Joseph Kolwe, Jr. v. Civil and Structural Engineers,inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

18-398 consolidated with 18-399

JOSEPH KOLWE, JR.

VERSUS

CIVIL AND STRUCTURAL ENGINEERS, INC.

**********

APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, NO. C-2016-1792-B
HONORABLE JULES D. EDWARDS, III, DISTRICT JUDGE

**********

ULYSSES GENE THIBODEAUX
CHIEF JUDGE

**********

Court composed of Ulysses Gene Thibodeaux, Chief Judge, John D. Saunders, and
D. Kent Savoie, Judges.

AFFIRMED AS AMENDED.

Steven G. Durio
Travis J. Broussard
Durio, McGoffin, Stagg & Ackermann
P. O. Box 51308
Lafayette, LA 70505-1305
Telephone: (337) 233-0300
COUNSEL FOR:
Plaintiff/Appellant - Joseph Kolwe, Jr.

Donald W. Washington
Kyle M. Bacon
Jones Walker LLP
P. O. Box 3408
Lafayette, LA 70502
Telephone: (337) 593-7600
COUNSEL FOR:
Defendant/Appellee Civil and Structural Engineers, Inc.

Mark D. Plaisance
Marcus J. Plaisance
Plaisance Law, LLC
P. O. Box 1123
Prairieville, LA 70769
Telephone: (225) 775-5297
COUNSEL FOR:
Plaintiff/Appellant - Joseph Kolwe, Jr.

THIBODEAUX, Chief Judge.

These consolidated appeals entreat us to consider res nova issues of

law interpreting the recently revised Louisiana Business Corporation Act

(“LBCA”), La.RS. 12:1-101, et seq.

Plaintiff Joseph Kolwe, Jr. is a withdrawing shareholder of

Defendant-Appellee, Civil and Structural Engineers, Inc. (“CASE”). He appeals a

final judgment of the trial court which fixed the fair value of his shares at

contradictory amounts of $871,817.00 and $587,187.00. The judgment was then

amended sua sponte by the trial court to a decisive figure of $871,817.00. This

Amended Judgment now forms the subject of Mr. Kolwe’s consolidated appeals,

whereby he challenges its validity pursuant to La.Code Civ.P. art. 1951. Mr.

Kolwe additionally contends the trial court erred in its conclusion of his effective

date of withdrawal from CASE and also in its failure to award interest on the

amount of his shares as valued.

CASE answers the appeal challenging the trial court’s determination

of the fair value of Mr. Kolwe’s shares in the corporation. Specifically, it asserts

that the trial court erred in declining to tax-effect Mr. Kolwe’s shares, in including

proceeds of a settled claim awarded to CASE in its valuation determination, and in

allegedly refusing to consider evidence of undue burden pursuant to La.R.S. 12:1-

1436(E).

For the reasons set forth below, we amend the original judgment to

conform to the statutory framework contemplated by the LBCA and, as amended,

affirm.

I.

ISSUES

We must decide:

(1) whether the Amended Judgment on Rules issued
by the trial court on January 4, 2018, is an absolute
nullity pursuant to La.Code Civ.P. art. 1951 and, if
so, whether the Original Judgment on Rules signed
on December 22, 2017, may be revised to correct
any errors of substance or, alternatively, any errors
in calculation or phraseology;

(2) whether the trial court erred in determining the
effective date of Mr. Kolwe’s Notice of
Withdrawal to be November 29, 2015;

(3) whether the trial court erred in its determination of
the “fair value” of Mr. Kolwe’s interest by failing
to tax-effect the value of his shares and/or
including the BP settlement payment in its
valuation;

(4) whether the trial court erred in failing to award Mr.
Kolwe judicial interest and costs from the date of
judicial demand; and

(5) whether the trial court abused its discretion in
refusing to hear evidence pertaining to La.R.S.
12:1-1436(E) at the conclusion of the valuation
trial.

II.

FACTS AND PROCEDURAL HISTORY

CASE is a professional engineering firm operating as a closely-held

business corporation. Its three shareholders, Michael Smith, Matthew Granberry,

and Joseph Kolwe, Jr., each owned an equal one-third share until December 2017.

Prior to Mr. Kolwe’s disassociation from the corporation, each shareholder served

as an employee and officer of CASE, and the three together comprised the board of

directors.

2

After employment-related disputes arose concerning Mr. Kolwe’s

performance, discussions regarding his departure from CASE commenced in

December of 2014. In early 2015, CASE began negotiating a buy-out of Mr.

Kolwe’s ownership interest and retained a business valuation expert, Jason

MacMorran, to facilitate the transaction; Mr. Kolwe likewise retained his own

expert, Charles Theriot, to protect his interests. By mid-2015, however, the

shareholders were unable to amicably resolve the terms of Mr. Kolwe’s

withdrawal.

In November of 2015, Mr. Kolwe received notice of a special meeting

of the board of directors to be held for the purpose of considering a profitability

incentive plan for employees and directors of CASE. After receiving notice of the

meeting, Mr. Kolwe’s attorney drafted and mailed a notice of withdrawal to the

corporation pursuant to La.R.S. 12:1-1435, et seq. At the board meeting, the

profitability incentive plan was adopted despite Mr. Kolwe’s objection. At the end

of November, Mr. Kolwe’s employment with CASE was terminated, and, over the

course of the next month, he was removed as both an officer and director of the

corporation.

On December 2, 2015, Mr. Kolwe filed suit against CASE, Mr. Smith,

and Mr. Granberry alleging claims of shareholder oppression. However, this suit

was ultimately dismissed after the trial court sustained the defendants’ Exceptions

of No Cause of Action and Prematurity.

On April 6, 2016, Mr. Kolwe reasserted his claims of oppression

against CASE, Mr. Smith, and Mr. Granberry. After disagreements continued

regarding the value of Mr. Kolwe’s ownership interest, the parties agreed to bypass

a trial on the merits of the oppression claims and simply litigate the valuation issue

3

by summary proceeding in accordance with La.R.S. 12:1-1436. Upon joint request

of the parties, the trial court signed a Consent Judgment and Order of Trial Date

which ordered that a trial be held for the limited purposes of valuing Mr. Kolwe’s

shares and determining the effective date of his notice of withdrawal.1 Prior to the

valuation trial, CASE filed a Motion for Partial Summary Judgment regarding the

effective date of Mr. Kolwe’s withdrawal. On November 20, 2017, the trial court

granted the motion and held Mr. Kolwe’s notice of withdrawal to corporation was

effective as of November 29, 2015.

A valuation trial was held on December 20-21, 2017, and a final

judgment was rendered in the matter on December 22, 2017, purporting to declare

the value of Mr. Kolwe’s shares and affirming its earlier ruling as to the effective

date of Mr. Kolwe’s notice of withdrawal. In reaching its valuation determination,

the trial court declined to “tax-effect”2 the value of the corporation’s unaccrued net

assets as argued for by CASE, and included the proceeds of a settled BP claim in

the valuation as argued against by CASE.

However, the final judgment contained an internal inconsistency

regarding the dollar figure amount of Mr. Kolwe’s interest, and the trial court

thereafter issued an amended judgment on January 4, 2018, to correct the

inconsistency. On appeal, however, Mr. Kolwe asserts that the amended judgment

is absolutely null and, thus, seeks to reinstate the original judgment because of the

trial court’s failure to afford the proper hearing with notice to the parties prior to

1
As stipulated in the judgment itself and per La.R.S. 12:1-1435(E), the Consent Judgment
expressly acknowledged that “neither this Judgment nor the parties’ submission of it, or consent
to it, operates as any admission, or as any evidence, that Defendant Civil and Structural
Engineers, Inc. has engaged in any oppression of Plaintiff Joseph Kolwe, Jr.”
2
The terms “tax-effect” and “tax-affect” both appear in the literature on this subject. For
the sake of consistency, we will use “tax-effect.” In direct quotes, we will follow the language as
reported.

4

correcting its error of substance in the original judgment. Next, Mr. Kolwe argues

that the effective date of his notice of withdrawal was November 24, 2015, despite

the trial court’s ruling that his notice of withdrawal was effective five days later, as

of November 29, 2015. Whereas the effective date of Mr. Kolwe’s withdrawal

from the corporation dictates the fair value of his ownership interest in CASE, the

parties raise several arguments on appeal with respect to both procedural and

substantive aspects of the trial court’s valuation determinations.

III.

STANDARD OF REVIEW

“[A]ppellate jurisdiction of a court of appeal extends to law and

facts.” La.Const. art. 4, § 10(B). The appellate court must determine whether the

trial court committed an error of law or made a factual finding that was manifestly

erroneous or clearly wrong. Gibson v. State, 99-1730 (La. 4/11/00), 758 So.2d

782, cert denied, 531 U.S. 1052, 121 S.Ct. 656 (2000). The reviewing court must

review the record in its entirety to make this determination. Stobart v. State,

Through DOTD, 617 So.2d 880 (La.1993).

