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Dewey v. Bechthold

United States District Court, E.D. Wisconsin

May 21, 2019

NANCY DEWEY individually and as a trustee, THE NANCY DEWEY LIVING TRUST, THE NANCY DEWEY 2015 NEA GRANTOR RETAINED ANNUITY TRUST, THE NANCY DEWEY 2015 P&D GRANTOR RETAINED ANNUITY TRUST, THE IRREVOCABLE TRUST FOR THE GRANDCHILDREN OF NANCY AND DOUGLAS DEWEY, JOHN DEWEY individually and as a trustee, THE JOHN D. DEWEY LIVING TRUST, THE JOHN D. DEWEY IRREVOCABLE CHILDREN'S TRUST, THE ABIGAIL DEWEY IRREVOCABLE TRUST, THE ERIN DEWEY IRREVOCABLE TRUST, THE IAN DEWEY IRREVOCABLE TRUST, THE SHEAMUS DEWEY IRREVOCABLE TRUST, THE ABIGAIL DEWEY DESCENDANTS TRUST, THE ERIN DEWEY DESCENDANTS TRUST, THE IAN DEWEY DESCENDANTS TRUST, THE SEPARATE TRUSTS FOR IAN DEWEY, SHEAMUS DEWEY, ERIN DEWEY, ABIGAIL DEWEY, and THE SHEAMUS DEWEY DESCENDANTS TRUST, Plaintiffs,
v.
KURT BECHTHOLD, MARK FILMANOWICZ, DAVID BECHTHOLD, PAYNE & DOLAN, INC., NORTHEAST ASPHALT, INC., CONSTRUCTION RESOURCES MANAGEMENT, INC., ZENITH TECH, INC., and TIMBERSTONE OF RICHFIELD, INC., Defendants.

          ORDER

          J. P. STADTMUELLER U.S. DISTRICT JUDGE.

         On February 11, 2019 Plaintiffs filed an amended complaint alleging fraud and violations of Wisconsin state law in connection with their rights as shareholders. (Docket #45). On March 7, 2019, Defendants filed a motion to dismiss, in which they sought dismissal of Counts Four and Five of the amended complaint. (Docket #50). Count Four seeks declaratory judgment that a transfer restriction implemented in 2014 (the “2014 Restriction”) does not apply to John Dewey (“John”)'s shares because his shares were issued prior to the 2014 Restriction, and because he did not vote for or agree to the 2014 Restriction. Count Five seeks declaratory judgment that the 2014 Restriction is unenforceable. The motion to dismiss is fully briefed. For the reasons stated below, Defendants' motion will be granted in part and denied in part.

         1. LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b) provides for dismissal of complaints which, among other things, fail to state a viable claim for relief. Fed.R.Civ.P. 12(b)(6). To state a claim, a complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In other words, the complaint must give “fair notice of what the. . .claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The allegations must “plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level[.]” Kubiak v. City of Chicago, 810 F.3d 476, 480 (7th Cir. 2016) (citation omitted). In reviewing the complaint, the Court is required to “accept as true all of the well-pleaded facts in the complaint and draw all reasonable inferences in favor of the plaintiff.” Id. at 480-81.

         2. RELEVANT FACTS

         Plaintiffs in this case consist of minority shareholders of several closely held corporations, as well as various related trusts and beneficiaries. Defendants are the majority shareholders and five companies. The key players among Plaintiffs are Nancy Dewey (“Nancy”) and her son, John, (collectively, “the Deweys”), who are eager to sell their shares in the companies but are having difficulty valuing (and thus selling) their shares. The key players among Defendants are Kurt Bechthold (“Kurt”) and David Bechthold (“David”) (collectively, “the Bechtholds”), who are Nancy's brothers, and who run the defendant companies (“the Defendant Companies”).

         This story begins in 1967, when the Defendant Companies first adopted a transfer restriction (the “1967 Restriction”) which included a right-of-refusal provision that required a seller of company stock to first offer to the stock to the corporation for thirty days, and then to other holders of the same class of stock for thirty days, each time at an option price. (Docket #45 at 15). If, after this sixty-day period, the stock was not purchased, then the stockholder would be free to sell his shares to a third party. Id. The option price was described as

[T]he book value of the stock determined by a balance sheet stated according to recognized accounting practice as of the end of the calendar month preceding the offer to the corporation and in such balance sheet no value shall be assigned to any good will but the value of all contracts and work in progress shall be included on a percentage of completion basis according to recognized accounting practice.

Id. Plaintiffs understand this definition to mean that the “book value” was based on the shares' “market value.” Id. John's shares were subject to the 1967 Restriction.

         In 1993, the Defendant Companies enacted another transfer restriction bylaw (the “1993 Restriction”) which elaborated that the option price would be calculated as:

[T]he book value of the stock determined by the corporation's balance sheet included in its financial statements and stated in accordance with generally accepted accounting principles consistently applied as of the end of the calendar month preceding the offer to the corporation and in such balance sheet no value shall be assigned to any good will but the value of all contracts and work in progress shall be included on a percentage of completion basis in accordance with generally accepted accounting principles.

Id. at 16 (additions underlined in amended complaint). According to Plaintiffs, this new definition of option value required the book value to be calculated solely on “the corporation's balance sheet included in its financial statements, ” which effectively allows the controlling shareholders to set the book value. John did not vote for the 1993 Restriction.

         In 2014, another restriction was created to protect certain inter-trust transfers. John objected to the 2014 Restriction to the extent that it contained the right-of-refusal language from the 1993 Restriction-which he had not voted for-but agreed with its protective effects on the trusts. He was led to believe that he could vote in favor of the 2014 Restriction while retaining his right to challenge the right-of-refusal provision to which he did not agree. Accordingly, John voted in favor of the 2014 Restriction. When John subsequently tried to value and sell his shares, he claims that he was unfairly held to the 2014 Restriction's definition of option value as book value. Because of this, he claims that Defendants fraudulently induced John into voting for the 2014 Restriction. Plaintiffs allege that the 2014 Restriction gives the Bechtholds the ability “to manipulate the books in order to force minority stockholders to sell their shares to the controllers at an artificially-depressed price, ” which makes the right-of-refusal provision “unreasonable and unenforceable” as a matter of law. Id. at 18.

         3. ...


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