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Gries v. Plaza Del Rio Management Corp.

Court of Appeals of Arizona, First Division

September 9, 2014

HAROLD GRIES, a single man; GRIES FAMILY LIMITED PARTNERSHIP, an Arizona limited partnership; and HAROLD E. GRIES TRUST DATED MARCH 4, 2012, Plaintiffs/Appellants/Cross-Appellees,
v.
PLAZA DEL RIO MANAGEMENT CORPORATION, an Arizona corporation; SHARON HARPER AND OLIVER HARPER, wife and husband; HARPER FAMILY LIMITED PARTNERSHIP, an Arizona limited partnership; and OLIVER J. HARPER AND SHARON J. HARPER AS CO-TRUSTEES OF THE HARPER FAMILY REVOCABLE TRUST DATED NOVEMBER 15, 1998, Defendants/Appellees/Cross-Appellants

Appeal from the Superior Court in Maricopa County. No. CV2011-007462. The Honorable Mark H. Brain, Judge.

Tiffany & Bosco, PA, Phoenix, By Robert A. Royal, Aaron T. Lloyd, Jones Skelton & Hochuli, PLC, Phoenix, By Eileen Dennis GilBride, Counsel for Plaintiffs/Appellants/Cross-Appellees.

Aiken Schenk Hawkins & Ricciardi, PC, Phoenix, By Shawn K. Aiken, Joseph A. Schenk, Law Offices of Thomas A. Zlaket, PLLC, Tucson, By Thomas A. Zlaket, Counsel for Defendants/Appellees/Cross-Appellants.

Judge Randall M. Howe delivered the opinion of the Court, in which Presiding Judge Samuel A. Thumma and Judge John C. Gemmill joined.

OPINION

Page 531

[236 Ariz. 9] Randall M. Howe, Judge:

[¶1] Harold Gries appeals and Sharon Harper cross-appeals various provisions of the superior court's dismissal of Gries's amended complaint against Plaza del Rio Management Corporation (PDR). Among other issues, the parties contest whether the statutory dissolution of a closely held corporation may be halted when the superior court finds it equitable to do so. We hold that it may and affirm.

Page 532

[236 Ariz. 10] FACTS AND PROCEDURAL HISTORY

[¶2] In November 1984, Gries and Harper formed PDR -- a closely held real estate management and development company. In July 1985, they executed a shareholder's agreement that provided that Harper-controlled and Gries-controlled entities owned PDR equally. The shareholder's agreement also included a buy-sell provision (" Shotgun Provision" ), which stated in pertinent part:

[N]o Stockholder shall transfer or encumber his stock in [PDR] without first obtaining the written consent of [PDR] and all of the then existing Stockholders. Notwithstanding the foregoing, the shareholders of either group acting collectively may submit a written offer to the shareholders of the other group acting collectively of a price at which they are willing to sell their shares or purchase the shares of the shareholders of the other group.

[¶3] Until Gries retired in 2000, Harper and Gries were PDR's sole officers, directors, and employees. On June 30, 2000, Harper and Gries met to establish the terms of Gries's retirement (" Retirement Agreement" ). The Retirement Agreement provided that Harper would manage PDR, receive a $200,000 base salary, and receive 90% of net profits. The Retirement Agreement also provided that Gries, as a retiree, would receive 10% of net profits. The Retirement Agreement's terms were memorialized in minutes signed by both Gries and Harper, in their capacities as President and Secretary, respectively.

[¶4] In August 2011, Gries sued PDR. In his complaint, Gries (1) sought a declaratory judgment that the Retirement Agreement was a shareholder's agreement pursuant to Arizona Revised Statutes (" A.R.S." ) section 10-732 and therefore had expired as of June 30, 2010 (Count 1); (2) alleged that Harper breached fiduciary duties and breached statutory standards of conduct pursuant to A.R.S. § § 10-830 and -842 by paying herself pursuant to the expired shareholder's agreement (Count 2); and (3) requested judicial dissolution of PDR because PDR shareholders and directors were deadlocked and Harper controlled the company and acted oppressively or fraudulently (Count 3). Gries also sought compensatory damages, claiming that because the Retirement Agreement was a shareholder's agreement that had expired, Harper had received salary and profits to which she was not entitled. In response, Harper moved pursuant to A.R.S. § 10-1434 to purchase Gries's PDR shares in lieu of dissolution.

[¶5] Gries moved for summary judgment on Count 1, asking the court to find that the Retirement Agreement was a shareholder's agreement. Harper opposed Gries's motion, arguing that the Retirement Agreement was not a shareholder's agreement but instead a " valid employment agreement" that had never expired. Harper moved to stay the proceedings to valuate Gries's PDR shares so that she could purchase his shares in lieu of dissolving PDR. Granting a stay, the superior court ordered the parties to submit two fair market valuations of Gries's PDR shares as of August 2, 2011 -- one assuming that the Retirement Agreement was a valid shareholder's agreement, and the second assuming that it was not.

[¶6] At the fair market valuation hearing, Harper's expert testified that Gries's PDR shares were worth $157,000 if the Retirement Agreement was a valid shareholder's agreement and $117,600 if it was not. Gries's expert testified that Gries's PDR shares were worth $668,000 under a valid Retirement Agreement and $3,066,000 under an invalid Retirement Agreement. Gries also claimed $468,484 in damages.

[¶7] After the valuation hearing, the superior court determined that the Retirement Agreement was a shareholder's agreement that had expired on June 30, 2010 (ten years after the agreement was formed). The court valued Gries's PDR stock at $157,100 and his damages claim at $200,000, totaling $357,100. Although the court had granted Harper's motion to stay Gries's lawsuit, it denied Harper's motion to dismiss Gries's claim for $468,484 in damages, finding that " the net amount [PDR] would likely recover ...


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