An appellate court may not set aside a trial court’s findings of fact in

the absence of manifest error or unless it is clearly wrong. Id.; Rosell v. ESCO,

549 So.2d 840 (La.1989). The trial court’s valuation of a withdrawing

shareholder’s ownership interest is a factual one which shall not be disturbed

absent manifest error. Ellington v. Ellington, 39,943 (La.App. 2 Cir. 3/18/03), 842

So.2d 1160. Accordingly, if the trial court’s findings in a valuation proceeding are

reasonably supported by the record and do not constitute an abuse of discretion, its

determinations should be affirmed. “Furthermore, the trial court’s choice of one

5

expert’s method of valuation over that of another will not be overturned unless it is

manifestly erroneous.” Id. at 1166.

However, the interpretive aspect of this case presents this court with a

question of law and is, thus, reviewed under a de novo standard of review.

Caldwell v. Janssen Pharmaceutical, Inc., 12-2447 (La. 1/28/14), 144 So.3d 898.

While it is well settled that a reviewing court will defer to a trial court’s reasonable

decision on a question properly within its discretion, such deference shall not be

afforded where its decision is based on an erroneous interpretation or application

of law rather than a valid exercise of discretion. Kem Search, Inc. v. Sheffield, 434

So.2d 1067 (La.1983).

IV.

LAW AND DISCUSSION

Amendment of Final Judgment

On December 22, 2017, the trial court issued its Judgment on Rules

following a two-day valuation trial (“Original Judgment”). However, the judgment

contained an internal inconsistency with respect to the dollar figure amount of Mr.

Kolwe’s ownership interest in the corporation. 3 In an earlier portion of the

judgment located under the subheading JUDGMENT, the trial court stated: “This

court adjudges declares and decrees [sic] the plaintiff’s shares as of November 29,

3
In issuing its “Judgment on Rules,” the trial court failed to keep separate and distinct the
judgment itself from its written reasons for judgment. “A final judgment shall be identified as
such by appropriate language. When written reasons for the judgment are assigned, they shall be
set out in an opinion separate from the judgment.” La.Civ.Code art. 1918.

However, this court has held that this statute is not to be applied mechanically and
likewise will not operate to automatically nullify a judgment so long as the essentials of a
judgment are present. Barlow v. Barlow, 13-1092 (La.App. 3 Cir. 10/23/13), 161 So.3d 24.
Despite the trial court’s disregard for the statute, we shall nevertheless regard the judgments
issued as valid.

6

2015 to be $587,178.00.” In its conclusion, however, the trial court went on to

state: “Accordingly, this court finds that the plaintiff’s ownership interests in

CASE shares as of November 29, 2015 to be valued to be $871,817.00.”

On January 4, 2018, the trial court issued an Amended Judgment on

Rules (“Amended Judgment”) sua sponte. Without providing a hearing with

notice to the parties, the trial court deleted its language decreeing Mr. Kolwe’s

interest to be worth $587,178.00. Consistent with the Original Judgment, the

Amended Judgment valued Mr. Kolwe’s shares to be $871,817.00.

Mr. Kolwe now argues before this court that the Amended Judgment

rendered on January 4, 2018, ought to be declared an absolute nullity pursuant to

La.Code Civ.P. art. 1951. Louisiana Code of Civil Procedure Article 1951

provides the following:

On motion of the court or any party, a final
judgment may be amended at any time to alter the
phraseology of the judgment, but not its substance, or to
correct errors of calculation. The judgment may be
amended only after a hearing with notice to all parties,
except that a hearing is not required if all parties consent
or if the court or the party submitting the amended
judgment certifies that it was provided to all parties at
least five days before the amendment and that no
opposition has been received.

He asserts that while the trial court clearly intended to value his interest to be

worth $871,817.00, as demonstrated by the Amended Judgment’s deletion of the

decretal reference to the $587,187.00 figure contained in the Original Judgment,

the deletion constitutes an amendment to the substance of the final Original

Judgment rendered by the trial court, in violation of La.Code Civ.P. art. 1951.

Finding that this alteration of the final judgment regarding the fair value amount

7

not only affects the substance of the judgment, but also directly injects uncertainty

into the very objective to be attained by the valuation trial, we agree.

While the usual remedy of this court in such a case is to vacate the

amended judgment and reinstate the original judgment, this case will not be

resolved by such a remedy. See Tunstall v. Stierwald, 01-1765 (La. 2/26/02), 809

So.2d 916. To reinstate the Original Judgment here would allow a judgment to

stand which contains an internal inconsistency regarding the value of Mr. Kolwe’s

shares, which would, thus, defeat the sole objective of the valuation trial. Pursuant

to La.Code Civ.P. art. 2164, an appellate court may “render any judgment which is

just, legal and proper upon the record on appeal.” Accordingly, based on the

complete record before us, we deem it just, legal and proper not only to vacate the

Amended Judgment and reinstate the Original Judgment, but also to revise the

Original Judgment to reflect the clear intent of the trial court to value Mr. Kolwe’s

ownership interest in the amount of $871,817.00 as of November 29, 2015. 4

Accordingly, Mr. Kolwe’s ownership of any interest and any

corresponding rights and obligations as a shareholder in CASE will be deemed to

have terminated as of the date of the issuance of the Original Judgment, on

December 22, 2017.5

4
Our review of the record reveals that both judgments state, “[t]hus, the plaintiff’s
valuation of that asset is adopted by this court as its value on November 29, 1995.” Although
likely an oversight on the part of the trial court, this error was not corrected in the Amended
Judgment; we have now done so.
5
In his brief, Mr. Kolwe assigned as error the trial court’s failure to state a “separation
date” in its final judgment after valuing his interest. A plain reading of the statute indicates when
a withdrawing shareholder’s status and corresponding rights as a shareholder terminate, and, thus,
we find that the trial court did not err where it was not required to state such a date in light of the
relevant statutory guidance.

In the case that a contract of sale is formed by the corporation delivering written notice of
its acceptance of withdrawing shareholder’s offer to sell under La.R.S. 12:1-1435(F), the
shareholder’s status and rights cease upon consummation of the contract, that is to say when

8

Additionally, CASE raises a separate error of the trial court in

rendering its final judgment. It asserts that the trial court erred in its failure to

render a portion of the judgment in favor of CASE and against Mr. Kolwe, as

required by La.R.S. 12:1-1436(D). We agree, and likewise revise the Original

Judgment, as amended above, to conform with the statutory requirements of the

LBCA pursuant to the authority conferred upon this court in La.Code Civ.P. art.

2164.

Louisiana Revised Statutes 12:1-1436(D) (emphasis added) provides,

in pertinent part, that

[A]t the conclusion of the trial the court shall render final
judgment as described in Paragraphs (1) and (2) of this
Subsection:

(1) In favor of the shareholder and against the
corporation for the fair value of the shareholder’s shares.

(2) In favor of the corporation and against the
shareholder that does both of the following:

(a) Terminates the shareholder’s ownership of shares
in the corporation.

(b) Orders the shareholder to deliver to the corporation
within thirty days of the date of the judgment any
certificate issued by the corporation for the shares or an
affidavit by the shareholder that the certificate has been
lost, stolen, destroyed, or previously delivered to the
corporation.

delivery of the corporation’s notice of acceptance becomes effective. See Douglas K. Moll,
Shareholder Oppression and the New Louisiana Business Corporation Act, 60 Loy. L. Rev. 461
(2014).

In the case where no such contract of sale is formed, however, and the shareholder
enforces “the right to pursue a court-ordered purchase and sale” instead, as here, Official
Comment (k) provides that “the shareholder remains a shareholder in the company until the
court-ordered transaction is consummated as provided in R.S. 12:1-1436(C) or until the shares
are transferred in some other fashion.” When Subsections (C) and (D) of La.R.S. 12:1-1436 are
read in pari materia, it is clear that the withdrawing shareholder retains his rights and status until
the court determines the fair value of the shares and renders its final judgment in the valuation
proceeding.

9

In both judgments, the trial court concluded its written reasons by

stating the following:

In accordance with the provisions of La.R.S. 12:1-
1436(D), this is a final judgment is [sic] rendered in favor
of plaintiff Joseph Kolwe, Jr. and against defendant Civil
and Structural Engineers, Inc. This judgment terminates
the plaintiff’s ownership shares [sic] in Civil and
Structural Engineers, Inc. The plaintiff is ordered to
deliver to CASE, Inc., any certificate issued by CASE for
the shares or an affidavit that the certificate has been lost,
stolen destroyed [sic] or previously delivered to the
corporation, within thirty days of the date of this
judgment.

As stated above, La.Code Civ.P. art. 1951 provides that a court may,

on its own motion, amend a final judgment at any time to correct the phraseology

of a judgment. Thus, La.Code Civ.P. art. 1951 allows that a “judgment may be

amended by the court where the amendment takes nothing from or adds nothing to

the original judgment.” Villaume v. Villaume, 363 So.2d 448, 450 (La.1978).

