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Kolwe v. Civil and Structural Engineers, Inc.

Court of Appeals of Louisiana, Third Circuit

February 21, 2019

JOSEPH KOLWE, JR.
v.
CIVIL AND STRUCTURAL ENGINEERS, INC.

          APPEAL FROM THE FIFTEENTH JUDICIAL DISTRICT COURT PARISH OF LAFAYETTE, NO. C-2016-1792-B HONORABLE JULES D. EDWARDS, III, DISTRICT JUDGE

          Steven G. Durio Travis J. Broussard Durio, McGoffin, Stagg & Ackermann COUNSEL FOR: Plaintiff/Appellant - Joseph Kolwe, Jr.

          Donald W. Washington Kyle M. Bacon Jones Walker LLP COUNSEL FOR: Defendant/Appellee Civil and Structural Engineers, Inc.

          Mark D. Plaisance Marcus J. Plaisance Plaisance Law, LLC COUNSEL FOR: Plaintiff/Appellant - Joseph Kolwe, Jr

          Court composed of Ulysses Gene Thibodeaux, Chief Judge, John D. Saunders, and D. Kent Savoie, Judges.

          ULYSSES GENE THIBODEAUX CHIEF JUDGE

         These consolidated appeals entreat us to consider res nova issues of law interpreting the recently revised Louisiana Business Corporation Act ("LBCA"), La.RS. 12:1-101, et seq.

         Plaintiff Joseph Kolwe, Jr. is a withdrawing shareholder of Defendant-Appellee, Civil and Structural Engineers, Inc. ("CASE"). He appeals a final judgment of the trial court which fixed the fair value of his shares at contradictory amounts of $871, 817.00 and $587, 187.00. The judgment was then amended sua sponte by the trial court to a decisive figure of $871, 817.00. This Amended Judgment now forms the subject of Mr. Kolwe's consolidated appeals, whereby he challenges its validity pursuant to La.Code Civ.P. art. 1951. Mr. Kolwe additionally contends the trial court erred in its conclusion of his effective date of withdrawal from CASE and also in its failure to award interest on the amount of his shares as valued.

         CASE answers the appeal challenging the trial court's determination of the fair value of Mr. Kolwe's shares in the corporation. Specifically, it asserts that the trial court erred in declining to tax-effect Mr. Kolwe's shares, in including proceeds of a settled claim awarded to CASE in its valuation determination, and in allegedly refusing to consider evidence of undue burden pursuant to La.R.S. 12:1-1436(E).

         For the reasons set forth below, we amend the original judgment to conform to the statutory framework contemplated by the LBCA and, as amended, affirm.

         I.

         ISSUES

         We must decide:

(1) whether the Amended Judgment on Rules issued by the trial court on January 4, 2018, is an absolute nullity pursuant to La.Code Civ.P. art. 1951 and, if so, whether the Original Judgment on Rules signed on December 22, 2017, may be revised to correct any errors of substance or, alternatively, any errors in calculation or phraseology;
(2) whether the trial court erred in determining the effective date of Mr. Kolwe's Notice of Withdrawal to be November 29, 2015;
(3) whether the trial court erred in its determination of the "fair value" of Mr. Kolwe's interest by failing to tax-effect the value of his shares and/or including the BP settlement payment in its valuation;
(4) whether the trial court erred in failing to award Mr. Kolwe judicial interest and costs from the date of judicial demand; and
(5) whether the trial court abused its discretion in refusing to hear evidence pertaining to La.R.S. 12:1-1436(E) at the conclusion of the valuation trial.

         II.

         FACTS AND PROCEDURAL HISTORY

         CASE is a professional engineering firm operating as a closely-held business corporation. Its three shareholders, Michael Smith, Matthew Granberry, and Joseph Kolwe, Jr., each owned an equal one-third share until December 2017. Prior to Mr. Kolwe's disassociation from the corporation, each shareholder served as an employee and officer of CASE, and the three together comprised the board of directors.

         After employment-related disputes arose concerning Mr. Kolwe's performance, discussions regarding his departure from CASE commenced in December of 2014. In early 2015, CASE began negotiating a buy-out of Mr. Kolwe's ownership interest and retained a business valuation expert, Jason MacMorran, to facilitate the transaction; Mr. Kolwe likewise retained his own expert, Charles Theriot, to protect his interests. By mid-2015, however, the shareholders were unable to amicably resolve the terms of Mr. Kolwe's withdrawal.

         In November of 2015, Mr. Kolwe received notice of a special meeting of the board of directors to be held for the purpose of considering a profitability incentive plan for employees and directors of CASE. After receiving notice of the meeting, Mr. Kolwe's attorney drafted and mailed a notice of withdrawal to the corporation pursuant to La.R.S. 12:1-1435, et seq. At the board meeting, the profitability incentive plan was adopted despite Mr. Kolwe's objection. At the end of November, Mr. Kolwe's employment with CASE was terminated, and, over the course of the next month, he was removed as both an officer and director of the corporation.

