Ballard v. Roberson

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Andrew P. Ballard, Respondent,

v.

Tim Roberson, Rick Thoennes, Rick Thoennes III, and
Warpath Development, Inc., Appellants.

Appellate Case No. 2013-002790

Appeal From Greenville County
Edward W. Miller, Circuit Court Judge

Unpublished Opinion No. 2015-UP-364
Heard May 7, 2015 – Filed July 15, 2015
Withdrawn, Substituted and Refiled August 26, 2015

AFFIRMED AS MODIFIED

Joshua L. Howard, Haynsworth Sinkler Boyd, PA, of
Greenville, for Appellants.

Wallace K. Lightsey, Wyche Law Firm, of Greenville,
for Respondent.

PER CURIAM: Tim Roberson, Rick Thoennes, and Rick Thoennes III—
majority shareholders of Warpath Development, Inc.—and Warpath appeal the
circuit court's order determining the fair value of Andrew P. Ballard's ownership
interest in Warpath. We affirm as modified.

I. Facts and Procedural History

In Ballard v. Roberson, 399 S.C. 588, 597-98, 733 S.E.2d 107, 112 (2012), the
supreme court affirmed the circuit court's earlier order finding the individual
appellants engaged in shareholder oppression toward Warpath's minority
shareholder, Ballard, and ordering all appellants to buy Ballard's stock at fair value.
The supreme court's opinion provides a detailed explanation of the facts relating to
shareholder oppression. See 399 S.C. at 590-93, 733 S.E.2d at 108-09; see
generally S.C. Code Ann. § 33-14-300(2)(ii) (2006) ("The circuit courts may
dissolve a corporation . . . in a proceeding by a shareholder if it is established
that . . . the directors or those in control of the corporation have acted, are acting,
or will act in a manner that is illegal, fraudulent, oppressive, or unfairly prejudicial
either to the corporation or to any shareholder (whether in his capacity as a
shareholder, director, or officer of the corporation) . . . ."). The facts important to
the valuation of Ballard's stock are set out below.

Ballard incorporated Warpath for the purpose of developing a marina on Lake
Keowee on property owned by Duke Energy Carolinas, LLC. 399 S.C. at 590, 733
S.E.2d at 108. Warpath's articles of incorporation authorized the issuance of
100,000 shares, and Warpath issued 40,000 shares to Ballard. Id. After Ballard
leased property from Duke and obtained approvals from Duke and Pickens County
to build the marina in accordance with Warpath's conceptual plans, he and the
individual appellants entered into a stock purchase agreement. 399 S.C. at 590-91,
733 S.E.2d at 108. The agreement provided the individual appellants would pay
Ballard $1,000,000 in exchange for 20,000 of his 40,000 shares of Warpath stock.
Id. The agreement also provided Warpath would issue 60,000 shares to the
individual appellants, which would result in Ballard owning 20% of the company's
stock. Id. In addition, the agreement provided the duties of each party:

Ballard was to enter into a separate agreement with
Warpath outlining his duties, to include securing certain
permits, leases, and services; Thoennes and Thoennes, III
were to enter into an agreement defining their duties
regarding development work, assistance with proformas
and obtaining permanent financing, and executing loan
documents; and Roberson was to provide the necessary
capital to obtain long term financing.
399 S.C. at 591, 733 S.E.2d at 108.

After the individual appellants became unhappy about a decrease in the projected
income of Warpath, they "collaborated in drafting an e-mail to convince Ballard to
return some or all the money that he had been paid, or to return his 20,000 shares
to the corporation and cease involvement with the development." 399 S.C. at 591,
733 S.E.2d at 108-09. When Ballard refused to agree to a change in ownership
structure, the individual appellants elected themselves as directors, removed
Ballard from the board, and appointed themselves as officers. 399 S.C. at 591-92,
733 S.E.2d at 109. The board then "approved the issuance of an additional
900,000 shares" of Warpath. 399 S.C. at 592, 733 S.E.2d at 109. The resolution
was "in direct conflict with the Articles of Incorporation, which only authorized
100,000 shares[,] and the [Stock Purchase] Agreement, which stated Ballard would
ultimately own 20% of the corporation." Id.