The judgments explicitly rule in favor of Mr. Kolwe as shareholder

and against the CASE, per Subsection (D)(1), but likewise fail to include language

explicitly ruling in favor of the corporation and against the shareholder, as required

by Subsection (D)(2). While we recognize that the trial court’s holding comports

with the statute’s requirement in effect through featuring language that terminates

Mr. Kolwe’s ownership of shares and orders him to deliver any certificate or

affidavit to the corporation, we further amend the phraseology of Original

Judgment to explicitly reflect the statutory directive for the judicial determination

of fair value as contemplated by La.R.S. 12:1-1436(D), specifically Subsection

(D)(2), where to do so would neither add nor take something away from the

substance of the judgment.

10

Effective Date of Notice of Withdrawal

On appeal, Mr. Kolwe asks this court to determine whether the trial

court erred in declaring that the effective date of his notice of withdrawal to the

corporation was November 29, 2015, rather than November 24, 2015, as he

maintains. For the following reasons, we decline the arguments advanced by Mr.

Kolwe and affirm the trial court’s determination that Mr. Kolwe’s notice of

withdrawal to the corporation became effective as of November 29, 2015.

On November 21, 2015, a notice of special meeting of the board of

directors of CASE was timely mailed to Mr. Kolwe per the corporate by-laws,

informing him of a special meeting to be held on the morning of November 25,

2015. The board meeting notice was delivered to Mr. Kolwe’s mailbox on

November 23, 2015, at 1:23 p.m., as indicated by the return receipt. On the

afternoon of November 24, 2015, following his receipt of the board meeting notice,

Mr. Kolwe’s attorney, Travis Broussard, prepared a letter asserting that Mr. Kolwe

was withdrawing as a shareholder of CASE pursuant to La.R.S. 12:1-1435, et seq.

The letter was addressed to Michael Smith as president of CASE, and sent by U.S.

mail to be delivered to the address of the corporation’s principal office as indicated

in the corporate records. However, the letter was never actually received by the

corporation.6

At or around the same time, Mr. Broussard’s secretary drafted and

sent an email to Kyle M. Bacon, an attorney representing Mr. Smith and Mr.

Granberry as majority shareholders and directors of CASE. The email stated:

“Attached please find a letter from Mr. Broussard directed to Civil and Structural

6
After being asked in a deposition whether CASE had ever received a notice of
withdrawal that was purportedly stuck in the mail on November 24, 2015, Mr. Granberry
testified, “[n]o, we have not.”

11

Engineers, Inc., regarding the above-referenced matter, which was sent via U.S.

Mail today.”7

At all pertinent times, Mr. Kolwe has argued that the email sent to Mr.

Bacon constituted notice by electronic transmission pursuant La.R.S. 12:1-141, and

further that notice to Mr. Bacon constituted sufficient, legal notice to the

corporation. Mr. Kolwe alternatively argued that because the notice of withdrawal

was mailed to a shareholder of CASE pursuant to La.R.S.12:1-141(I)(2), the notice

was effective upon deposit in the U.S. Mail. On November 20, 2017, the trial

court granted CASE’s Partial Motion for Summary Judgment and found that “there

is no genuine issue of material fact that notice of withdrawal was mailed on

November 24, 2015, to the address of the business. Notice is effective five (5)

days thereafter, which was November 29, 2015.” On appeal, we find Mr. Kolwe’s

arguments to be neither compelling nor applicable to the instant situation as

reasserted before this court.

Louisiana Revised Statutes 12:1-1435 governs the procedure

affording an oppressed shareholder the right to withdraw from a corporation. At

the outset, the statute dictates that “the value of a withdrawing shareholder’s shares

is to be determined as of the effective date of the notice of withdrawal.” La.R.S.

12:1-1435(C)(1). The statute further indicates that “[a] shareholder may assert a

right to withdraw under this Section by giving written notice to the corporation

that the shareholder is withdrawing from the corporation on grounds of

oppression.” La.R.S. 12:1-1435(D) (emphasis added). Therefore, in addition to

the requirements that notice be written and specify that the shareholder withdraws

7
Though the emailed letter at issue references the inclusion of an attachment titled
“Withdrawl [sic] letter 112415.pdf”, we note here that the attachment itself was not included in
the record on appeal and, thus, may not be considered in any event.

12

on grounds of oppression, the statute explicitly mandates that a shareholder direct

his or her notice of withdrawal to the corporation.

While La.R.S. 12:1-1435 does not contain any formal requirements

for effectuating notice particular to oppressed shareholders, the “effective date of

notice” is defined in La.R.S. 12:1-141. La.R.S. 12:1-140(7). That statute provides

that “[n]otice or other communication to a domestic…corporation…may be

delivered to its registered agent or to the secretary of the corporation at its principal

office.” La.R.S. 12:1-141(C). Alternatively, the statute also permits that such

notice “may be delivered by electronic transmission if consented to by the recipient

or if authorized by Subsection J of this Section.” 8 Subsection (J) goes on to

provide the following:

J. A notice or other communication may be in the
form of an electronic transmission that cannot be directly
reproduced in paper form by the recipient through an
automated process used in conventional commercial
practice only if all of the following requirements are met:

(1) The electronic transmission is otherwise
retrievable in perceivable form.

(2) The sender and the recipient have consented in
writing to the use of such form of electronic
transmission.

La.R.S. 12:1-141(J).

8
Louisiana Revised Statutes 12:1-140(7C) provides:

“Electronic transmission” or “electronically transmitted” means any
form or process of communication, not directly involving the physical transfer
of paper or another tangible medium, that is both of the following:

(a) Suitable for the retention, retrieval, and reproduction of information
by the recipient.

(b) Retrievable in paper form by the recipient through an automated
process used in conventional commercial practice, unless otherwise authorized
in accordance with R.S. 12: 1-141(J).

13

While Mr. Kolwe maintains that the email sent by Mr. Broussard’s

secretary to Mr. Bacon constitutes notice by electronic transmission, we disagree

for several reasons. First, any notice, regardless of form, given to Mr. Bacon

cannot be deemed effective as notice to the corporation. While La.R.S. 12:1-

141(C) provides that notice to the corporation may be effected upon either its

registered agent or its secretary, Mr. Bacon served in neither capacity for CASE.

Moreover, even if Mr. Bacon were authorized to receive notice on behalf of the

corporation, there is no evidence that Mr. Bacon gave his consent to Mr. Kolwe,

written or otherwise, to receive any electronic communication from him under

Subsection (J). To this point, Mr. Kolwe relies on a letter dated September 1,

2015, in which Mr. Bacon stated the following:

I am sending this letter in my capacity as counsel
for the majority shareholders and majority directors of
Civil and Structural Engineers, Inc. (“CASE”), Mike
Smith and Matt Granberry. If you are represented by an
attorney, please notify me immediately, and I will direct
all future communications to your attorney.

In our review, nothing contained in the above language suggests that Mr. Bacon

gave, or otherwise indicated, his consent to receive notice on behalf of the

corporation electronically. Therefore, we find this argument to be without merit.

Though more persuasive, Mr. Kolwe’s alternative argument that

notice was effective upon deposit in the U.S. mail likewise fails. He asserts that

because the notice was addressed to Michael Smith, the corporate president and a

shareholder, the notice consequently ought to be effective on the date of its alleged

deposit on November 24, 2015. In examining the plain language of the statute,

however, we must disagree with Mr. Kolwe’s interpretation.

14

In more pertinent part, the relevant statutory provision relied upon by

Mr. Kolwe provides:

I. Notice or other communication, if in a
comprehensible form or manner, is effective at the
earliest of the following:

....

(2) If mailed by United States mail postage
prepaid and correctly addressed to a shareholder, upon
deposit in the United States mail.

(3) If mailed by United States mail postage
prepaid and correctly addressed to a recipient other than
a shareholder, the earliest of the following:

(a) The date when actually received.

(b) If sent by registered or certified mail, return
receipt requested, the date shown on the return
receipt signed by or on behalf of the addressee.

(c) Five days after it is deposited in the United
States mail.

La.R.S. 12:1-141(I) (emphasis added).

While Mr. Smith was indeed a shareholder of the corporation, Mr.

Kolwe’s argument attempts to unduly circumvent the procedural scheme set forth

by the withdrawal provisions in La.R.S. 12:1-1435, et seq. by relying on the

general notice statute which governs all communications by a variety of actors

across numerous types of business entities in this state.9 As mentioned previously,

La.R.S. 12:1-1435(D) allows Mr. Kolwe to “assert a right to withdraw under this

Section by giving written notice to the corporation. . .” (emphasis added). A plain

9
Indeed, Mr. Kolwe’s interpretation violates a fundamental tenet of statutory construction:
that laws on the same subject matter must be interpreted in reference to each other, and that when
faced with conflicting statutory provisions, the more specific will control over the general.
La.Civ.Code art. 13; Thompson Tree & Spraying Serv. Inc. v. White-Spunner Const., Inc., 10-
1187 (La.App. 3 Cir. 6/1/11), 68 So.3d 1142, writ denied, 11-1417 (La. 9/30/11), 71 So.3d 290.

