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Black, Inc. v. Dunklin

Court of Appeals of Arkansas, Division II

January 10, 2018

BLACK, INC., AND DEBORAH DUNKLIN TIPTON APPELLANTS
v.
GEORGE H. DUNKLIN, JR. APPELLEE

         APPEAL FROM THE ARKANSAS COUNTY CIRCUIT COURT, NORTHERN DISTRICT [NO. 01CV-15-147] HONORABLE DAVID G. HENRY, JUDGE

          Berry Law Firm, P.A., by: Russell D. Berry and Michelle L. Jacobs, for appellant Black, Inc.

          Wright, Lindsey & Jennings LLP, by: James M. Moody, Gordon S. Rather, Jr., and Gary D. Marts, Jr.; and Merkel & Cocke, P.A., by: Charles M. Merkel, Jr., pro hac vice, for appellant Deborah Dunklin Tipton.

          Barber Law Firm PLLC, by: Robert L. Henry III and Perry L. Wilson, for appellee.

          ROBERT J. GLADWIN, JUDGE

         This appeal involves the sale of nonvoting stock in a family-held corporation, Black, Inc. (Black Inc.), pursuant to a stock repurchase agreement (SRA). Black Inc. and Deborah Dunklin Tipton have filed separate appellate briefs seeking reversal of a series of orders in the Arkansas County Circuit Court that, among other things, confirm the appraisal of appellee George H. Dunklin, Jr.'s nonvoting shares in Black Inc.; order Tipton to purchase Dunklin's nonvoting shares for the price of $15, 619, 240; and deny Tipton's motion to conduct discovery on the appraisal. Tipton argues that the circuit court erred by (1) denying her permission to conduct discovery; (2) adopting the appraisal; and (3) concluding that the fair market value (FMV) of the stock was $15, 619, 240 rather than $15, 600, 000. Black Inc. similarly argues that the circuit court erred in interpreting the SRA and in adopting the appraisal. We affirm.

         I. Facts and Procedural History

         Jerry Lee Bogard and Rebecca Winemiller offered Dunklin $20, 000, 000 for his shares in Black Inc. Under the SRA, Dunklin gave notice of his intent to sell, and Tipton elected to purchase the shares. When a dispute arose about the purchase price and the timing and manner for electing to exercise options under the SRA, Dunklin filed his complaint against Black Inc., its shareholders, Bogard, and Winemiller, seeking a declaration of the parties' rights and obligations under the SRA with respect to the offer.[1]

         Dunklin attached to his complaint the $20, 000, 000 offer and the SRA, which provides that if Dunklin should sell his shares, he must first offer to sell them to his children (who waived their rights) and then to his sister, Tipton.[2] The SRA also provides that the FMV of the shares of stock would be by mutual agreement of the selling shareholder and the purchaser. However, if those parties could not agree, FMV would be determined by an appraiser selected jointly by the seller and the purchaser.[3]

         Tipton separately answered Dunklin's motion and counterclaimed, also seeking a declaration of the parties' respective rights and obligations under the SRA. Tipton noted that, even though she and Dunklin had agreed on an appraiser, the firm of Stout Risius Ross, Inc. (SRR), Dunklin still disavowed the validity of Tipton's election and asserted that her window to exercise her option had closed. Black Inc. and the remaining shareholders named in the action answered both motions by affirmatively stating that they wished to protect their rights in the event Tipton's election was found to be invalid, and they filed a motion for preliminary injunction, arguing that the purpose of the SRA was to provide for continuity and harmony among the family members in the management and continued family ownership of Black Inc.

         The circuit court issued a temporary restraining order on January 8, 2016, preserving the position of all parties under the SRA as of January 7, 2016. A second hearing was held on January 26, 2016, and the resulting order filed March 7, 2016, states that the parties stipulated that Tipton had elected to purchase and would "put up assets or funds as security on March 12, 2016, " for the purchase price. Dunklin and Tipton stipulated that they had jointly agreed to an appraiser. The order provided that Black Inc. would make its election or waiver pursuant to the SRA by March 9, 2016, and provision was made for it to provide security on the purchase of the stock if Tipton's purchase was not accomplished. Paragraph 3 of the order states,

Other undecided issues raised in the pleadings of the parties are reserved by the Court. Dunklin, through counsel, specifically reserved his issues raised in the Complaint about any appraisal received by the parties and the methodology employed by the appraisers.

         On August 23, 2016, Tipton filed a "Motion for Leave to Conduct Discovery and Obtain Court Approval of Appraisal." Attached was the final appraisal report of SRR rendered on July 22, 2016. Tipton alleged that, even though Dunklin had never accepted the $20, 000, 000 offer in writing and the offer contained due-diligence provisions and asset-verification provisions that allowed for modification of the amount of the offer, SRR "elected to consider the existence of the offer and afforded it weight in their appraisal." The appraisal report stated that the offer was "arms-length, " and the purchasers were considered to have the ability to execute and close on the offer. Based on these conclusions, the ultimate appraisal amount was increased by about $4, 300, 000.[4]Therefore, Tipton asked that she be permitted to conduct formal discovery into the financial ability of Winemiller and Bogard to complete the transaction and into the prior course of any dealings Dunklin had with them. Black Inc. responded that Tipton should be allowed to inquire into the "factors underlying the conclusions reached by the appraiser."

