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Puklich v. Puklich

Supreme Court of North Dakota

June 27, 2019

Elyse Puklich, Petitioner, Appellant, and Cross-Appellee
v.
Blayne Puklich, Respondent, Appellee, and Cross-Appellant and Blayne Puklich, individually and Derivativelyas a shareholder of Puklich Chevrolet, Inc., BE Bismarck Limited &B Reinsurance Limited, Plaintiff, Appellee, and Cross-Appellant
v.
Elyse Puklich, Defendant, Appellant, and Cross-Appellee and ELP Performance Limited, a Nevis Corporation and Puklich Ketterling, Inc., a North Dakota Corporation, Defendants

          Appeal from the District Court of Burleigh County, South Central Judicial District, the Honorable Sonna M. Anderson, Judge.

          Michael J. Geiermann, Bismarck, ND, for petitioner, appellant, and cross-appellee Elyse Puklich.

          Ryan R. Dreyer (argued), Jeffrey R. Underhill (appeared), and Eric G. Nasstrom (on brief), Minnetonka, MN, for respondent, appellee, and cross-appellant Blayne Puklich.

          OPINION

          Jensen, Justice.

         [¶1] Elyse Puklich appeals, and Blayne Puklich cross-appeals, from a district court judgment awarding Blayne Puklich $6, 012, 230. The award includes the value of Blayne's interest in an automobile dealership, the value of Blayne's interest in a real estate partnership, and damages arising from Elyse's breach of fiduciary duties. We reverse in part and affirm in part.

         I

         [¶2] Elyse and Blayne Puklich are siblings who held ownership interests in a closely-held corporation, Puklich Chevrolet, Inc. ("PCI"), a limited partnership, B&E Holdings, LLP ("B&E"), and a closely-held corporation, B&E Bismarck Limited ("Limited"). PCI operates an automobile dealership in Bismarck. B&E owns, and leases to PCI, the real estate upon which the dealership is operated. Limited operates a reinsurance business to which PCI allocates a portion of premiums paid by automobile purchasers for extended warranties, credit and disability life insurance, and contractual liability insurance policies.

         [¶3] On November 21, 2013, Elyse initiated this action to dissolve B&E. Blayne responded and asserted his own claims, including a request that the district court compel Elyse to buy his interest in PCI and seeking an award of damages for breach of fiduciary duties.

         [¶4] A trial was held in late November and early December 2017. On June 28, 2018, the district court issued findings of fact, conclusions of law, and ordered the entry of a judgment. The judgment dissolved B&E, compelled Elyse to purchase Blayne's interest in B&E for $2, 940, 660, and compelled Elyse to purchase Blayne's 19 percent ownership interest in PCI for $2, 622, 000. The judgment also awards Blayne $300, 000 for Elyse's breach of a fiduciary duty owed to Blayne with respect to B&E. Finally, the judgment provides an award of $149, 570 to Blayne for Elyse's breach of her duty of loyalty and fair dealing in winding up Limited. The judgment was entered on July 30, 2018.

         [¶5] Elyse appeals the district court's valuation of B&E, the valuation of PCI, and the failure to reduce the value of Blayne's interest in PCI and B&E by the amount of dividends and distributions made to Blayne subsequent to the valuation dates used by the court. Elyse also challenges the determination she breached her fiduciary duty to B&E and the reciprocal award of $300, 000 in damages to Blayne, the determination Elyse had breached her fiduciary duty to Blayne as a minority shareholder of PCI, the award of $149, 570 related to the winding up of Limited, and several specific findings of fact. Blayne's cross-appeal alleges the court should have determined Elyse breached her fiduciary duties to Blayne, PCI, and Limited by terminating Limited and starting a new reinsurance company, the court erred in valuing damages for Elyse's breach of fiduciary duties to Limited, the court failed to find a breach of fiduciary duties with regard to a real estate transaction in Valley City, and the court abused its discretion in denying Blayne recovery of his attorney fees.

         II

         [¶6] The district court valued B&E as of November 21, 2013, the date Elyse initiated her petition to dissolve B&E. The court valued PCI as of January 8, 2014, the date of Blayne's first response to Elyse's action. Blayne did not seek a buyout of his interest in PCI until he amended his pleading in June 2016.

         [¶7] Elyse challenges the district court's valuation of B&E and PCI. She separately argues that regardless of the accuracy of the court's valuation of B&E and PCI, the court should have reduced the value of Blayne's interest in the two entities by distributions made to Blayne from the entities subsequent to the valuation date. She has not otherwise challenged the valuation dates used by the court.

