APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT JERAULD COUNTY, SOUTH DAKOTA HONORABLE JON R. ERICKSON Judge
The opinion of the court was delivered by: Gilbertson, Chief Justice
#25525, #25610-aff in pt, rev in pt & rem-DG
[¶1.] Jay Link petitioned for judicial dissolution of L.S.I., Inc. (LSI). The circuit court denied the petition and granted LSI's petition to buy out Jay's shares at a "fair value." Jay appeals the valuation of his shares, the condition of the payments, and the dismissal of his remaining claims. We affirm in part, reverse in part, and remand. LSI filed a later appeal, challenging the interest awarded on the buy-out. We conclude the circuit court did not issue a final order reviewable on appeal.
[¶2.] Jack Link and his sons, Jay and Troy, owned various companies that produced and distributed meat and cheese snacks. Link Snacks, a Wisconsin corporation, was founded and owned by Jack. It is the sole customer of LSI, a South Dakota corporation located in Alpena that produces snack products pursuant to Link Snacks' specifications. L.S.I., Inc.-New Glarus is another Wisconsin corporation that makes products for Link Snacks. Jay was employed at LSI, Link Snacks, and LSI-New Glarus. After years of conflict with Jack and Troy, Jay agreed to terminate his employment with the companies. The parties were unable to negotiate a buy-out of Jay's shares. In September 2005, Link Snacks, Jack, and Troy filed an action in Wisconsin to, in part, enforce buy-out agreements for the Wisconsin companies. The complaint was amended, alleging Jay breached fiduciary duties. Jay filed a counterclaim alleging Jack, Troy, and other officers and directors of the Link companies breached fiduciary duties. On November 17, 2005, Jay filed an action in South Dakota seeking to dissolve LSI and recover damages from LSI directors for breach of fiduciary duties. In March 2006, the South Dakota action was stayed pending disposition of the Wisconsin action. On November 17, 2006, LSI filed an election to purchase Jay's shares under SDCL 47-1A-1434 in an effort to prevent dissolution.
[¶3.] As part of the Wisconsin action, the parties entered into a stipulated order regarding appraisal of various Link companies. The agreed appraisal process for Jay's shares involved three appraisers, one selected by Jay, one by the Link companies, and a neutral appraiser. The appraisers were ordered to determine the "fair market value" of Jay's shares in LSI, that is, "the price which a willing buyer would pay a willing seller for such shares." They were also ordered to determine the "fair value" or the undiscounted, proportionate value of Jay's shares in LSI, as a going concern, as of December 31, 2005. As part of the process, each appraiser wrote a preliminary report that was exchanged with the other appraisers. They discussed each other's conclusions. The neutral appraiser originally valued Jay's shares in LSI at $21,000,000. However, after discussing the amount with the others, LSI's appraiser convinced him that the value should be lower to account for the fact that LSI only had one customer, which is an extremely high customer concentration. This fact lowered the undiscounted "fair value" amount of Jay's LSI shares to $16,550,000 in the final report, which was determined by a majority vote of the appraisers. The "fair market value" of Jay's shares in LSI was $11,200,000.
[¶4.] After years of discovery and waiting for reports, the Wisconsin court conducted a three-phase jury trial in May 2008. The jury in the Wisconsin action found that Troy and Jay each owned 50% of LSI, making both equal shareholders.
The jury also found that Jay had breached fiduciary duties to LSI both while employed and after he had left. The jury found that the four directors sued in the action, two of whom were also LSI directors, had not breached any duties to Jay, but that Jack and Troy had. Finally, the jury found that Jay was not oppressed and the court denied Jay's petition for dissolution of the Wisconsin corporations. Specific performance of the Wisconsin companies' buy-out agreements was ordered. Notably, there was no buy-out agreement for LSI. The Wisconsin court entered a final judgment on October 2, 2008.
