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Molbert v. Kornkven

Supreme Court of North Dakota

May 8, 2018

Lauris N. Molbert, Plaintiff and Appellee
Karna E. Kornkven, Eric R. Molbert and Kristi E. Benz, Defendants and Appellants

          Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Susan Lynne Bailey, Judge.

          Todd E. Zimmerman (argued) and Aubrey J. Fiebelkorn-Zuger (on brief), Fargo, North Dakota, for plaintiff and appellee.

          Court J. Anderson (argued), Minneapolis, Minnesota, and Christopher M. McShane (appeared), West Fargo, North Dakota, for defendants and appellants.


          TUFTE, JUSTICE.

         [¶ 1] Karna Kornkven, Eric Molbert, and Kristi Benz ("Siblings") appeal after the district court entered judgment in favor of their brother, Lauris Molbert. The court concluded that under a stock purchase agreement, Molbert had the right to purchase the Siblings' shares of stock in a bank holding company at book value. We affirm.


         [¶ 2] According to the undisputed facts, the parties' father, Ralph Molbert, owned the controlling interest in the Bank of Steele and its holding company, H.O.M.E., Inc. Lauris Molbert, the oldest child, became a director of the bank in 1983 and director of the holding company in 1986 and was actively involved in the operations of both entities.

         [¶ 3] Ralph and Beverly Molbert intended for Lauris Molbert to own and control the bank and holding company and pursued this intention through their estate plan. In December 1992, Ralph and Beverly Molbert gifted their children shares of H.O.M.E. stock and recorded the gift for tax purposes in 1992. It was understood that Ralph and Beverly Molbert intended to restrict these gifted shares.

         [¶ 4] Following the gift of H.O.M.E. shares to the Molbert children, H.O.M.E. board minutes signed by Ralph and Beverly Molbert described the development of a shareholder agreement to restrict the gifted shares. In July 1993, the parties discussed the agreement while on a family vacation to Whitefish, Montana. The parties executed the stock purchase agreement following the Whitefish vacation. Ralph Molbert signed the agreement as H.O.M.E. president. Share certificates were issued after execution of the agreement stating the gifted shares were restricted by the stock purchase agreement.

         [¶ 5] The stock purchase agreement indicated a purpose of the agreement was "to provide for the transition of ownership of the Shares to Shareholder L. Molbert and to accomplish these objectives [the Shareholders] have agreed to the following restrictions and options concerning ownership and purchase of the Shares." The agreement granted Lauris Molbert the right to vote the Siblings' shares. Paragraph Seven of the agreement also granted him the irrevocable right to purchase the Siblings' shares at book value:

7. Right to Call Shares. The Shareholders agree that it is in the best interest of the Corporation and its Shareholders if Shareholder L. Molbert has the irrevocable right to purchase the Shares of one or all of the Shareholders. Accordingly, notwithstanding anything to the contrary contained in this Agreement, the Shareholders hereby grant to Shareholder L. Molbert the irrevocable right and option to require any one or more of the Shareholders to sell to him all of his or her Shares at the Purchase Price under paragraph 8 of this Agreement and on the terms as provided under paragraph 9 of this Agreement at anytime during a Call Period, as defined below. Shareholder L. Molbert may exercise his right under this paragraph by providing written notice given to the Shareholder whose Shares are to be purchased. Upon written notice, the purchase of the Shares shall be completed in accordance with paragraph 9 of this Agreement within 30 days following the date of the written notice. For purposes of this paragraph, the "Call Period" shall be the first 60 days after the end of each fiscal year of the Corporation. The right to call the Shares granted to Shareholder L. Molbert under this paragraph shall expire if not executed within 180 days following the death of Ralph N. Molbert or Beverly J. Molbert, whichever should last occur.

         Under the agreement, "'Purchase Price' shall consist of the Book Value of the Shares to be sold, plus repayment of any Net Shareholder Loans, if any." Paragraph Seven of the agreement was amended in 1997 to extend the expiration of the call right from 180 days to 360 days. All of the parties executed the 1997 amended agreement.

         [¶ 6] After arranging for Lauris Molbert to control and eventually own H.O.M.E. through the 1993 stock purchase agreement, Ralph and Beverly Molbert took out a $500, 000 life insurance policy naming the Siblings as beneficiaries. They also provided additional unrestricted stock shares and benefits to the Siblings through their estate plan.

         [¶ 7] In February 2015, Lauris Molbert sent written notice to the Siblings that he was exercising the call option set forth in Paragraph Seven of the stock purchase agreement. The Siblings refused to transfer their shares. Molbert sued the Siblings for specific performance, seeking a judgment requiring them to sell their shares to him in exchange for the book value payment.

         [¶ 8] The Siblings counterclaimed, alleging the stock purchase agreement was void because Lauris Molbert engaged in fraud by failing to disclose that the agreement granted him a purchase option at book value. The Siblings also alleged the agreement lacked consideration and Molbert breached fiduciary duties owed to them. The Siblings sought relief in the form of cancellation of the agreement.

         [¶ 9] Both parties moved for summary judgment. The district court dismissed the Siblings' counterclaims, concluding the stock purchase agreement unambiguously allowed Lauris Molbert to purchase the Siblings' stock shares at book value. The court concluded the agreement was supported by ample consideration. The court also concluded there was no evidence Lauris Molbert committed fraud or breached fiduciary duties. The court declared the stock purchase agreement fully ...

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