Knop v. Knop

830 S.E.2d 723 (2019)

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Nature of the Case

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Facts

Ticonderoga Farms is a family company that owns 1,000 acres of land. The shares in the company are owned by Peter (F) and his three children. When Ticonderoga Farms was incorporated, F owned almost 80% of the company. His wife, Diana Knop, and the three children, Alexandra, Peter R.Q., and William, who were minors at the time, owned the remaining shares. Following a divorce, Diana transferred her interests to her former husband. By 1987, the children each owned 9.08% for a total of 27.24% of the company. F owned the remaining shares. The company's stock book contains stock certificate stubs showing that the children each have a 9.08% ownership interest in the company and that such shares have been delivered to the children. Cummings, the accountant for Ticonderoga Farms, was instructed by F to make gifts of stock equivalent to the maximum gift tax exclusion to the children to avoid estate taxes. Cummings prepared Schedule K-1s for the shareholders which reflected the children's increased ownership shares and F's decreased ownership share. The K-1s were filed with the Virginia Department of Taxation and the IRS as part of the company's income tax returns. F and the children filed their personal returns based on these K-1s. Federal and state taxes reflected the rising shares in the children along with the diminished shares to F. By 2004, the children's ownership interests in Ticonderoga had risen to a total of 44.061%, or 14.687% for each child. F also acknowledged the transfers and the increases in the children's ownership interests in all kinds of other documents besides state and federal tax returns. The intended gifts of shares were never reflected in stock certificates. F never prepared the stock certificates. No ledgers were produced showing transfers of the shares. F decided to sell or give away some of the property to create a scenic easement. The sale of company's real property required the approval of 90% of the ownership interests. F asserted that the gifts he made to the children were not completed because he did not prepare and deliver stock certificates to the children. The children each owned the same interests they held in 1987 or 27.24%. F claimed an ownership share of 72.76% of the company. Under the Virginia Stock Corporation Act, a shareholder owning more than two-thirds of a corporation can convert the corporation to another form. F could convert Ticonderoga to an LLC under the Act which he did. The operating agreement Father drafted for the LLC gave him total control of the company, including the ability to transfer its land without the 90% shareholder approval required by the corporate bylaws. Alexandra (Ps) then filed a complaint in which they asked for a declaration that they each own 14.687% of Ticonderoga and that G lacks the authority to sell Ticonderoga land without their consent. Ps presented no evidence of receipt of the stock certificates. The corporate stock book contains stubs indicating that there were 227 shares for each child out of a total of 2500 shares. The court concluded that Ps had failed to meet their burden of proving a valid inter vivos gift of shares. It ruled that none of the other evidence persuasively shows that there was ever an actual or constructive delivery of additional ownership share to Ps. The court also rejected Ps' argument that the father should be estopped, under the doctrines of equitable estoppel and quasi-estoppel, from denying the gifts because he acquiesced in them for years while leading the children to believe the gifts were completed. Ps appealed.