Ybarra v. Dominguez Family Enterprises, Inc.

798

Argued and submitted May 27, 2021, vacated and remanded November 30, 2022

Margarita YBARRA,

Plaintiff-Appellant,

v.

DOMINGUEZ FAMILY ENTERPRISES, INC.,

Defendant-Respondent,

and

Luis DOMINGUEZ, et al.,

Defendants.

Multnomah County Circuit Court

18CV02722; A171814

521 P3d 834

Plaintiff appeals a judgment providing that the fair value of plaintiff’s 7.98

percent interest in Dominguez Family Enterprises, Inc. was $927,595, after

applying minority and marketability discounts. She contends that the trial court

erred in ruling that, absent a showing of oppression, “fair value” for purposes of

ORS 60.952(6) means “fair market value,” therefore requiring the application of

those discounts to the value of her shares. Held: The trial court erred in conclud-

ing that marketability and minority discounts must be applied in determining

fair value under ORS 60.952(6) unless the plaintiff proves oppression; rather, it

is a case-specific determination. On remand, the court must determine whether,

under the particular facts and circumstances of the case, it is appropriate to

apply minority and/or marketability discounts in determining the fair value of

plaintiff’s shares.

Vacated and remanded.

Judith H. Matarazzo, Judge.

Matthew J. Kalmanson argued the cause for appellant.

Also on the briefs were Janet M. Schroer and Hart Wagner

LLP.

Nicholas A. Kampars argued the cause for respondent.

Also on the brief were Wildwood Law Group LLC, Tim

Cunningham, and Davis Wright Tremaine LLP.

Before Ortega, Presiding Judge, and Shorr, Judge, and

Landau, Senior Judge.

SHORR, J.

Vacated and remanded.

Cite as 322 Or App 798 (2022) 799

SHORR, J.

When a shareholder of a closely held corporation

brings a proceeding under ORS 60.952(1) alleging manage-

ment or shareholder deadlock, corporate waste, or illegal,

oppressive, or fraudulent conduct by those in control of the

corporation, the corporation or other shareholders can elect

to purchase the shares for their fair value. ORS 60.952(6);

see also Graydog Internet, Inc. v. Giller, 362 Or 177, 195-98,

406 P3d 45 (2017) (describing history and policy underly-

ing election provision). If the parties are unable to reach

agreement on the share price and purchase terms, the court

determines fair value, “taking into account any impact on

the value of the shares resulting from the actions giving rise

to [the proceeding].” ORS 60.952(6)(f); ORS 60.952(5)(a)(A).

In this case, the trial court determined, after apply-

ing marketability and minority discounts,1 that the fair

value of plaintiff’s 7.98 percent interest in defendant

Dominguez Family Enterprises, Inc. (DFE) was $927,595.

The court then entered a judgment ordering DFE to pay

that amount to plaintiff in $25,000 monthly installments.

Plaintiff appeals, challenging the trial court’s ruling that,

absent a showing of oppression, “fair value” means “fair

market value,” therefore requiring the application of mar-

ketability and minority discounts to the value of her shares.

As explained below, the disposition of this appeal is, in large

part, controlled by our recent opinion in Hill v. Gold, 322 Or

App 324, 519 P3d 543 (2022). Consistent with that case, we

agree with plaintiff that the trial court here erred, and we

vacate and remand for the court to determine the fair value

of plaintiff’s shares under the correct legal standard.

We provide a brief summary of the facts and proce-

dural history as context for the reader; a detailed descrip-

tion is unnecessary and unwarranted in this case.

DFE is a closely held family corporation, founded

in Hood River in 1986. Today, DFE manufactures and

1

A marketability discount “reflects the illiquidity of the shares of a closely

held corporation.” Columbia Management Co. v. Wyss, 94 Or App 195, 203, 765

P2d 207 (1988), rev den, 307 Or 571 (1989). A minority discount “recognizes that

controlling shares are worth more in the market than are noncontrolling shares.”

Id. at 204.

800 Ybarra v. Dominguez Family Enterprises, Inc.

distributes tortilla chips, marketed under the name

Juanita’s. All of the 10 shareholders are children of DFE’s

founders. At the time of trial, defendant Luis Dominguez

(Dominguez), the president of DFE, owned 83.636 shares, or

28 percent of DFE’s outstanding shares. Each of the other

shareholders, including plaintiff, owned 23.636 shares, or

7.98 percent of DFE’s outstanding shares. All of the share-

holders were employees of DFE and members of its board,

except for plaintiff, who resigned her position in 2011.

