Heard, considered and decided by Parker, P.j., and Wozniak and Lansing, JJ.
The opinion of the court was delivered by: Parker
1. Evidence sustained trial court's finding that partner in closely held corporation breached his fiduciary duty to co-partner by manner in which he obtained copartner's resignation.
2. Post-appeal order is null and void because the perfecting of appeal divested the district court of jurisdiction.
3. Trial court made appropriate findings and a new trial is not required.
4. The reduction of punitive damages to one-half was an appropriate means of dealing with any prejudicial effect on improper attorney conduct on the proceedings.
This appeal arises from litigation between owners of a closely held corporation.
Plaintiff Melvin Evans and defendant Gordon Blesi were co-owners and shareholders of defendant Blesi-Evans Company. Evans and Blesi were the sole, equal shareholders from 1955 to 1977, when Evans transferred a share of stock to Blesi, thereby giving Blesi a majority interest. In 1982, Blesi, who was then president, demanded and received Evans' written resignation from employment and also Evans' written consent to certain changes in the corporate structure. Evans brought this action, claiming that he had acted under fraud and duress when he transferred the stock and resigned, alleging a breach of fiduciary duty by Blesi and seeking damages and equitable relief against both Blesi and Blesi-Evans Company.
The trial court empanelled an advisory jury which found that a fiduciary duty existed which Blesi had violated and awarded both compensatory and punitive damages to Evans. On June 30, 1983, the trial court adjudged the 1982 resignation and consents null and void, ordered Evans reinstated with full compensation to date of judgment, and awarded Evans compensatory damages of $277,000 jointly and severally against Blesi and Blesi-Evans Company, as well as punitive damages of $500,000 against Blesi individually. An attempt was made by the trial court to amend the judgment by a post-appeal order on October 4, 1983, reducing the punitive damages to $250,000 and vacating the order of reinstatement of Evans, together with other orders not necessary to be detailed here.
Defendants appeal from the judgment entered June 30, 1983, and as purported to be amended by order dated October 4, 1983.
We affirm in part, modify in part, vacate in part and remand to set up a mechanism for a buyout of the Blesi-Evans Company.
The facts deemed material to this decision are as follows. Evans and Blesi were co-owners and shareholders of Blesi-Evans Company, a manufacturer's representative for large heating and ventilating equipment makers. They were college classmates, close friends and business associates.
In 1953, the parties took jobs with the Albert C. Price Company, a manufacturer's representative business and predecessor of the Blesi-Evans Company. Within six or seven months, Mr. Blesi was discharged by Mr. Price. Later, Mr. Price sold his company to Mr. Evans and a man named Lloyd Steirly. Blesi wanted to come back into the business and so Steirly and Evans sold him 18 percent of their stock. The remaining stock was owned equally by Evans and Steirly.
In 1955, Evans and Blesi combined their 41 percent and 18 percent interests to vote out Steirly as president and director. Evans loaned Blesi enough money to enable Blesi to purchase 50 percent of the stock. They formalized their relationship on March 31, 1955, by entering into a shareholder's control agreement tantamount to a partnership agreement, and continued on an equal basis until 1977, sharing equal salaries, management duties and benefits.
Between 1975 and 1977, Mr. Evans had some health problems including high blood pressure, very high anxiety and tremors in his hands. Blesi claimed that Evans was making harmful ordering and pricing mistakes because of his illness. Blesi confronted Evans with the problems he perceived in Evans' job performance and told Evans that he was considering leaving or dissolving the company.
Evans testified that Blesi went into a temper tantrum and demanded that Evans sign certain stock transfer documents or he would liquidate the company and take all the accounts away. Evans transferred one share of stock to Blesi on November 21, 1977, thus surrendering majority control to him.
After the stock transfer, Evans and Blesi worked equal hours, drawing equal pay and benefits and sharing equally in the day-to-day management of the company. However, Blesi contended that Evans continued to make harmful ordering and pricing mistakes.
On February 8, 1982, Blesi consulted an attorney to discuss the "problem." Blesi was advised by the attorney to seek Evans' resignation before using his majority voting power to remove him, if necessary.
An associate of the law firm prepared documents of resignation and minutes of an informal action of shareholders which had the effect of consolidating Blesi's control by eliminating cumulative voting, lowering to "majority" the vote required for amending by-laws, and purporting to increase the authorized capital. This document was to be executed by both parties if Evans resigned voluntarily. Alternatively, the attorney prepared a notice of shareholders meeting to be called for the purpose of removing Evans as an officer, director and employee if he refused to resign.
On February 19, 1982, Blesi met with Evans. Evans testified that Blesi again shouted at him, slammed the door, accused him of incompetence and dishonesty, and threatened to fire Evans' son from the sales force if Evans did not resign voluntarily. Evans signed the resignation and the informal minutes that the attorney had drafted.
Three days after Evans signed the letter, he retained legal counsel who sent a notice of revocation of Evans' signature on the resignation and on the informal action of shareholders. Blesi contacted his attorneys, who advised him to ignore it.
Blesi followed his advice. Evans was not paid salary, was refused his annual bonus, and Blesi-refused to make the $31,250 yearly contribution for Evans to the company's pension and profit-sharing trusts. Approximately one month in advance of the stock transfer meeting with Evans, Blesi had had documents prepared which empowered him to disqualify employees from eligibility for pension and profit-sharing payments if employment was terminated before the end of the fiscal year. On the last day of the company's fiscal year in 1982, after Evans' resignation in February, Blesi then invoked the disqualification clause and refused to make the payments.
On April 30, 1983, the advisory jury and the trial court independently found that Blesi had obtained the stock transfer, the resignation and the consents by "misrepresentation, intimidation, threat and duress" and that Blesi had breached a fiduciary duty toward Evans. The jury found and the trial court ordered $277,000 compensatory damages, to be awarded jointly and severally, against Blesi and Blesi-Evans Company, and further awarded $500,000 punitive damages against Blesi individually.
On August 19, 1982, the trial court heard oral arguments on post-trial motions. On September 29, 1983, while the motions were still under advisement, defendants filed a notice of appeal from the judgment of June 30, 1982. On October 4, 1983, the trial court signed an order reducing the punitive damages to $250,000 and setting aside Evans' reinstatement because the extreme acrimony resulting from ...