15

reading of the withdrawal statute in pari materia with the general notice statute

suggests that while a shareholder may assert his right to withdraw by giving

written notice to a registered agent or secretary of the corporation, giving such

notice to a shareholder solely on the basis of being a shareholder is not

contemplated by the withdrawal provisions.10

In reviewing the facts, Mr. Kolwe’s withdrawal notice was addressed

to “Michael Smith, president” and listed the mailing address of the corporation’s

principle office, rather than the separate mailing address listed for Michael Smith

in his capacity as registered agent in the corporate records. Moreover, in

discussing the issue of notice in his brief, Mr. Kolwe correctly identified that “[t]he

proper purchaser of Kolwe’s interest was the corporation, not the remaining

shareholders.” Though we find these facts not completely dispositive, it appears

that Mr. Kolwe properly directed his right to withdraw to the corporation in

accordance with the very statute defining his remedy.

Furthermore, the mailed notice of withdrawal was never received by

the corporation in this case and the record does not indicate that Mr. Kolwe’s

notice was sent by registered or certified mail. Thus, the effective date of Mr.

Kolwe’s notice necessarily falls under La.R.S. 12:1-141(I)(3)(c), which is five

days after it was deposited in the U.S. mail.

As such, we find no manifest error in the trial court’s determination

that Mr. Kolwe’s notice of withdrawal became effective on November 29, 2015.

Consequently, Mr. Kolwe’s shares ought to be valued as of that date.
10
We also find persuasive CASE’s argument that while the legislature provides several
instances in which notice is required to be sent to a shareholder, this is not one of those instances.
See La.R.S. 12:1-704 (notice of corporate action to nonvoting shareholders), La.R.S. 12:1-1340
(notice to shareholders of corporation’s waiver of appraisal rights), and La.R.S. 12:1-630 (notice
to shareholders in connection with a director’s conflicting interest transaction) for illustrative
purposes.

16

Trial Court’s Determination of “Fair Value”

At the valuation trial, each party presented competing expert

testimony as to the estimated value of Mr. Kolwe’s ownership interest in CASE.

While both experts agreed that the net asset approach was the proper approach in

rendering their respective opinions, they disagreed as to whether certain

adjustments should be made to the corporation’s book value. Specifically, two

main points of disagreement arose: first, whether the corporation’s accounts

receivables should be adjusted, or “tax-effected,” to reflect the tax liability that

would accrue upon their collection, and second, whether certain proceeds of a

settled BP claim awarded to the corporation were “known or knowable” as of the

date of Mr. Kolwe’s withdrawal such that they ought be included in the valuation.

As a result, the experts’ calculations differed significantly. CASE’s

valuation expert, Jason MacMorran, argued that while tax-effecting should be

allowed in this case, the settlement proceeds should not be included in the

valuation. Thus, after discounting the value of CASE’s estimated future tax

liability, he opined that Mr. Kolwe’s shares were worth $587,178.00. Conversely,

Mr. Kolwe’s expert, Charles Theriot, argued that tax-effecting was inappropriate in

this context and that because the proceeds to be received from the settlement were

“known or knowable” as of the date of Mr. Kolwe’s withdrawal, his shares were

worth $871,817.00. It is undisputed that the difference between the figures

reached was equivalent to the estimated tax liability (a $252,580.00 value), and

what would be Mr. Kolwe’s share of the proceeds from the BP claim (a $31,666.00

value).

After hearing the expert testimony of both parties, the trial court

accepted Mr. Kolwe’s valuation estimate and declared that the fair value of his

17

ownership interest was worth $871,817.00 as of November 29, 2015, the effective

date of his notice of withdrawal. In rendering its valuation, the trial court

explicitly rejected CASE’s argument supporting a discount of the corporation’s

assets to account for future tax liability. It stated, “the logic of CASE’s argument

suggest [sic] any reduction of the valuation for tax-effecting would result in a

discount for the two remaining shareholders and double taxation for the plaintiff;

therefore, this court finds that tax-effecting the unaccrued net assets is

inappropriate in this case.” As to the proceeds of the BP claim, the trial court

expressly determined that because “that asset was in fact known and a value of that

asset was knowable” as of the date of Mr. Kolwe’s withdrawal, and, thus, the date

his shares are to be valued, that those proceeds be included in the valuation of his

interest.

On appeal, CASE challenges the trial court’s determination of the

“fair value” of Mr. Kolwe’s ownership interest. Specifically, it alleges that the

trial court’s failure to tax-effect CASE’s accounts receivables and its inclusion of

the BP settlement proceeds in its valuation erroneously inflated the value of Mr.

Kolwe’s shares by approximately $284,000.00.

Before ruling on this issue, however, our review reveals that CASE’s

reasoning as to the applicability of certain adjustments, particularly with respect to

tax-effecting, necessarily follows its flawed interpretation of “fair value” as

contained in the newly revised and reenacted La.R.S. 12:1-1435(C)(2) and 12:1-

1301(4). While the trial court’s ultimate determination of fair value is a question

of fact, the determination of whether a given fact is relevant to fair value under

La.R.S. 12:1-1435(C)(2) and 12:1-1301(1) is a question of law which we review de

novo. Here, CASE argues that the future tax liability to be accrued by the

18

corporation (but eventually passed-through to the shareholders personally) once its

accounts receivable are collected upon reduces the value of those receivables to a

hypothetical buyer, and is, thus, a relevant fact which ought to discount the value

of Mr. Kolwe’s ownership interest. However, because the reduction of the value

of the corporation to account for Mr. Kolwe’s share of future tax liability follows

directly from the concept of “fair market value,” rather than the legislature’s

explicit and distinct statutory standard of “fair value” which expressly rejects the

applicability of discounts, we disagree with CASE’s interpretation in light of the

clear statutory language.

The Meaning of “Fair Value”

The primary question in interpreting applicable statutory law is one of

legislative intent and the ascertainment of the reasons that prompted the legislature

to enact the law. Caldwell, 144 So.3d 898. It remains a fundamental principle of

statutory interpretation that “[w]hen a law is clear and unambiguous and its

application does not lead to absurd consequences, the law shall be applied as

written, and no further interpretation may be made in search of the intent of the

legislature.” Id.; La.Civ.Code art. 9. “However, when the words of a law are

ambiguous, their meaning must be sought by examining the context in which they

occur and the text of the law as a whole, and laws on the same subject matter must

be interpreted in reference to each other.” Id.; La.Civ.Code arts. 12 and 13;

La.R.S. 1:3. As our supreme court has elaborated,

The meaning and intent of a law is determined by
considering the law in its entirety and all other laws on
the same subject matter and placing a construction on the
provision in question that is consistent with the express
terms of the law and with the obvious intent of the
Legislature in enacting it. The statute must, therefore, be

19

applied and interpreted in a manner, which is consistent
with logic and the presumed fair purpose and intention of
the Legislature in passing it. This is because the rules of
statutory construction require that the general intent and
purpose of the Legislature in enacting the law must, if
possible, be given effect. Courts should give effect to all
parts of a statute and should not give a statute an
interpretation that makes any part superfluous or
meaningless, if that result can be avoided. It is likewise
presumed that the intention of the legislative branch is to
achieve a consistent body of law.

McLane Southern, Inc. v. Bridges, 11-1141, pp. 6-7 (La. 1/24/12), 84 So.3d 479,

483 (internal citations omitted).

It is well-established that the task of statutory construction begins with

an examination of the language of the statute itself. M.J. Farms, Ltd. v. Exxon

Mobil Corp., 07-2371, (La. 7/1/08), 998 So.2d 16. As the favored remedy in the

oppression context, Louisiana affords a shareholder seeking to withdraw from a

closely-held corporation on grounds of oppression the right to compel the company

to purchase his or her ownership interest. La.R.S. 12:1-1435, et seq. Throughout

the entire process, the statutory standard of value to which a withdrawing

shareholder is entitled is “fair value,” which the LBCA defines as

the value of the corporation’s shares determined
immediately before the effectuation of the corporate
action to which the shareholder objects, using customary
and current valuation concepts and techniques generally
employed for similar businesses in the context of the
transaction requiring appraisal, and without discounting
for lack of marketability or minority status[.]

La.R.S. 12:1-1301(4). Louisiana Revised Statutes 12:1-1435(C) goes on to

provide,

C. (1) The term “fair value” has the same meaning in
this Section and in R.S. 12:1-1436 as it does in R.S. 12:1-
1301(4) concerning appraisal rights, except that the value
of a withdrawing shareholder’s shares is to be determined

20

as of the effective date of the notice of withdrawal
pursuant to Subsection D of this Section.

(2) The context of the transaction requiring appraisal, as
described in R.S. 12:1-1301(4), is a sale of the entire
corporation in an arm’s-length transaction by a person
who owns all of the shares in the corporation.

Given the parties’ disagreements regarding the value of Mr. Kolwe’s

interest both at trial and on appeal, we conclude that the meaning of “fair value” by

reference to the plain language of the statute is not clear and free of ambiguity. In

our view, the term fair value does not have a commonly accepted meaning and is

often incorrectly conflated with the term “fair market value.” Thus, in interpreting

the legislature’s intent in purposely selecting fair value as the applicable standard

in the context of appraising a shareholder’s interest, it becomes necessary for this

court to distinguish the colloquial usage of fair market value from that of the legal

definition of fair value.

