                                                                          FILED
                                                                     May 05 2020, 9:26 am

                                                                          CLERK
                                                                      Indiana Supreme Court
                                                                         Court of Appeals
                                                                           and Tax Court




ATTORNEY FOR APPELLANT                                     ATTORNEYS FOR APPELLEE
Mark J. Crandley                                           Louis F. Britton
Barnes & Thornburg, LLP                                    Scott Craig
Indianapolis, Indiana                                      Cox Zwerner Gambill & Sullivan
                                                           Terre Haute, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

Blake B. Hartman,                                          May 5, 2020
Appellant-Plaintiff,                                       Court of Appeals Case No. 19A-
                                                           PL-2263
        v.                                                 Appeal from the Parke Circuit
                                                           Court
BigInch Fabricators &                                      The Honorable Hunter J. Reece,
Construction Holding Company,                              Special Judge
Inc.,                                                      Trial Court Cause No.
Appellee-Defendant.                                        61C01-1809-PL-394




Riley, Judge.




Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020                               Page 1 of 17
                                 STATEMENT OF THE CASE
[1]   Appellant-Plaintiff, Blake B. Hartman (Hartman), appeals the trial court’s

      summary judgment in favor of Appellee-Defendant, BigInch Fabricators &

      Construction Holding Company (Company), concluding that, pursuant to the

      Shareholder Agreement, the value of the shares held by a minority shareholder

      can be discounted by lack of control and lack of marketability.


[2]   We reverse.


                                                     ISSUE
[3]   Hartman presents one issue on appeal, which we restate as: Whether, as a

      matter of law, the value of shares under a buyback provision in a Shareholder

      Agreement can be discounted for lack of marketability and control when the

      Company is required to purchase the shares.


                       FACTS AND PROCEDURAL HISTORY
[4]   The Company is a closely-held Indiana corporation, located in Montezuma,

      Indiana, and is in the business of fabricating and installing natural gas and

      pipeline compressor/pumping stations and related apparatus. Hartman was

      one of the founders and former president of the Company, serving as president

      from 1998 to 2014. At all times relevant to these proceedings, there were ten

      shareholders in the corporation, with no single shareholder holding a majority

      position.




      Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020          Page 2 of 17
[5]   On March 1, 2006, the shareholders of the corporate predecessor to the

      Company entered into a Shareholder Agreement that included the obligations

      of the shareholders to each other and to the Company. The Company’s

      shareholders and directors executed a Consent to Corporate Action that bound

      the Company to the terms of the Shareholder Agreement. The Shareholder

      Agreement required the Company to purchase the shares of any shareholder

      who is involuntarily terminated as an officer or director of the Company.

      Pursuant to the provisions of the Shareholder Agreement, this purchase must be

      made at “appraised market value on the last day of the year preceding the

      valuation, determined in accordance with generally accepted accounting

      principles by a third-party valuation company.” (Appellant’s App. Vol. II, pp.

      57-58).


[6]   In March 2018, Hartman was involuntarily terminated from his position as a

      director and officer at the Company, triggering the required purchase provisions

      in the Shareholder Agreement. To comply with the terms of the Shareholder

      Agreement, the Company retained Wonch Valuation Advisors (Wonch) to

      appraise the value of Hartman’s shares. Wonch’s report valued Hartman’s

      8,884—or 17.77%--shares at $3,526,060. The report discounted this amount

      due to Hartman’s lack of controlling interest in the Company and lack of

      marketability as he did not have a market in which to sell his shares. As such,

      the report determined the fair market value of the shares to be $2,398,000. The

      Shareholder Agreement afforded Hartman the right to dispute Wonch’s




      Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020          Page 3 of 17
      valuation by obtaining a second professional appraisal. Hartman declined to

      avail himself of that option.


[7]   On September 10, 2018, Hartman filed a petition for declaratory judgment,

      seeking a declaration as to the value of the shares and alleging that the

      Company improperly applied discounts for lack of control and marketability to

      the mandatory sale of the shares. On December 26, 2018, the Company filed

      an Answer and Counterclaim for declaratory judgment. On March 12, 2019,

      Hartman moved for summary judgment, and on May 13, 2019, the Company

      filed a cross-motion for summary judgment. On August 22, 2019, the trial

      court conducted argument on the parties’ respective motion for summary

      judgment. One month later, on September 19, 2019, the trial court issued

      summary judgment, concluding that the Company could discount the value of

      the shares for lack of control and marketability.


