Date: 02-25-2015

Case Style: Denis Hickey v. Andrew J. Hickey

Case Number: A147789

Judge: Ortega

Court: Oregon Court of Appeals on appeal from the Circuit Court, Klamath County

Plaintiff's Attorney: Eric Mitton argued the cause for respondent-crossappellant
Denis Hickey. With him on the briefs was
Hornecker, Cowling, Hassen & Heysell, L.L.P.

No appearance for respondent Hickey Ranches, Inc.

Defendant's Attorney: Bruce C. Moore argued the cause and filed the briefs for
appellants-cross-respondents.

Description: Andrew Hickey (Andy) and H & H Cattle Feeders,
Inc. (H & H) appeal a general judgment, challenging two
remedies ordered by the trial court under ORS 60.952 upon
its finding that Andy had engaged in self-dealing between
Hickey Ranches, Inc. (HRI), a closely held family corporation,
and H & H, a company that Andy wholly owned.1 Denis
Hickey (Denis), Andy’s brother and a minority shareholder
of HRI, filed this action against Andy, alleging that Andy,
in his roles as a director, officer, and controlling shareholder
of HRI, had engaged in self-dealing and other misconduct
over several years. Andy challenges remedies ordered by
the trial court (1) amending HRI’s articles of incorporation
and bylaws to eliminate voting rights from the preferred
shares—which, before the court’s decision, had provided
Andy with voting control of HRI—and (2) awarding
$195,092.51 to HRI, which the court based upon its finding
that Andy owed HRI for an “untrustworthy” payment made
from HRI to H & H. Andy does not challenge the court’s
finding of his wrongful conduct.
We summarize the assignments of error and our
conclusions as follows. Andy’s first three assignments of
error challenge the trial court’s order that amended the articles
of incorporation and bylaws of HRI as a means to eliminate
voting rights from the preferred shares, which had the
effect of replacing Andy with Denis as the controlling shareholder.
We reject without published discussion Andy’s second
and third assignments and address Andy’s first assignment,
which contends that removal of voting rights from the preferred
shares was not permitted under ORS 60.952 (allowing
for remedies for shareholders of closely held corporations); we
conclude that the trial court’s remedy was legally impermissible.
Andy’s fourth assignment of error challenges the court’s
award of damages of $195,092.51 to HRI for loan repayments
from HRI to H & H that were not supported by documentary
evidence. Andy contends that Denis did not meet his burden
of proving actual damages. We conclude that, in awarding
damages, the trial court did not consider whether an offset
1 Andy and H & H are referred to generally as Andy throughout this opinion,
except where discussion specifically pertains only to H & H.
Cite as 269 Or App 258 (2015) 261
should be applied to the remedy for the self-dealing transaction
between HRI and H & H to compensate for benefits that
H & H had provided to HRI, and remand for the trial court to
consider that issue. Finally, Denis cross-appeals, raising two
assignments of error; we reject the first without published
discussion, and address the second, which contends that the
trial court made a calculation error in its award of damages
regarding excess salary taken by Andy. The trial court’s two
letter opinions explaining the award are inconsistent, and
we remand to the trial court to consider whether the evidence
supports its second letter opinion, in which it stated
that there was no excess salary in the amount of $12,000
for one of the years in question. Accordingly, we reverse and
remand the general judgment.
I. BACKGROUND
The father of Andy and Denis, Denis Hickey Sr.
(“Denis Sr.”), incorporated HRI, a ranching business, in
1972. Denis Sr. had six children, and the shares of voting
common stock were divided equally among them. Each sibling
also owned about 303 shares of voting preferred stock.
Denis Sr. owned 3,849 shares of preferred stock, and in
1990, decided that Andy would be allowed to control HRI.
He transferred his interest in HRI to a trust, and the trust
entered into an agreement with Andy in which Andy would
have the option to purchase a controlling interest in HRI for
$266,600. Andy exercised his option to purchase the preferred
shares in 1995, and the trust allowed him to purchase
the stock in 10 yearly installments of $37,646.13,
which would be paid from his salary as an officer of HRI. In
2006, Andy finally acquired all 3,199 of the shares covered
by the stock purchase agreement and, at the time of trial, he
owned a total of 3,602 shares (the purchased stock plus an
additional 303 shares of preferred stock and 100 shares of
common stock), giving him 52 percent voting control of the
corporation. Some time before trial, Denis had acquired the
common and preferred shares of his other siblings, which
ultimately gave him ownership of 500 common shares and
1,515 preferred shares. 1,300 preferred shares remained
with Denis Sr.’s trust and the estate of the mother of Andy,
Denis, and their siblings. Denis paid $1 per share for the
common shares that he acquired from his siblings.
262 Hickey v. Hickey
In 2008, Denis, in his capacity as a shareholder
of a closely held corporation, brought claims for remedies
available under ORS 60.952 and for the imposition of
a constructive trust for all of HRI’s assets, alleging that
Andy had breached his fiduciary duties by, among other
things, systematically creating false charges for cattle feed
provided by H & H, improperly making account entries in
HRI’s books, failing to pay any dividends, and borrowing
money from HRI and manipulating the company’s books to
reflect that he had repaid the loan. The trial court did not
determine that Denis had proved all of his allegations, but
found that Andy, as the controlling shareholder, director,
and officer of HRI, “basically treated HRI as his own in the
extent of his operation of HRI.” Andy also owned H & H,
a cattle feed company, and the court found that it “is very
clear that he has commingled assets of HRI and H & H
and engaged in self dealing.” Under ORS 60.952, the trial
court set out a number of remedies as provided for in that
statute, which included, among other things, that “HRI’s
articles of incorporation and bylaws shall be amended to
remove voting rights from the preferred shares” and that
Andy should be removed “from all position of leadership
and control in HRI.” The court explained in a letter opinion
that it was
“extremely concerned about the actions of [Andy] during
the course of his control of the corporation and the very
evident self dealing and commingling of assets. It is for this
reason, that the court is ordering amendment of the bylaws
and articles of incorporation and for the removal of [Andy]
as controlling the activities of HRI.”