Ballard filed a lawsuit seeking an injunction against the issuance of new shares and
asserting the individual appellants breached their duties to Warpath and engaged in
shareholder oppression. Id. The circuit court entered an order in 2010 finding
Roberson personally paid $1,000,000 to Ballard in exchange for 20,000 of his
shares. In addition, the circuit court ruled the 60,000 shares issued to the
individual appellants by Warpath were issued "for a contract or contracts for future
services" and ordered the shares "must be placed in escrow." See S.C. Code Ann.
§ 33-6-210(e) (2006) (providing a corporation "must place in escrow shares issued
for a contract for future services"). The circuit court also found the individual
appellants "acted oppressively towards Ballard as the minority shareholder and
acted in a way that was unfairly prejudicial to him," and it ordered all appellants to
purchase Ballard's shares of Warpath at fair value. The circuit court provided that
the value of Ballard's stock would be determined at a subsequent hearing.

The individual appellants and Warpath appealed the 2010 order, and the supreme
court affirmed. See 399 S.C. at 597-99, 733 S.E.2d at 112-13. The supreme court
stated, "We . . . affirm the circuit court's finding of oppression and its requirement
that Appellants purchase Ballard's stock at fair market value." 399 S.C. at 597-98,
733 S.E.2d at 112.

On remand, the circuit court found the individual appellants "have still not
performed the services for which they received 60,000 shares of stock from the
company." The circuit court determined the current ownership structure of
Warpath was as follows: Ballard owned 20,000 shares; Roberson owned 40,000
shares, half of which were in escrow; Thoennes owned 20,000 shares, all of which
were in escrow; and Thoennes III owned 20,000 shares, all of which were in
escrow. The circuit court relied on subsection 33-6-210(e) to determine the shares
in escrow should not be counted in calculating Ballard's ownership percentage.
The circuit court provided the following explanation:

The parties' Stock Purchase Agreement was a binding
contract in which the individual defendants committed
themselves to provide certain elements of value to the
company in exchange for the shares of stock issued to
them. . . . They have failed to bring the value to the
company that they agreed to provide in exchange for
their shares. Accordingly, for purposes of assessing the
fair value of Mr. Ballard's stock ownership . . . the
escrowed shares should not be counted . . . .

Thus, the circuit court found Ballard owned 50% of Warpath—20,000 of the
40,000 shares not in escrow.

Ballard and the individual appellants testified as to the value of Warpath. Ballard
testified he believed the value of the company would be $20 million after obtaining
the permits necessary to complete the project, and Rick Thoennes conceded he
represented in 2011 on a loan application to a potential lender that the company
was worth $6 million in its undeveloped state. In 2012, Warpath received an offer
from a marina development company to purchase a 70% stake in Warpath for $4.5
million—an offer based on a total value for Warpath of $6.43 million. Ballard
called Charles Alford, Ph.D.—an economist—who testified the value of Warpath
was between $5,034,969 and $9,286,126. In addition, the circuit court appointed
Perry Woodside, Ph.D., to appraise Warpath. Dr. Woodside valued Warpath based
on the assumption that construction had not yet begun—but "would begin in
2013"—and determined the fair value of Warpath was $4,366,564. At Ballard's
request, Dr. Woodside supplemented his report and explained "the present value of
the company would be $7,178,594 if construction of the project had begun in
[July] 2010, when the final needed permit was obtained."

The circuit court stated it considered all of the valuation evidence presented, but it
concluded $7,178,594—the amount of Dr. Woodside's supplemental report—"is a
fair and reasonable estimate of the total economic value of the company." Because
the circuit court determined Ballard owned 50% of the stock of Warpath, it
calculated the value of his share at $3,589,297. The court ordered "that [the
appellants] pay [Ballard] $3,589,297 within 90 days" and "judgment in this amount
is hereby entered for [Ballard] against the [appellants] jointly and severally."

