanley’s attorney did related to that
issue. Other than objecting to the total amount, RV Central has not identified the
specific fee entries it believes are unreasonable. Because the district court did not
abuse its discretion, we find the court’s $11,751 attorney fee award reasonable
and affirm on that issue.
C. District Court’s Use of Second Appraisal. Next, RV Central argues
the court should have relied on Vander Werff’s first, not second, appraisal in
determining land value. RV Central claims Stanley’s interference tainted the
second appraisal and that several factors, including Sheldon’s declining population
and the lack of significant development in the area, undercut the appraiser’s
opinion. RV Central argues that the sale to Maintainer Corporation was a one-off
sale and, relying on Iowa Code section 441.21(1)(b)(1), which applies to county
assessors, Vander Werff should not have used the sale as an indication of demand
in the area.
Iowa Code section 441.21(1)(b)(1) does not apply to Vander Werff because
he is not a county assessor and he was not determining the taxable value of the
property. Even so, RV Central argues this provision is analogous to our case. This
11
section provides in relevant part, “sale prices of property in abnormal transactions
not reflecting market value shall not be taken into account, or shall be adjusted to
eliminate the factors which distort market value, including but not limited to . . .
purchase of adjoining land or other land to be operated as a unit.” Iowa Code
§ 441.21(1)(b)(1). Dianna testified that Maintainer Corporation “adjoins [RV
Central] basically,” but Maintainer Corporation’s land was about one-eighth of a
mile away. The testimony at trial established that Maintainer Corporation was
building an addition to its current facility, so we will presume the purchase of the
land was to operate as a unit.
Even if we use the analogous Iowa Code provision as a guide, RV Central
does not establish how the 2018 appraisal failed to adjust or eliminate factors that
may have distorted the market value of the property. Vander Werff used a direct
sales comparison approach in the June 2018 appraisal, using four comparable
sales to value the commercial land and six comparable sales to value the
agricultural land. In his appraisal, he noted that the sale to Maintainer Corporation
was an arm’s-length transaction, which RV Central does not dispute. Vander Werff
researched the market in Sheldon, including speaking with a broker in the area
and the Sheldon economic development director and looking through his
company’s database of commercial and industrial sales over the last three years.
He also referenced other current development around the industrial park during
his testimony.
Vander Werff was the only expert to offer an opinion on the value of the
land. Noting that over the past twenty years he completed the majority of
commercial appraisals in the Sheldon area, Vander Werff touted his expertise with
12
the market. Vander Werff listed his qualifications, which include over thirty-five
years of experience performing appraisals and his completion of “well over 100
commercial appraisals annually since 1991.” Vander Werff testified that he had
no personal relationship with either Donald or Stanley and that he and his assistant
decided to do a second appraisal on their own after hearing about the sale to
Maintainer Corporation.
At trial, Vander Werff explained his reasoning behind his decision to
complete a second appraisal,
Number one, the building and the site sold for nearly thirty-five
percent higher than our appraisal . . . and it sold in a very short period
of time. And so that clearly indicated to us—and when I say us, Clark
De Vries & Associates, general appraiser, and worked with Vander
Werff & Associates as my partner in the commercial appraisal land.
So clearly we felt we had to look at that sale, and when we started
visiting with the participants in that sale, it became evident that one
of the motivating factors or the primary motivating factor for buying
that property was the site.
And it didn’t come out then, but now it has come out that
Maintainer is building a large new building addition on that site. Um,
I forget the dollars, but it’s a $3 or $4 million property. So to us as
appraisers when we see that happen, and especially on property
we’re so familiar with, it’s like, hey, what’s going on here because it—
it sold for thirty-five percent over what we had appraised it for
previously, and it was probably a marketing time of thirty days or less.
So that indicates a demand. That indicates that there would be
demand for that property.
So that led us to doing some steps that probably aren’t
typically done in an appraisal format, but I felt in this case it was
necessary because we don’t have a dog in this fight, and we just
want to look at the property and appraise it fairly for both parties.
Um, it was as simple as that.
So we visited with the Sheldon economic development
director regarding their potential interest in developing the property
or developing property in that area, and they certainly indicated a
direct interest. If that property would be available, they would be
interested in purchasing it.
Also, at that time they were negotiating the sale of thirty-three
acres on the north side of Sheldon to Rise Ministries or Rosenboom.
Nothing could be said about it at that time because it was not public,
13
but it was—it was in the works, and since we completed the 2018
appraisal it has now become public, and Rosenboom, on behalf of
Rise Ministries, purchased about thirty-three acres for a little over
$18,000 per acre.
So those factors led Clark and I to believe that we needed to
take a second look at the bare land, the portion of the land that was
left, and that’s what—that’s what we proceeded to do. Um, we asked
both parties if it would be okay if we took a second look at it not
knowing where we were going to come up with or what we were
going to do, but both parties agreed to have us take a second look
at it. So we did, and the subsequent appraisal indicates a higher
value, um, a greater transitional use, a likely development in a
shorter period of time, all—all of which the data was developed and
arrived from the market, changes in market.
So that is the reason for the two appraisals. Is it unusual?
Yes, it is. Like I said, I have been appraising for forty some years.
But is it impossible? No, it isn’t. When you have the significant
changes that were not available to us when we did the appraisal in
2017, but were available by June of 2018, it became evident that
prudence said we needed to take a second look at it.
In its ruling, the court found RV Central’s request that the court accept
Vander Werff’s first appraisal but discredit the second was “very tenuous” and
found Vander Werff “extremely qualified to give his opinion.” See Hawk v. Council
Bluffs Airport Auth., No. 05-0133, 2006 WL 1230010, at *6 (Iowa Ct. App. Apr. 26,
2006) (“Appraisal is not an exact science, but a subjective exercise of professional
judgment by qualified and skilled individuals who may reasonably disagree.”); cf.
Sears, Roebuck & Co. v. Sieren, 484 N.W.2d 616, 617 (Iowa Ct. App. 1992) (“The
heart of most assessment cases is the evidence of experts applying, at best, their
professional judgments within a context of variables which can in no definite way
be objectively conclusive.”). The district court found Vander Werff’s opinion to be
credible. See Bell v. Cmty. Ambulance Serv. Agency for N. Des Moines Cty., 579
N.W.2d 330, 338 (Iowa 1998) (noting we give trial courts broad discretion in
14
admitting expert testimony). We agree and conclude the district court’s reliance
on Vander Werff’s second appraisal was appropriate.
D. Appellate Attorney Fees and Costs. Finally, Stanley requests an
award of $7089.50 in appellate attorney fees and $395.67 in appellate costs. See
Iowa Code § 490.1331(2)(b). Stanley argues that awarding appellate fees and
costs is the only way to preserve the deterrent effect of section 490.1331.
We conclude an award of some of the appellate costs and fees is
appropriate. Stanley submitted an itemization of attorney fees and costs. We limit
the award to $3000 for Stanley’s attorney fees and $395.67 in costs.
IV. Disposition.
For the above-stated reasons, we affirm the district court order and award
Stanley appellate attorney fees of $3000 and costs of $395.67.
AFFIRMED.