In January 2018, plaintiff filed a complaint against

DFE and the other shareholders, which included a claim

under ORS 60.952(1) alleging “illegal, oppressive or fraud-

ulent” acts, ORS 60.952(1)(b), and misapplication or waste

of corporate assets, ORS 60.952(1)(d).2 The oppression alle-

gation was based on the following acts: (1) permitting DFE

to loan large interest-free sums to other board members

without adequate security and without adequate efforts to

obtain repayment; (2) permitting DFE to loan large sums

to a Washington company without adequate security and

without adequate efforts to obtain repayment; (3) authoriz-

ing the creation of a new limited liability company, C&H RE

Holdings, LLC, in which each shareholder except plaintiff is

a member, to hold real properties purchased with company

funds; and (4) restricting distributions, even though the

company had retained earnings, while providing bonuses to

the other shareholders.

Pursuant to ORS 60.952(6), DFE filed a notice of

election to purchase plaintiff’s shares for a total payment of

$900,000.3 Plaintiff did not respond; DFE thereafter filed a

motion to stay the proceeding and for the court to conduct a

fair value hearing.4 ORS 60.952(6)(e), (f). The court granted

the stay and allowed plaintiff’s discovery requests limited to

2

Plaintiff voluntarily dismissed her claims against the individual defen-

dants prior to the fair value hearing.

3

ORS 60.952(6) provides, in part:

“At any time within 90 days after the filing of a proceeding under [ORS

60.952(1)], or at such time determined by the court to be equitable, the cor-

poration or one or more shareholders may elect to purchase all of the shares

owned by the shareholder who filed the proceeding for their fair value.”

4

ORS 60.952(6)(e) establishes that parties have 30 days after the filing of an

election to negotiate an agreement as to fair value and terms of purchase. Then,

Cite as 322 Or App 798 (2022) 801

a copy of DFE’s general ledger for the years 2015, 2016, and

2017; complete information on rental income and expenses

relating to properties held by C&H RE Holdings, LLC; and

information on the disposition of any net rental income from

properties held by C&H RE Holdings, LLC, including any

cash held by that company. It also allowed the corporate

deposition of Dominguez “limited to discovery of matters

related to [plaintiff’s] claim that bonuses paid to the share-

holder employees were in the nature of dividends.” The court

further ruled, on DFE’s motion, that plaintiff’s direct and

derivative claims, as alleged in the complaint, were “sub-

sumed within her claim for oppression, waste, and fraud

under ORS 60.952(1)” and that any impact on the value of

plaintiff’s shares resulting from the actions that gave rise to

the ORS 60.952(1) proceeding would be taken into account

in determining the fair value of plaintiff’s shares.

At the fair value hearing, plaintiff argued that

“discounts for lack of marketability or for lack of control

shall not be applied to determine fair value” for purposes

of ORS 60.952(6). DFE, on the other hand, took the position

that, “[w]here a company elects to purchase a shareholder’s

shares in response to a lawsuit such as this, when the plain-

tiff cannot prove oppressive conduct, the application of both

[marketability and minority] discounts is appropriate.” As

the trial court later described it, “DFE’s trial position was

that ‘fair value,’ as opposed to ‘fair market value,’ should

only be applied when oppression of a minority shareholder is

established and that when no oppression is shown discounts

for marketability or minority should be applied.”

Three witnesses testified: Linebarger, plaintiff’s

valuation expert; Sickler, DFE’s valuation expert; and

Dominguez. Linebarger’s analysis focused on the “income”

“[i]f the parties are unable to reach an agreement * * * the court, upon appli-

cation of any party, shall stay the proceeding [initiated under ORS 60.952(1)]

and shall, under [ORS 60.952(5)], determine the fair value and terms of pur-

chase of the shares of the shareholder who filed the proceeding as of the day

before the date on which the proceeding was filed or as of such other date as

the court deems appropriate under the circumstances.”

ORS 60.952(6)(f). In turn, ORS 60.952(5)(a)(A) provides that “the court shall * * *

[d]etermine the fair value of the shares, with or without the assistance of apprais-

ers, taking into account any impact on the value of the shares resulting from the

actions giving rise to a proceeding under [ORS 60.952(1).]”