         [¶8] Valuation is a question of fact. See, e.g., Schultz v. Schultz, 2018 ND 259, ¶ 14, 920 N.W.2d 483 (valuation of property in divorce proceedings is a question of fact); Fahey v. Fife, 2017 ND 200, ¶ 8, 900 N.W.2d 250 (valuation of an estate's property is a finding of fact). A district court's findings on valuation of property will not be reversed unless they are clearly erroneous. Schultz, at ¶ 14. A finding of fact is clearly erroneous under N.D.R.Civ.P. 52(a), if it is not supported by any evidence, if, although there is some evidence to support the finding, we are left with a definite and firm conviction a mistake has been made, or if the finding is induced by an erroneous conception of the law. See Tornabeni v. Creech, 2018 ND 204, ¶ 22, 916 N.W.2d 772. A district court's finding is not clearly erroneous if it represents a choice between two permissible views of the evidence and the finding is based either on physical or documentary evidence, or inferences from other facts, or on credibility determinations. Schultz, at ¶ 14. A district court's valuations are presumed by this Court to be correct, and a valuation within the range of evidence presented to the court is not clearly erroneous. Id. at ¶¶ 14, 17.

         A

         [¶9] Both parties provided the district court with expert opinions on the value of B&E, and the court adopted Blayne's expert's valuation. Elyse argues the court erred in adopting Blayne's expert's valuation of real estate owned by B&E because Blayne's expert valued the real estate as a fee simple estate, rather than a leased fee estate, and ignored the leases that provide PCI with use of the property. Real estate value was then used by a second expert to determine the value of the partnership.

         [¶10] The district court recognized that Blayne's expert had valued the real property as a fee simple estate and that the expert had not considered the leases providing PCI with use of the property. However, the record also includes evidence that the leases were not "arm's-length" leases and the rent payable under the leases could be increased. Blayne's expert considered the rent that could be generated from market value leases and testified that if the leases reflected market value, the leased fee estate and the fee simple estate would be equal. Because there is evidence in the record supporting the court's finding regarding the value of the real estate held by B&E, we are not left with a definite and firm conviction a mistake has been made, the finding was not induced by an erroneous conception of the law, and the court's finding was not clearly erroneous.

         [¶11] Elyse also argues the district court erred in rejecting the application of a minority discount and lack of marketability discount to Blayne's partnership interest. "Discounts for a minority interest and for lack of marketability are conceptually distinct." Estate of Fleming v. Comm'r of Internal Revenue, 74 T.C.M. (CCH) 1049 *7 (T.C. 1997). A minority discount reflects the minority interest holder's inability to compel liquidation and thereby realize their respective portion of the net asset value. Id. A discount for lack of marketability recognizes the lack of a ready market for an ownership interest. Id.; see also S. Hess, Annot., Use of Marketability Discount in Valuing Closely Held Corporation or Its Stock, 16 A.L.R.6th 693 § 2 (2006). The application and appropriate amount of a minority discount and a lack-of-marketability discount are questions of fact. Estate of Fleming, at *7.

         [¶12] Elyse sought and was granted dissolution of B&E under N.D.C.C. § 45-20-07, which provides for the liquidation of the partnership assets, payment of the partnership debts, and the distribution of the surplus to the partners pursuant to their respective ownership interests. Because the dissolution of B&E results in the liquidation of its assets, the district court's rejection of the application of a minority discount and discount for lack of marketability, was not clearly erroneous.

         B

         [¶13] Elyse argues the district court erred in its valuation of PCI by accepting the valuation provided by Blayne as a penalty for Elyse's breach of a fiduciary duty and by rejecting the use of valuation discounts. The court concluded as follows:

V. Blayne's Count IV, that Elyse breached her duty of good faith and fair dealing in attempting to unfairly oppress Blayne as a minority shareholder in an effort to buy out his shares of PCI at below fair market value is proven. The Court award[s] no specific damages for the breach, but determines that the fair market value of Blayne's 19 percent ownership in PCI is $2, 622, 000. Elyse shall pay Blayne the sum of $2, 622, 000 for his 19 percent ownership interest in Puklich Chevrolet, Inc.

         In its findings of fact, the district court found as follows:

177. The Court finds that Elyse has taken calculated steps in the past few years to force Blayne to sell his interest to her and to reduce any funds owing to Blayne from the business. The Court will not discount ...

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