                   IN THE COURT OF APPEALS OF IOWA

                                  No. 14-1412
                              Filed July 27, 2016


JOHN R. BAUR,
     Plaintiff-Appellant,

vs.

BAUR FARMS, INC., and
ROBERT F. BAUR,
     Defendants-Appellees.
________________________________________________________________


      Appeal from the Iowa District Court for Madison County, Gary G. Kimes,

Judge.



      Plaintiff appeals the district court’s decision denying his petition for

dissolution of a closely-held family farm corporation. AFFIRMED.




      Douglas A. Fulton and Allison M. Steuterman of Brick Gentry, P.C., West

Des Moines, for appellant.

      David L. Charles of Crowley Fleck, P.L.L.P., Billings, Montana, and Mark

McCormick of Belin McCormick, P.C., Des Moines, for appellee.




      Heard by Vogel, P.J., and Doyle and Bower, JJ.
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BOWER, Judge.

       Plaintiff John Baur (Jack) appeals the district court’s decision denying his

petition for dissolution of a closely-held family farm corporation. The district court

concluded the corporation’s decision not to purchase Jack’s shares of stock for

an amount in excess of the fair value of his interest in the corporation did not

show oppression by the corporation. We affirm the district court’s conclusion.

       I.     Background Facts & Proceedings

       Jack is a minority shareholder, owning 26.29% of the shares in Baur

Farms, Inc. (BFI), a family farm corporation. Jack is a director of the corporation

and receives $250 per year in director’s fees but is not an officer of the

corporation. James Baur, Jack’s nephew, is the current farm manager. Robert

Baur (Bob), who is Jack’s cousin, is the majority shareholder in the company and

was formerly the farm manager.        For several years, Jack attempted to have

either BFI or the other shareholders purchase his shares. The parties negotiated

over the period from 1992 to 1997, but there was no agreement on a suitable

purchase price. The parties disagreed concerning the value of BFI and the value

of Jack’s shares.

       On August 7, 2007, Jack offered to sell his shares to BFI for $1,825,000.

BFI did not respond to his offer, and on October 10, 2007, Jack filed an action

seeking dissolution of the corporation under Iowa Code section 490.1430 (2007),

based on a claim of oppressive conduct. He also raised a claim against Bob for

breach of fiduciary duty.     The district court granted summary judgment to

defendants, finding Jack’s claims were barred by the statute of limitations. We
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reversed the decision of the district court and remanded for further proceedings.1

See Baur v. Baur Farms, Inc., No. 09-0480, 2010 WL 447063, at *11 (Iowa Ct.

App. Feb. 10, 2010).

       The remanded case was tried to the court in equity on March 1, 2011.

After Jack presented evidence, BFI and Bob moved for a directed verdict. The

court granted the motion and dismissed the action. The court denied Jack’s

motion to enlarge or amend brought pursuant to Iowa Rule of Civil Procedure

1.904(2). Jack appealed.

       On appeal, the Iowa Supreme Court found, “every shareholder may

reasonably expect to share proportionally in a corporation’s gains.” Baur v. Baur

Farms, Inc., 832 N.W.2d 663, 673 (Iowa 2013).               “When this reasonable

expectation is frustrated, a shareholder-oppression claim may arise.” Id. The

court concluded, “The determination of whether the conduct of controlling

directors and majority shareholders is oppressive under section 490.1430(2)(b)

and supports a minority shareholder’s action for dissolution of a corporation must

focus on whether the reasonable expectations of the minority shareholder have

been frustrated under the circumstances.” Id. at 674. The court also stated, “We

hold that majority shareholders act oppressively when, having the corporate

financial resources to do so, they fail to satisfy the reasonable expectations of a

minority shareholder by paying no return on shareholder equity while declining

the minority shareholder’s repeated offers to sell shares for fair value.” Id.

       The supreme court determined:


1
   The district court denied Bob’s motion seeking sanctions against Jack. We affirmed
the district court’s decision on this issue.
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       Because BFI is a closely held corporation, Jack has no access to
       an active market in its shares that might allow his realization of a
       return on his equity position. The negotiations for the sale of Jack’s
       stock to the other shareholders at a mutually agreed upon price
       have been unavailing. Without ready access to an active market,
       Jack has effectively been precluded from capturing the increased
       value of his shares because BFI has retained and reinvested its
       revenue in the company over the years rather than paying out
       dividends. As a minority shareholder and nonofficer, Jack will
       remain effectively precluded from capturing any return on his
       shareholder equity for as long as the board concludes income
       distributions are inappropriate.
               As a minority shareholder, Jack also lacks voting power to
       force the board of directors to set a book value that is reasonably
       related to the fair value of the company’s assets. Yet, we believe
       the record is not adequate to determine whether the price offered
       by BFI for the purchase of Jack’s shares is so inadequate under the
       circumstances as to rise—when combined with the absence of a
       return on investment—to the level of actionable oppression.