The trial court also ordered a money damages award of
$195,092.51 for a payment from HRI to H & H, apparently
as a loan repayment, although HRI’s account books did not
properly document the loan. Additionally, the trial court
determined that Andy had overpaid himself by $17,178.46
as a constructive dividend and caused a net tax damage
to HRI of $14,397.67; it ordered Andy to repay HRI those
amounts. We address the specifics of the factual circumstances
of the remedies challenged in this appeal and crossappeal
in the respective sections for each assignment of
error.
Cite as 269 Or App 258 (2015) 263
II. DISCUSSION
A. Elimination of voting rights from the preferred shares
Andy first assigns error to the trial court’s removal
of voting rights from the preferred shares. He argues that
ORS 60.952(2)(b)2 does not permit the elimination of voting
rights, the effect of which deprives him of substantial value
of his ownership interest in HRI. Although he concedes that
ORS 60.952(2)(b) allows the trial court to alter or cancel
provisions in the articles or bylaws, it cannot, according to
him, do so in a manner that is unlawful. In Andy’s view, the
removal of voting rights by way of amending the articles of
incorporation or the bylaws is the “functional equivalent” of
a forced sale of a portion of the property rights associated
with corporate shares. Thus, according to him, the stripping
of voting rights is essentially a divestiture of his preferred
shares, and, therefore, the trial court was required to
follow the procedure of ORS 60.952(5), which, as explained
in more detail below, provides for a judicially ordered share
buyout.
Denis remonstrates that ORS 60.952(2)(b) allows
for the remedy crafted by the trial court because, under subsection
(2)(b), the trial court has broad powers to change
any provision in the articles of incorporation or the bylaws.
ORS 60.952(2)(b) provides that “[t]he remedies that the
court may order in a proceeding under subsection (1) of this
section include but are not limited to * * * [t]he cancellation
or alteration of any provision in the corporation’s articles
of incorporation or bylaws.” (Emphasis added.) Denis contends
that subsection (2)(b) “does not provide any limitation
preventing the trial court from modifying provisions of the
articles of incorporation or bylaws that relate to the voting
rights of each class of stock.” He also contends that the
share purchase provision in ORS 60.952(5) is not applicable
because there was no court-ordered share purchase and
that Andy still owned the same number of preferred shares
as he did before the judgment.
2 ORS 60.952(2)(b) provides that the court may order “[t]he cancellation
or alteration of any provision in the corporation’s articles of incorporation or
bylaws[.]”
264 Hickey v. Hickey
In addition to his statutory challenge to the trial
court’s remedy, Andy argues that removal of voting rights
from the preferred shares was not a remedy expressly sought
in Denis’s amended complaint and was, in fact, inconsistent
with what Denis did seek: redemption of Andy’s preferred
shares or, alternatively, purchase of all of Denis’s preferred
shares. However, Denis requested any of the remedies available
under ORS 60.952, so Andy’s pleading argument goes
nowhere and returns us to a question of what is permissible
under the statute. We also find unavailing Andy’s argument
that stripping voting rights from the preferred shares is only
allowed under ORS 60.952(2)(k) and ORS 60.952(5), which
provide for a court-ordered purchase of all of a shareholder’s
shares.3 The trial court’s remedy allows for Andy to retain
his preferred shares.
Nevertheless, elimination of voting rights from the
preferred shares has the consequence of significantly reducing
their value. In a market transaction, shares that do not
confer majority control are discounted in value; in other
words, they are subject to what is known as a “minority
discount,” which “recognizes that controlling shares are
worth more in the market than are noncontrolling shares.”
Columbia Management Co. v. Wyss, 94 Or App 195, 204,
765 P2d 207, rev den, 307 Or 571 (1988) (citing Baker
v. Commercial Body Builders, 264 Or 614, 507 P2d 387
(1973)). The discount may well be significant. In Columbia
Management, Co., for example, the discount was determined
by an appraiser to be as much as 33 percent. 94 Or App at
198. Specifically here, Andy paid roughly $377,000 for the
3,199 shares that gave him the controlling interest in HRI.
In contrast, Denis paid $1 per share for 400 of the voting
shares of the common stock of his siblings—the same shares
that give him control of HRI under the trial court’s remedy.
Moreover, stripping voting rights from the preferred shares
adds value to Denis’s common shares, because the owner of
the majority of the common shares that retain voting rights
will now control HRI under the trial court’s remedy.
3 ORS 60.952(2)(k) provides for “[t]he purchase by the corporation or one or
more shareholders of all of the shares of one or more other shareholders for their
fair value and on the terms determined under subsection (5) of this section[.]”
(Emphasis added.)
Cite as 269 Or App 258 (2015) 265
In addition to the amendment of HRI’s articles
and bylaws to eliminate voting rights from the preferred
shares, with the stated purpose of addressing the selfdealing
in which Andy had engaged as the controlling
shareholder of HRI, the trial court also ordered removal of
Andy from all corporate offices and as a director of HRI, a
remedy that Andy does not challenge. Although the trial
court did not explain why it removed the voting rights in
addition to removing Andy from direct control of HRI, we
surmise that the intent was to prevent Andy from electing
a director aligned with him or H & H, which would, therefore,
allow him to retain control of HRI indirectly, and to
prevent Andy from committing any further breaches of his
fiduciary duties. The question presented here is whether
elimination of voting rights, which consequently deprives
Andy of significant value of his shares and inverts the controlling
interest of HRI, is a permissible remedy under ORS
60.952(2)(b).
As illustrated below, in choosing among the remedies
provided by ORS 60.952, the trial court has considerable
discretion in deciding which of them suitably addresses
the problem of deadlock or wrongful conduct in a closely
held corporation. Nevertheless, we review as a matter of law,
whether, given the circumstances before the court, a particular
remedy is among those permitted by ORS 60.958. That
is, in order to determine whether the trial court erred in
removing the voting rights from the preferred shares under
ORS 60.952(2)(b)—cancelling or altering the articles of
incorporation or the bylaws—in the circumstances presented
here, we must discern what the legislature intended when
it enacted ORS 60.952. That task requires us to examine
the statute’s text and context and, if helpful, its legislative
history. State v. Gaines, 346 Or 160, 171-72, 206 P3d 1042
(2009). We begin with the statutory text, “the best evidence
of the legislature’s intent,” and its context, which includes
“other provisions of the same statute and other related statutes.”
