F.B.I. Farms, Inc. v. Moore

798 N.E.2d 440 (Ind. 2003)

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Nature of the Case

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Facts

F.B.I. Farms, Inc., (D) was formed in 1976 by Ivan and Thelma Burger, their children, Linda and Freddy, and the children's spouses. The three couples transferred a farm and related machinery to the corporation in exchange for common stock in the corporation. At the time, P was married to Linda. Linda and P deeded a jointly-owned 180-acre farm to F.B.I., and 2,507 shares were issued to P and one to Linda. These 2,508 shares represented approximately fourteen percent of the capitalization of D. In 1977, the Board of Directors consisting of P, Ivan, Freddy, and Linda adopted restrictions on the transfer of shares. 1) No stock of said corporation shall be transferred, assigned and/or exchanged or divided, unless or until approved by the Directors thereof; 2) That if any stock be offered for sale, assigned and/or transferred, the corporation should have the first opportunity of purchasing the same at no more than the book value thereof; 3) Should said corporation be not interested, and could not economically offer to purchase said stock, any stockholder of record should be given the next opportunity to purchase said stock, at a price not to exceed the book value thereof; That if the corporation was not interested in the stock, and any stockholders were not interested therein, then the same could be sold to any blood member of the family should they be desirous of purchasing the same, then at not more than the book value thereof. Linda and P were divorced in 1982. Linda was awarded all of the D shares, and P was awarded a monetary judgment in the amount of $155,889.80, secured by a lien on Linda's shares. D filed for bankruptcy protection in 1989 and emerged from Chapter 11 Bankruptcy in 1991. P's judgment against Linda remained unsatisfied, and in April 1998 he sought a writ of execution of his lien. D responded with a letter demanding payment of the $250,700 subscription price for the 2,507 shares that were initially issued to P but had since been transferred to Linda. P obtained the writ of execution in June 1999, and in October 1999 the corporation canceled the 2,507 shares for failure to pay the subscription price. A sheriff's sale went forward, and D purchased all 2,924 shares owned by Linda at the time for $290,450.67. P sued D, its shareholders, and Linda seeking a declaratory judgment that the attempted cancellation of the shares was invalid and that the shares were unencumbered by restrictions and were freely transferable. P also sought dissolution of the corporation, injunctive relief against alleged fraudulent practices by Ds, and monetary damages. The trial court granted P's motion for partial summary judgment, finding (1) the shares were not 'lawfully canceled'; (2) P was the 'lawful owner' of the disputed stock; (3) the restriction in paragraph one of the agreement requiring approval by D's directors for a share transfer was 'manifestly unreasonable'; and, (4) the provision in paragraph four of the agreement giving 'blood members' the option to purchase after the corporation and shareholders was 'manifestly unreasonable' and unenforceable. D appealed. The Court of Appeals held that the transfer restrictions barred only voluntary transfers. The sheriff's sale effectuated an involuntary transfer of Linda's shares, and P acquired the shares. It also affirmed the trial court's finding that the two disputed restrictions were manifestly unreasonable. D appealed again.