[8]   Hartman now appeals. Additional facts will be provided as necessary.


                               DISCUSSION AND DECISION
                                             I. Standard of Review


[9]   In reviewing a trial court’s ruling on summary judgment, this court stands in the

      shoes of the trial court, applying the same standards in deciding whether to

      affirm or reverse summary judgment. First Farmers Bank & Trust Co. v. Whorley,

      891 N.E.2d 604, 607 (Ind. Ct. App. 2008), trans. denied. Thus, on appeal, we

      must determine whether there is a genuine issue of material fact and whether

      the trial court has correctly applied the law. Id. at 607-08. In doing so, we
      Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020             Page 4 of 17
       consider all of the designated evidence in the light most favorable to the non-

       moving party. Id. at 608. A fact is ‘material’ for summary judgment purposes if

       it helps to prove or disprove an essential element of the plaintiff’s cause of

       action; a factual issue is ‘genuine’ if the trier of fact is required to resolve an

       opposing party’s different version of the underlying facts. Ind. Farmers Mut. Ins.

       Group v. Blaskie, 727 N.E.2d 13, 15 (Ind. 2000). The party appealing the grant

       of summary judgment has the burden of persuading this court that the trial

       court’s ruling was improper. First Farmers Bank & Trust Co., 891 N.E.2d at 607.


[10]   We observe that, in the present case, the trial court entered findings of fact and

       conclusions of law thereon in support of its judgment. Generally, special

       findings are not required in summary judgment proceedings and are not binding

       on appeal. AutoXchange.com. Inc. v. Dreyer and Reinbold, Inc., 816 N.E.2d 40, 48

       (Ind. Ct. App. 2004). However, such findings offer a court valuable insight into

       the trial court’s rationale and facilitate appellate review. Id.


                                              II. Buyback Provision


[11]   Hartman contends that the trial court inappropriately allowed the Company to

       reduce the value of his shares with a lack of marketability and control discount

       even though these discounts are not applicable to a compulsory sale. He

       maintains that the language of the Shareholder Agreement, determining the

       valuation method of the Company’s shares, should not be equated with fair

       market value as the sale of the shares cannot be completed in the open market

       place and the purchaser already controls the Company.


       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020               Page 5 of 17
[12]   Construction of the terms of a written contract is a pure question of law for the

       court, and we conduct a de novo review of the trial court’s conclusions in that

       regard. Grandview Lot Owners Ass’n, Inc. v. Harmon, 754 N.E.2d 554, 557 (Ind.

       Ct. App. 2001). If a contract is ambiguous because of the language used in the

       contract, rather than because of extrinsic facts, its construction is a pure

       question of law to be determined by the court. Id. A contract is not ambiguous

       merely because a controversy exists where each party favors a different

       interpretation; rather, a contract is ambiguous where it is susceptible to more

       than one interpretation and reasonably intelligent persons would honestly differ

       as to its meaning. Ind. Dep’t of Transp. v. Shelly & Sands, Inc., 756 N.E.2d 1063,

       1069-70 (Ind. Ct. App. 2001), trans. denied. Absent ambiguity, this court will

       give the terms of a contract their plain and ordinary meaning. Id. at 1070.


[13]   Indiana courts have long recognized that shareholders in closely-held

       corporations may enter into agreements to buy or sell shares which include a

       valuation method to determine the value of those shares. See Shriner v. Sheehan,

       773 N.E.2d 833, 843 (Ind. Ct. App. 2002) (“It is for the parties, not the court, to

       stipulate a valuation method in a purchase agreement, and we will not rewrite

       an explicit agreement even if that method does not produce a price for the

       shares of stock that reflects a business’s true value.”). Close corporations

       generally find no market for their shares and the only people interested in the

       business are the “incorporated partners” who are intimately involved with the

       entity. Krukemeier v. Krukemeier Mach. & Tool Co., 551 N.E.2d 885, 890 (Ind. Ct.

       App. 1990). Because there is often no market, it is difficult and speculative to

       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020            Page 6 of 17
       value a close corporation’s shares; therefore, repurchase agreements frequently

       include specific valuation methods. See Shriner, 773 N.E.2d at 842.