[¶5.] LSI noticed a hearing to lift the stay in the South Dakota action on October 16, 2008, and to proceed with its election to purchase Jay's shares in LSI. Jay agreed to the stay being lifted but argued the motion to proceed with the election was untimely. The circuit court rejected Jay's argument and set a hearing for May 2009 to determine the "fair value" of Jay's shares under SDCL 47-1A-1434.3.
[¶6.] At the hearing, the parties presented extensive expert testimony from the party appraisers and neutral appraiser in the Wisconsin action, in addition to detailed valuation reports. On May 15, 2009, the circuit court issued a Memorandum Decision, in which it found that LSI was a stand-alone corporation, separate from the Wisconsin Link corporations; that the appropriate date for determining the "fair value" of Jay's shares was December 31, 2005; that Jay was entitled to "fair value" of his shares, meaning his proportionate interest in LSI as a going concern without minority or lack-of-marketability discounts; that the undiscounted, proportionate "fair value" of Jay's shares in LSI was $16,550,000; and, that the value of Jay's shares was $43,200,000, thus rejecting Jay's appraiser's opinion. An order was entered adopting the Memorandum Decision on June 5, 2009, and the circuit court ordered further proceedings to determine the terms and conditions for the purchase of Jay's shares. LSI filed a motion with supporting affidavits to pay the fair value in monthly installments over five years with 4% interest commencing on May 15, 2009, the date of the court's valuation. Jay moved for an order to receive a lump-sum payment of the fair value within 10 days with an interest rate of either 12 or 15%, compounded annually and commencing on November 16, 2005.
[¶7.] On October 7, 2009, the circuit court issued a Memorandum Decision, finding that requiring LSI to pay Jay in one lump-sum payment would be a hardship and that monthly payments for five years were necessary in the interests of equity. It also awarded Jay simple interest on $16,550,000 at 4.5% beginning November 16, 2005. This rate amounted to nearly three million dollars in interest. The court also found Jay had failed to demonstrate "probable grounds" to dissolve LSI and therefore denied Jay's request for attorney's fees. An order adopting the Memorandum Decision was issued December 2, 2009, in which Jay was ordered to sell all his shares in LSI pursuant to those terms. No security was given to Jay for the fair value amount. The court dismissed the action with prejudice, including the breach of fiduciary duty claims against two LSI directors residing in South Dakota.
[¶8.] On January 6, 2010, LSI moved the circuit court under SDCL 15-6-60(b) to vacate its award of accrued interest granted pursuant to the December 2, 2009 order. On January 11, 2010, Jay filed a notice of appeal, including the December 2, 2009 order that included the award of interest. Appeal #25525. The circuit court heard LSI's motion to vacate the award of accrued interest on March 4, 2010, and entered an order denying the motion without prejudice on March 23, 2010. LSI filed a notice of appeal on April 16, 2010, challenging the denial of the order to vacate the award of accrued interest. Appeal #25610. By order of this Court, appeals #25525 and #25610 were consolidated.
[¶9.] Jay raises the following issues on appeal:
1. Whether the circuit court erred in determining the "fair value" of Jay's shares.
2. Whether the circuit court erred in ordering the fair value of Jay's shares to be paid in monthly installments over five years.
3. Whether the circuit court erred in not granting Jay any security for the fair value LSI owed him.
4. Whether the circuit court erred in dismissing Jay's claims against LSI Directors with prejudice.
[¶10.] LSI raises the following issue on appeal:
5. Whether the circuit court erred in denying LSI's motion to vacate Jay's award of accrued interest.
[¶11.] The parties dispute the standard of review for valuation of shareholder stock bought pursuant to an election under SDCL 47-1A-1434. Jay argues that review should be de novo because it is a mixed question of law and fact. He compares the issue to a review of a circuit court's determination of the fair value of a dissenting shareholder's stock and cites Richardson v. Palmer Broadcasting Co., 353 N.W.2d 374, 378 (Iowa 1984). LSI argues that the circuit court found as a matter of fact that $16,550,000 was the fair value of Jay's shares, and therefore the standard of review is clearly erroneous. LSI cites the following cases to support its position: In re Midnight Star Enter., L.P., ...