Peters v. Burk

2005 MT 126N

• Court: Montana Supreme Court
• Decided: May 17, 2005
• Docket: 03-263
• Status: Published

Opinion

No. 03-263

IN THE SUPREME COURT OF THE STATE OF MONTANA

2005 MT 126N

ROGER PETERS,

Plaintiff and Respondent,

v.

GERALD BURK, RUSSELL DUPUIS, and KIRBY ALTON,

Defendants and Appellant.

APPEAL FROM: District Court of the Fifth Judicial District, In and For the County of Beaverhead, Cause No. DV-01-12392 Honorable Loren Tucker, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Allan H. Baris; Moore, O’Connell & Refling, Bozeman, Montana (for Kirby Alton)

For Respondent:

Ronald F. Waterman; Gough, Shanahan, Johnson & Waterman, Helena, Montana

Submitted on Briefs: October 30, 2003

Decided: May 17, 2005

Filed:

__________________________________________ Clerk Chief Justice Karla M. Gray delivered the Opinion of the Court.

¶1 Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1996 Internal

Operating Rules, the following decision shall not be cited as precedent. It shall be filed as

a public document with the Clerk of the Supreme Court and shall be reported by case title,

Supreme Court cause number and result to the State Reporter Publishing Company and to

West Group in the quarterly table of noncitable cases issued by this Court.

¶2 Kirby Alton appeals from the Order and Judgment entered by the Fifth Judicial

District Court, Beaverhead County, awarding summary judgment in favor of Roger Peters.

We affirm.

¶3 The restated issue on appeal is whether the District Court erred in granting summary

judgment to Peters.

BACKGROUND

¶4 In 1976, six ranchers formed the Alaska Basin Grazing Association (ABGA) to

acquire and maintain real property for livestock grazing. Despite its nonprofit status and

bylaw providing for membership certificates, the ABGA issued shares. It obtained loans

from the federal government entity now known as the Farm Service Agency (FSA), which

were subject to FSA regulation.

¶5 In 1998, the ABGA amended its bylaws to reduce the minimum number of members

to three, and Peters purchased 48% of the shares. Gerald Burk and Russell Dupuis held the

remaining 52% of the shares. In 2000, Alton’s attorney asked Burk and Dupuis if they

2 would sell their shares to Alton. In a subsequent letter to Alton’s attorney, the FSA stated

it would not consent to reducing the ABGA to two members--which was the effect of

Alton’s planned purchase--because doing so “would remove two ‘small farmers/ranchers’

and the original purpose of the loan would no longer exist.” However, the FSA stated it

would consider assigning its note and relevant documents upon the ABGA’s written request.

It is undisputed that the purpose of this contemplated FSA assignment was to remove the

ABGA’s loans from FSA regulation.

¶6 On October 5, 2000, Burk and Dupuis signed letters memorializing “broad outlines”

of their agreements with Alton to sell their shares and obtain the ABGA’s approval of: (1)

Alton’s membership and the share transfer to him, (2) the adoption of revised bylaws, and

(3) a written request for the FSA assignment. The October 5 letters provided that, “[o]nce

the approvals outlined above have been obtained” and the FSA assignment occurred, Alton

would pay Burk and Dupuis for their shares.

¶7 At a meeting of the ABGA members on October 6, the ABGA approved the written

request for the FSA assignment. It also approved the share transfer and bylaw revisions,

noting that both were “contingent and effective upon” the FSA assignment. Each motion for

approval passed on a 2 to 1 vote, with Peters opposing.

¶8 A certificate signed by the ABGA’s secretary establishes the ABGA adopted its

revised bylaws on December 13, 2000. On the same date, the FSA assigned the note,

mortgage and shared appreciation agreement to a finance company owned by Alton. As the

parties subsequently agreed, the physical transfer of shares to Alton also occurred on

3 December 13.

¶9 Peters sued Burk, Dupuis and Alton, alleging the share transfer to Alton violated a

provision in the revised bylaws, which affords existing members of the ABGA a right of first

refusal “[i]n the event that any member receives a bona fide offer to purchase any or all of

his shares of stock[.]” Alton moved for summary judgment, arguing the right of first refusal

in the revised bylaws did not apply to his acquisition of Burk’s and Dupuis’ shares. The

District Court held a hearing at which counsel stipulated that Peters was not seeking

damages, the only issue was whether Peters had a right of first refusal applicable to Alton’s

purchase of shares and summary judgment in Peters’ favor would be appropriate if the court

interpreted the documents in the manner Peters advanced. The issue of interpreting the

documents essentially boiled down to which party’s sequence of effectiveness of the various

events, or lack thereof, the District Court accepted.