[14]   Article V of the Shareholder Agreement provides for the “Valuation and

       Payment for the Shares” in Section 5.1 as follows:


               The price per Share for the Shares of the Corporation to be sold
               pursuant to Article III or Article IV of this Agreement shall be
               the appraised market value on the last day of the year preceding
               the valuation, determined in accordance with generally accepted
               accounting principles by a third party valuation company within
               the twenty-four months preceding the transfer of shares, with
               adjustments for changes in the number of outstanding Shares
               since such year end, and in the case of sales under Article IV, if
               the value is less than the price paid to acquire the Shares paid by
               the Involuntary Transferee.


       (Appellant’s App. Vol. II, pp. 57-58) (emphasis added). In determining the

       appraised value of Hartman’s shares, the Wonch report applied the fair market

       value, which included a discount for the marketability of the stocks and the lack

       of control represented by Hartman’s minority interest.


[15]   In support of his argument that the Wonch report applied an incorrect valuation

       method as appraised market value cannot be equated to fair market value,

       Hartman relies on Wenzel v. Hopper & Galliher, P.C., 779 N.E.2d 30 (Ind. Ct.

       App. 2002). In Wenzel, this court rejected marketability and control discounts

       in a dispute about the value of a departing partner’s interest in a law firm. Id. at

       37. The firm brought an action to value the partner’s interest under the Indiana

       Professional Corporations Act and asserted that the valuation must consider

       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020           Page 7 of 17
both marketability and control. Id. We rejected the argument and adopted the

general proposition that ‘fair value’ is not the same as ‘fair market value.’ Id.

We found that ‘fair value’ carried with it the statutory purpose that shareholders

be fairly compensated, which may or may not equate with the market’s

judgment about the stock’s value. Id. ‘Fair market value,’ on the other hand,

represented “the amount for which property will sell upon negotiations in the

open market between an owner willing to sell and a buyer willing but not

obligated to buy.” Id. The Wenzel court explained that


        Minority and marketability discounts are open market concepts.
        A minority discount allows an appraiser to adjust for lack of
        control over the corporation on the theory that minority shares of
        stock are not worth the same amount to a third party as the
        majority holdings due to lack of voting power. A marketability
        discount allows an appraiser to adjust for a lack of liquidity in the
        stock itself on the theory that there is a limited supply of
        purchasers of the stock.


Id. at 37 (citations omitted). Wenzel recognized that a “substantial majority” of

courts in other jurisdictions had reached the same result and “rejected the

application of minority and marketability discounts when determining the fair

value of stock in cases where a majority shareholder or corporation purchases

the stock.” Id. at 38. Acknowledging that the discounts would create a

“windfall” if applied to a sale outside the open market, the Wenzel court

clarified that a sale of the minority shareholders’ shares to majority

shareholders consolidates or increases the power of those already in control, so

applying a minority discount to such a case would result in a windfall to the


Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020             Page 8 of 17
       purchasing majority shareholder, particularly because the shares would have

       the same value in the minority shareholder’s hands as in the majority

       shareholders. Id. at 39.


[16]   Cases applying Indiana law since Wenzel have affirmed that minority and

       control discounts have no application in compelled transactions to a controlling

       party. In Stone v. Peoples Tr. & Sav. Bank, 363 F. Supp. 2d 1036, 1039 (S.D. Ind.

       2005), the Southern District of Indiana rejected a marketability discount where

       there is “a ready-made market.” Relying on Wentzel, the court concluded that

       “[i]t would be incongruous to discount the shares of the minority shareholder

       for lack of liquidity when valuation is being done in connection with a

       proceeding that creates liquidity.” Id. (quoting Wenzel, 779 N.E.2d at

       40)(quoting Charles W. Murdock, The Evolution of Effective Remedies For and

       Valuation of Minority Shareholders and Its Impact Upon Valuation of Minority Shares,

       65 NOTRE DAME L. REV. 425, 486 (1990)). When there is a “ready-made

       market” for shares through a mandatory purchase agreement, “[a]llowing a

       minority or non-marketability discount to be deducted from their value would

       indeed amount to a windfall to the [buyer] and its majority shareholders, which

       is precisely what the Wenzel court sought to avoid.” Stone, 363 F. Supp. 2d at

       1039.


