| Bell v White |
| 2010 NY Slip Op 07648 [77 AD3d 1241] |
| October 28, 2010 |
| Appellate Division, Third Department |
| John L. Bell, Individually and as Shareholder of Norpco Restaurant,Inc. and Butcher Block of Albany, Inc., Appellant, v David R. White et al.,Respondents. |
—[*1] Feeney, Centi & Mackey, Albany (Daniel J. Centi of counsel), for respondents.
Peters, J.P. Appeals (1) from an order of the Supreme Court (Tomlinson, J.), entered May 28,2009 in Albany County, which, among other things, denied plaintiff's motion to set aside anappraisal of his shares of defendant Norpco Restaurant, Inc., and (2) from an order of said court,entered February 2, 2010 in Albany County, which awarded defendants counsel fees.
The underlying facts of this action are fully set forth in a prior decision of this Court (Bell v White, 55 AD3d 1211[2008]). Briefly stated, defendant David R. White agreed to purchase plaintiff's 20 shares ofstock in defendant Norpco Restaurant, Inc. pursuant to a 2005 stipulation of settlement. Thestipulation provided that plaintiff and White were to each select an appraiser to assess the fairmarket value of the shares and, if the respective appraisers could not agree on a common value, athird appraiser would be selected whose valuation of the stock would be binding. Shortly afterentering into the stipulation, plaintiff sought to set it aside; Supreme Court denied plaintiff'smotion and granted defendants' motion to enforce the stipulation. In the years that followed,plaintiff again unsuccessfully moved to set aside the stipulation and was twice found in contemptfor violating orders requiring his compliance with its terms.[*2]
Following plaintiff's unsuccessful appeals (id.),the parties' respective appraisers, having failed to reach an agreement as to the fair market valueof plaintiff's shares, agreed to the selection of Chris Mellen as the third appraiser. Mellensubmitted an appraisal determining that the fair market value of the subject stock was $150,000.Thereafter, by orders to show cause, plaintiff moved to set aside Mellen's appraisal anddefendants sought a hearing for the determination of, among other things, an award of counselfees based on plaintiff's prior contemptuous conduct. At a hearing on the motions, SupremeCourt denied plaintiff's motion to set aside the appraisal and, with respect to defendants'application, the parties agreed to submit affidavits and documentary evidence on the issue ofwhich counsel fees defendants were entitled to recover, with plaintiff reserving his right to ahearing on the reasonableness of such fees. Supreme Court ultimately awarded defendantscounsel fees in the amount of $64,205.55. Plaintiff now appeals from both the order upholdingthe appraisal and the order awarding counsel fees.
Plaintiff argues that the appraisal should have been set aside since Mellen improperlyappraised the shares according to their fair market value, rather than fair value, and erroneouslyapplied a minority discount. It is well settled that a "stipulation of settlement is a contract subjectto the principles of contract interpretation" (H.K.S. Hunt Club v Town of Claverack, 222AD2d 769, 769 [1995], lv denied 89 NY2d 804 [1996]; see Corrigan v Breen,241 AD2d 861, 863 [1997]). Where its terms are clear and unambiguous, " 'the parties' intent isto be gleaned from the language of the agreement and whatever may be reasonably impliedtherefrom' " (Dudick v Gulyas, 4AD3d 604, 606 [2004], quoting H.K.S. Hunt Club v Town of Claverack, 222 AD2dat 769; see Raymond Corp. v NationalUnion Fire Ins. Co. of Pittsburgh, Pa., 46 AD3d 1251, 1253 [2007]; Mayefsky vMayefsky, 184 AD2d 954, 955 [1992], appeal dismissed 80 NY2d 924 [1992]).
With respect to Mellen's use of fair market value in appraising the shares, the stipulationplainly states that, in the event that the parties' respective appraisers are unable to agree on the"fair market value" of plaintiff's shares, they would agree upon a third appraiser to determine the"fair market value" of such shares. Indeed, Mellen explicitly stated in his report that, "[i]naccordance with the Stipulation, the applicable standard of value . . . is fair marketvalue," and then went on to define the term pursuant to applicable regulations. Although plaintiffargues that it is "readily apparent" that the parties were contemplating a "fair value" standardsince that standard is traditionally utilized in determining the value of shares of a closely-heldcorporation, "our sole function here is to interpret the stipulation of settlement and glean theintent of the parties from the plain language of the stipulation" (Mayefsky v Mayefsky,184 AD2d at 955). As the stipulation unambiguously calls for a determination of the fair marketvalue of plaintiff's shares, plaintiff's contrary interpretation of the parties' intent must be rejected.
We next address plaintiff's assertion that the appraisal must be set aside because Mellenerroneously applied a minority discount in determining the value of the stock. Relying onMatter of Friedman v Beway Realty Corp. (87 NY2d 161 [1995]), plaintiff contends thatthe application of a minority discount in the context of a closely-held corporation is contrary tolaw. That decision, however, addressed the propriety of applying a minority discount indetermining the "fair value" of the shares of dissenting minority shareholders in a closecorporation in a proceeding pursuant to the Business Corporation Law (id. at 167-169).Here, the principles enunciated in Friedman are not controlling since the sale of plaintiff'sshares was not effectuated in a proceeding pursuant to the Business Corporation Law, and theparties neither agreed that the valuation of the shares would be made in accordance with thestandards of the [*3]Business Corporation Law nor did theystipulate that the shares would be valued according to "fair value."
