Hartman v. BigInch Fabricators & Construction Holding Co.

BigInch Fabricators & Construction Holding Company (company) (defendant) was a closely held Indiana corporation with 10 shareholders, including Blake Hartman (plaintiff). No single shareholder owned a majority. The shareholder agreement provided that the company would purchase the shares of any shareholder who was involuntarily terminated from serving as an officer or director. The agreement further provided that the price per share would be the appraised market value on the last day of the year preceding the valuation as calculated by a third-party valuation company. Hartman was involuntarily terminated from his position as officer and director, thus activating the buyout clause. The company hired Wonch Valuation Advisors (Wonch) to value Hartman’s shares. Wonch appraised the company’s market value and divided that value by the number of shares, resulting in a per-share price of $396.90. Multiplying that price by the number of Hartman’s shares, Wonch valued Hartman’s shares at approximately $3.5 million. However, Wonch then discounted the value of Hartman’s shares because Hartman lacked a controlling interest in the company and lacked a market in which to sell his shares, thereby reducing the shares’ value to $2.3 million. Unhappy with the valuation, Hartman filed suit and alleged that Wonch improperly discounted his shares. The trial court granted summary judgment in the company’s favor. Hartman appealed to the Indiana Court of Appeals. There, Hartman relied on the Court of Appeals’ decision in Wenzel v. Hopper & Galliher, P.C., in which the court found that marketability and minority discounts were not applicable in valuing stock to be purchased by the company or a majority shareholder. The company argued that Wenzel did not apply because that case involved a statutory valuation and the present case involved valuation under the shareholder agreement. The company further asserted that the phrase “appraised market value” as used in the shareholder agreement was the same as “fair market value” and therefore that applying minority and marketability discounts was proper.