         Dunklin filed a status update on August 24, 2016, in anticipation of the status hearing set for August 26. He alleged that the hearing had not been requested by him for the purpose of challenging the appraisal. He stated that he and Tipton had stipulated that they had jointly selected SRR to perform the appraisal "in accordance with the terms of the SRA." He alleged that SRR's final report had been issued and that it was time for the sale to close. Dunklin relied heavily on the stipulation as presented in the circuit court's order of March 7, 2016. He contended that Tipton refused to close and that she sought to delay the closing based on her dissatisfaction with the results of the valuation.

         Dunklin also reported that Black Inc. had exercised its preemptive rights under the SRA to purchase Dunklin's nonvoting shares in the event that they were not purchased by Tipton. He asked that Tipton be ordered to either close on or before August 31, 2016, or give notice that she would not close. Dunklin asked that Black Inc. be ordered to close by September 7, 2016, if Tipton failed to close. Black Inc. responded to Dunklin's status update and stated affirmatively that "the appraisal failed to comply with the [SRA] and failed to comply with requirements of the appraisal itself so that such should be construed by the Court, particularly as it related to any purchase by Black Inc."

         The circuit court held a hearing on August 26, 2016, and at its conclusion, the circuit court ruled from the bench as follows:

The parties, Mr. Dunklin and Mrs. Tipton in accord with the [SRA] and as affirmed in the Court's order of March 1, 2016, jointly selected SRR to perform the [FMV] appraisal of the stock.
The appraisal process by SRR went through three drafts. Beginning with the first on February 23, 2016. A second on June 11, 2016. And the third and final draft on July 22, 2016. The fair market evaluation reached by SRR in its final-in its final appraisal was $15, 619, 240.00. . . . The weight assigned with respect to the Bogard/Winemiller offer increased the value by some $4 million dollars. As noted previously, Mrs. Tipton's position is that SRR gave too much weight to the Bogard/Winemiller offer in that the firm failed to fully explore the financial ability of the . . . offerors to complete the purchase and whether the transaction was in fact an arm's-length transaction.
During the appraisal process the parties were given opportunities to submit information . . . to be considered by SRR to consider the evaluation or the validity of the Bogard/Winemiller offer. By jointly agreeing to have SRR perform the final market value of the stock, I believe that it can be said that Mrs. . . . Tipton agreed certainly by implication at the very least that SRR would perform the appraisal in a fair, professional, and thorough manner.
It is argued today that SRR accepted Mr. Bogard's representations concerning the validity of the Bogard/Winemiller offer. But I do think that by agreeing to SRR, the parties rely on SRR to give full and studied consideration to all factors touching on the issue of the evaluation of the stock and the Court must assume that is in fact what SRR did.
The issue, I think, in this case comes down to and is controlled by the [SRA]. The parties chose how they wish to proceed. That is, by agreeing that the appraisal should . . . be done by SRR to decide the value. There is no provision in the agreement regarding what should happen if the parties didn't agree on the appraisal reached by the appraiser jointly agreed to. I think that the parties are bound under the circumstances and given the totality of how this case has proceeded by the conclusion reached by SRR and its appraisal. I can foresee that if discovery was permitted at this point to go behind or beyond the SRR appraisal that would be giving or just about guarantee further hearings on the details or the methodology of . . . SRR and the factors considered by SRR and will eventually require the Court to more or less determine the value of the stock. Which is exactly the primary purpose that a stock repurchase is signed in the first place. That is to rightfully seek to avoid court intrusion into the evaluation process. And as I said, while I can appreciate the positions of all parties and I make this decision and I particularly understand the effect this appraisal will have on the estate tax values down the line, but the effect of this decision on the estate tax considerations is, in this Court's judgment, not relevant to the Court's decision in this particular case.
In conclusion, the Court finds that the SRR appraisal amount of $15, 619, 240 should stand as the [FMV] of the stock and the amount Mrs. Tipton should pay to Mr. Dunklin for his 5160 shares of stock. Accordingly, Mrs. Tipton's motion for discovery is denied. All that said I'm going to allow some leeway in the closing date of the transaction and rule that the closing in this transaction should be completed no later than close of business on September 15, 2016.

         At a hearing held on September 12, 2016, the circuit court noted that Tipton and Black Inc. had objected to the proposed order submitted by Dunklin's attorney from the August 26, 2016 hearing. By order filed September 13, 2016, the circuit court affirmed its bench opinion of August 26, 2016; confirmed the FMV of Dunklin's nonvoting shares to be $15, 619, 240; ordered Tipton to complete her purchase of those shares by September 15, 2016, or to notify Dunklin and the circuit court in writing that she waived her right; found that Lester A. McKinley, Georgea McKinley Greaves, Mary Jennings, Warren Jennings, Jr., and Jean Johnston had waived their rights to purchase Dunklin's shares; preserved Black Inc.'s right to purchase Dunklin's shares if Tipton waived her right; denied Tipton's motion to conduct discovery; denied Tipton's request for Ark. R. Civ. P. 54(b) certification; terminated Bogard's and Winemiller's interests in the proceeding; and retained jurisdiction to carry out the terms of the order. In an amended order filed September 30, 2016, the circuit court found that, despite its denial of Tipton's request for a Rule 54(b) certificate, all pending claims had been resolved and the order should be considered final.

         In a second order filed on September 30, 2016, entitled "Final Order, " the circuit court found that Tipton had completed the purchase of Dunklin's 5160 shares of nonvoting stock in Black Inc. for $15, 619, 240. The circuit court found that Tipton's purchase rendered moot the contingent provisions for the purchase of the shares by Black Inc. and that all the parties' claims had been fully and finally resolved. Black Inc. and Tipton filed separate notices of appeal, and this appeal followed.

         II. Stand ...


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