802 Ybarra v. Dominguez Family Enterprises, Inc.

approach to business valuation; she calculated the value

of plaintiff’s 7.98 percent interest in DFE at $2,252,000,

applying no discounts. Sickler based his opinion on fair

market value—meaning “the hypothetical value between a

hypothetical buyer and a hypothetical seller. The price that

would be paid between those two parties.” Sickler’s “valu-

ation opinion” of plaintiff’s interest was $836,000, after

applying both minority and marketability discounts.5

In its findings of fact and conclusions of law, the court

held that “to justify the exclusion of discounts the plaintiff

must demonstrate oppressive conduct,” explaining that it

was required to consider, as part of fair value, “ ‘any impact

on the value of the shares resulting from the actions giv-

ing rise to’ plaintiff’s claim” (quoting ORS 60.952(5)(a)(A)).

Finding based on the evidence presented and the applicable

case law that none of the conduct plaintiff alleged in her

complaint was oppressive, the court thus concluded that

marketability and minority discounts applied.

Using Sickler’s method of analysis with two adjust-

ments, the court determined that the fair value of plaintiff’s

interest in DFE was $927,595, which included a marketabil-

ity discount of 27 percent and a minority discount of 26 per-

cent (applied to nonoperating assets).6 It thereafter entered

a general judgment and money award consistent with that

determination, setting out payment and interest terms, and

ordering plaintiff to relinquish her shares to DFE.

On appeal, plaintiff raises a single assignment of

error, specifically, that “[t]he trial court erred when it ruled

that, absent a showing of oppression, ‘fair value’ means ‘fair

market value,’ and then applied minority and marketabil-

ity discounts to the value of plaintiff’s shares.” She argues

that the legislature, in enacting ORS 60.952, intended to

incorporate the meaning of “fair value” from then exist-

ing case law—in her view, “the proportionate interest in

5

According to both experts, a valuation opinion involves a more in-depth

analysis than a calculation of value, which is what Linebarger provided.

6

The court found, among other things, that Sickler provided a more com-

plete evaluation than Linebarger, he was able to interview DFE management

and its accountant, and Sickler’s estimate of ongoing capital expenditures and

company-specific risk was more reliable than Linebarger’s estimation of those

two factors.

Cite as 322 Or App 798 (2022) 803

the corporation as a going concern, without application of

minority or marketability discounts.” In short, in plain-

tiff’s view (1) the court erred in ruling that it was required

to apply the discounts in the absence of oppression and

(2) minority or marketability discounts are never appropri-

ate in determining fair value under ORS 60.952. Plaintiff

thus requests that we vacate the judgment and remand for

the trial court to enter a judgment in her favor for the undis-

counted value of her shares.

In response—and in an apparent change of tack

from below—DFE argues that the court may, unless it finds

oppression, apply minority and/or marketability discounts

in determining “fair value” under ORS 60.952 if the court

decides that it is appropriate to do so after considering all of

the relevant facts and circumstances of the individual case.7

And, according to DFE, that is what the trial court did here,

so there is no error.

In Hill, we confronted substantially the same ques-

tion, at least in part: whether it was appropriate for the

court to apply a marketability discount to the value of the

plaintiff’s shares when determining “fair value” under ORS

60.952 after an election and in the absence of an agree-

ment of the parties as to value.8 322 Or App at 333-36. In

resolving that question, we concluded—based largely on

earlier case law—that (1) the meaning of “fair value” for

purposes of ORS 60.952 depends on the particular circum-

stances presented in the case, id. at 333-34 (citing Columbia

Management Co. v. Wyss, 94 Or App 195, 199, 202, 765 P2d

207 (1988), rev den, 307 Or 571 (1989)); (2) oppression is a cir-

cumstance relevant to the determination of fair value, id. at

335-36 (citing Columbia Management Co., 94 Or App at 197,

203, and Hayes v. Olmstead & Associates, Inc., 173 Or App

259, 276, 21 P3d 178, rev den, 333 Or 73 (2001)); (3) appli-

cation of a marketability discount is not permitted where

there is a finding of oppression, id. at 334-35 (citing Chiles

v. Robertson, 94 Or App 604, 643-44, 767 P2d 903, adh’d to

7

DFE agrees that application of discounts is not appropriate if the plaintiff

establishes oppression.

8

The appropriateness of applying a minority discount was not at issue in

Hill. See 322 Or App at 333 n 6.

