Papillo v. Pockets, Inc.

HOLLANDER, Judge. Gregory M. Papillo, appellant, and Albert E. Crandall, appellee, have been engaged in a protracted dispute concerning two close corporations in which each party owned a fifty percent interest. In 1993, after appellant sought dissolution of both corporations, appellee elected to avoid dissolution by pm-chasing appellant’s stock, pursuant to Md.Code (1975, 1993 Repl.Vol.), § 4-603 of the Corporations and Associations Article (“C.A.”). Several years later, the trial court essentially determined that appellee’s election was revocable at will.

Thereafter, appellant noted his appeal and presents two questions for our review, which we have rephrased: I. Is the statutory election to avoid dissolution of a close corporation, exercised pursuant to § 4-603 of the Corporations and Associations Article, revocable at will?

II

Did the trial court err or abuse its discretion in permitting appellee to revoke in 1996 the election to purchase appellant’s stock that he exercised in 1993? As we shall answer the first question in the negative, we must remand the matter for further proceedings. Factual Background The salient facts are substantially undisputed. In 1992, appellant and appellee each invested approximately $50,000.00 to form and operate a billiards parlor business through two close corporations, Pockets, Inc. (“Pockets”) and Pima, Inc. ⁸¹ (“Pima”).

Pockets operated the billiards parlor, and Pima owned the equipment, which it leased to Pockets. The parties were the sole stockholders of the corporations, with each party owning fifty percent of the stock of each corporation. In early 1993, for reasons not relevant here, the relationship between the parties grew acrimonious. As a result, on July 2, 1993, appellant filed a complaint in the Circuit Court for Montgomery County to dissolve both corporations.

Faced with involuntary dissolution, appellee intervened and elected to exercise his statutory right to purchase appellant’s stock, pursuant to C.A. § 4-603. The court (Miller, J.) issued an order on November 16, 1993, permitting appellee to stay dissolution proceedings so long as appellee timely posted a $60,000.00 bond. In order to satisfy the statutory requirement to purchase the stock at its fair market value as of the time of filing of the petition for dissolution, appellee sought an appraisal of appellant’s stock. By order of April 28, 1994, the court appointed three appraisers.

In an order filed September 28, 1994, the court (Ruben, J.), determined that, at the relevant time, and based on the appraisers’ reports, the value of appellant’s stock in the two corporations was $16,291.00. After appellee paid $16,291.00 to appellant, the bond was released, pursuant to an order of court stating it was to be released “regardless of the pendency of any appeal.” Subsequently, appellant noted his appeal to this Court, in order to challenge the amount of the valuation. In a per curiam opinion, we affirmed in part and reversed in part, and remanded the case to the trial court to “conduct a hearing at which each party may present testimonial or tangible evidence in support of or in opposition to the appraisers’ report.” Papillo v. Pockets Inc., No. 416, Sept. Term 1995, slip op. at 11, 107 Md.App. 748 (filed December 8, 1995). On remand, the trial court conducted an evidentiary hearing as to valuation.

Thereafter, it rejected all of the appraisers’ reports, and stated that it considered that the parties were back to “square one.” By order filed August 2,1996, the court ⁸² (Donohue, J.) ordered new appraisals “subject to Motions of the parties regarding election to purchase the stock.” Before appointment of the new appraisers, however, appellee sought to revoke his election to purchase appellant’s stock and moved to proceed with dissolution. He claimed that, as a result of the delay caused by the lengthy proceedings, he lacked the financial resources to consummate the election to purchase. On November 27, 1996, the court conducted a hearing concerning appellee’s motion. In an opinion and order filed December 4, 1996, the court (McGuckian, J.) granted appellee’s motion to proceed with dissolution, stating: The Court finds that there is nothing in [C.A. § 4-603] which would preclude a stockholder from withdrawing his petition to avoid dissolution at any time.

It would be contrary to the clear purpose of Section 1-603 to preclude such a move by a stockholder since such action would cause the corporation to be at a standstill, which is clearly what this section is meant to avoid. The section does not contemplate personal judgments against a stockholder for failing to complete a petition under this section. The right of the plaintiff to recover any funds that may have unwarrantedly gone to the benefit of the defendant during the pendency of this litigation can be handled through the provisions for dissolution set forth in Title 3 of [the Corporations and Associations] Article. (Emphasis added).