Id. at 676-77 (citations omitted).

       The court determined the case should be reversed and remanded, stating:

              Although we have defined the legal standard for adjudicating
       Jack’s claim of oppression, we express no view on the question of
       whether the last position taken by BFI during negotiations on the
       price offered for Jack’s interest in the corporation was outside the
       range of fair value and incompatible with the reasonable
       expectations of a shareholder in Jack’s position under
       circumstances including a history of no return on shareholder equity
       during the several decades of the corporation’s existence.

Id. at 677. The court remanded with the following instructions:

               The district court shall take whatever additional evidence is
       required for the proper development of the record from which the
       fair value of Jack’s equity interest may be determined. If, after
       taking any additional evidence bearing on this question and
       applying the reasonable expectation standard set forth above, the
       district court finds BFI acted oppressively under the circumstances,
       the court, sitting in equity, has considerable flexibility in resolving
       the dispute.

Id. Additionally, the court stated, “We also note that if, instead, the district court

finds from the fully developed record evidencing the fair value of Jack’s equity
                                          5


interest that no oppression has been demonstrated by a preponderance of the

evidence, this action shall be dismissed.” Id. at 678.

       On remand, the parties agreed the transcript from the hearing on March 1,

2011, would be part of the record in the second trial, held on March 18 and 19,

2014. Telford Lodden, a certified public accountant (CPA), testified concerning

the taxes the corporation would be required to pay if it liquidated. James Van

Werden, an attorney, also testified about the liquidated value of the corporation.

       The district court found the fair value of Jack’s shares was the market

value of BFI’s assets, discounted for their liquidation value.          The court

determined Jack did not have a reasonable expectation his shares could be

redeemed for a greater amount and his request to have BFI purchase his shares

for $1.8 million was unreasonable. The court also noted BFI did not have the

resources to pay Jack $1.8 million for his shares.          The court concluded,

“Because his demands have exceeded the fair value of his equity interest, Jack

has failed to meet his burden to prove oppression by a preponderance of the

evidence.” Jack’s action for dissolution of the corporation was dismissed. Jack

appeals the decision of the district court.

       II.    Standard of Review

       A claim of oppression by a minority shareholder is tried in equity and our

review is de novo. Id. “In equity cases, we are not bound by the district court’s

factual findings; however, we generally give them weight, especially with regard

to the credibility of witnesses.” Soults Farms, Inc. v. Schafer, 797 N.W.2d 92, 97

(Iowa 2011); see also Iowa R. App. P. 6.904(3)(g).
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       III.   Discussion

       A.     Jack claims the district court did not adequately follow the directive

of the Iowa Supreme Court in the previous appeal. The Iowa Supreme Court

stated the district court should determine “whether the last position taken by BFI

during negotiations on the price offered for Jack’s interest in the corporation was

outside the range of fair value and incompatible with the reasonable expectations

of a shareholder in Jack’s position.” Baur, 832 N.W.2d at 677. On August 7,

2007, Jack offered to sell his shares for $1.8 million.      During the remanded

hearing, evidence was presented to show BFI did not respond to Jack’s offer

prior to the initiation of this lawsuit on October 7, 2007. Thus, BFI’s last position

was its failure to accept Jack’s offer to sell for $1.8 million. On this basis, we do

not consider the parties’ prior negotiations occurring from 1992 to 1997.

       B.     Jack claims the court improperly considered the corporate bylaws,

an amendment to the bylaws, and the expectations of other shareholders on the

issue of whether the fair value of his shares should be determined by their book

value. The supreme court noted, “As a minority shareholder, Jack also lacks

voting power to force the board of directors to set a book value that is reasonably

related to the fair value of the company’s assets.” See id. at 676. The book

value for the corporation’s assets was set in 1983 and did not reflect current

values.