PGE v. Bureau of Labor and Industries, 317 Or 606,
610-11, 859 P2d 1143 (1993). Also, “[i]n construing a statute,
this court is responsible for identifying the correct interpretation,
whether or not asserted by the parties.” Stull v. Hoke,
326 Or 72, 77, 948 P2d 722 (1997).
266 Hickey v. Hickey
Before we discuss the remedy at issue, we pause to
note that the cancellation or alteration of provisions in the
articles of incorporation or bylaws under ORS 60.952(2)(b)
is one of the remedies available when the conditions set out
in subsection (1)(b) and (d) are met. ORS 60.952(1) provides,
in relevant part:
“(1) In a proceeding by a shareholder in a corporation
that does not have shares that are listed on a national securities
exchange or that are regularly traded in a market
maintained by one or more members of a national or affiliated
securities association, the circuit court may order one
or more of the remedies listed in subsection (2) of this section
if it is established that:
“* * * * *
“(b) The directors or those in control of the corporation
have acted, are acting or will act in a manner that is illegal,
oppressive or fraudulent;
“* * *; or
“(d) The corporate assets are being misapplied or
wasted.”4
Oregon courts have recognized that controlling shareholders
have fiduciary duties to minority shareholders. See, e.g., Naito
v. Naito, 178 Or App 1, 20, 35 P3d 1068 (2001) (“Majority or
other controlling shareholders owe fiduciary duties of loyalty,
good faith, fair dealing and full disclosure to the minority.”).
Conduct that violates those fiduciary duties in a closely held
corporation is likely to be considered “oppressive.”5 Id.
4 Remedies are also available under ORS 60.952(1) if directors or shareholders
are deadlocked:
“(a) The directors are deadlocked in the management of the corporate
affairs, the shareholders are unable to break the deadlock and irreparable
injury to the corporation is threatened or being suffered, or the business and
affairs of the corporation can no longer be conducted to the advantage of the
shareholders generally, because of the deadlock;
“* * * * *
“(c) The shareholders are deadlocked in voting power and have failed, for
a period that includes at least two consecutive annual meeting dates, to elect
successors to directors whose terms have expired[.]”
5 At the time Naito was decided, ORS 60.952 had not been enacted and we
were referring to oppressive conduct under ORS 60.661(2)(b), which provides for
dissolution of a corporation if “[t]he directors or those in control of the corporation
Cite as 269 Or App 258 (2015) 267
As noted, the trial court ordered that the articles
of incorporation and bylaws be altered to strip the voting
rights from the preferred shares. ORS 60.952(2)(b)
provides:
“(2) The remedies that the court may order in a proceeding
under subsection (1) of this section include but are
not limited to the following:
“* * * * *
“(b) The cancellation or alteration of any provision in
the corporation’s articles of incorporation or bylaws.”
On its face, that subsection suggests that the trial court
can modify any provisions of the articles of incorporation or
bylaws without limitation. However, cancelling or altering a
provision in the articles or bylaws constitutes a “remedy.” See
ORS 60.952(1) (“[T]he circuit court may order one or more
of the remedies listed in subsection (2) of this section * * *.”);
ORS 60.952(2) (“The remedies that the court may order in
a proceeding under subsection (1) of this section include
* * *.”). The ordinary meaning of remedy is “the legal means
to recover a right or to prevent or obtain redress for a wrong
: the relief (as damages, restitution, specific performance,
an injunction) that may be given by a court for a wrong.”
Webster’s Third New Int’l Dictionary 1920 (unabridged ed
2002); see also Black’s Law Dictionary 1294 (6th ed 1990)
(“The means by which a right is enforced or the violation of
a right is prevented, redressed, or compensated.”); Smothers
v. Gresham Transfer, Inc., 332 Or 83, 99, 23 P3d 333 (2001)
(“[I]t would be ‘in vain’ for the law to recognize rights, if it
were not for the remedial part of the law that provides the
methods for restoring those rights when they wrongfully
are withheld or invaded.” (quoting 1 William Blackstone,
Commentaries on the Laws of England)). In this context,
the “wrong” is oppressive conduct (or one of the other conditions
set out in subsection (1)) in a closely held corporation.
Accordingly, the “remedy” addresses the particular conduct
that occurred—a breach of the controlling shareholder’s
have acted, or acting or will act in a manner that is illegal, oppressive or fraudulent.”
The text of ORS 60.952(1)(b) mirrors closely that language and, as we
explain below, cases involving oppression were solely decided under ORS 60.661
until ORS 60.952 was enacted.
268 Hickey v. Hickey
fiduciary duties. Consequently, a trial court’s ability to
order a remedy under ORS 60.952 is not without limit: The
remedy must correspond to the wrong—or the legally recognized
right—for which the remedy is provided under ORS
60.952.
In addition to the remedy that allows the alteration
or deletion of a provision of a corporation’s articles or bylaws,
ORS 60.952(2) provides for a number of other remedies to
address the problem of oppression in closely held corporations.
Some of those include “[t]he removal from office of any
director or officer[,]” ORS 60.952(2)(c); “[t]he appointment of
any individual as a director or officer[,]” ORS 60.952(2)(d);
“[t]he appointment of a custodian to manage the business
and affairs of the corporation, to serve for the term and under
the conditions prescribed by the court[,]” ORS 60.952(2)(f);
“[t]he appointment of a provisional director to serve for the
term and under the conditions prescribed by the court[,]”
ORS 60.952(2)(g); and “[t]he retention of jurisdiction of the
case by the court for the protection of the shareholder who
filed the proceeding[,]” ORS 60.952(2)(L).