¶10 Noting the virtual dearth of legal authority on the precise issue before it, the District

Court denied Alton’s motion. It reasoned that “if the right of first refusal became effective

before Alton became a member, Burk and Dupuis would be required to allow Peters (not

Alton) the first opportunity to purchase.” The court also determined the revised bylaws took

effect before Alton became a member and acquired shares, because he was not eligible for

membership under the 1998 bylaws. The court did not grant Peters summary judgment,

however, because it determined the date of the share transfer remained a genuine issue of

material fact. Peters later moved for summary judgment and, after a second hearing, the

District Court granted Peters’ motion based on the parties’ agreement that the share transfer

4 occurred on December 13, 2000.

¶11 Alton appeals. Burk and Dupuis are not parties to this appeal. We set forth additional

facts as necessary in the discussion below.

STANDARD OF REVIEW

¶12 We review de novo a district court’s grant of summary judgment under Rule 56(c),

M.R.Civ.P., to determine whether a genuine issue of material fact exists and whether the

district court correctly concluded the moving party is entitled to judgment as a matter of law.

See Bartlett v. Allstate Ins. Co. (1996), 280 Mont. 63, 68, 929 P.2d 227, 230 (citations

omitted).

DISCUSSION

¶13 Did the District Court err in granting Peters summary judgment?

¶14 Alton first contends the FSA assignment was a condition precedent to both the bylaw

revisions--including the right of first refusal--and the share transfer. He is correct.

¶15 A condition precedent is “one which is to be performed before some right dependent

thereon accrues or some act dependent thereon is performed.” Section 28-1-403, MCA. The

minutes of the October 6 meeting reflect that both the bylaw revisions and share transfer

were “contingent and effective upon”--that is, dependent on--the FSA assignment. The

October 5 letters also provided the share transfer would occur “[o]nce” the FSA assignment

took place. Therefore, we conclude the FSA assignment, which occurred on December 13,

was a condition precedent to the bylaw revisions and share transfer.

¶16 From this premise, Alton asserts the share transfer could have occurred before or at

5 the same time as the bylaw revisions. In support, he advances § 28-3-601, MCA, which

provides, in part, that “[i]f the act [required to be performed] is in its nature capable of being

done instantly (for example, if it consists in the payment of money only), it must be

performed immediately upon the thing to be done being exactly ascertained.” As stated

above, the ABGA’s 1998 bylaws set the minimum number of members at three. Thus, the

share transfer could not occur “instantly” after the FSA assignment, but before the bylaw

revisions, because the share transfer would have reduced the ABGA’s membership to two--

in violation of the three-member minimum required by the 1998 bylaws. Moreover, Alton’s

assertion that the share transfer occurred at precisely the same time as the bylaw revisions

contradicts his position in the District Court, where he asserted in a brief and affidavit that

the share purchase was “contingent upon” the bylaw revisions due to the “major hurdle” and

“major obstacle” presented by the three-member minimum. In other words, the bylaw

revisions necessarily preceded the share transfer. We conclude the purported share transfer

did not occur before or at the same time as the bylaw revisions.

¶17 For these reasons, we conclude the FSA assignment was a condition precedent to both

the bylaw revisions and the anticipated share transfer, and the adoption of the revised bylaws

also was a condition precedent to the purported share transfer. Consequently, on December

13, the FSA assignment occurred first, the bylaw revisions--including the right of first

refusal--occurred second, and the purported share transfer occurred thereafter. Stated

differently, the right of first refusal took effect prior to the share transfer.

¶18 Alton asserts, however, that regardless of when the purported share transfer took place

6 in relation to the bylaw revisions, the 1998 bylaws were in effect on October 5, the date of

the “original agreement” to sell the shares. He advances Hall v. Tennessee Dressed Beef Co.