         On December 2, 2015, Mr. Kolwe filed suit against CASE, Mr. Smith, and Mr. Granberry alleging claims of shareholder oppression. However, this suit was ultimately dismissed after the trial court sustained the defendants' Exceptions of No Cause of Action and Prematurity.

         On April 6, 2016, Mr. Kolwe reasserted his claims of oppression against CASE, Mr. Smith, and Mr. Granberry. After disagreements continued regarding the value of Mr. Kolwe's ownership interest, the parties agreed to bypass a trial on the merits of the oppression claims and simply litigate the valuation issue by summary proceeding in accordance with La.R.S. 12:1-1436. Upon joint request of the parties, the trial court signed a Consent Judgment and Order of Trial Date which ordered that a trial be held for the limited purposes of valuing Mr. Kolwe's shares and determining the effective date of his notice of withdrawal.[1] Prior to the valuation trial, CASE filed a Motion for Partial Summary Judgment regarding the effective date of Mr. Kolwe's withdrawal. On November 20, 2017, the trial court granted the motion and held Mr. Kolwe's notice of withdrawal to corporation was effective as of November 29, 2015.

         A valuation trial was held on December 20-21, 2017, and a final judgment was rendered in the matter on December 22, 2017, purporting to declare the value of Mr. Kolwe's shares and affirming its earlier ruling as to the effective date of Mr. Kolwe's notice of withdrawal. In reaching its valuation determination, the trial court declined to "tax-effect"[2] the value of the corporation's unaccrued net assets as argued for by CASE, and included the proceeds of a settled BP claim in the valuation as argued against by CASE.

         However, the final judgment contained an internal inconsistency regarding the dollar figure amount of Mr. Kolwe's interest, and the trial court thereafter issued an amended judgment on January 4, 2018, to correct the inconsistency. On appeal, however, Mr. Kolwe asserts that the amended judgment is absolutely null and, thus, seeks to reinstate the original judgment because of the trial court's failure to afford the proper hearing with notice to the parties prior to correcting its error of substance in the original judgment. Next, Mr. Kolwe argues that the effective date of his notice of withdrawal was November 24, 2015, despite the trial court's ruling that his notice of withdrawal was effective five days later, as of November 29, 2015. Whereas the effective date of Mr. Kolwe's withdrawal from the corporation dictates the fair value of his ownership interest in CASE, the parties raise several arguments on appeal with respect to both procedural and substantive aspects of the trial court's valuation determinations.

         III.

         STANDARD OF REVIEW

         "[A]ppellate jurisdiction of a court of appeal extends to law and facts." La.Const. art. 4, § 10(B). The appellate court must determine whether the trial court committed an error of law or made a factual finding that was manifestly erroneous or clearly wrong. Gibson v. State, 99-1730 (La. 4/11/00), 758 So.2d 782, cert denied, 531 U.S. 1052, 121 S.Ct. 656 (2000). The reviewing court must review the record in its entirety to make this determination. Stobart v. State, Through DOTD, 617 So.2d 880 (La.1993).

         An appellate court may not set aside a trial court's findings of fact in the absence of manifest error or unless it is clearly wrong. Id.; Rosell v. ESCO, 549 So.2d 840 (La.1989). The trial court's valuation of a withdrawing shareholder's ownership interest is a factual one which shall not be disturbed absent manifest error. Ellington v. Ellington, 39, 943 (La.App. 2 Cir. 3/18/03), 842 So.2d 1160. Accordingly, if the trial court's findings in a valuation proceeding are reasonably supported by the record and do not constitute an abuse of discretion, its determinations should be affirmed. "Furthermore, the trial court's choice of one expert's method of valuation over that of another will not be overturned unless it is manifestly erroneous." Id. at 1166.

         However, the interpretive aspect of this case presents this court with a question of law and is, thus, reviewed under a de novo standard of review. Caldwell v. Janssen Pharmaceutical, Inc., 12-2447 (La. 1/28/14), 144 So.3d 898. While it is well settled that a reviewing court will defer to a trial court's reasonable decision on a question properly within its discretion, such deference shall not be afforded where its decision is based on an erroneous interpretation or application of law rather than a valid exercise of discretion. Kem Search, Inc. v. Sheffield, 434 So.2d 1067 (La.1983).

         IV.

