## Facts

- BigInch Fabricators & Construction Holding Company, Inc. was a closely held Indiana corporation with ten shareholders; no shareholder held a majority interest.
- In 2006, the shareholders, including Blake B. Hartman, signed a shareholder agreement requiring the company to purchase a shareholder’s stock if the shareholder was involuntarily terminated as an officer or director.
- The agreement set the repurchase price at the shares’ “appraised market value” as of the last day of the year preceding the valuation date, to be calculated by a third-party valuation company.
- In 2018, Hartman was involuntarily terminated from his officer and director positions, triggering the buyout provision.
- BigInch retained Wonch Valuation Advisors (Wonch) to value Hartman’s shares.
- Wonch valued the company, divided by the number of outstanding shares, and determined a per-share price of $396.90, which produced a preliminary value of about $3.5 million for Hartman’s block of shares.
- Wonch then applied (1) a minority discount (lack of control) and (2) a marketability discount (lack of liquidity), reducing the valuation of Hartman’s shares to about $2.3 million.
- Hartman sued, contending the shareholder agreement did not permit those discounts in a mandatory repurchase by the company.
- The trial court granted summary judgment for BigInch, accepting BigInch’s view that “appraised market value” allowed the discounts.
- Hartman appealed to the Indiana Court of Appeals, relying in part on Wenzel v. Hopper & Galliher, P.C., which rejected such discounts in valuing shares purchased by a company or controlling owners.

## Issues

1. Whether a shareholder agreement requiring a corporation to repurchase a terminated shareholder’s stock at “appraised market value” permits minority and marketability discounts in valuing the shares for that compulsory buyback.

## Decision

- The Indiana Court of Appeals reversed the trial court’s summary judgment for BigInch.
- The court held that, in this compulsory, closed-transaction buyback, the minority and marketability discounts were not properly applied to reduce the value paid to Hartman.
- The case was remanded for further proceedings consistent with the court’s interpretation of the agreement’s valuation term.

## Legal Principles

- Contract interpretation begins with the parties’ written language, read in context and in light of the transaction the contract requires.
- Minority and marketability discounts are valuation tools associated with pricing a minority block for sale in an open market; they do not automatically apply where the shares must be purchased in a mandatory, closed transaction by the corporation.
- When a shareholder agreement requires the corporation (or controlling owners) to buy a departing shareholder’s shares, courts may reject discounts that would transfer value from the forced seller to the acquiring side, absent clear contractual authorization.

## Conclusion

The Indiana Court of Appeals held that BigInch’s shareholder agreement did not allow the company’s appraiser to apply minority and marketability discounts when valuing Hartman’s shares for a mandatory corporate repurchase, and it reversed the trial court’s summary judgment that had approved the discounted valuation.


Hartman v. BigInch Fabricators & Construction Holding Co., 148 N.E.3d 1017 (2020)