804 Ybarra v. Dominguez Family Enterprises, Inc.

as modified on recons, 96 Or App 658, 774 P2d 500, rev den,

308 Or 592 (1989), and Cooke v. Fresh Express Foods Corp.,

169 Or App 101, 115, 7 P3d 717 (2000)); but (4) in the absence

of a finding of oppression, the court may, but need not, apply

a marketability discount, depending on the particular cir-

cumstances of the case, id. at 336.9

In Hill, as noted, we did not directly address the

propriety of applying a minority discount in the fair value

determination under ORS 60.952(6), because the trial court

had not done so. However, consistent with our approach in

that case,10 we now conclude that the same legal principles

generally apply—that is, application of a minority discount

is a case-specific determination; oppression is a relevant cir-

cumstance; application of a minority discount is not appro-

priate if oppression is found; and, in the absence of such

a finding, the discount may be appropriate.11 See Hill, 322

Or App at 333-34 (explaining that cases determining “fair

value” under dissenter’s rights statute inform the mean-

ing of “fair value” for purposes of ORS 60.952(5)); Columbia

Management Co., 94 Or App at 202 (holding, in context of

dissenter’s rights statute, that appropriateness of applying

marketability or minority discount to determination of fair

value “necessarily depends on the circumstances of the par-

ticular case”); see also Chiles, 94 Or App at 643-44 (neither

a minority nor a marketability discount is appropriate in

determining the fair value of the stock of a minority share-

holder who is the victim of oppressive conduct).

However, as was the case in Columbia Management

Co., courts should use caution in applying a minority discount

9

We ultimately concluded in Hill that, under the circumstances of that

case—which included the trial court’s finding, supported by the evidence, that

there was no oppression or other breach of fiduciary duty—the trial court did not

err in applying a marketability discount when determining the fair value of the

plaintiff’s shares. 322 Or App at 336. We therefore affirmed.

10

See Hickey v. Hickey, 269 Or App 258, 270, 344 P3d 512, rev den, 357 Or 415

(2015) (explaining that “the legislative history [of ORS 60.952] suggests an inten-

tion to provide statutory remedies to address instances of oppression and other

misconduct in close corporations and to reflect or codify remedies that Oregon

courts had previously recognized and granted”; in other words, ORS 60.952 “was

enacted to reflect [existing] judicial practice” (emphasis added)).

11

We note also that the parties themselves do not suggest that a different

analysis applies with respect to the application of marketability versus minority

discounts.

Cite as 322 Or App 798 (2022) 805

to the determination of fair value under ORS 60.952;

depending on the circumstances of the case, application of a

discount based on lack of control may not be appropriate. In

Columbia Management Co., we noted that recognition of the

decreased value in the marketplace of noncontrolling shares

versus controlling shares “may not be appropriate” when

the purchaser of the shares will be the corporation, given

that the corporation will not be in a minority position after-

wards. 94 Or App at 204 (emphasis added); see id. at 204-05

(noting, among other cases, Brown v. Allied Corrugated Box

Co., 91 Cal App 3d 477, 154 Cal Rptr 170 (1979), in which

the California court reasoned that, “when the corporation

or someone already in control of it is the purchaser[,] one

could not then say that the shares are worth less because

they were noncontrolling” to illustrate the point that “[a]

number of cases distinguish between marketability and

minority discounts, approving the former and rejecting the

latter”).

In concluding in Columbia Management Co. that a

minority discount was “not appropriate in the case,” 94 Or

App at 205, we also found it significant that application of

a minority discount would subvert the legislative purpose

of the dissenter’s rights statutes12 —to provide “a legislative

remedy for minority shareholders who find their interests

threatened by significant corporate changes and who may

have no other recourse”—because it penalized the minority

shareholder while providing a windfall for the majority,

id. at 206.

The election remedy provided in ORS 60.952(6) has

a different focus; nonetheless, similar considerations are

appropriate in this context. As we have previously observed,

the fair value determination under ORS 60.952 requires “con-

sider[ation of] the interest of both the purchaser, usually the

controlling shareholder, and the seller, usually the minority

shareholder.” Hickey, 269 Or App at 273 (emphasis added).

And, as the Supreme Court explained in Graydog Internet,

Inc., in enacting the statutory election to purchase provision

12

Former ORS 57.865 to 57.890, repealed by Or Laws 1987, ch 52, § 181.

Those statutes were replaced by ORS 60.551 to 60.594, which continue to

apply the term “fair value” in that context. See Hill, 322 Or App at 334 n 8 (so

stating).