The statute contains additional guidance for courts
in devising appropriate remedies. For example, “[t]he remedies
set forth in subsection (2) * * * shall not be exclusive
of other legal and equitable remedies that the court may
impose.” ORS 60.952(3). In addition, “[i]n determining the
appropriate remedies to order under subsection (2) * * *, the
court may take into consideration the reasonable expectations
of the corporation’s shareholders as they existed at the
time the corporation was formed and developed during the
course of the shareholders’ relationship with the corporation
and with each other.” ORS 60.952(4). Also, as amplified
below, a court-ordered share purchase for fair value, which
has been Oregon courts’ preferred remedy for oppression
in closely held corporations, is included among the possible
remedies for oppression, under ORS 60.920(2)(k), and the
procedure and methodology for a share purchase is set forth
in subsection (5).
Before the legislature enacted ORS 60.952 in
2001, ORS 60.661, which provides for judicial corporate
dissolution, was the sole statutory means for addressing
Cite as 269 Or App 258 (2015) 269
oppression or other misconduct in closely held corporations.
Robert Art, the chair of the Oregon State Bar Task
Force on Close Corporations and Shareholder Rights, which
had been charged with drafting the bill that became ORS
60.952, testified before the House Committee on Judiciary,
Subcommittee on Civil Law that
“[c]urrently, the Oregon [Business Corporation] Act provides
only one remedy, which is dissolution by judicial order
of the corporation. That’s typically the worst remedy available,
both for the plaintiff and the corporation and for the
economy. Courts virtually never provide that remedy and
shouldn’t. They provide other remedies instead, but you
can’t find any evidence of that in the statute. The statute
will now codify those remedies.”
Tape Recording, House Committee on Judiciary, Subcommittee
on Civil Law, SB 118, May 2, 2001, Tape 89, Side A
(statement of Robert Art) (emphasis added). Further testimony
explained that if “the statutory threshold for being
entitled to a remedy is reached, then the Bill specifies
additional remedies as alternatives to dissolution based
upon actual remedies that have been imposed by courts.”
Testimony, House Committee on Judiciary, Subcommittee
on Civil Law, SB 118, May 2, 2001, Ex D (statement of
Andrew Morrow, Jr., Business Law Section, Oregon State
Bar).
Art also addressed the difficulties present in close
corporations—namely, that controlling shareholders have a
great deal of power to damage the interests of the minority
and that minority shareholders are trapped because their
shares are difficult to sell due to the absence of a publicly
traded market. Testimony, Senate Committee on Business,
Labor and Economic Development, SB 116, Jan 15, 2001,
(later incorporated into SB 118), Tape 2, Side A (statement
of Robert Art). ORS 60.952, he explained, was designed to
address those difficulties:
“[ORS 60.952] encourages the courts to use the buyout
remedy, which is the most common and the most logical,
by specifying a procedure for the buyout. It makes clear
that dissolution is not the preferred remedy. In fact, it’s the
last resort, to be used only if the others are not effective. In
270 Hickey v. Hickey
choosing a remedy, the courts may consider the reasonable
expectations of the shareholders as they were at the outset
of the business and as they developed over the course of the
business.”6
Id. Likewise,
“[c]ourts provide various remedies, suited to the circumstances.
Most common is an order compelling the buyout
of shares at a fair price and fair terms determined by the
court. Alternately, a court may compel the issuance of a
dividend or of shares of stock, designate directors, officers,
custodians or receivers, or provide mediation or other dispute
resolution.”
Testimony, Senate Committee on Business, Labor and
Economic Development, SB 116, Jan 15, 2001, Ex A (statement
of Andrew Morrow, Jr., and Robert Art).
Thus, the legislative history suggests an intention to
provide statutory remedies to address instances of oppression
and other misconduct in close corporations and to reflect or
codify remedies that Oregon courts had previously recognized
and granted. The most common remedy, which the statute
apparently was designed to encourage, was a court-ordered
share buyout, facilitated by a procedure and considerations
that are specifically set out in ORS 60.952(5). See, e.g., Cooke
v. Fresh Express Foods Corp., 169 Or App 101, 108-09, 7 P3d
717 (2000) (describing a court-ordered share purchase under
ORS 60.661 as “lesser appropriate relief”) (citing Baker, 264
Or at 631-32). In other words, ORS 60.952 was not intended
to institute a menu of remedies irrespective of Oregon case
law but was enacted to reflect judicial practice.
A brief review of that judicial practice thus provides
further context for interpreting ORS 60.952. Case
6 Art also explained that, in addition to the court-ordered share purchase set
out in ORS 60.952(5), ORS 60.952(6)
“provides a means to bring the litigation to an early end. Any of the defendants
or the corporation can make an offer at an early stage of the litigation
to buy the shares of the aggrieved shareholder. Once the offer is made, it’s
binding. The shares are then purchased at the price the parties agree to or, if
they cannot agree, at a price determined by the courts to be fair.”
Tape Recording, Senate Committee on Business, Labor and Economic
Development, SB 116, Jan 15, 2001, (later incorporated into SB 118), Tape 2, Side
A (statement of Robert Art).
Cite as 269 Or App 258 (2015) 271
law before its enactment reflects the provision of equitable
remedies that were “appropriate” to the particular circumstances,
affording no more relief than was necessary to
address and solve the problems caused by the wrongful conduct
at issue. For example, in Browning v. C & C Plywood
Corp., 248 Or 574, 575, 434 P2d 339 (1968), the Supreme
Court considered circumstances in which the majority
shareholders recapitalized the corporation by increasing
the issued stock to the extent that it virtually eliminated
the plaintiff minority shareholder’s 32 percent interest in
the corporation. Although concluding that the controlling
shareholder’s actions were “wrongful and oppressive,” the
court nevertheless stated that it would be “untenable” to
grant the minority shareholder’s requested relief, which
was to appoint a receiver and dissolve the corporation.
Id. at 581-82. It noted, instead, that the “most obvious
relief would be to cancel the stock increase and restore
the stockholders to their former proportionate status.”
Id. at 582. The court, however, considered the interests of
the controlling shareholders, despite their “wrongful and
oppressive” conduct, when it recognized that, because some
of them had pledged their stock to third parties and had
paid consideration for their increased shares, the “evidence
[was] not sufficient to enable [the court] to determine what
the precise relief should be” and instructed the trial court
to consider additional evidence in order to determine “the
appropriate relief.” Id. The court proposed that, if a stock
cancellation was untenable, the trial court could allow the
minority shareholder the means to purchase enough stock
to return him to his 32 percent interest in the corporation.