The Louisiana Business Corporation Act (LBCA), La.R.S. 12:1-101

through 1-1705, which the Legislature adopted pursuant to 2014 La. Acts No. 328,

§ 1, became effective on January 1, 2015. Cole v. Sabine Bancshares, Inc., 17-272

(La.App. 3 Cir. 12/6/17) (unpublished decision). The LBCA repealed and

reenacted Chapter 1 of Title 12 of the Louisiana Revised Statutes in order to make

the former Louisiana business law consistent with the American Bar Association’s

Model Business Corporation Act (“Model Act”). Id.; La.R.S. 12:1-101; 2014 La.

Acts No. 328, § 1.

Moreover, the LBCA has reproduced its definition of “fair value”

verbatim from Model Act § 13.01. 11 While the Official Comments to La.R.S.

11
“Fair value” means the value of the corporation’s shares determined:

21

12:1-1301(4) provide little guidance in the way of discerning the legislature’s

intent in adopting the Model Act’s definition of “fair value,” Official Comment (2)

to the LBCA’s identical counterpart, Model Act § 13.01, provides some much

desired elucidation. It states that the definition of fair value “is designed to adopt

the more modern view that appraisal should generally award a shareholder his or

her proportional interest in the corporation after valuing the corporation as a

whole, rather than the value of the shareholder’s shares when valued alone.”

Mod. Bus. Corp. Act § 13.01, Official Comment (2) (Fair Value) (2010) (emphasis

added).

CASE interprets La.R.S. 12:1-1435(C)(2), describing “a sale of the

entire corporation in an arm’s length transaction by a person who owns all of the

shares in the corporation,” to envision a literal sale of all of the shares by a 100%

shareholder to the corporation itself. 12 Because this transaction would not be

agreed to by “any reasonably informed buyer,” CASE argues that the trial court’s

valuation interpreted in this context violates La.R.S. 12:1-1435(C)(2) and 12:1-

1301(4). Instead, in order to be “consistent with customary and current valuation

concepts and techniques,” CASE urges that La.R.S. 12:1-1435(C)(2) requires a

valuation to be made in the context of “a hypothetical transaction with a third-party

(i) immediately before the effectiveness of the corporate action to which the
shareholder objects;

(ii) using customary and current valuation concepts and techniques generally
employed for similar businesses in the context of the transaction requiring appraisal; and

(iii) without discounting for lack of marketability or minority status[.]

Mod. Bus. Corp. Act § 13.01 (Definitions) (2016).
12
CASE further argues that such a transaction is “invalid and ineffective as a matter of
law” under La.R.S. 12:1-603. However, we decline to extend our interpretation of the relevant
provisions to La.R.S. 12:1-603.

22

buyer.” We find that CASE’s interpretation of fair value presents two separate, but

related, issues. We, therefore, disagree with its reading of the statute.

First, CASE’s interpretation of the language, “a sale of the entire

corporation. . .” unnecessarily convolutes the context of La.R.S. 12:1-1435(C)(2)

into a hypertechnical construction that detracts from the fair value standard set

forth by the legislature. It is our view that the context envisioned by the legislature

in drafting “a sale of the entire corporation” is that of a dissolution in effect.

However, given the legislature’s express striking of shareholder oppression as a

grounds for corporate dissolution, it appears reasonable that the legislature would

choose not to include the term “dissolution” in the shareholder oppression statute

so as not to create an apparent inconsistency in the law.

To begin, La.R.S. 12:1-1435(C)(2) is codified under Part 14 of Title

12, Chapter 1, which is entitled “Dissolution.” The Official Comments to that

statute state:

(a) Model Act Section 14.34 provides a mechanism under
which the corporation or its shareholders may elect to buy out
the interests of a shareholder who is seeking to have the
corporation dissolved under Model Act Paragraph 14.30(a)(2).
This Section retains the Model Act approach with respect to
dissolution on grounds of deadlock under R.S. 12:1-
1430(A)(2)(a) and (c). But, with respect to other grounds for
dissolution under R.S. 12:1-1430(A)(2), this Section replaces
the Model Act scheme with four entirely new Sections, R.S.
12:1-1435 through 1-1438. As explained in Comment (c),
below, the four new Sections provide remedies for a claim
under R.S. 12:1-1430(A)(2) only on grounds of oppression.
But the main effect of the four new Sections is to reverse the
order of the remedies provided by the Model Act for
oppression, from dissolution unless the corporation or its
shareholders choose quickly to buy out the plaintiff
shareholder, to a buyout of the plaintiff shareholder unless the
corporation chooses to dissolve before final judgment in the suit
is rendered.

23

(b) This change in the order of remedies is designed to do
two things: allow the corporation to contest the plaintiff
shareholder’s allegations of oppression without risking an
involuntary dissolution of the entire company, and align the
statutory remedies for oppression more closely with those that
have been provided in most of the reported American cases on
the subject.

La.R.S. 12:1-1435, Official Revision Comments (a) and (b) (emphasis added).

While we recognize that the Official Comments are not part of the statute, and,

thus, are not binding on this court, they provide meaningful guidance in this

instance by setting forth the legislature’s clear preference for the buyout remedy

over that of corporate dissolution. Terrebonne Parish School Bd. v. Castex

Energy, Inc., 04-968 (La. 1/19/05), 893 So.2d 789. While the legislature has

followed the Model Act’s approach in most aspects of its revision of the LBCA, it

specifically chose to reverse the order of the Model Act’s remedy from

“dissolution unless buyout” to “buyout unless dissolution.” That is to say, where

the Model Act provides that the oppressed shareholder’s primary remedy is to seek

dissolution of the corporation unless the corporation elects to buyout the

shareholder, the LBCA expressly prohibits dissolution on grounds of oppression in

favor of its exclusive remedy being the fair value buyout.13 Therefore, it would

seem practical for the legislature not to choose to use the term “dissolution” in

La.R.S. 12:1-1435(C)(2). In choosing the phrase “a sale of the entire corporation

in an arm’s length transaction by a person who owns all of the shares in the

corporation[,]” which, in effect amounts to a dissolution, the language clearly

13
Whereas the Model Act generally authorizes a court to offer a range of remedies when
oppressive conduct is established in a closely held corporation, La.R.S. 12:1-1435 establishes
that a fair value buyout is the exclusive remedy in the oppression context. It provides that,
“[w]ithout limiting any remedy available on other grounds, the right to withdraw in accordance
with this Section and R.S. 12:1-1436 is the exclusive remedy for oppression.” La.R.S. 12:1-
1435(L).

24

reflects the legislature’s disfavored (and now defunct) remedy of dissolving the

corporation in matters of shareholder oppression disputes.

Despite departing from the Model Act in the context of dissolution,

the LBCA has nevertheless aligned its objective more closely with the Model Act’s

stated purpose of “valuing the corporation as a whole” as opposed to valuing the

shareholder’s shares in and of themselves. In valuing a shareholder’s interest “in

the context of a sale of the entire corporation,” the legislature kept consistent with

the Model Act’s approach of first examining the value of the corporation as whole,

as a beginning step in determining the fair value of shares. Hypertechnicalities

aside, the danger in CASE’s initial misconstruction lies not in its literal impacts,

but rather in the implications that follow. To accept CASE’s reasoning would

erroneously convert the meaning of “fair value” into “fair market value,” a separate

and distinct standard that directly impacts the valuation of shares.

Following the argument advanced by CASE, we next examine its

continued references to a hypothetical transaction—specifically, what a

hypothetical buyer of these shares would pay for Mr. Kolwe’s shares. On review,

we find this logic to be directly antithetical with the legal conception of “fair

value.” While scholars and commentators in other jurisdictions have wrestled with

the meaning of “fair value” over the last few decades, such strife has largely been

predicated on the applicability of discounts where the relevant statutory provisions

are silent on this issue.14 Like such jurisdictions which have struggled to correctly

define “fair value,” CASE’s argument illustrates the common, yet erroneous,

injection of fair market value principles into the legal definition of fair value where

14
For a more in-depth discussion on the conflicting approaches taken by other
jurisdictions, see Douglas K. Moll, Shareholder Oppression and the New Louisiana Business
Corporation Act, 60 Loy. L. Rev. 461.

25

the valuation difference between these two approaches is equivalent to the amount,

and, thus, the applicability, of discounts.15

To begin, “[a] fair market value analysis determines the value of

closely held corporation shares by asking what someone would hypothetically pay

for those shares.” Douglas K. Moll, Shareholder Oppression and the New

Louisiana Business Corporation Act, 60 Loy. L. Rev. 461, 498 (2014). Because

the shares of a minority shareholder in a closely held corporation, such as that of

Mr. Kolwe, are marked by a lack of value-enhancing attributes such as control and

liquidity, “fair market value” captures the absence of those features by reducing, or

“discounting” the purchase price of those shares. Id. Therefore, if we accept that

fair value is equivalent to fair market value, discounting the buyout price of those

shares is appropriate. Id.