It is this ruling that is at issue here. Discussion A. Appellant contends that an election to purchase stock pursuant to C.A. § 4-603 is irrevocable. The statutory provision is silent, however, as to the ability to revoke an election. Section 4-603 provides, in pertinent part: (a) Stockholder’s right to avoid dissolution. — Any one or more stockholders who desire to continue the business of a close corporation may avoid the dissolution of the corpora ⁸³ tion ... by electing to purchase the stock owned by the petitioner at a price equal to its fair value.

(b) Court to determine fair value of stock. (1) — If a stockholder who makes the election is unable to reach an agreement with the petitioner as to the fair value of the stock, then, if the electing stockholder gives bond or other security sufficient to assure payment to the petitioner of the fair value of the stock, the court shall stay the proceeding and determine the fair value of the stock. It is immediately apparent that the statute does not speak to whether, or under what circumstances, an electing stockholder may change his or her mind and revoke an election to purchase the petitioner’s stock. Given that “[t]he statute is silent on the question ... it is into this breach that the Court must step with a reasonable interpretation.” D & Y, Inc. v. Winston, 320 Md. 534, 539 , 578 A.2d 1177 (1990) (construing Md.Code (1974, 1988 Repl.VoL), § 10-102(f) of the Real Property Article).

As we have not discovered any Maryland case construing the provision in issue, we begin with a brief review of the guiding principles of statutory construction. The interpretation of a statute presents a question of law. Hider v. Department of Labor, Licensing and Regulation, 115 Md.App. 258, 273 , (1997), rev’d on other grounds, — Md.-, — A.2d-, 1998 WL 107991 , No. 63, Sept. Term 1997 (filed March 13, 1998); Mayor of Ocean City v. Purnell Jarvis, Ltd., 86 Md.App. 390, 413 , 586 A.2d 816 (1991). The seminal rule of statutory construction requires that we determine and effect the intent of the Legislature.

Oaks v. Connors, 339 Md. 24, 35 , 660 A.2d 423 (1995); Mayor of Baltimore v. Cassidy, 338 Md. 88, 93 , 656 A.2d 757 (1995); Privette v. State, 320 Md. 738, 744 , 580 A.2d 188 (1990). To accomplish this task, we ordinarily look to the language in the statute itself. Allied Vending Inc. v. City of Bowie, 332 Md. 279, 306 , 631 A.2d 77 (1993); State v. Patrick A., 312 Md. 482, 487 , 540 A.2d 810 (1988); Jones v. State, 311 Md. 398, 405 , 535 A.2d 471 (1988). “[T]he Court considers the language of an enactment and gives that language its natural and ordinary meaning.” ⁸⁴ Montgomery County v. Buckman, 333 Md. 516, 523 , 636 A.2d 448 (1994). As the Court said in Harris v. State, 331 Md. 137 , 626 A.2d 946 (1993), “Giving the words their ordinary and common meaning ‘in light of the full context in which they appear, and in light of external manifestations of intent or general purpose available through other evidence,’ normally will result in the discovery of the Legislature’s intent.” Id. at 146 , 626 A.2d 946 (citations omitted).

Moreover, “we seek to avoid constructions that are illogical, unreasonable, or inconsistent with common sense.” Frost v. State, 336 Md. 125, 137 , 647 A.2d 106 (1994); see also Fraternal Order of Police, Montgomery County Lodge No. 35 v. Mehrling, 343 Md. 155, 174 , 680 A.2d 1052 (1996); Condon v. State, 332 Md. 481, 492 , 632 A.2d 753 (1993). We also consider the statute’s purpose, Blaine v. Blaine, 336 Md. 49, 69 , 646 A.2d 413 (1994); Kaczorowski v. Mayor of Baltimore, 309 Md. 505, 513 , 525 A.2d 628 (1987), and the context in which it was adopted. C.S. v. Prince George’s County Dept. of Soc. Servs., 343 Md. 14, 24 , 680 A.2d 470 (1996); Condon, 332 Md. at 491 , 632 A.2d 753 ; Motor Vehicle Admin, v. Mohler, 318 Md. 219, 225 , 567 A.2d 929 (1990); Brzowski v. Maryland Home Improvement Comm’n, 114 Md.App. 615, 627 , 691 A.2d 699 , cert. denied, 346 Md. 238 , 695 A.2d 1227 (1997).

