Stephenson v. Drever

BROWN, J., Dissenting.

Plaintiff Allen W. Stephenson was employed as the chief financial officer of Drever Partners, Inc. (hereafter Drever Partners), a closely held corporation. On December 15, 1990, plaintiff entered a buy-sell agreement with Drever Partners and Maxwell Bruce Drever (hereafter Drever), its majority shareholder. Under the terms of the agreement, plaintiff purchased 500 shares of the common stock of Drever Partners at par value. After the purchase was consummated, plaintiff owned 11 percent of the outstanding common stock of Drever Partners, and Drever owned the remaining 89 percent. The buy-sell agreement provided that “[i]n the event of the termination of Stephenson’s employment for any reason whatsoever, including his retirement or death, then, on or before ninety (90) days after the date of such termination, Drever Partners shall have the right and obligation to repurchase all of the Shares.” On May 16, 1994, plaintiff and Drever Partners entered a second agreement providing that plaintiff’s employment would terminate effective July 1,1994, and that his stock would be valued at its fair market value as of May 1, 1994, for purposes of the buy-sell agreement.

Purporting to construe these agreements, the majority concludes that plaintiff retains his shareholder’s rights in Drever Partners, including the right to dividends, “during the postemployment period necessary to determine the value of his shares pursuant to the [buy-sell] agreement.” (Maj. opn., ante, at p. 1170.) I cannot agree. In my view, plaintiff’s shareholder’s rights terminated as of the mutually agreed upon May 1, 1994, valuation date.

*1185 In reaching a contrary conclusion, the majority relies on Gilfallan v. Gilfallan (1914) 168 Cal. 23 [ 141 P. 623 ]. (See maj. opn., ante, at p. 1174.) In Gilfallan , we observed that “[u]pon an executory agreement to buy and sell personal property, title does not pass to the buyer until delivery is made to him or is due to him and is offered to be made, unless there is something in the contract specifying or implying a different intention . . . .” ( 168 Cal. at p. 31 , italics added.) Applying this general rule in the context of a stock purchase agreement, we held that “[t]he buyer would not be legally entitled to dividends upon the stock in the absence of any agreement to that effect, until the legal title to the stock had passed to him.” (Ibid.)

While I agree that this case is governed by the principles set forth in Gilfallan v. Gilfallan, supra, 168 Cal. 23 , I disagree with the majority’s conclusion that there is nothing in the parties’ agreements specifying or implying an intention to terminate plaintiff’s shareholder’s rights prior to the completion of the stock valuation process. The very purpose of a buy-sell agreement is “to avoid under all circumstances the risk of disruption from a dissident, disaffected ex-employee” (Coleman v. Taub (3d Cir. 1981) 638 F.2d 628, 637 ), precisely the disruption that is occurring in the present case. If there were any doubt on this point, the parties put it to rest when they executed their second agreement, which guarantees plaintiff the fair market value of his stock as of May 1, 1994, a date two months prior to his termination. The majority implicitly recognizes that plaintiff’s shareholder’s rights terminated as of this valuation date when it acknowledges that the appraiser must “credit[] any actual distributions received against the fair market value otherwise determined.” (Maj. opn., ante, at p. 1183.) In other words, under the majority’s implausible construction of the parties’ agreements, plaintiff retains his shareholder’s right to dividends only to have to give those dividends back as a credit during the valuation process.

The majority melodramatically asserts that terminating plaintiff’s shareholder’s rights “would have the effect of stripping plaintiff of all [of his] statutory shareholder’s rights even though he remains the legal owner of record of shares representing 11 percent of Drever Partners’ equity. A shareholder without a shareholder’s rights is at best an anomaly, and at worst a shadowy figure in corporate limbo who would be voiceless in the conduct of the business of which he is part owner and largely defenseless against neglect or overreaching by management.” (Maj. opn., ante, at pp. 1177-1178; see also id. at pp. 1179, 1182-1183.) That spectre need not haunt us here. The parties’ second agreement guarantees plaintiff the fair market value of his stock as of a date certain—May 1, 1994. Since plaintiff has no risk tied to the company’s fortunes, he should have no rights as a shareholder. To the extent plaintiff’s concern is that Drever Partners may be *1186 taking steps to impair its ability to complete the repurchase of his-shares, plaintiff should have exercised his rights as a creditor of the corporation. 1 Instead, the majority offers its own Version of- Young Frankenstein (1224)—-a credito? with shareholder’s rights. 2

For these reasons, I would hold that plaintiff’s shareholder’s rights terminated as of the May 1, 1994, valuation date and, accordingly, would affirm the judgment of the Court of Appeal.