Id.
In Baker, Oregon’s seminal shareholder-oppression
case, the majority shareholders excluded the minority
shareholders, a husband and wife, from participation in the
corporation by terminating the husband’s one-day-per-week
employment and, for a time, preventing them from examining
corporate records and failing to notify them of corporate
meetings. 264 Or at 618-23. The Supreme Court concluded
that some of the defendants’ conduct was oppressive and
identified a number of equitable remedies alternative to dissolution
that could be appropriate in an oppressive conduct
272 Hickey v. Hickey
case, “[d]epending upon the facts of the case and the nature
of the problem involved.” Id. at 631-32, 638.7 However, when
those remedies were considered in light of the conduct or
the “ ‘specific acts of wrongdoing’ ” alleged by the plaintiffs,
some of which the court noted had ceased, the alternative
remedies identified were not “appropriate.” Id. at 638.
In Naito, the defendants failed “to provide for
adequate dividends or other financial benefits on reasonable
terms” and therefore, as the controlling shareholders,
breached their fiduciary duties. 178 Or App at 24. The plaintiffs
challenged the trial court’s order to increase dividend
distributions to the shareholders and instead argued that a
7 Those suggested alternative remedies were:
“(a) The entry of an order requiring dissolution of the corporation at a
specified future date, to become effective only in the event that the stockholders
fail to resolve their differences prior to that date;
“(b) The appointment of a receiver, not for the purposes of dissolution,
but to continue the operation of the corporation for the benefit of all the stockholders,
both majority and minority, until differences are resolved or ‘oppressive’
conduct ceases;
“(c) The appointment of a ‘special fiscal agent’ to report to the court
relating to the continued operation of the corporation, as a protection to its
minority stockholders, and the retention of jurisdiction of the case by the
court for that purpose;
“(d) The retention of jurisdiction of the case by the court for the protection
of the minority stockholders without appointment of a receiver or ‘special
fiscal agent’;
“(e) The ordering of an accounting by the majority in control of the corporation
for funds alleged to have been misappropriated;
“(f) The issuance of an injunction to prohibit continuing acts of ‘oppressive’
conduct and which may include the reduction of salaries or bonus payments
found to be unjustified or excessive;
“(g) The ordering of affirmative relief by the required declaration of a
dividend or a reduction and distribution of capital;
“(h) The ordering of affirmative relief by the entry of an order requiring
the corporation or a majority of its stockholders to purchase the stock of the
minority stockholders at a price to be determined according to a specified formula
or at a price determined by the court to be a fair and reasonable price;
“(i) The ordering of affirmative relief by the entry of an order permitting
minority stockholders to purchase additional stock under conditions specified
by the court;
“(j) An award of damages to minority stockholders as compensation for
any injury suffered by them as the result of ‘oppressive’ conduct by the majority
in control of the corporation.”
Baker, 264 Or App at 632-33 (footnotes omitted).
Cite as 269 Or App 258 (2015) 273
divisive reorganization of the family business or a compulsory
buyout would be the appropriate remedy. Id. at 25-26.
We concluded that “the oppressive conduct is [not] so egregious
that it requires the drastic remedy of a compulsory
purchase or divisive reorganization. * * * We agree with
the trial court that the proper remedy is to keep the business
together for the benefit of all the shareholders but to
require it to pay reasonable dividends.” Id. at 26. However,
we adjusted the remedy because the trial court did not
give adequate weight to a recent board decision regarding
determination of the amount of dividends that reflected an
exercise of its business discretion; we noted that “it is not
[the court’s] role to second-guess business decisions that are
within the range of reasonableness.” Id. at 27-28. In concluding
that the trial court had improperly substituted its
judgment for the board’s, and in approving the policy that
the board had adopted, we nevertheless determined that,
in light of the long-standing hostilities between the parties,
the trial court could retain jurisdiction over the matter to
ensure that the defendants adhered to the board-adopted
dividend policy. Id. at 28-29.
Often the appropriate remedy has been a courtordered
share purchase, which is now provided for in ORS
60.952(5). In general, in ordering a share purchase, the
court determines a “fair value” for the shares; such a determination
considers the interests of both the purchaser, usually
the controlling shareholder, and the seller, usually the
minority shareholder. For example, in Delaney v. Georgia-
Pacific Corp., 278 Or 305, 324, 564 P2d 277 (1977), the
defendants had effectively ousted the minority shareholder
plaintiffs from management of the corporation. The plaintiffs
sought an order requiring a share purchase at a “fair
and equitable price,” which, in the plaintiffs’ view, would be
based on a 10-year projection of anticipated profits that had
been prepared in support of a bank-financing application. Id.
at 325. The Supreme Court found that projection to be “far
too speculative” as a basis for relief but concluded that the
appropriate relief was a purchase of the plaintiffs’ stock at
a fair price based on the valuation of the corporation when
the defendant took over its management and which took into
274 Hickey v. Hickey
account excessive interest that had been charged to the corporation.
Id.8
Finally, in Cooke, where the defendants breached
their fiduciary duties toward the plaintiff, a minority shareholder,
by withholding dividends and the benefit of a salary
as an officer and employee of the corporation, the defendants
challenged the trial court’s determination of fair value for
the price paid in a court-ordered share purchase. 169 Or
App at 103-06. We concluded that it was correct to value the
corporation as an ongoing profitable business rather than
using its liquidation value. Id. at 114. We also concluded
that it was correct to include the plaintiff’s unpaid wages in
determining the value of the shares; the plaintiff’s employment
was an important benefit of ownership in the corporation.
9 Id.
In sum, under Oregon case law prior to the enactment
of ORS 60.952, remedies consistently matched the
specific acts constituting breach of a controlling shareholder’s
fiduciary duties and the particular circumstances
of the closely held corporation affected. In considering
appropriate relief, judicial practice avoided penalizing controlling
shareholders’ ownership interests in a manner that
significantly departed from what was required to relieve
minority shareholders from the oppressive conduct, and
also avoided increasing any value or benefit from a minority
shareholders’ interest beyond what minority shareholders
8 ORS 60.952(5), which sets out a procedure for a court-ordered share purchase,
codified how Oregon case law had arrived at providing fair value compensation.