[17]   In the years since Wenzel was decided, a wide majority of courts in sister states

       have regularly rejected the application of control and marketability discounts to

       situations where a shareholder is compelled to sell to the majority. See, e.g., In

       re Stebnitz, 586 B.R. 289 (E.D. Wisc. 2018) (finding no need for a lack of control

       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020            Page 9 of 17
       discount when the controlling interests bought the stock and holding that a

       “discount for lack of marketability is likewise inappropriate when the

       agreement obligates the remaining membership groups to purchase the existing

       member’s interest.”); Shawnee Telecom Resources, Inc. v. Brown, 354 S.W.3d 542,

       555 (Ky. 2011); HMO-W Inc. v. SSM Health Care Sys., 611 N.W.2d 250, 257

       (Wis. 2000) (marketability and control discounts “inflict a double penalty upon

       the minority shareholder [because] the shareholder not only lacks control over

       corporate decision making, but also upon the application of a minority discount

       receives less than proportional value for loss of that control.”).


[18]   In response, the Company distinguishes Wenzel and its progeny on the ground

       that the dispute in Wenzel revolved around the determination of fair value of

       minority shareholder’s interest, as required by statutory language, and not the

       shares’ market value, as included in the Shareholder Agreement. 1 Instead, the

       Company relies on the Wonch report and contends that the fair market value

       standard used in the report is consistent with the Shareholder Agreement’s




       1
         In a footnote, the Company directs us to Alexander v. Alexander, 927 N.E.2d 926, 938 (Ind. Ct. App. 2010) in
       support of its argument that “Indiana courts have approved the application of marketability and control
       discounts for valuations of shares in closely-held corporations when they were not bound by a statutory
       requirement of ‘fair value.’” Appellee’s Br. p. 12 n.1. However, we distinguished Alexander from Wenzel
       based on two considerations, none of which are present here. First, we noted the trial court’s broad
       discretion when determining the value of property in dissolution proceedings which differentiated the
       circumstances in Alexander from those in Wenzel. “This broad discretion leads to a more direct and simple
       valuation of how the trial court has valued property than was presented in Wenzel.” Id. Furthermore, unlike
       the facts in Wenzel, the party in Alexander was not selling her interest in the property—rather the trial court
       was attempting to valuate the property in light of the divorce proceedings. Id. at 939. Therefore, the trial
       court was not acting to prevent a windfall to the majority, but rather was trying to place a value on the
       interest. Id.



       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020                                  Page 10 of 17
       requirement to use appraised market value. Reiterating the trial court’s

       conclusion, the Company focuses on dictionary definitions which indicate that

       market value and fair market value are remarkably similar. Black’s Law

       Dictionary defines ‘fair market value’ as “[t]he amount at which property

       would change hands between a willing buyer and a willing seller, neither being

       under a compulsion to sell and both having reasonable knowledge of the

       relevant facts.” BLACK’S LAW DICTIONARY, (6th Edition). ‘Market value’ is

       defined as “[t]he price property would command in the open market. The

       highest price a willing buyer would pay and a willing seller accept, both being

       fully informed, and the property being exposed for a reasonable period of time.”

       BLACK’S LAW DICTIONARY, (6th Edition). Likewise, Indiana Code section 23-

       1-43-11 of the Indiana Business Corporation Act, defined the term market value

       as meaning fair market value. While this statute deals with the open-market

       concepts of share valuations in the context of mergers and other business

       combinations, the Company relies on it for its instructive value in this context.

       As such, the Company contends that Wonch properly applied a fair market

       value in performing his appraisal and the application of the discounts should

       stand.


[19]   We find Wenzel to be persuasive to the situation at hand where a Shareholder

       Agreement includes the valuation method of the members’ shares. Unlike

       Hartman’s argument, we cannot conclude that Wenzel is limited to cases arising

       under the statutory application of the fair value standard; Wenzel and its

       progeny rejected the application of open-market discounts to any sale occurring


       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020         Page 11 of 17
       in a closed market, regardless of the used valuation standard. The Shareholder

       Agreement itself recognizes that the mandated buyback of shares to the

       Company differs from a sale to a third party on the open market and thus,

       different interests must be recognized by implementing an appraised market

       value rather than the open-market valuation method of fair value or fair market

       value. Indiana law does not allow parties “to read into the contract terms to

       which the parties did not agree.” Zawistoski v. Gene B. Glick Co., 727 N.E.2d

       790, 794 (Ind. Ct. App. 2000). Courts therefore will not add provisions not

       agreed upon by the parties. Kaghann’s Korner, Inc. v. Brown & Sons Fuel Co., Inc.,