         LAW AND DISCUSSION

         Amendment of Final Judgment

         On December 22, 2017, the trial court issued its Judgment on Rules following a two-day valuation trial ("Original Judgment"). However, the judgment contained an internal inconsistency with respect to the dollar figure amount of Mr. Kolwe's ownership interest in the corporation. [3] In an earlier portion of the judgment located under the subheading JUDGMENT, the trial court stated: "This court adjudges declares and decrees [sic] the plaintiff's shares as of November 29, 2015 to be $587, 178.00." In its conclusion, however, the trial court went on to state: "Accordingly, this court finds that the plaintiff's ownership interests in CASE shares as of November 29, 2015 to be valued to be $871, 817.00."

         On January 4, 2018, the trial court issued an Amended Judgment on Rules ("Amended Judgment") sua sponte. Without providing a hearing with notice to the parties, the trial court deleted its language decreeing Mr. Kolwe's interest to be worth $587, 178.00. Consistent with the Original Judgment, the Amended Judgment valued Mr. Kolwe's shares to be $871, 817.00.

         Mr. Kolwe now argues before this court that the Amended Judgment rendered on January 4, 2018, ought to be declared an absolute nullity pursuant to La.Code Civ.P. art. 1951. Louisiana Code of Civil Procedure Article 1951 provides the following:

On motion of the court or any party, a final judgment may be amended at any time to alter the phraseology of the judgment, but not its substance, or to correct errors of calculation. The judgment may be amended only after a hearing with notice to all parties, except that a hearing is not required if all parties consent or if the court or the party submitting the amended judgment certifies that it was provided to all parties at least five days before the amendment and that no opposition has been received.

         He asserts that while the trial court clearly intended to value his interest to be worth $871, 817.00, as demonstrated by the Amended Judgment's deletion of the decretal reference to the $587, 187.00 figure contained in the Original Judgment, the deletion constitutes an amendment to the substance of the final Original Judgment rendered by the trial court, in violation of La.Code Civ.P. art. 1951. Finding that this alteration of the final judgment regarding the fair value amount not only affects the substance of the judgment, but also directly injects uncertainty into the very objective to be attained by the valuation trial, we agree.

         While the usual remedy of this court in such a case is to vacate the amended judgment and reinstate the original judgment, this case will not be resolved by such a remedy. See Tunstall v. Stierwald, 01-1765 (La. 2/26/02), 809 So.2d 916. To reinstate the Original Judgment here would allow a judgment to stand which contains an internal inconsistency regarding the value of Mr. Kolwe's shares, which would, thus, defeat the sole objective of the valuation trial. Pursuant to La.Code Civ.P. art. 2164, an appellate court may "render any judgment which is just, legal and proper upon the record on appeal." Accordingly, based on the complete record before us, we deem it just, legal and proper not only to vacate the Amended Judgment and reinstate the Original Judgment, but also to revise the Original Judgment to reflect the clear intent of the trial court to value Mr. Kolwe's ownership interest in the amount of $871, 817.00 as of November 29, 2015. [4]

         Accordingly, Mr. Kolwe's ownership of any interest and any corresponding rights and obligations as a shareholder in CASE will be deemed to have terminated as of the date of the issuance of the Original Judgment, on December 22, 2017.[5]

         Additionally, CASE raises a separate error of the trial court in rendering its final judgment. It asserts that the trial court erred in its failure to render a portion of the judgment in favor of CASE and against Mr. Kolwe, as required by La.R.S. 12:1-1436(D). We agree, and likewise revise the Original Judgment, as amended above, to conform with the statutory requirements of the LBCA pursuant to the authority conferred upon this court in La.Code Civ.P. art. 2164.

         Louisiana Revised Statutes 12:1-1436(D) (emphasis added) provides, in pertinent part, that

[A]t the conclusion of the trial the court shall render final judgment as described in Paragraphs (1) and (2) of this Subsection:
(1) In favor of the shareholder and against the corporation for the fair value of the shareholder's shares.
(2) In favor of the corporation and against the shareholder that does both of the following:
(a) Terminates the shareholder's ownership of shares in the corporation.
(b) Orders the shareholder to deliver to the corporation within thirty days of the date of the judgment any certificate issued by the corporation for the shares or an affidavit by the shareholder that the certificate has been lost, stolen, destroyed, or previously delivered to the corporation.

         In both judgments, the trial court concluded its written reasons by stating the following:

In accordance with the provisions of La.R.S. 12:1-1436(D), this is a final judgment is [sic] rendered in favor of plaintiff Joseph Kolwe, Jr. and against defendant Civil and Structural Engineers, Inc. This judgment terminates the plaintiff's ownership shares [sic] in Civil and Structural Engineers, Inc. The plaintiff is ordered to deliver to CASE, Inc., any certificate issued by CASE for the shares or an affidavit that the certificate has been lost, stolen destroyed [sic] or previously delivered to the corporation, within thirty days of the date of this judgment.