Unlike the other aforementioned jurisdictions, however, the Louisiana

legislature has explicitly resolved this issue by rejecting the applicability of

discounts in the context of purchasing a withdrawing shareholder’s interest. Not

only does the language of the statute expressly disallow discounting, but the

legislature’s decision to select the term “fair value” rather than “fair market value”

carries the implicit rejection of discounting. As one scholar has explained, fair

value may be equated with “enterprise value,” which at the outset, views the

shareholder in an oppression-induced buyout transaction “as an investor forced to

relinquish his ownership position, rather than as an investor looking to sell his

shares.” Id. at 499. In this view, the fair value of shares “is determined not by

reference to what the particular shares would fetch in a hypothetical market sale,

15
In its brief on appeal, CASE even referred to the standard definition of “fair market
value” in stating that this definition is consistent with “customary and current valuation concepts
and techniques” under La.R.S. 12:1-1301(4).

26

but instead by valuing the company as a whole and by ascribing to each share its

pro rata portion of that overall enterprise value.” Id. Thus, the shares of a minority

shareholder are not valued in and of themselves, but rather as a part of the overall

value of the corporation with no discounting for the shares’ lack of valuable

attributes. Id.

In its decision to choose “fair value” as its standard, which in and of

itself both explicitly and implicitly rejects discounting, the Louisiana legislature

has explicitly resolved this issue in favor of expressly rejecting the applicability of

discounts in calculating the fair value of a withdrawing shareholder’s interest in the

corporation. Thus, shares of a withdrawing shareholder in the context of La.R.S.

12:1-1435, et seq. must be valued in accordance with the general rule that rejects

discounting.

Accordingly, we hold that the term “fair value” in the context of

Louisiana’s shareholder oppression statute means the withdrawing shareholder’s

proportionate interest in the corporation valued as a going concern. Thus, in order

to ascertain “fair value,” the trial court must first determine the value of the

corporation in its entirety and then allocate the withdrawing shareholder his

proportionate ownership interest of that value, without applying any discounts at

the shareholder level.

Tax-Effecting

In its determination of the value of Mr. Kolwe’s interest, the trial

court concluded that,

CASE argues that the failure to apply tax-effecting will
result in the remaining two CASE shareholders incurring
an obligation to pay income taxes on income that the
plaintiff received. However, CASE failed to present any

27

evidence to support that conclusion. There was no
evidence presented that this judgement [sic] will cause
any tax effect on the parties. In fact, the logic of CASE’s
argument suggest [sic] any reduction of the valuation for
tax-effecting would result in a discount for the two
remaining shareholders and double taxation for the
plaintiff; therefore, this court finds that tax-effecting the
unaccrued net assets is inappropriate in this case.

Under this interpretation, which is also espoused by Mr. Kolwe, to tax-effect the

net assets of the corporation in determining the fair value of a withdrawing

shareholder’s interest results in a discount. As we previously explained, this is

expressly prohibited in valuing a minority shareholder’s interest under La.R.S.

12:1-1435.

Tax-effecting is a method whereby an appraiser fictitiously reduces

the earnings stream, and, thus, the value, of a pass-through entity to account for a

hypothetical entity-level income tax where such entities are not subject to taxation.

CASE is incorporated as an S-corporation, and is, thus, not subject to corporate-

level tax. Instead, taxes are passed through to the individual shareholders on the

personal level to be reported as income tax. Every year, each shareholder receives

a K-1 form reporting all income received by him or her individually for that year,

and taxes are to be paid on the amount reported as income. CASE operates on a

cash basis, meaning that its accounts receivable, which comprise its unaccrued net

assets, are taxed when collected, not when earned. Therefore, until the receivables

are realized as income, these earnings are not yet subject to taxation. However, the

decision of whether to tax-effect S-corporations is an ongoing debate among the

business valuation profession.16

16
We note that Mr. MacMorran correctly and succinctly testified as to this ongoing debate:

28

As the jurisprudence of this state has illustrated, expert testimony in

cases involving the valuation of interests in a business entity is critical.

Generally, the trier of fact is not bound by expert
testimony, but is to hear and weigh expert testimony in
the same manner as any other evidence. Reasonable and
well-founded opinion should be considered. The weight
to be given expert testimony is dependent upon the
professional qualifications and experience of the expert
and especially on the facts which that expert’s opinion is
based.

The fact-trier is entitled to assess the credibility
and accept the opinion of an expert just as with other
witnesses, unless the stated reasons of the expert are
patently unsound. The effect and weight to be given the
expert’s testimony depends upon the validity of the
underlying facts relied upon by the expert, and rests
within the broad discretion of the trial judge.

Head v. Head, 30, 585 (La.App. 2 Cir. 5/22/98), 714 So.3d 231, 234. Moreover, in

analogizing to the community property context in which courts of this state must

routinely value the assets and liabilities of the community upon termination, we

likewise find that where the “asset to be valued is an interest in a partnership or

corporation, the court must be careful to value the interest, not just the assets of the

business entity” upon a shareholder’s withdrawal on grounds of oppression.

Ellington, 842 So.2d at 1166.

The debate is not about whether income taxes exist at a C Corporation
company or S Corporation shareholder level. Those taxes exist. Somebody pays
them. The debate is about how do you account for the fact that C Corporations
are double taxed, meaning they pay corporate income tax and they pay dividends.
S Corporations pay corporate level tax at the shareholder level but they’re not
taxed on their dividends.

For a more in-depth discussion on the jurisprudential development of tax-effecting in the
United States, see Daniel Tinkelman, et al, Sub S Valuation: To Tax Effect, or Not to Tax Effect,
is Not Really the Question, 65 Tax Law 555, 561 (2012).

29

The fair value of a withdrawing shareholder’s interest may be

determined by employing several approaches.17 Here, the experts agreed that the

proper approach to be employed in this case was the “net asset approach,” which

relies on valuing separately the individual assets and liabilities of the company and

assumes the highest value is achieved through breaking up the company. 18

However, the experts ultimately disagreed on the applicability of tax-effecting in

this case.

At the valuation trial, the trial court was able to weigh the conflicting

testimony presented by Mr. Theriot and Mr. MacMorran as to the applicability and

impact of tax-effecting the value of CASE’s accounts receivables. Mr. Theriot, the

valuation expert for Mr. Kolwe, opined that tax-effecting was inappropriate here.

In his valuation, Mr. Theriot first appraised CASE in its entirety to testify that one-

hundred percent interest in CASE was worth approximately $2.6 million, and

divided that figure by the total number of shareholders to determine that Mr.

Kolwe’s one-third interest in CASE was worth approximately $871,000.00. He

declined to tax-effect the $871,000.00 figure to account for the accrual of tax

liability because Mr. Kolwe remained a shareholder throughout 2017 and will

nevertheless remain liable for taxes on the income received throughout that tax

year. Mr. Theriot premised his argument on the fact that as the buyer of Mr.

17
In again noting that the LBCA’s definition of “fair value” has been identically
reproduced from § 13.01 of the Model Act, Official Comment 2(B) provides guidance in stating
that the definition “adopts the view that different transactions and different contexts may warrant
different valuation methodologies. Customary valuation concepts and techniques will typically
take into account numerous relevant factors, and will normally result in a range of values, not a
particular single value.”
18
In our independent review, we find that this approach is consistent with our
interpretation of the legal conception of “fair value.” For an extended discussion on the different
approaches to valuation, see Daniel Tinkelman, et al, Sub S Valuation: To Tax Effect, or Not to
Tax Effect, is Not Really the Question, 65 Tax Law 555, 561 (2012).

30

Kolwe’s shares, CASE is not subject to any corporate-level taxation where its tax

liability is passed-through to the shareholders who report that income on their

personal tax returns according to its S-corporation status. Therefore, because

CASE itself will not assume any future tax liability in purchasing Mr. Kolwe’s

shares where taxes are owed on the shareholder level, Mr. Kolwe will remain liable

for his share of the corporation’s tax liability for as long as he remains a

shareholder and receives a K-1 reporting item.

Conversely, Mr. MacMorran, the valuation expert for CASE, argued

that notwithstanding CASE’s status as an S-corporation, the taxes will have to be

paid by someone. In premising his argument on what a “hypothetical buyer”

would pay for Mr. Kolwe’s shares, as examined in the previous section, he testified

that “[t]hey would not pay after-tax dollars to acquire pretax assets that they have

to turn around and pay tax on again the next day. That would be a double-dip in

valuing the shares.” Thus, Mr. MacMorran ultimately argued that the issue was

not only whether the corporation itself will pay taxes, but also whether a

hypothetical buyer would pay taxes once the receivables were collected, thereby

reducing the value of those receivables to the buyer. In concluding, a hypothetical

buyer of shares in a pass-through entity will owe taxes upon collection of the

receivables, and, thus, Mr. Kolwe’s shares should be discounted to reflect that

reduction in value.

Ultimately, business valuation methods are not an exact science, and

serve as guides to the trial court in determining fair value for the parties involved.

See Vedros v. Vedros, 16-735 (La.App. 5 Cir. 10/25/17), 229 So.3d 677. Here, the

valuation determination was made for the purpose of evaluating the fair value of

Mr. Kolwe’s shares in CASE as a shareholder exercising his right to withdraw.