(Tenn. 1997), 957 S.W.2d 536, for the proposition that the applicability of a bylaw revision

affecting a right of first refusal “depends on the date of the original agreement to sell the

shares, not the date of closing.” Peters also relies on Hall in support of his position.

¶19 Hall involved, in part, a direct claim by William Hall against Tennessee Dressed Beef

Co. (TDB) for breach of a corporate bylaw. William, Richard Hall and two other people--

the McRedmonds–owned all of TDB’s shares. The bylaw provided that if a shareholder

wished to sell shares to a non-shareholder, he or she was required to notify the corporation

and the other shareholders would have twenty days to exercise a right of first refusal.

Richard executed a stock purchase and corporate redemption agreement with the

McRedmonds, which was not disclosed to William, that he would purchase some of their

shares and the corporation would redeem their remaining shares. Before the share purchase

and corporate redemption transaction closed, a shareholder meeting occurred at which

Richard voted his own shares and the McRedmonds’ shares, by proxy, to repeal the right of

first refusal in the bylaws. At a later meeting, Richard disclosed the purchase agreement and

a newly elected board ratified it. Hall, 957 S.W.2d at 538-39.

¶20 William sued, alleging--among other things--that the repealed bylaw provision

obligated TDB to notify him of the contemplated corporate redemption because it constituted

a sale to the corporation itself, a non-shareholder. Richard and TDB argued that William did

not actually have a right of first refusal applicable to the McRedmonds’ shares because the

7 bylaw was repealed before the transaction closed. The Tennessee Supreme Court interpreted

the bylaw as obligating TDB to notify other shareholders of proposed sales in order to afford

them the opportunity to exercise their right of first refusal. It also concluded that--whether

or not the repeal was valid--the bylaw provision was in effect when the agreement was

executed. Thus, it concluded TDB was obligated to notify William of the McRedmonds’

intent to have the corporation redeem some of their shares. Hall, 957 S.W.2d at 539-40.

Hall is not persuasive authority for Alton’s position here.

¶21 It is true that Hall, like the present case, involved efforts to manipulate events to the

disadvantage of the minority shareholder. However, Hall did not involve an action by an

“external” entity, like the FSA here, which was a condition precedent to all other events. In

addition, the stock purchase and redemption agreement in Hall, between Richard and the

McRedmonds, differed significantly from the letters signed by Burk and Dupuis in the

present case, as discussed more fully below. Finally, as discussed above, the anticipated

share transfer here was expressly contingent on the bylaw revisions--which included the right

of first refusal. For these reasons, Hall is not applicable to the case before us.

¶22 Next, Alton argues that, even if the revised bylaws became effective before the

purported share transfer, the right of first refusal is unambiguous in its inapplicability to the

transaction contemplated in the October 5 letters. The right of first refusal, as set forth in

Article II, Section 9, of the ABGA’s revised bylaws, provides that

[i]n the event that any member receives a bona fide offer to purchase any or all of his shares of stock in the Association, he shall first notify the Association of the terms of the offer, and the existing members shall have the opportunity to purchase such shares upon the same terms and conditions as

8 specified in such offer.

Alton first argues this provision, by its terms, applies only to “offers,” while the October 5

letters are executory agreements because they reflect Burk and Dupuis’ acceptance.

¶23 “A right of first refusal does not give the rightholder the power to compel an

unwilling owner to sell, but merely requires the owner, when and if he decides to sell, to

offer the property first to the rightholder at the stipulated price.” Kennedy v. Dawson, 1999

MT 265, ¶ 41, 296 Mont. 430, ¶ 41, 989 P.2d 390, ¶ 41 (citation omitted). In other words,

a right of first refusal is only triggered if the owner has manifested an intent to sell upon

certain terms--that is, decided to sell at a stated price. Otherwise, a right of first refusal

would require an owner to afford the rightholder the opportunity to match an offer even if

the owner did not wish to sell. We conclude that the right of first refusal in the ABGA’s

revised bylaws applies to Burk’s and Dupuis’ decision to sell their shares to Peters for a total

of $650,000.