First, subsection (5)(a)(A) provides that, when ordering a share purchase,
the court must “[d]etermine the fair value of the shares * * * taking into account
any impact on the value of the shares resulting from the actions giving rise to
a proceeding under subsection (1) of this section[.]” Thus, the share purchase
requires that “fair value” be paid, a principle that had previously been developed
in Oregon law, see, e.g., Hayes v. Olmsted & Assoc., Inc., 173 Or App 259, 21 P3d
178 (2001); Cooke, 169 Or App at 115, and which, it suffices to say, is a determination
that accommodates the interests of both the buyer and seller, the controlling
shareholder and the minority shareholder.
9 The concept that a remedy can accommodate benefits particular to the circumstances
of a close corporation, such as a salary from employment, is captured
in ORS 60.952(4), which provides that, in determining the appropriate remedy
under the statute, the court has discretion to “take into consideration the reasonable
expectations of the corporation’s shareholders as they existed at the time
the corporation was formed and developed during the course of the shareholders’
relationship with the corporation and with each other.”
Cite as 269 Or App 258 (2015) 275
could reasonably expect or the fair value of the shares. In
codifying the remedies that Oregon courts had provided as
an alternative to judicial dissolution, the legislature apparently
did not intend to abandon the equitable considerations
inherent in those established remedies.
Here, the trial court eliminated the voting rights
from the preferred shares, which significantly discounted
the value of Andy’s preferred shares. Although the trial
court’s remedy, in addition to the court’s order prohibiting
Andy from acting as a director or officer of HRI, ensures
that Andy will no longer engage in self-dealing and commingling
of assets between HRI and H & H, it does not
appropriately correspond to the identified wrongful conduct.
Andy obtained the preferred shares, which gave him voting
control, by executing an agreement with Denis Sr.’s trust
that provided for Andy to pay over time in installments
for the voting preferred shares by drawing a salary from
HRI. The trial court did not find that his preferred shares
were wrongfully obtained. Rather, the nature of the problem
identified by the trial court is Andy’s oppressive conduct,
namely, his self-dealing and commingling in his role as the
controlling shareholder at the expense of the interests of the
corporation and Denis, and the risk that Andy will continue
that oppressive conduct. That conduct and potential future
conduct is more properly addressed by a remedy that does
not also significantly diminish the value of Andy’s ownership
interest in HRI, given that the trial court has available
a number of other remedies that can adequately address the
wrongful conduct.
Moreover, the trial court’s remedy provided the
majority owner of the common shares (Denis) with control of
HRI, which inverted HRI’s ownership structure and thereby
increases the value of Denis’s common shares and gives him
a windfall. Additionally, although the trial court has discretion
to consider the “reasonable expectations” of Denis
as the plaintiff minority shareholder under ORS 60.952(4),
control of HRI by virtue of owning the majority of common
shares is not something that Andy, Denis, or Denis Sr. could
have reasonably expected.
276 Hickey v. Hickey
Accordingly, we instruct the trial court to devise a
remedy more appropriate to the wrongs it seeks to redress.
To be sure, some potential remedies for self-dealing, such
as appointing a custodian to manage HRI’s affairs, may be
too expensive, or may require continuing court jurisdiction
to ensure compliance. The trial court can, however, order a
share purchase for fair value under ORS 60.952(2)(k) and (5),
which would extricate either Denis or Andy from HRI, if it
determines that other available remedies are not practical
means of addressing Andy’s specific acts of wrongdoing.
B. Loan repayment to H & H
In Andy’s fourth assignment of error, he challenges
the damages award of $195,092.51, which was related to
payments by HRI to H & H out of the proceeds of a refinancing
of property owned by HRI. Specifically, the trial court
made the following findings:
“3) The Johnson property refinance creates a situation
under which Denis claims that Andy owes $193,772.51.
Briefly, it appears that the Johnson property was refinanced,
which resulted in excessive funds being borrowed
by HRI in the approximate sum of $200,000.00.
“HRI then paid to H & H the sum of $195,092.51, which
is registered on the books as a loan paid in full although
it created an overpayment of over $91,000.00. After the
overpayment was created a journal entry created a debt of
HRI to H & H in the amount of the overpayment. Also, the
books do not show a loan owing from HRI to H & H at the
time the money was turned over to H & H.
“The court agrees that this self dealing transaction is
untrustworthy and the court finds by a preponderance of
the evidence that Plaintiff owes Defendant [sic] the sum of
$195,092.51 regarding the Johnson refinance transaction.”
After Denis conceded that the judgment creditor should be
HRI, not him, the general judgment was amended to provide
the award to HRI. Both Andy and H & H were determined
to be the judgment debtors.10
10 Although Andy challenged the judgment against H & H in his objections
to the form of judgment, in which he argued that H & H was not in privity of contract
with Denis (ultimately the judgment awarded damages to HRI, not Denis),
Cite as 269 Or App 258 (2015) 277
Denis adds context to the trial court’s findings
by pointing out that his trial expert, a forensic CPA, testified
that the journal entries for the transactions at issue
were documented in an unusual manner. On December 30,
2004, the account on its book, labeled “Loan Payable to
H & H,” had a zero balance. A day later, HRI refinanced
one of its real property holdings, which generated more
than $200,000 in proceeds for HRI. That same day, the
journal entry for the account was increased by $82,620.40,
described, in part, as “cattle sales.” Denis posits that no documentary
evidence supports that a cattle sale occurred in
that amount. In another transaction, on January 25, 2005,
HRI made a $173,772.51 payment to H & H in the form of
a check describing its purpose as “loan paid in full, 1998-
1/25/05.” According to HRI’s books, that payment was an
overpayment of $91,152.11. Six days later, another journal
entry increased the amount of the loan payable to H & H by
$91,152.11, describing the entry as “feed expense.” Again,
Denis contends that the transaction lacked any documentation.