       While the district court engaged in a lengthy discussion of book value as

set by the corporate bylaws, as amended, the court did not ultimately determine

the fair value of Jack’s shares was their book value. The court stated, “The Court

holds that the fair value of Jack’s shares under the standard adopted by the
                                              7


supreme court does not exceed the amount of his proportionate share of the

market value of BFI’s assets, discounted to their liquidation value.” (Emphasis

added). The court also stated, “The fair value of Jack’s equity interest in BFI in

the record in this case cannot and does not exceed his proportionate share of

BFI’s liquidation value.” We conclude the district court did not find the fair value

of Jack’s shares was set by their corporate book value.2

       Jack also claims the district court improperly considered the impact of

redemption on the other shareholders in determining his reasonable expectations

for his interest in the corporation. The Iowa Supreme Court stated, “We hold that

majority shareholders act oppressively when, having the corporate financial

resources to do so, they fail to satisfy the reasonable expectations of a minority

shareholder by paying no return on shareholder equity while declining the

minority shareholder’s repeated offers to sell shares for fair value.” Id. at 674

(emphasis added). Thus, whether a corporation has the financial resources to

purchase a minority shareholder’s shares is a legitimate consideration, and we

determine the district court properly considered this aspect of the case.

       C.      Jack states any offers to purchase his shares by BFI improperly

included a minority discount.         The district court did not include a minority

discount. The court stated the fair value of Jack’s shares was the market value

of BFI’s assets, discounted to their liquidation value. The Iowa Supreme Court

stated, “We note, however, our recent disapproval of share valuations

2
     The district court’s ruling is somewhat confusing in this regard, and includes
statements in the Findings of Fact that seem to support the corporation’s book value as
the value of Jack’s shares. In the Conclusions of Law, however, the court clearly states
the fair value of the shares is the fair market value of the corporation’s assets, taking into
consideration the full liquidation tax consequences.
                                         8

incorporating a discount for a minority interest in other corporations.” Id. at 669

n.5. We agree the fair value of Jack’s shares should not include a minority

discount.

       D.       Finally, Jack claims the district court improperly concluded a

liquidation discount should be applied to the value of his shares. The district

court stated:

               The court cannot say that BFI’s insistence on a liquidation
       tax discount, reduced to “present value,” was unreasonable. Both
       Van Werden and CPA Lodden testified credibly that the use of a
       liquidation tax discount is customary in such transactions. Jack
       presented no contrary evidence. With BFI’s low tax basis on its
       assets, a purchase of Jack’s interest would give BFI a substantial
       built-in gain that would constitute a burden on the remaining
       shareholders. No reliable basis existed for determining when the
       remaining shareholders would be hit with the impact of that burden.
       The illustration provided by Lodden regarding the impact of the
       built-in gain is reasonable and persuasive.
               Lodden’s testimony is particularly persuasive in light of the
       relief requested by Jack in this lawsuit, consistent with his repeated
       motions at the BFI board meetings for dissolution of the
       corporation. If BFI was dissolved as Jack requested, the amount
       available to BFI shareholders would be its net liquidation value.
       Moreover, Jack has asked for an order of dissolution as one of the
       remedies he seeks in this action. That is the ultimate statutory
       remedy available on proof of oppression. The income taxes are
       only one of the costs that would result from dissolution. Fair value
       for Jack’s shares does not exceed a value that takes the full
       liquidation tax consequences into consideration.

       We agree with the district court’s conclusion the fair value of Jack’s shares

should take into consideration the taxes and other costs that would result from

liquidation of the corporation. See In re Marriage of Muelhaupt, 439 N.W.2d 656,

660 (Iowa 1989) (finding the value of a party’s shares of stock should be “subject

to a substantial discount because such an amount could be realized only upon
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liquidation of the company”). The testimony of Van Werden, an attorney, and

Lodden, a CPA, supports the application of a liquidation tax discount.

       IV.    Conclusion

       The Iowa Supreme Court held “majority shareholders act oppressively

when, having the corporate financial resources to do so, they fail to satisfy the

reasonable expectations of a minority shareholder by paying no return on

shareholder equity while declining the minority shareholder’s repeated offers to

sell shares for fair value.” Baur, 832 N.W.2d at 674. The district court concluded

Jack’s offer to sell his shares for $1.8 million exceeded the fair value of his

interest in BFI and, therefore, the corporation’s failure to accept his offer did not

show oppression. We affirm the district court’s conclusion.

       AFFIRMED.
