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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,
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.
STADTMUELLER U.S. DISTRICT JUDGE.
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.
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.
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
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.
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.
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.