That evidence, in his view, is sufficient to support the
trial court’s conclusion that the payment from HRI to H & H
was improper and, therefore, it was not error to order the
entire amount of the payment as repayment to HRI.
For his part, Andy contends that Denis only offered
expert testimony that there were insufficient records to support
those transactions. He elaborates that, although the
evidence was sufficient to support the trial court’s determination
that Andy had failed to properly document the transactions
between HRI and H & H, “the record does not support
any finding of actual damages.” Although Andy insists that it
was Denis’s burden to prove that cattle and feed sales did not
occur during the periods preceding the payments so denoted,
Andy presented evidence that they did occur. According to
Andy, HRI suffered financial difficulties from 2001 to 2003
and was unable to provide enough cattle feed to its herd, so
he and H & H made up the difference. Andy points to evidence
that includes accumulated unpaid feed bills from 2001
to 2003 that were due to financial difficulties faced by HRI
during those years; his testimony and HRI tax statements
neither Andy nor H & H assigns error to the trial court’s determination that
H & H was jointly and severally liable for the award to HRI.
278 Hickey v. Hickey
that support his contention that H & H sold cattle to provide
money to HRI; and records that showed that feed bills for the
HRI herd were far below the average for the feed bills in later
years for roughly the same number of cattle.
Andy also argues that Denis was foreclosed from
bringing a derivative claim for damages because that claim,
which existed in his original amended complaint, was
stricken. We are not persuaded. Denis’s first amended complaint
alleged both a derivative claim and a claim under ORS
60.952. Andy’s ORCP 21 motion to dismiss was granted as
to the derivative claim, but Denis’s claim under ORS 60.952
alleging that Andy breached his fiduciary duties as a controlling
shareholder, director, or officer of HRI remained in
his second amended complaint, which also sought any of the
remedies available under ORS 60.952. Andy has not argued
that the award of damages was an impermissible remedy
under ORS 60.952.
ORS 60.952(1)(b) provides remedies if “directors
or those in control of the corporation have acted, are acting
or will act in a manner that is illegal, oppressive or fraudulent[.]”
With regard to self-dealing, the Oregon Business
Corporation Act has a provision that concerns a director’s
conflicts of interest, ORS 60.361(1), which defines a conflictof-
interest transaction as “a transaction with the corporation
in which a director of the corporation has a direct or
indirect interest.” ORS 60.361(1) provides, in part:
“A conflict of interest transaction is not voidable by the
corporation solely because of the director’s interest in the
transaction if any one of the following is true:
“(a) The material facts of the transaction and the
director’s interest were disclosed or known to the board of
directors or a committee of the board of directors and the
board of directors or committee authorized, approved or
ratified the transaction;
“(b) The material facts of the transaction and the
director’s interest were disclosed or known to the shareholders
entitled to vote and they authorized, approved or
ratified the transaction; or
“(c) The transaction was fair to the corporation.”
Cite as 269 Or App 258 (2015) 279
A director has an indirect interest in a transaction if the
director “has a material financial interest” in another entity
that benefits from the transaction. ORS 60.361(2)(a).
Formerly, directors and officers were prohibited
from contracting with their corporation because of their
fiduciary duties unless a majority of disinterested directors
approved the transaction or the shareholders ratified
the transaction. American Timber v. Niedermeyer, 276 Or
1135, 1146, 558 P2d 1211 (1976); see also Naito, 178 Or App
at 20, 20 n 26 (stating that directors owe similar duties to
the corporation and that, in the context of oppression, the
distinction between directors and shareholders “may not
be of great significance”). ORS 60.361 reflects a change in
the common law “toward enforcing contracts which otherwise
would be voidable because of the relationship of the
contracting officer or director to the corporation if, upon
close scrutiny, the transaction is affirmatively shown to be
fair to the corporation.” American Timber, 276 Or at 1146.
The rule was codified by the former version of ORS 60.361,
ORS 57.265. Id. at 1146 n 7 (“[ORS 57.265] was adopted in
1975 and, therefore, is not directly applicable to the transaction
involved in this appeal. However, that statute is a
codification of a trend in the case law toward a more liberal
view of contracts between a corporation and its officers or
directors which is more in keeping with needs and practices
of modern business life.”). Thus, a self-dealing transaction
is not per se void, but, instead, voidable; the director who
participated in the transaction may render it permissible by
obtaining approval from other directors or the shareholders,
or the director can show that the transaction was fair to the
corporation.
Moreover, the Supreme Court held in American
Timber, that even when a conflict-of-interest transaction
is not “fair and reasonable,” it is nevertheless allowable to
consider as an “offset” any actual benefit conferred to the
corporation in the self-dealing transaction. Id. at 1149. The
court concluded that an exchange agreement between the
defendant (the majority shareholder and a director) and
the corporation was “unauthorized and improper and that
the assets which [the defendant] received from the corporation
should be returned.” Id. at 1148-49. The exchange
280 Hickey v. Hickey
agreement involved the defendant exchanging his ownership
interest in a number of businesses, whose value he may
have grossly overstated as $165,000, for at least $220,000
worth of the corporation’s physical assets. Id. at 1147. The
court remanded the issue of damages so that the trial
court could determine the value of the defendant’s ownership
interest as an offset against the trial court’s judgment
awarding damages. Id. at 1149. The court also stated that
it was the defendant’s burden to prove the value of the companies.
Id.
Similarly, in Naas v. Lucas, 86 Or App 406, 408, 739
P2d 1051 (1987), the plaintiffs alleged that the defendant, a
minority shareholder, officer, and director of the corporation,
breached his fiduciary duties and violated ORS 57.265 (now,
ORS 60.361) by distributing assets of the corporation to
himself and a company in which he had a financial interest.
The trial court denied the plaintiffs’ motion for a directed
verdict on the breach of fiduciary duty claim, and, on appeal,
we reversed because the defendant had not met his burden
of proving that the transaction was “ ‘fair and reasonable to
the corporation’ ” and because the trial evidence showed that
the transaction was “manifestly unfair to the corporation
and its other stockholders.” Id. at 410-11. We concluded that
the transaction was void and reversed but did not remand
for the trial court to determine the amount of damages
because damages were not in dispute. Id. at 411-12.