31

However, in light of our interpretation of “fair value,” we cannot say that the trial

court abused its discretion in its determination to not tax-effect the value of the

corporation’s receivables, nor that it committed manifest error in considering the

expert testimony of both Mr. MacMorran and Mr. Theriot in reaching its

conclusions. Accordingly, we affirm the trial court’s valuation determinations.

BP Settlement Payment

In November of 2013, CASE submitted a claim to the BP Settlement

Fund in the amount of approximately $126,000.00. In either January or February

of 2017, CASE received $105,000.00 from that claim, and subsequently collected a

net amount of approximately $95,000.00 after deducting preparation expenses.

Both experts agreed that the amount received for the claim could be included in the

valuation if it comported with certain accounting standards, or was “known or

knowable as of the valuation date” which has been established as November 29,

2015. In fact, it was adduced at the trial that Mr. MacMorran’s accounting firm

handled the administration of the BP claim. However, the experts disagreed as to

what aspects of the claim were known or knowable as of the valuation date in

determining whether the claim proceeds should be included in the valuation.

In providing expert testimony on behalf of Mr. Kolwe, Mr. Theriot

included the BP claim in his valuation because he considered it an asset of the

company as of November 29, 2015, the effective date of Mr. Kolwe’s withdrawal

and, thus, the date his shares were to be valued. In applying the relevant

accounting standards, Mr. Theriot testified that so long as the receipt of proceeds

subsequent to the valuation date are “corroborative” of a fact that was “known or

knowable” as of the withdrawal date, then he is permitted to consider those

32

proceeds in his valuation. However, Mr. Theriot acknowledged that corroborating

a fact may not serve to establish a fact, the fact here being “the incident had

occurred, the settlement had been reached, the claim had been filed, there was just

a question of approval of that claim.” While CASE did not know of the claim’s

approval until early 2017, the settlement itself set forth all of the criteria that

needed to be met, the parties supplied all the relevant documentation, and there

were no additional requests made of CASE as of November 29, 2015.

On the other hand, Mr. MacMorran testified that as of November 29,

2015, there was no known dollar amount and no known date of payment. Because

the amount that was to be eventually received from the settlement had not been

approved as of the valuation date, Mr. MacMorran testified that the BP claim was

not known or knowable and, thus, should not have been included in the valuation.

At the conclusion of the valuation trial, the trial court determined that

the value of the proceeds of the settled BP claim was to be included in the

valuation of Mr. Kolwe’s shares. It held:

In 2017, CASE received settlement proceeds of a
BP claim that had been accepted as of the date of
plaintiff’s withdrawal. The parties dispute whether this
subsequent event should be included in the valuation of
plaintiff’s shares in the corporation. Subsequent events
should not be considered in the valuation decision if
those subsequent events are indicative of conditions that
were not known or knowable at the valuation date,
including conditions that arose after the valuation date.
The parties testified that the BP claim was made prior to
the withdrawal date. Thus, this court finds that asset was
in fact known and a value of that asset was knowable.
There was no evidence presented that the settlement
value that was ultimately obtained was not knowable. . .
The plaintiff’s explanation of the [sic] how that value
was knowable was clear and convincing[.]

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Again, the trial court’s weighing of the expert testimony and its

ultimate decision to include the BP claim proceeds in the valuation of Mr. Kolwe’s

shares in CASE are subject to a review for abuse of discretion, and in the absence

thereof, we shall afford great deference to the trial court’s determination. While an

exact dollar figure of the BP claim was not approved as of the valuation date, the

completed settlement proceedings as of that date indicate that a forthcoming

payment of the claim to the corporation was at least knowable, and, thus, we do not

find that the trial court abused its discretion in accepting Mr. Theriot’s opinion

over that of Mr. MacMorran’s in its valuation determination.

Judicial Interest and Costs

Judicial Interest

On appeal, Mr. Kolwe asserts that the trial court legally erred in

failing to award legal interest from the date of judicial demand. Though both the

Original and Amended Judgments assessed costs of the valuation proceedings to

CASE, it remained silent regarding judicial interest.

In response to Mr. Kolwe’s assertion, CASE now files a Peremptory

Exception of Res Judicata and also moves this court for a partial dismissal of Mr.

Kolwe’s appeal to the extent it seeks interest and costs. Specifically, the

corporation argues that because the Consent Judgment and Order of Trial Date

signed by the trial court on July 12, 2017, dismissed with prejudice all claims and

demands except those not reserved by the parties, CASE argues that the doctrine of

res judicata bars this court from re-litigating the issue given Mr. Kolwe’s failure to

reserve interest and costs in the Consent Judgment itself.

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While Mr. Kolwe concedes that La.R.S. 12:1-1435, et seq. does not

explicitly address awards of judicial interest, he maintains that because his original

Petition filed April 6, 2016 included a prayer for judicial interest, he is, thus,

entitled to recovering such notwithstanding his failure to reserve any such

entitlement in the Consent Judgment. Louisiana Code of Civil Procedure Article

1921 provides that “[t]he court shall award interest in the judgment as prayed for

or as provided by law.” Our review of the record reveals that Mr. Kolwe did in

fact pray for judicial interest in his original Petition filed on April 6, 2016.

As CASE correctly points out, La.R.S. 12:1-1435 does not expressly

provide Mr. Kolwe with a positive statutory right to recover interest as a

withdrawing shareholder. However, we find the preceding statute, La.R.S. 12:1-

1434, which governs the corporation’s election to purchase a petitioning

shareholder’s interest in lieu of a dissolution proceeding, to be sufficiently

analogous to the instant case in allowing interest to a shareholder who is

nevertheless departing from the corporation, albeit on different grounds. While not

controlling, the statute provides some additional support for our position:

Upon determining the fair value of the shares, the
court shall enter an order directing the purchase upon
such terms and conditions as the court deems appropriate.
. . . Interest may be allowed at the rate and from the date
determined by the court to be equitable, but if the court
finds that the refusal of the petitioning shareholder to
accept an offer of payment was arbitrary or otherwise not
in good faith, no interest shall be allowed.

La.R.S. 12:1-1435(E). This case, which has in fact resulted in a judicial

determination of the fair value of Mr. Kolwe’s shares, is similar enough to the

preceding statutory provision that we find it appropriate to reason by analogy that

an award of interest is allowable here. We, thereby, allow Mr. Kolwe to recover

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judicial interest as a withdrawing shareholder in the absence of any showing of bad

faith on his part in the valuation proceedings.

In determining the date from which interest is due, however, we do

not agree with Mr. Kolwe’s assertion that he is owed interest from the date of

judicial demand. Louisiana Civil Code Article 2000 provides, in pertinent part,

When the object of the performance is a sum of
money, damages for delay in performance are measured
by the interest on that sum from the time it is due, at the
rate agreed by the parties or, in the absence of agreement,
at the rate of legal interest as fixed by R.S. 9:3500. The
obligee may recover these damages without having to
prove any loss, and whatever loss he may have suffered
he can recover no more.

Instead, we find it instructive to view the Consent Judgment as the

conventional obligation ordering that the valuation trial be held, at which the

parties understood that the trial court would determine the fair value of Mr.

Kolwe’s shares which would be owed by the corporation.

A consent judgment is a bilateral contract in which
parties adjust their differences by mutual consent and
thereby put an end to a lawsuit with each party balancing
hope of gain against fear of loss. La.Civ.Code art. 3071;
Plaquemines Parish Government v. Getty Oil Co., 95-
2452 (La. 5/21/96); 673 So.2d 1002. “A judgment,
whether it results from the assent of the parties or is the
result of a judicial determination after a trial on the
merits, is and should be accorded sanctity under the law.”
Id. at 1006.

....

Although it has the same binding force, a consent
judgment is not one rendered by a trial court as a result of
a trial on the merits. A consent judgment has binding
force from the presumed voluntary acquiescence of the
parties and not from adjudication by the trial court.

Deville v. Rapides Area Planning Com’n, 97-1437, p. 9
(La.App. 3 Cir. 6/17/98), 715 So.2d 577, 580-81, writ

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denied, 98-1943 (La. 10/30/98), 727 So.2d 1167; Peeler
v. Dural, 06-936 (La.App. 5 Cir. 4/11/07), 958 So.2d 31.

Thomas v. Thomas, 17-295, p. 6 (La.App. 3 Cir. 11/22/17), 234 So.3d 950, 954-55

(quoting Fitzgerald v. Fitzgerald, 09-1259, pp. 2-3 (La.App. 3 Cir. 4/7/10)

(unpublished opinion)).

The obligation to give a sum of money here arose by virtue of the

parties entering into the Consent Judgment, a conventional obligation; thus,

interest on that sum will begin to run from the time that obligation becomes due

rather than the date of judicial demand. 19 Therefore, we find it appropriate to

award interest from the time CASE’s obligation to pay Mr. Kolwe the fair value of

his shares became due, being the date the trial court rendered its final judgment in

the valuation trial on December 22, 2017.

Costs

CASE additionally argues on appeal that the trial court erred by

assessing costs against it in both the Original and Amended Judgments. We

disagree. Louisiana Revised Statutes 12:1-1331, which governs court costs and

expenses arising from the judicial appraisal of shares, explicitly provides that

The court shall assess the court costs against the
corporation, except that the court may assess court costs
against all or some of the shareholders demanding
appraisal, in amounts which the court finds equitable, to
the extent the court finds such shareholders acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this Part.

