Ivy v. Calais Company, Inc.

         Appeal from the Superior Court, No. 3AN-07-08813 CI of the State of Alaska, Third Judicial District, Anchorage, William F. Morse, Judge.

          Appearances: Phillip Paul Weidner and Lisa Rosano, Phillip Paul Weidner & Associates, APC, Anchorage, and Charles E. Cole, Law Offices of Charles E. Cole, Fairbanks, for Appellant.

          Jeffrey M. Feldman, Summit Law Group, Seattle, Washington, and Susan Orlansky, Reeves Amodio LLC, Anchorage, for Appellees Calais Company, Inc., J. Foss, The C.R. Foss Living Trust, McMac Family, LLP, J. McManamin, M. Sweeney, and M. Peterson. Notice of nonparticipation filed by Patrick B. Gilmore, Atkinson, Conway & Gagnon, Anchorage, for Appellees B. Durrell and Durrell Law Group, PC. Notice of nonparticipation filed by Gary A. Zipkin and Michael S. McLaughlin, Guess & Rudd P.C., Anchorage, for Appellee Wells Fargo Alaska Trust Co., N. A. No appearance by Appellee Rodney L. Johnston Trust.

          Before: Stowers, Chief Justice, Winfree, Bolger, and Carney, Justices. [Maassen, Justice, not participating.]

          OPINION

          BOLGER, Justice.

         I. INTRODUCTION

         Deborah Ivy is a shareholder in Calais Company, Inc., a closely held corporation. Ivy sued Calais in 2007 seeking dissolution of the company. The parties settled, and Calais agreed to buy out Ivy's shares of the company based on a valuation of Calais conducted by a three-member appraisal panel. The appraisers returned an initial valuation in 2009. The superior court approved that valuation, but Calais appealed. We reversed and remanded, concluding that the appraisers had failed to understand their contractually assigned duty. The appraisal panel returned a second valuation in October 2014, which the superior court again approved. Ivy now appeals, arguing (1) that on remand the superior court improperly instructed the appraisers; (2) that the appraisers made substantive errors in their valuation; and (3) that she is entitled to post-judgment interest. For the reasons explained below, we affirm the appraisal panel's valuation of Calais, but we reverse the superior court's denial of Ivy's request for post-judgment interest.

         II. FACTS AND PROCEEDINGS

         A. Prior Proceedings In Calais Co. v. Ivy

         As this court summarized in Calais Co. v. Ivy, ^[1] Ivy filed suit against Calais in 2007 seeking involuntary dissolution of the corporation under AS 10.06.628. Calais owns several tracts of land in Anchorage and does business in real estate acquisition, development, rental, and leasing. The parties reached a settlement agreement (the Agreement) in 2009 in which Ivy agreed to dismiss all her claims and Calais agreed to purchase Ivy's shares of the company's stock based on a valuation of the company by a three-member appraisal panel. The Agreement required the appraisers to calculate the "fair value under AS 10.06.630(a)." That statute provides that "[t]he fair value shall be determined on the basis of the liquidation value, taking into account the possibility of sale of the entire business as a going concern in liquidation."^[2] After the panel was assembled, two of the appraisers determined that the "fair market value" of Calais was $92.5 million. The third appraiser wrote a letter to the superior court stating that he believed that the majority's methodology failed to comply with the Agreement. He argued that the majority had determined the "fair market value" of Calais's real estate holdings and not, in his view, the "fair value" of the corporation as required by the Agreement. Specifically, he objected to the majority's failure to account for any applicable capital gains taxes and liquidation costs. The superior court upheld the majority's valuation, and Calais appealed to this court.