¶24 Alton also asserts, however, that the right of first refusal applies only prospectively--

that is, to offers received after the revised bylaws became effective on December 13 and not

to the offers referenced in the October 5 letters. He contends the October 5 letters “took

effect (subject to certain contingencies) October 5, 2000, when the letter agreements were

signed by Burk and Dupuis.” In support, he advances § 28-2-906, MCA, which provides

that a written contract takes effect upon delivery to the party in whose favor it is made or the

party’s agent.

¶25 We first note that the status of the October 5 letters as “written contracts” is

9 questionable. First, Alton’s attorney--not Alton himself--signed the letters to Burk and

Dupuis, who then signed the attorney’s letters “outlin[ing] the general terms of [their]

agreement with Dr. Alton.” Moreover, the letters left open whether Alton would pay in cash

or over time, did not specify the terms of payment and contemplated a future “formal written

contract.” In light of the fact that Alton did not sign the letter agreements, which themselves

contemplated a subsequent formal contract, we are not persuaded that § 28-2-906, MCA,

rendered the letter agreements effective on October 5.

¶26 Alton also relies on § 28-3-203, MCA, for the proposition that “[s]everal contracts

relating to the same matters, between the same parties, and made as parts of substantially one

transaction are to be taken together.” He asserts the October 5 “contracts” and “other written

instruments”--including the revised bylaws and minutes of the October 6 meeting--must be

read together, and that doing so supports his position that the right of first refusal did not

apply to the share transfer at issue here. The minutes of the October 6 meeting are not a

“contract,” however, but merely a record of the ABGA’s members meeting reflecting Burk

and Dupuis’ performance in relation to the October 5 letters. Moreover, the parties to the

writings differ. Peters, Burk, Dupuis and the ABGA itself --but not Alton--are indisputably

parties to the revised bylaws. Moreover, only Burk and Dupuis signed the October 5 letters.

Thus, we conclude § 28-3-203, MCA, does not apply here.

¶27 Alton also relies on “[e]lementary logic” and a list of possibilities that could result

from “retroactive” application of the bylaw provision. These conclusory and speculative

statements do not constitute authorities for his argument, as required by Rule 23(a)(4),

10 M.R.App.P. Alton also lists cases, purporting to demonstrate that rights of first refusal are

generally exercised at the beginning of a transaction. This general contention does not assist

in our analysis of the unique circumstances of this case. We conclude Alton has not

adequately supported his argument that the right of first refusal does not apply to the transfer

of shares at issue here.

¶28 A provision is ambiguous only if it is reasonably subject to two different

interpretations. See In re Marriage of Mease, 2004 MT 59, ¶ 30, 320 Mont. 229, ¶ 30, 92

P.3d 1148, ¶ 30 (citation omitted). Given our conclusions above, we further conclude the

only reasonable interpretation is that the right of first refusal applied to the anticipated share

transfer and, as a result, the revised bylaw provision is unambiguous. Consequently, we

need not address Alton’s additional arguments relating to ambiguity.

¶29 Finally, Alton challenges two additional matters in the court’s order. First, he asserts

the District Court erred in concluding that Alton was not eligible to become a member under

the 1998 bylaws. We observe that the “not eligible for membership” clause must be read in

the context of the discussion to which it pertains; namely that until the FSA assignment and

the effectiveness of the revised bylaws, Alton could not become a member because of the

3-member minimum in the 1998 bylaws. In this context, the District Court’s overall

conclusion was correct notwithstanding that its use of the more technical term “not eligible”

may have been misleading. In any event, the District Court’s reasoning regarding Alton’s

eligibility for membership is irrelevant to our conclusion that the three-member minimum

in the 1998 bylaws precluded the share transfer. Alton also contends that the court erred in

11 stating that allowing Alton to avoid the right of first refusal “seems unfair.” While we agree

that “fairness” was not the issue, the statement is entirely irrelevant to that court’s, and our,

conclusions that the revised bylaws became effective before the purported share transfer and

the right of first refusal unambiguously applies to Alton’s acquisition of shares.

¶30 We hold the District Court did not err in granting summary judgment to Peters.

¶31 Affirmed.

/S/ KARLA M. GRAY

We concur:

/S/ PATRICIA O. COTTER /S/ W. WILLIAM LEAPHART /S/ JOHN WARNER