806 Ybarra v. Dominguez Family Enterprises, Inc.

in ORS 60.952(6), the legislature recognized the need to be

mindful of the interests of the minority shareholder:

“The legislative history of ORS 60.952(6) shows that the

legislature intended to discourage litigation between share-

holders [in closely held corporations], with its potential for

acrimony and harm to the firm and others, by providing an

incentive for shareholders to resolve their disputes in some

way other than a ‘proceeding under subsection (1).’ But it

also recognized that the solution is imperfect because a

shareholder’s ownership stake may represent more than

a solely financial investment, and a shareholder subject

to a court-ordered sale of its shares for ‘fair value’ may be

incompletely compensated for its loss.”13

362 Or at 198. Thus, as in Columbia Management Co., it may

be inappropriate, depending on the circumstances, for the

court to apply a minority discount to the determination of

fair value under ORS 60.952(6).

Having thus set out the applicable legal principles,

our resolution of this appeal is straightforward. But first we

must address the parties’ dispute over the nature of the trial

court’s holding, which is the key. In that respect, we agree

with plaintiff. That is, we understand the trial court to have

held that marketability and minority discounts are required

in determining fair value under ORS 60.952(6) unless there

is a finding of oppression. We reject DFE’s contrary sugges-

tion that the court did not so hold but instead merely con-

cluded that it was appropriate, given the circumstances, to

include the discounts in this case.

After observing that the calculation of fair value

requires the court to consider “any impact on the value of

the shares resulting from the actions giving rise to” plain-

tiff’s claim, ORS 60.952(5)(a)(A), the court expressly stated,

“The court holds that to justify the exclusion of discounts

the plaintiff must demonstrate oppressive conduct.” In

13

The court explained that one of the “principal disadvantages” of a stat-

utory election to purchase provision like that found in ORS 60.952(6) is that “a

majority shareholder may use [it] to squeeze out a minority shareholder who

wants to remain in the business” and “[p]roviding a minority shareholder in a

close corporation with fair value for its shares may not adequately compensate

shareholders faced with a squeeze-out, because shareholders in close corpora-

tions are more than mere lenders of capital with only an economic interest in the

corporation.” Id. at 197 (internal quotation marks and citations omitted).

Cite as 322 Or App 798 (2022) 807

other words, marketability and minority discounts must be

applied unless the plaintiff proves oppressive conduct.

The court then applied that rule to the facts before

it and concluded, having found no oppressive conduct, that

it was appropriate to apply marketability and minority

discounts—in other words, that marketability and minority

discounts applied because there was no finding of oppres-

sion. The court referenced no other circumstances justifying

the application of discounts.14 Moreover, that understanding

of the court’s holding is entirely consistent with how the par-

ties argued the case below. As the trial court explained in

its findings of fact:

“Plaintiff’s trial position was that[ ] one of the detriments

of effectuating the ORS 60.952(6) election to purchase is

that the fair value ultimately determined will not include

discounts for either lack of marketability or minority sta-

tus. DFE’s trial position was that ‘fair value,’ as opposed to

‘fair market value,’ should only be applied when oppression

of a minority shareholder is established and that when no

oppression is shown discounts for marketability or minority

should be applied.”

(Emphases added.) Considered in its entire context, the trial

court’s ruling can only be understood as concluding that

marketability and minority discounts must be applied in the

absence of a finding of oppression.

As explained above, that was error. However, we

disagree with plaintiff that such discounts are never permit-

ted. Rather, as discussed, the court must determine, based

on all of the relevant facts and circumstances, whether to

apply marketability and/or minority discounts in calculat-

ing the fair value of plaintiff’s shares under ORS 60.952(6).

Because the trial court mistakenly understood that its

determination of fair value required the application of those

discounts based on the absence of oppression alone, the court

had no reason to consider whether the discounts were other-

wise warranted in this case. Accordingly, we reject plain-

tiff’s suggestion that we simply vacate and remand for the

court to enter a judgment for the undiscounted value of her

14

The court did, however, explain why the specific circumstances of the case

justified the discount rates that it applied.

808 Ybarra v. Dominguez Family Enterprises, Inc.

shares. On remand, the court must determine the fair value

of plaintiff’s shares under the standards set out above—that

is, whether application of marketability and/or minority dis-

counts are appropriate in the circumstances of the case.

Vacated and remanded.