Together, American Timber and Naas establish that
a director alleged to have engaged in a conflict-of-interest
transaction has the burden of proving that the transaction,
if it was not approved by the board of directors or the
shareholders, was fair to that corporation, and further, if
the transaction is determined to be void and damages are
at issue, it is the self-dealing director’s burden to prove any
amount that was a benefit to the corporation in the voided
transaction. Although ORS 60.952, not ORS 60.361, was
the basis for Denis’s claim that Andy breached his fiduciary
duty, an action under ORS 60.952 does not obviate the application
of the modern principle that the issue of damages in
the wake of a voided transaction is open to evidence of any
benefit of the transaction received by the corporation that
may offset an award of damages.
Cite as 269 Or App 258 (2015) 281
Andy does not contend that the trial court erred in
determining that he impermissibly engaged in self-dealing
when he made the payments to H & H immediately after
the refinancing. That determination is sufficient to support
the trial court’s decision to void the transactions and award
damages to HRI. He does, however, contest the trial court’s
award of damages to HRI without apparently taking into
account benefits provided to HRI by H & H. But Andy misplaces
the burden of proving cattle and feed sales, arguing
that it was Denis’s burden to prove that those sales to HRI
took place; instead, it is Andy’s burden to establish any offset.
See American Timber, 276 Or at 1149. However, the court
erred when it ordered damages in the full amount of the
$195,092.51 payment from HRI to H & H without explicitly
considering whether the cattle and feed sales offset the damages
award. Accordingly, we direct the court, on remand, to
make a finding that addresses the persuasiveness of Andy’s
evidence, or any additional evidence, that cattle, feed, or
other benefits were provided to HRI by H & H in order to
determine whether Andy is entitled to an offset.11
C. Excess salary
Denis argues in his cross-appeal that the trial court
erred when it calculated that excess salary drawn by Andy
in 2001, 2002, and 2005 totaled in the amount of $17,178
instead of $29,178, positing that the lesser amount is not
supported by evidence in the record. In its letter opinion, the
trial court found
“that Andy violated the stock purchase option by overpayment
of his salary and by issuing a dividend to himself to
11 Andy contends that, because Denis’s derivative action claim for money
damages, specifically relating to cattle and feed sales, was stricken, the trial
court was precluded from awarding damages. Although Andy concedes that the
court could rescind the transaction under ORS 60.952(2)(a), which allows “[t]he
performance, prohibition, alteration or setting aside of any action of the corporation
or of its shareholders, directors or officers or any other party to the proceeding[,]”
he posits that the court could not award damages as a consequence of the
rescission. In this case, rescission without a return to HRI of money paid to H & H
would not remedy the harm caused to HRI. As noted in our discussion of the previous
assignment of error, 269 Or App at 264, any and all of the remedies permitted
under ORS 60.952 remained in the subsequent amended complaint, which
include “[t]he award of damages to any aggrieved party[,]” ORS 60.952(2)(j),
and any “other legal and equitable remedies that the court may impose[,]” ORS
60.952(3).
282 Hickey v. Hickey
the detriment of HRI. It is very clear in the stock option
agreement that it was the intention that Andy be allowed
to purchase the stock option with monies earned from
HRI in the form of a salary not to exceed $37,651.13 per
year. In 2001 and 2002, Andy overpaid himself the sum of
$12,000.00 and in 2005 overpaid the amount of $5,178.46.
“* * * Therefore, for over payment of salary, judgment is
owed in favor[ ] of Denis and against Andy in the sum of
$17,178.46.”
After Andy’s objections to the original form of judgment, the
court, by letter, responded:
“It is the court’s recollection that the judgment amount of
$31,576.13 [(the amount includes a $14,397.67 damages
award for a net tax damage not contested by the parties
on appeal)] coincides with the court’s opinion at the time
the court originally issued its decision letter in this matter.
Although the court made a finding of money taken in two
years in the sum of $12,000 for each year, it is the court’s
recollection that I left off a $12,000 amount and had reason
to do so. Quite frankly, without all the exhibits available to
the court I cannot remember what the reason is. However, I
am going to sustain [Andy]’s objection to the increase of the
judgment from $31,576.13 against Andy Hickey to the sum
of $43,576.33. Therefore, total judgment for that specific
area of the money awards is the sum of $31,576.13.”
(Emphasis added.) Thus, instead of characterizing the total
amount in the first letter opinion as a mathematical error,
the court in its second letter stated that it had reason for
not including the second of two overpayment amounts of
$12,000, but it could not articulate the reason.
Denis posits that the trial court’s first finding was
correct—that there were two years of $12,000 salary overpayments—
and urges us to correct the mathematical error.
He further contends that his expert witness demonstrated
an excess for both years. In response, Andy argues that the
court found that Andy did not take excess payment in 2001,
as demonstrated by Andy’s expert. In fact, the trial court
stated that, “[i]n 2001 and 2002, Andy overpaid himself
the sum of $12,000.00” and then stated in its second letter
that it had a reason for finding overpayment for only one of
those years, but could not say what the reason was. That
Cite as 269 Or App 258 (2015) 283
inconsistency requires the court to determine the correct
amount on remand.12
In conclusion, we reverse and remand the general
judgment with instructions to the trial court to determine
an appropriate remedy for Andy’s self-dealing without the
collateral result of significantly reducing the value of Andy’s
preferred shares or increasing the value of Denis’s common
shares. Further, the court should consider the evidence presented
by Andy regarding the value of the cattle and cattle
feed that H & H provided to HRI and should determine
whether an offset against the $195,092.51 damages award
is appropriate. Finally, the court should resolve the discrepancy
between the findings in its two letter opinions regarding
the excess salary.

* * *

12 We allow for the possibility that, on remand, the court could conclude that
its first letter finding a sum of $12,000 is consistent with its second finding if “[i]n
2001 and 2002, Andy overpaid himself the sum of $12,000” is read as meaning
the sum of $0 for one year and $12,000 for the other year.

Outcome: Judgment reversed in part and remanded on appeal
and cross-appeal.

Plaintiff's Experts:

Defendant's Experts:

Comments: