The widow and children of the late William Koch Jr., can keep their shares in the southern Indiana theme park, Holiday World and Splashin' Safari, after a ruling by the Indiana Court of Appeals concluded that William’s brother, Dan Koch, and Koch Development Corp. offered too little money for the shares.
In Koch Development Corporation and Daniel L. Koch v. Lori A. Koch, as personal representative of the Estate of William A. Koch, Jr., deceased, 82A04-1212-PL-612, the Court of Appeals affirmed the Vanderburgh Circuit Court’s judgment against Dan and KDC. The lower court held that Lori Koch was the owner of 49,611.6 shares of KDC stock and because Dan and KDC materially breached the shareholders’ agreement, she did not have to sell the shares to KDC and Dan.
Writing for the court, Judge Paul Mathias acknowledged the pain the family fight has caused.
“While we regret seeing a family divide itself over an internal business dispute, our role is to determine whether the trial court’s findings were supported by sufficient evidence and whether these findings support the trial court’s judgment,” Mathias wrote. “Here, the evidence favorable to the trial court’s decision supports the trial court’s conclusion that Dan and KDC materially breached the terms of the Agreement and that this material breach excused the Estate of its obligation to perform under the Agreement.”
The dispute erupted after Will Koch died unexpectedly in June 2010 and Dan Koch, who had been an attorney in Florida, became the president of KDC, the owner and operator of the amusement park.
Under terms of the Share Purchase and Security Agreement executed in 2002, Will, Dan and their sister Natalie dictated that upon the death of any shareholder, KDC would purchase all the shares of common stock owned by the decedent.
In December 2010, KDC and Dan offered to purchase Will’s shares from the estate for $26.9 million, based on the value of $541.93 per share. The estate rejected the offer, claiming the shares were worth $653.07 each putting the total purchase price at $32.1 million.
Before the Court of Appeals, Dan argued that despite the minutes from a July 2009 shareholders’ meeting that valued the stock at $653.07 per share, the shareholders did not agree to that price. He claimed the trial court erred by excluding testimony from Natalie and himself that would have supported his contention.
The Court of Appeals found the trial court properly rejected the testimony since Natalie “was a sufficiently interested party with interests adverse to those of the Estate.” In particular, she had acknowledged that she was worried if Dan lost control of KDC, he might not be able to repay her the more than $10 million he still owed for shares he previously had purchased from her.
Both the trial court and Court of Appeals highlighted that neither Dan nor KDC made any effort to correct their initial offer within the 180-day limit imposed by the agreement. Dan asserted the time provision in the agreement was “boilerplate” language.
Again, the Court of Appeals rejected Dan’s argument. It held because the shares’ value could fluctuate significantly, the decedent’s shares should be purchased in a short period of time.
In upholding the trial court’s finding that Dan and KDC materially breached the terms of the agreement, the Court of Appeals dismissed, in particular, Dan’s assertions that he would suffer forfeiture if the estate was allowed to keep Will’s shares and that he did not have enough time to fix the situation.
The Court of Appeals noted that the agreement does not give Dan the right to run the family business, only the opportunity to purchase the shares of the decedent. As to Dan’s claim he needed more time, the Court of Appeals pointed out that instead of making any effort to adhere to the terms of the agreement, Dan and KDC “stubbornly stood by their initial, low-ball offers.”
Finally, the Court of Appeals concluded there is ample evidence that Dan and KDC did not act in good faith. Specifically, it found that Dan planned to increase his salary to somewhere between $875,000 to $1.16 million in an effort to decrease the dividends that would have benefitted Lori and her children, and that he took loans and bonuses totaling $875,000 from KDC in order to pay the money he owed Natalie.
The Court of Appeals concluded these material breaches of the agreement did excuse the estate from its obligation to sell Will’s shares to Dan and KDC.
Dan claimed that despite his and KDC’s material breaches and bad faith, the estate should still be required to sell its shares. However, the Court of Appeals held that Dan’s position is in direct contradiction to well-established Indiana law, as discussed in Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d at 1048 (Ind. Ct. App. 2003), that a party in a material breach of a contract cannot seek to enforce the contract against the non-breaching party.