II. Law and Analysis

An action for shareholder oppression is one in equity. 399 S.C. at 593, 733 S.E.2d
at 109. "Therefore, we may find facts according to our own view of the
preponderance of the evidence." Id. "However, this broad scope does not relieve
the appellant of his burden to show that the trial court erred in its findings.
Furthermore, we are not required to disregard the findings of the trial judge, who
was in a better position to determine the credibility of the witnesses." Id. (citation
omitted).

The primary issue before this court is the value of Ballard's ownership interest in
Warpath. See 399 S.C. at 597-98, 599, 733 S.E.2d at 112, 113 (affirming the
circuit court's order finding the individual appellants engaged in shareholder
oppression and requiring them to place 60,000 shares in escrow and buy out
Ballard's shares). To determine the value of Ballard's interest, we must first
calculate the fair value of Warpath. The court "must undertake to compute the fair
value by establishing the fair market value of the corporate property as an
established and going business" after considering "[e]very relevant fact and
circumstance which enters into the value of the corporate property and which
reflects itself in the worth of the corporate stock." Santee Oil Co. v. Cox, 265 S.C.
270, 273, 217 S.E.2d 789, 791 (1975) (internal quotation marks omitted).

We begin our analysis with the circuit court's appointed expert—Dr. Woodside. In
his first report, Dr. Woodside estimated the fair value of Warpath at $4,366,564—
correctly assuming construction had not begun. However, his supplemental report
was based on the assumption that construction of the marina began in July 2010.
As Dr. Woodside stated in his report,

If financing and construction had begun in July of 2010,
as of December 31, 2012, the construction for both
phases would be completed, phase I net operating income
would be at approximately 90% stabilization, and phase
II net operating income would be at approximately 60%
stabilization. The equity holders of the company would
be 2.5 years closer to both receiving the initial cash flow
to equity and the net proceeds of the expected sale of the
company. Based on those assumptions, the resulting
value of 100% Equity of the Company is $7,178,594 . . . .

Ballard's counsel appropriately conceded during oral argument that a "tension"
exists between an assumption that construction began in 2010 for the purpose of
valuing Warpath, and the circuit court's finding that the individual appellants did
not perform their obligations to make Warpath operational for the purpose of
determining Ballard's ownership share. Because Warpath did not begin financing
and construction of the marina in July 2010, an appraisal based on the assumption
that it did cannot be correct. See Santee Oil, 265 S.C. at 273-74, 217 S.E.2d at 791
("Every relevant fact and circumstance which enters into the value of the corporate
property and which reflects itself in the worth of the corporate stock must be
considered." (citation omitted)).

While we do not accept the figure $7,178,594, we do not reject the testimony of
Dr. Woodside. Rather, we rely on it. However, we also rely on other evidence in
the record, including Thoennes's statement Warpath was worth $6 million, and the
offer from the marina development company that contemplated a value for
Warpath of $6.43 million.

Finally, we rely on the opinion of Dr. Alford. Dr. Alford explained he agreed with
everything Dr. Woodside did in valuing Warpath, except as to one important
variable. Dr. Woodside assumed a purchaser would insist on a 22% return on
investment, and thus Dr. Woodside used 22% as the discount rate on Warpath's
cash flow in its future operational state for purposes of valuation. Dr. Alford
explained, however, that a purchaser would likely "leverage" its investment by
using borrowed money—in addition to cash—to purchase Warpath. With this
leverage, a purchaser would be able to earn a much higher return on the capital
portion of its investment. Thus, Dr. Alford concluded, a purchaser would accept a
smaller return on overall investment in order to attain a return on capital
investment in the range Dr. Woodside assumed an investor would require. Based
on these assumptions, Dr. Alford explained an 11.01% discount rate would be
appropriate, which resulted in a valuation of $5,034,969 if construction began in
2013, and $9,286,126 if construction began in 2010.1