La.R.S. 12:1-1331(A) (emphasis added).

“When the obligation to give a sum of money is conventional, that is, when it arises
19

from a contract, that sum is due at the arrival of the term for that purpose provided in the
agreement.” 6 La. Civ. L. Treatise, Law of Obligations § 9.7 (2018)

37

Therefore, in the absence of any evidence demonstrating a finding of

bad faith on the part of Mr. Kolwe, we cannot say that the trial court erred in

assessing costs of the valuation proceeding to CASE. CASE’s Peremptory

Exception of Res Judicata is denied.

Proffering Evidence Under La.R.S. 12:1-1436(E)

On appeal, CASE asserts that La.R.S. 12:1-1436(E) required the trial

court to reduce the amount it was ordered to pay Mr. Kolwe for his shares pursuant

to the final judgment. Despite the fact that CASE brought the statute to the trial

court’s attention in opening argument and twice more before closing arguments, as

well as proffered testimony of its financial condition after the trial, it maintains that

the trial court erroneously excluded the evidence it sought to present pertaining to

the statute. Further, it argues that the statute should allow for bifurcated process to

include an evidentiary hearing following the trial court’s determination of fair

value. While the latter presents a compelling policy argument, we cannot find that

the trial court abused its discretion in its taking of evidence.

Louisiana Revised Statutes 12:1-1436(E) provides:

If at the conclusion of the trial the court finds that
the corporation has proved that its payment of the
judgment rendered in accordance with Subsection D of
this Section would violate a limitation or requirement as
described in R.S. 12:1-1435(I) or cause undue harm to
the corporation or its creditors, the court shall render a
final judgment that, by itself or in conjunction with
earlier orders or partial judgments of the court, provides
relief as close in value and effect as feasible to that
contemplated by Subsection D of this Section, but
adjusted as necessary to avoid the relevant violation or
undue harm.

While CASE attempts to argue that La.R.S. 12:1-1436(E) “requires

reduction of the judgment amount,” a plain reading of this statute reveals that, first

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and foremost, any adjustment to be made to the judgment is purely within the trial

court’s discretion. Moreover, the statute clearly conditions this discretionary

adjustment of the judgment amount upon its satisfaction that the corporation has

adequately proven that its payment of the judgment will either violate rules

pertaining to a corporation’s acquisition of its own shares or cause some undue

harm. Thus, if and only if the corporation has sufficiently demonstrated either of

these aspects before the trial court, the court may adjust the judgment as necessary

to avoid that result.

We find that nothing in the statute “necessitates” a “reduction” in the

amount, per se, as CASE argues. If so convinced at the conclusion of the valuation

trial, the trial court in its discretion may provide relief “as close in value and effect

as feasible to that contemplated by Subsection D . . . but adjusted as necessary to

avoid the relevant violation or undue harm.” La.R.S. 12:1-1436(E).

Despite acknowledging that the statute clearly and explicitly “calls for

its application ‘at the conclusion of trial,’” CASE argues that the normal order of

trial should have been varied to allow for an evidentiary hearing and/or a reopening

of the record. In light of the clear language of the statute, and finding that CASE

did in fact have several opportunities to present evidence pertaining to the

application of the statute by the conclusion of the valuation trial, we do not find

CASE’s argument to this point compelling.

We also find CASE’s assertion that the trial court erroneously

excluded evidence pertaining to La.R.S. 12:1-1436(E) meritless. In its opening

statement, counsel for CASE mentioned the statute before the trial court in an

explicit effort to bring the statute to the court’s attention. Before the close of Mr.

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Kolwe’s rebuttal, counsel for CASE again read the statute before the court and

stated,

My point is that it looks like the statute is calling
for us to know what the judgment rendered is going to be
so we can put on evidence of whether the corporation can
pay the judgment or not. And I just want to know
procedurally how we do that.

Following a recess at which the trial court reviewed the statute, it stated on the

record:

I have now had an opportunity to read Revised
Statute 12:1-1436, and it appears that the particular
paragraph that is of note is paragraph E. And my
interpretation of that paragraph is that if during the
course of this trial I determine that the value of the
plaintiff’s share is $300, that is what the evidence
convinces me, and also there has been evidence presented
during the course of the trial that convinces me that if I
order the corporation to pay any amount more than $200,
if that will cause undue harm to the corporation or to a
creditor to the corporation, then I’m not allowed to
render the $300 judgment, I’m required to reduce the
$300 judgment to something not more than $200. That is
what the statute says.

The evidence that’s already been presented, there
is no evidence that causes me to be able to conclude that
undue harm of a judgment of any amount would result –
there’s no evidence that would cause me to conclude that
any judgment I render today will produce undue harm to
this corporation or to any of its creditors. There has not
been that evidence presented. So I don’t think that that
paragraph has any bearing on anything we’re doing
today.

CASE’s assertion that a reduction in the judgment is required is simply untenable

where the ultimate condition giving rise to the trial court’s exercise of

discretionary relief was not fulfilled, that is, the corporation’s ability to present

proof or otherwise convince the trial court that it will suffer a violation or undue

harm in its payment of the judgment.

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After resting its case but before closing arguments, CASE moved to

reopen the record for purposes of introducing evidence pertaining to La.R.S. 12:1-

1436(E). Citing several appellate cases as well as codal authority, CASE argued

that the trial court had discretion to reopen the record and that it ought to do so in

this case in order to allow for “ascertainment of the truth” pursuant to La.Code

Evid. art. 611.20

In ruling on the motion, the trial court examined all of the

jurisprudence presented and determined that CASE “made a calculated decision to

not present evidence that was available.” It further stated that CASE had “not

given [the trial court] sufficient reason to exercise the discretion that [it has] to

allow you to reopen this case to present evidence.” In light of what we find to be

sound reasons enunciated throughout the valuation trial by the trial court, we are

reminded that this is ultimately an evidentiary determination of the trial court that

20
CASE also urged that if the court did not exercise its discretion in reopening the record
that it would be “precluded from offering that evidence, and also would not have the ten-year
payment plan available that was available under the old statutes, but that would be a miscarriage
of justice and would be a shield of the truth, which is what the rules are designed to prevent
against.”

We note here that the pre-revision version of La.R.S. 12:1-1436(E) allowed for a trial
court to order full payment of the judgment through an unsecured promissory note due in ten
years. Moll, 60 Loy. L. Rev. 461 at 497. Prior to January 1, 2015, the court had the option to
render a final judgment “[o]rdering the corporation to issue and deliver to the shareholder within
thirty days of the date of the judgment an unsecured negotiable promissory note of the
corporation.” The note was to be in a principal amount equal to the fair value of the shares, and
it must have provided for simple interest “at a floating rate equal to the judicial rate of interest.”
The note may have had a term of up to ten years, and it may have contained “such other terms,
customary in negotiable promissory notes issued in commercial transactions, as the court may
order.” The judgment must have also provided that the seller’s ownership is terminated “upon
delivery to the shareholder of the note.” Id. at 496.

While the LBCA as revised provides less flexibility to courts in structuring a fair value
buyout, the legislature decidedly chose to exclude this option in the revision. Perhaps an
unfortunate reality for Louisiana corporations finding themselves in buyout transactions after the
revision, the drafters’ exclusion of the option reflects a clear policy decision that we must uphold
in stating the law.

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is accorded considerable discretion by this court. While the procedure set forth in

La.R.S. 12:1-1436(E) is considerably new, our supreme court has noted,

[S]everal of the most important reasons for deferring to
the trial judge’s exercise of discretion are: his
observation of the witness, his superior opportunity to get
“the feel of the case,” . . . and the impracticability of
framing a rule of decision where many disparate factors
must be weighed . . . . On occasion, when a problem
arises in a context so new and unsettled that the rule-
makers do not yet know what factors should shape the
result, the case may be a good one to leave to lower court
discretion.

Kem Search, Inc., 434 So.2d at 1071 (La.1983) (internal citations omitted). As

such, we find the trial court has not abused its discretion in denying the motion to

reopen the record, nor in ultimately determining that CASE did not sufficiently

prove that its payment of the judgment would cause a violation or undue harm

under La.R.S. 12:1-1436(E). Therefore, its decisions with respect to the statute

will not be disturbed on appeal.

V.

CONCLUSION

Based upon the foregoing, the final judgment of the trial court

rendered on December 22, 2017, valuing Mr. Kolwe’s shares to be worth

$871,817.00 is affirmed as amended. While Mr. Kolwe’s shares were valued as of

the effective date of his withdrawal from CASE on November 29, 2015, his

obligations, rights, and duties as a shareholder of the corporation are deemed to

have terminated as of December 22, 2017. Mr. Kolwe is hereby entitled to legal

interest on the judgment valuing his shares as of the date CASE’s obligation to pay

him the fair value of his interest became due, which is the date of the final

42

judgment rendered on December 22, 2017. Costs of this appeal are assessed to

Defendant, Civil and Structural Engineers, Inc.

AFFIRMED AS AMENDED.

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