         As stated above, La.Code Civ.P. art. 1951 provides that a court may, on its own motion, amend a final judgment at any time to correct the phraseology of a judgment. Thus, La.Code Civ.P. art. 1951 allows that a "judgment may be amended by the court where the amendment takes nothing from or adds nothing to the original judgment." Villaume v. Villaume, 363 So.2d 448, 450 (La.1978).

         The judgments explicitly rule in favor of Mr. Kolwe as shareholder and against the CASE, per Subsection (D)(1), but likewise fail to include language explicitly ruling in favor of the corporation and against the shareholder, as required by Subsection (D)(2). While we recognize that the trial court's holding comports with the statute's requirement in effect through featuring language that terminates Mr. Kolwe's ownership of shares and orders him to deliver any certificate or affidavit to the corporation, we further amend the phraseology of Original Judgment to explicitly reflect the statutory directive for the judicial determination of fair value as contemplated by La.R.S. 12:1-1436(D), specifically Subsection (D)(2), where to do so would neither add nor take something away from the substance of the judgment.

         Effective Date of Notice of Withdrawal

         On appeal, Mr. Kolwe asks this court to determine whether the trial court erred in declaring that the effective date of his notice of withdrawal to the corporation was November 29, 2015, rather than November 24, 2015, as he maintains. For the following reasons, we decline the arguments advanced by Mr. Kolwe and affirm the trial court's determination that Mr. Kolwe's notice of withdrawal to the corporation became effective as of November 29, 2015.

         On November 21, 2015, a notice of special meeting of the board of directors of CASE was timely mailed to Mr. Kolwe per the corporate by-laws, informing him of a special meeting to be held on the morning of November 25, 2015. The board meeting notice was delivered to Mr. Kolwe's mailbox on November 23, 2015, at 1:23 p.m., as indicated by the return receipt. On the afternoon of November 24, 2015, following his receipt of the board meeting notice, Mr. Kolwe's attorney, Travis Broussard, prepared a letter asserting that Mr. Kolwe was withdrawing as a shareholder of CASE pursuant to La.R.S. 12:1-1435, et seq. The letter was addressed to Michael Smith as president of CASE, and sent by U.S. mail to be delivered to the address of the corporation's principal office as indicated in the corporate records. However, the letter was never actually received by the corporation.[6]

         At or around the same time, Mr. Broussard's secretary drafted and sent an email to Kyle M. Bacon, an attorney representing Mr. Smith and Mr. Granberry as majority shareholders and directors of CASE. The email stated: "Attached please find a letter from Mr. Broussard directed to Civil and Structural Engineers, Inc., regarding the above-referenced matter, which was sent via U.S. Mail today."[7]

         At all pertinent times, Mr. Kolwe has argued that the email sent to Mr. Bacon constituted notice by electronic transmission pursuant La.R.S. 12:1-141, and further that notice to Mr. Bacon constituted sufficient, legal notice to the corporation. Mr. Kolwe alternatively argued that because the notice of withdrawal was mailed to a shareholder of CASE pursuant to La.R.S.12:1-141(I)(2), the notice was effective upon deposit in the U.S. Mail. On November 20, 2017, the trial court granted CASE's Partial Motion for Summary Judgment and found that "there is no genuine issue of material fact that notice of withdrawal was mailed on November 24, 2015, to the address of the business. Notice is effective five (5) days thereafter, which was November 29, 2015." On appeal, we find Mr. Kolwe's arguments to be neither compelling nor applicable to the instant situation as reasserted before this court.

         Louisiana Revised Statutes 12:1-1435 governs the procedure affording an oppressed shareholder the right to withdraw from a corporation. At the outset, the statute dictates that "the value of a withdrawing shareholder's shares is to be determined as of the effective date of the notice of withdrawal." La.R.S. 12:1-1435(C)(1). The statute further indicates that "[a] shareholder may assert a right to withdraw under this Section by giving written notice to the corporation that the shareholder is withdrawing from the corporation on grounds of oppression." La.R.S. 12:1-1435(D) (emphasis added). Therefore, in addition to the requirements that notice be written and specify that the shareholder withdraws on grounds of oppression, the statute explicitly mandates that a shareholder direct his or her notice of withdrawal to the corporation.

         While La.R.S. 12:1-1435 does not contain any formal requirements for effectuating notice particular to oppressed shareholders, the "effective date of notice" is defined in La.R.S. 12:1-141. La.R.S. 12:1-140(7). That statute provides that "[n]otice or other communication to a domestic…corporation…may be delivered to its registered agent or to the secretary of the corporation at its principal office." La.R.S. 12:1-141(C). Alternatively, the statute also permits that such notice "may be delivered by electronic transmission if consented to by the recipient or if authorized by Subsection J of this Section."[8] Subsection (J) goes on to provide the following:

J. A notice or other communication may be in the form of an electronic transmission that cannot be directly reproduced in paper form by the recipient through an automated process used in conventional commercial practice ...

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