In making the assumption a purchaser would accept an 11.01% return on overall
investment, Dr. Alford relied on a December 2012 "Conditional Loan

1
Dr. Alford provided a report that included the figures $9,268,126 and
$12,034,969. At trial, however, he gave the figures $5,034,969 and $9,286,126.
Commitment" for $24 million "to provide capital for the development of a mixed
use project" on the property owned by Warpath. Dr. Alford stated the loan
commitment "is highly relevant in a consideration of value" because it "express[es]
the interest of a real, identifiable investor within two weeks of the valuation date."
Dr. Alford explained the investor who made the commitment "would have itself
leveraged its own investment into Warpath, so that, while the total return on the
project would have been at most 11.01%, the return on [the investor's] capital,
after meeting its own debt service requirements, would have been higher." Dr.
Alford reasoned that if an investor was willing to accept an 11.01% return on its
overall investment, as opposed to the 22% return Dr. Woodside assumed an
investor would require, a purchaser would be willing to pay more to purchase
Warpath—resulting in a higher value than provided by Dr. Woodside.

We have carefully considered all the evidence offered as to the value of Warpath.
We find the value of Warpath was not $7,178,594; instead, we hold the fair value
of Warpath was $6.25 million.

After determining the fair value of Warpath, we must determine the percentage of
shares owned by Ballard. We agree with the circuit court that Ballard owned 50%
of the company. A corporation "must place in escrow shares issued for a contract
for future services or benefits." § 33-6-210(e). "The shares and distributions
escrowed must remain in escrow until the services are performed . . . or the
benefits are received. If the services are not performed . . . or the benefits are not
received, the shares escrowed . . . may be canceled in whole or in part . . . ." Id.
The circuit court found 60,000 shares of Warpath remained in escrow because the
individual appellants had not performed the services for which the shares were
issued, and the supreme court affirmed the decision. See Ballard, 399 S.C. at 599,
733 S.E.2d at 112-113. The necessary result of that finding is that the shares in
escrow did not count toward ownership for purposes of calculating Ballard's
ownership interest. On remand, the parties presented no evidence the individual
appellants had taken any steps toward performing the services they promised to
perform in exchange for the 60,000 shares. Therefore, we hold the escrowed
shares did not count toward ownership for purposes of calculating Ballard's
ownership interest, and Ballard owned 50% of Warpath.

The individual appellants also argue the circuit court erred in ordering them to
complete the buyout within ninety days and entering judgments against them in the
amount of the buyout. The gist of these arguments is that the buyout "failed"
because it was impossible for the individual appellants to comply with the ninety-
day provision. However, the record contains little evidence regarding the financial
status of the individual appellants, and in particular, contains no financial
statements for any appellant. The record actually indicates the buyout did not occur
because the appellants chose not to complete it—not because it was impossible.
When pressed at oral argument, counsel was careful not to say the individual
appellants do not have the ability to comply with the ninety-day provision.
Therefore, if a mandatory buyout, instead of a voluntary buyout, is appropriate—a
ruling the trial court made in 2010 and the appellants did not appeal—then the
imposition of a time limit on the buyout is also appropriate. Without any evidence
that the individual appellants cannot comply within the time limit, we find the time
limit is appropriate. We also find that if a mandatory buyout is appropriate, then
the court must have some way to enforce it. Because appellants did not appeal the
mandatory buyout, we decline to hold the circuit court erred in imposing
judgments on them to enforce its order.

III. Conclusion

We find Warpath had a fair value of $6.25 million and Ballard owned 50% of the
company. The value of Ballard's share of Warpath, therefore, was $3.125 million.
Accordingly, we AFFIRM AS MODIFIED.

FEW, C.J., and HUFF and WILLIAMS, JJ., concur.