Thus, we do not read a statutory provision in isolation. Instead, we consider the purpose, goal, or context of the statute as a whole. Prince George’s County v. Vieira, 340 Md. 651, 658 , 667 A.2d 898 (1995); Board of Trustees v. Hughes, 340 Md. 1, 7 , 664 A.2d 1250 (1995); Frost, 336 Md. at 138 , 647 A.2d 106 . Often, it is necessary for us to examine the development of the statute to discern the Legislature’s intent.

C.S., 343 Md. at 24 , 680 A.2d 470 ; Condon, 332 Md. at 492 , 632 A.2d 753 ; Mohler, 318 Md. at 225 , 567 A.2d 929 . The legislative history concerning C.A. § 4-603 is useful here. The close corporation statute was enacted in 1967. 1967 Md. Laws, Ch. 649 § 14; see Md.Code (1957, 1967 Repl.Vol., 1967 Cum. Supp.), Art. 23 §§ 100-111 (now codified, as ⁸⁵ amended, at C.A. §§ 4-101 to 4-603). 1 It was adopted substantially as proposed in the Final Report of the Commission on Revision of the Corporation Laws of Maryland (the “Report”), dated December 15, 1966.

Of particular interest here, as to the ability to avoid dissolution by purchasing a petitioner’s stock, the Report stated: [F]or all judicial dissolutions of close corporations stockholders other than the party moving for dissolution may, in appropriate cases and subject to the discretion of the court, avoid dissolution by purchasing the shares of the petitioner at a fair appraised value, except where there is a contrary stockholders’ agreement with respect to a dissolution proceeding. ... Id. at 75 (emphasis added). Moreover, the official comment to the then-newly enacted statute included the precise language that we just quoted from the Report. See Md.Code (1957, 1967 RepLVol., 1967 Cum.Supp.), Art. 23 § 100 cmt.

A member of the Commission on Revision of the Corporation Laws of Maryland subsequently described the purpose of ⁸⁶ the buyout provision in a law review article. Although he did not address the issue presented here, the author explained: It results in a fair accommodation of the conflicting interests involved, on the one hand the desire to continue a profitable enterprise, and on the other, a desire to secure reasonable value for one’s ownership interest. * * ❖ * Stockholders asserting their right to bar dissolution by the purchase of the stock of a stockholder petitioning for dissolution are required to give bond or sufficient security to insure their ability to pay a reasonable price for the stock. This serves both as a protection to the stockholder seeking dissolution and as a deterrent to harassing or delaying tactics. There is a danger that stockholders who in fact wish to continue to operate the business might permit dissolution and liquidation of the company in order to buy the assets at a lower figure than it would be necessary for them to pay if they elected to purchase the stock of the shareholder seeking dissolution.

Since this would circumvent the statute’s purpose of providing the stockholder a reasonable alternative when transfer of his stock is barred, it is to be hoped that the courts will not approve liquidation sales to other stockholders over the objection of the liquidating stockholder when such sales make it possible for the remaining stockholders to continue the business. William G. Hall, The New Maryland Close Corporation Law, 27 Md. L. Rev. 341 , 362 (1967) (emphasis added). Although the close corporation statute was recodified in 1975, no substantive changes were enacted with respect to the statutory election provision. See Md.Code (1975), C.A. § 4-603 (Revisor’s Note); see also Allers v. Tittsworth, 269 Md. 677, 683 , 309 A.2d 476 (1973) (“The practice of considering revision commission reports in searching for legislative intent is too well established to be open to question.”); Abington Ctr.

Assocs. v. Baltimore County, 115 Md.App. 580, 599 , 694 A.2d ⁸⁷ 165 (1997) (noting that revisor’s construction is relevant with regard to determination of legislative intent). Thus, Maryland’s statute has remained essentially unchanged since its enactment thirty years ago; it is completely silent with respect to the right to revoke. Considering the purpose of C.A. § 4-603, however, we are of the view that the Maryland Legislature did not intend to bar revocation altogether. Neither can we discern any intention by the Legislature to permit unfettered revocation of an election to purchase a petitioner’s stock.

Although we have not found any reported Maryland case that addresses the precise question presented here, numerous other states with buy-back statutes have considered the matter. 2 In our survey of the law of other states, it is apparent that many have statutory buyout provisions that expressly disfavor revocability. Nevertheless, these statutes continue to reserve for the court some degree of