       706 N.E.2d 556, 565 (Ind. Ct. App. 1999).


[20]   Wonch’s appraisal report narrated that “[Wonch] ha[d] been engaged by the

       Company to estimate the fair market value of the property described herein as

       of December 31, 2017. This valuation was performed solely to assist with a

       valuation requirement in a shareholder agreement due to a triggering event

       involving [Hartman].” (Appellant’s App. Vol. II, p. 72). After determining the

       market value of the shares, the report then applied the open market concepts of

       minority and marketability discounts, as required by the concept of fair market

       value. See Wenzel, 779 N.E.2d at 39. Thus, instead of using the “appraised

       market value” of the Shareholder Agreement, the Wonch report applied the

       open-market valuation method of fair market value, without acknowledging

       that there is a built-in market or that Hartman’s shares must be sold to those

       already controlling the Company. As such, the Wonch report’s application of

       the valuation method would allow the Company to purchase Hartman’s shares


       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020         Page 12 of 17
       at a discount and then immediately retain control over the Company and resell

       the shares without the discount, thereby allowing the Company to reap a

       windfall.


[21]   The Shareholder Agreement ensured a market for the shares of departing

       shareholders by compelling the Company to buy the shares at appraised market

       value. The Wonch report appraised the market value of the Company and

       calculated the per share value of this total market value figure by dividing the

       Company’s value by the number of shares, resulting in a per share price of

       $396.90. Based on the 8,884 shares owned by Hartman, his share of the

       appraised market value of the Company amounted to $3,526,060. This reflects

       the appraised value of the shares based on the market value of the Company

       and corresponds with the requirement of the Shareholder Agreement to utilize

       the appraised market value. As there is no sale of the shares in the open

       market, the discounts for lack of control and marketability cannot be taken into

       account in the calculation of the shares’ value in this compelled transaction.

       Consequently, as the trial court erred, as a matter of law, by applying these

       discounts, we reverse the trial court’s summary judgment.


                                              CONCLUSION
[22]   Based on the foregoing, we hold that, as a matter of law, the value of shares

       under the buyback provision in the Shareholder Agreement, which required to

       apply the appraised market valuation, cannot be discounted for lack of

       marketability and control when the Company is required to purchase the

       shares.
       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020         Page 13 of 17
[23]   Reversed.


       Mathias, J. concurs


       Tavitas, J. concurs in part and dissents in part with separate opinion




       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020          Page 14 of 17
                                                   IN THE
           COURT OF APPEALS OF INDIANA

       Blake B. Hartman,                                          Court of Appeals Case No.
                                                                  19A-PL-2263
       Appellant-Plaintiff,

               v.

       BigInch Fabrication &
       Construction Holding Company,
       Inc.,
       Appellee-Defendant.



       Tavitas, Judge concurring in part and dissenting in part


[24]   I respectfully concur in part and dissent in part.


[25]   I fully concur that the trial court erred by granting the Company’s motion for

       summary judgment. I write separately to also emphasize and note that, in

       calculating the “fair market value,” the Wonch report relied upon an Internal

       Revenue Service (“IRS”) Revenue Ruling, which defines “fair market value” as

       “the price at which the property would change hands between a willing buyer

       and a willing seller when the former is not under any compulsion to buy and

       the latter is not under any compulsion to sell, both parties having reasonable

       knowledge of relevant facts.” Appellant’s App. Vol. II p. 69. Hartman,

       however, was involuntarily removed from his position, and the Company is

       required to purchase Hartman’s shares at the “appraised market value.” Under


       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020                        Page 15 of 17
       these circumstances, the Company was under a compulsion to buy, and

       Hartman was under a compulsion to sell. Accordingly, the IRS definition of

       fair market value is not applicable here.


[26]   I dissent only to the extent that the majority opinion fails to address Hartman’s

       motion for summary judgment in its conclusion. See Appellant’s Br. p. 23

       (“Mr. Hartman respectfully requests that the Court reverse the summary

       judgment in favor of the Company and enter summary judgment in his favor

       declaring that he is entitled to the $3,526,000 his shares are worth without the

       inapplicable discounts.”). I would reverse both the trial court’s grant of the

       Company’s motion for summary judgment and the trial court’s implied denial

       of Hartman’s motion for summary judgment.




       Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020         Page 16 of 17
Court of Appeals of Indiana | Opinion 19A-PL-2263 | May 5, 2020   Page 17 of 17
