Appraisal – Court Error

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WI Court of Appeals – District III

Case Name: Swiderski Equipment, Inc. et al v. James Swiderski, et al

Case No.: 2016AP700

Officials: Stark, P.J., Hruz and Seidl, JJ.

This case is before us for a second time. In a previous appeal, James Swiderski argued the circuit court erred by issuing an order compelling him to accept Swiderski Equipment, Inc.’s tender to redeem his shares of the corporation at a fixed price. We agreed with James that the circuit court had misinterpreted the share-valuation provisions of the parties’ corporate redemption agreement (CRA). We therefore reversed the circuit court’s order and remanded “for the parties to obtain a price redetermination consistent with our interpretation of paragraph 8” of the CRA. Swiderski Equip., Inc. v. Swiderski, No. 2013AP1545, unpublished slip op., ¶20 (WI App May 6, 2014).

On remand, an appraisal was performed, and the circuit court ultimately ordered Swiderski Equipment to pay James $105,000 for his shares— the difference between the appraiser’s valuation of James’ shares and $510,000 that Swiderski Equipment had previously paid him. James now appeals, arguing the circuit court erred by: (1) determining the appraisal would be performed by Swiderski Equipment’s accounting firm, Schenck, S.C.; (2) giving preclusive effect to a jury verdict from a separate Marathon County case on the issue of whether compensation Swiderski Equipment paid to James’ father, Alex Swiderski, was excessive; (3) accepting the appraisal performed by Schenck, even though it valued only James’ interest, rather than the entire corporation, and included minority and marketability discounts; and (4) permitting James to recover prejudgment interest beginning on December 31, 2015, rather than December 30, 2012.

We conclude the circuit court properly ordered the appraisal to be performed by Schenck, S.C. We therefore affirm in part. The court erred, however, by giving preclusive effect to the Marathon County jury’s verdict on the issue of whether Alex’s compensation was excessive. We therefore reverse in part No. 2016AP700 3 and remand for a new appraisal, during which the appraiser must independently determine whether Alex’s past compensation was reasonable and consider its impact on the appraised valuation.

We further hold that, when performing the new appraisal, the appraiser must value the entire corporation, rather than only James’ minority interest. The appraiser may not apply a minority discount, but may independently determine whether to apply a marketability discount. Prejudgment interest on the amount Swiderski Equipment owes to James shall be calculated beginning on the date the new appraisal is completed.

Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.