         We first determined that the terms of the Agreement authorized the superior court to review the appraisers' decision in order to ensure that the appraisers complied with the contractual terms of the Agreement.^[3] We distinguished this from second-guessing the valuation reached by the appraisers, which was expressly prohibited by the Agreement.^[4] We then interpreted "fair value" as used in the Agreement to mean not the "fair market value" of the company's assets (as the majority appraisers assumed), but the "liquidation value" of the company, as that term is used in AS 10.06.630(a).^[5] We explained that the "liquidation value" included deductions for any applicable capital gains taxes and liquidation costs, and we reversed the superior court's decision because the majority appraisers had failed to take those taxes and costs into consideration.^[6]

B. Proceedings On Remand

         On remand the superior court instructed the appraisers to calculate the fair value of Calais in accordance with our opinion and to submit a report stating that value and describing their reasoning. The panel members then completed their appraisal and issued a report. The report explained that the appraisers summed up the individual property values of Calais's real estate holdings to arrive at a "cumulative Market Value" of $87, 580, 000. The report then explained how the appraisers subtracted liquidation costs and capital gains taxes and accounted for Calais's other assets and liabilities to reach a final "fair value" of $54 million.

         Ivy moved the superior court to reject the panel's determination of fair value. Ivy's motion focused primarily on the fact that the appraisers had calculated the value of Calais based on a piecemeal sale of the company's assets, rather than on a sale of the entire company as a going concern. She contended that the value of Calais in a sale of the entire company as a going concern would have resulted in a much higher "fair value" for the company, and that the appraisers were therefore required to take this approach because they were required to choose the valuation method that achieved the "maximum return." Ivy also asserted various other errors in the appraisers' valuations.

         The superior court rejected Ivy's arguments and accepted the appraisers' report. Ivy moved for reconsideration, largely repeating the arguments she had already made and also requesting post-judgment interest. The superior court denied reconsideration and also denied her request for interest.

         Ivy now appeals, arguing that (1) the superior court improperly instructed the appraisers on remand; (2) the appraisers made substantive errors in their valuation; and (3) she is entitled to post-judgment interest.

         III. DISCUSSION

         A. The Appraisal Panel Was Properly Instructed.

         In Calais we remanded to the superior court to remand to the appraisal panel with "explicit instructions to calculate 'fair value' as defined by AS 10.06.630(a), the other terms of the Agreement, and this opinion."^[7] Ivy argues that the superior court failed to comply with this mandate. We review de novo whether the superior court correctly applied our mandate on remand.^[8] For the reasons we are about to explain, Ivy's argument is without merit.

         We remanded in Calais so that the superior court could correct the majority appraisers' erroneous belief that "fair value" was synonymous with "fair market value." The superior court did exactly that on remand, instructing the appraisers that" ' fair value' is not synonymous with 'fair market value' " and that "[t]he 'fair market value' of Calais's assets is just one factor to be considered in determining the 'fair value' of Calais." The superior court's instructions also quoted AS 10.06.630(a), providing that "[t]he fair value shall be determined on the basis of the liquidation value, taking into account the possibility of sale of the entire business as a going concern in a liquidation."

         Ivy, however, makes much of our requirement that the superior court issue "explicit instructions." According to Ivy, this language meant that the superior court was required not only to instruct the appraisers to "calculate 'fair value' as defined by AS 10.06.630(a), the other terms of the Agreement, and [our] opinion [in Calais], " but also to provide detailed instructions on how to make this calculation, including, for example, "allow[ing] expert input from the parties regarding the precise manner in which to take into account capital gains taxes and costs of liquidation."^[9] Most notably, Ivy argues that the superior court should have instructed the appraisal panel that "[s]ince Calais is a profitable corporation, you are required to determine the 'fair value' of Calais on a going concern basis." (Emphasis added.)