Plaintiff also argues that there was no factual basis for Mellen's application of a lack ofcontrol discount to his shares because, pursuant to Norpco's preincorporation agreement, allcorporate decisions require unanimous approval of the shareholders. Although plaintiff is correctthat this provision of the preincororation agreement provides a minority shareholder with somelevel of control—i.e., the ability to unilaterally veto important corporatedecisions—a minority shareholder under these circumstances nonetheless still lacks thepower to unilaterally direct and compel corporate activity (see Theophilos v CommissionerInternal Revenue Serv., 85 F3d 440, 449-450 [9th Cir 1996]).[FN*]Inasmuch as plaintiff's 20 shares lack this major attribute of control, we find a factual basis forMellen's application of a minority discount. In any event, appraisers have broad discretion indetermining "which of the myriad factors are relevant to a particular valuation and how suchfactors impact the valuation of the parcel of land, without interference or direction from thecourt," absent an agreement expressly requiring or precluding consideration of such factors(New York Overnight Partners v Gordon, 88 NY2d 716, 721 [1996] [citation omitted];see Vitale v Friedman, 245 AD2d 14, 14 [1997], lv denied 92 NY2d 801 [1998];201-203 Lexington Ave. Corp. v 205/215 Lexington Ltd. Partnership, 224 AD2d 183,184 [1996], lv denied 88 NY2d 813 [1996]). Here, there is nothing in the stipulation ofsettlement dictating the methods to be used by the appraiser or otherwise prohibiting theapplication of a minority discount in valuing plaintiff's 20 shares. Nor has plaintiff demonstratedthat the application of a minority discount under these circumstances constitutes "palpable error"(Ardsley Constr. Co. v Port Auth. of N.Y. & N. J., 54 NY2d 876, 877 [1981]; seeKroboth v Brent, 262 AD2d 837, 838 [1999], lv dismissed 94 NY2d 838 [1999]). Asplaintiff's mere disagreement with the factors employed does not provide a basis for judicialintervention (see Rice v Ritz Assoc., 88 AD2d 513, 514 [1982], affd 58 NY2d923 [1983]; 201-203 Lexington Ave. Corp. v 205/215 Lexington Ltd. Partnership, 224AD2d at 184), Supreme Court properly declined to set aside the appraisal on this basis as well.
Turning to plaintiff's challenge to Supreme Court's award of counsel fees, it is well settledthat "[c]ounsel fees that are documented and directly related to contemptuous conduct aregenerally recoverable unless proven excessive or reduced in a court's reasoned decision"(Matter of Evans v Board of Assessment Review of Town of Catskill, 300 AD2d 768,768-769 [2002]; see Judiciary Law § 773; Matter of Lembo vMayendia-Valdes, 293 AD2d 789, 790 [2002]). Approximately a year after Supreme Court'sJune 2006 order enforcing the stipulation, plaintiff was found in contempt for failing to complywith the terms of the stipulation and was given 30 days to purge himself of the contempt. Despitethis directive, plaintiff continued to disregard certain provisions of the stipulation, made yetanother motion to vacate the stipulation and, in [*4]May 2008,was again found in contempt. The reasonable counsel fees and disbursements incurred bydefendants in bringing the contempt applications and opposing plaintiff's second motion tovacate the stipulation, as well as those incurred in defending the appeals from the ordersresolving those motions, are recoverable as directly related to the contemptuous conduct (see Data-Track Account Servs., Inc. vLee, 15 AD3d 962, 963 [2005]; Matter of Ahmad v Naviwala, 14 AD3d 819, 820-821 [2005],lv dismissed 5 NY3d 783 [2005]; Children's Vil. v Greenburgh Eleven Teachers'Union Fedn. of Teachers, Local 1532, AFT, AFL-CIO, 249 AD2d 435, 435 [1998]). So tooare the reasonable counsel fees and disbursements incurred with respect to the fee applicationitself (see Data-Track Account Servs., Inc. v Lee, 15 AD3d at 963; see alsoPodhorecki v Lauer's Furniture Stores, 201 AD2d 947, 947 [1994]). Thus, Supreme Court'sdetermination regarding the scope of the counsel fees that defendants may recover was proper.
We do, however, agree with plaintiff's assertion that Supreme Court erred in making itsaward of counsel fees without providing him the opportunity for a hearing to inquire into thereasonableness of those fees. During the hearing on defendants' application, plaintiff argued thatsome of the claimed fees were not related to the contemptuous conduct and, therefore, were notrecoverable. The parties stipulated that this issue would be decided by the court upon writtensubmissions; however, plaintiff specifically reserved the right to request a hearing as to thereasonableness of the services for which counsel fees were sought. Accordingly, the parties andSupreme Court agreed that the court would first rule on the issue of which fees could be legallyrecoverable and, within 15 days of the court's communication of its decision, plaintiff wouldhave the right to request a hearing on the reasonableness of any of those fees. Despite thisagreement, Supreme Court issued its order deciding both issues, thereby denying plaintiff hisright to inquire into the reasonableness of the fees in violation of the parties' stipulation. As such,the matter must be remitted and plaintiff provided an opportunity for a hearing on this issue.
Spain, Malone Jr., Stein and Egan Jr., JJ., concur. Ordered that the order entered May 28,2009 is affirmed, without costs. Ordered that the order entered February 2, 2010 is modified, onthe law, without costs, by reversing so much thereof as awarded defendants counsel fees in theamount of $64,205.55; matter remitted to the Supreme Court for further proceedings notinconsistent with this Court's decision; and, as so modified, affirmed.
Footnote *: " 'Control means that, becauseof the interest owned, the shareholder can unilaterally direct corporate action, selectmanagement, decide the amount of distribution, rearrange the corporation's capital structure, anddecide whether to liquidate, merge, or sell assets' " (Theophilos v Commissioner InternalRevenue Serv., 85 F3d at 449, quoting Estate of Newhouse v Commissioner of InternalRevenue, 94 TC 193, 251-252 [1990]; accord Estate of Godley v Commissioner ofInternal Revenue, 286 F3d 210, 215 [4th Cir 2002]).