         The detailed instructions requested by Ivy, however, would have violated the Agreement's requirement that "the appraisers . . . exercise their expertise and judgment in their determination [of the fair value of Calais] . . . without input or communication from [the parties]." Furthermore, Ivy's proposed instruction requiring the appraisers to calculate the fair value of Calais as a going concern would have been plainly inappropriate. As we noted in Calais, the Agreement specifically refers "to fair value under AS 10.06.630(a)."^[10] That statute provides that "[t]he fair value shall be determined on the basis of the liquidation value, taking into account the possibility of sale of the entire business as a going concern in a liquidation."^[11] As a California court interpreting similar language has concluded, "liquidation value" means either the "valuation of the corporation as a going concern in liquidation or the piecemeal valuation of the company's assets and liabilities as of the valuation date."^[12] The Agreement did not specify which of these two valuation options the appraisers should use, and it therefore placed the task of choosing between these two options within the "expertise and judgment" of the appraisers. In other words, the Agreement required the appraisers to consider the possibility of a going concern sale, and then, if they concluded that such a sale was possible, to determine which of the two valuation options - a sale of the company as a going concern or a piecemeal valuation of the company's assets - would return a higher value. Ivy's proposed instruction would have made these determinations by judicial decree because it would have required the appraisers to use a going concern valuation as the basis for their "fair value" determination. That instruction was properly rejected by the superior court.

          B. Ivy Has Not Shown Any Error In The Appraisal.

         Ivy also challenges the appraisal panel's determination of the fair value of Calais. She argues that the appraisers failed to consider a sale of Calais as a going concern, that the appraisers' report was inadequately detailed, and that the appraisers made various other errors in valuing the company's assets and liabilities. For the reasons explained below, we reject Ivy's arguments.

         1. Ivy has not shown that the appraisers failed to "tak[e] into account the possibility of sale of the entire business as a going concern."

         As we have already discussed, the Agreement required the appraisers to determine the "fair value" of Calais "on the basis of the liquidation value, taking into account the possibility of sale of the entire business as a going concern."^[13] Ivy argues that the appraisers failed to even consider the possibility of a sale of Calais as a going concern, that this failure demonstrates "a lack of understanding or completion of the contractually assigned task, "^[14] and that this court should therefore set aside the panel's valuation.^[15]

         Ivy's argument rests on a factual assertion: that the appraisers did not, in fact, "tak[e] into account the possibility of a sale of the entire business as a going concern" during their deliberations. But rather than support this assertion with any direct evidence of the appraisers' process, Ivy asks this court to make an inference. She argues that the appraisers were required to choose the valuation method - either a piecemeal sale of assets or a sale of the company as a going concern - that returned the highest fair value for the company. And according to Ivy, the value of Calais in a going concern sale is much more than the $54 million valuation reached by the appraisers.^[16] Therefore, Ivy reasons, the appraisers must have failed to consider the possibility of a going concern sale during their deliberations.

         As we explained in Calais, however, "[t]he court's role [under the Agreement] is not to determine whether the third party [appraisers] accurately valued the item . . . but whether the [appraisers] understood and carried out the contractually assigned task."^[17] Ivy's argument ignores that distinction. She asks us to decide that the appraisers must have failed to "carr[y] out the contractually assigned task" because they reached (according to Ivy) an inaccurate valuation. To address this argument would require us to substitute our judgment for the judgment of the expert appraisers in order "to determine whether the third party [appraisers] accurately valued" Calais. We reaffirm our prior holding that the court's role under the Agreement is not to determine whether the appraisers accurately valued the company, but only whether they understood and completed the contractually assigned task.^[18]

         We are careful, however, to limit our holding by noting that although apparent inaccuracies generally do not provide a direct basis for rejecting an appraisal panel's valuation, they may entitle a party to discovery into the appraisal process. As the Wisconsin Supreme Court has noted, review of an appraisal award is "usually, " but not "always, " limited "to the face of the award."^[19] This means that although mere "[u]nhappiness with the amount of an appraisal award is not enough to set it aside, " the amount of an award may be so facially suspicious that "fraud, bad faith, material mistake, or a lack of understanding of the process are reasonably implicated."^[20] In such cases, "it is within [the superior court's] discretion to allow further inquiry or discovery" into the appraisers' process.^[21] We do not address whether further discovery would have been appropriate in this case because Ivy has not raised any discovery issues on appeal.

         2. The appraisers' report was ...