ON APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN (D.C. Civil Action No. 109-1971)
Before HASTIE, GIBBONS and HUNTER, Circuit Judges
The defendant Norman A. Willock appeals from a judgment of the District Court of the Virgin Islands which directed that he specifically perform pursuant to a buy-out provision in a stockholder's agreement with the plaintiff Arnold Dresden. The buy-out agreement requires Willock to purchase 100 shares of stock in Willock Associates, Ltd. which are now worthless from Dresden for $250,000. Willock also appeals the dismissal of his counterclaim for an accounting. The case was tried without a jury. Because the district court misapplied legal precepts to the facts which it found, and in some instances disregarded undisputed evidence, we reverse and remand for further proceedings.
THE SPECIFIC PERFORMANCE CLAIM
Willock Associates, Ltd. is a Virgin Islands corporation which was created by Willock and Dresden in September, 1969 to build, own, and operate the Lime Tree Beach Hotel in St. Thomas. Pursuant to an agreement made at the time of incorporation Willock owned 80 per cent, and Dresden 20 per cent of the stock of the corporation (App. at 361a-62a). The stockholder's agreement, dated December 15, 1969, however, by virtue of clauses requiring unanimous action by the directors, and an 85 per cent vote on any corporate matter, vests in Dresden the equivalent corporate power of a majority stockholder. (App. at 323a). The agreement also provides that at any time, Dresden at his sole option, may tender his stock to Willock, who must purchase the stock during the agreement's first year at a fixed price of $2,000 per share, or book value, whichever is higher. (App. at 324a). The minimum purchase price increases $500 per share each year during the second, third, and fourth years of the agreement. Thereafter, the value of each share is fixed at its book value. (App. at 324a).
On February 4, 1971, pursuant to the buy-out provision in the stockholder's agreement, Dresden tendered 100 shares of stock to Willock and demanded $250,000 in payment. Willock refused to accept the tender, and on March 9, 1971 Dresden filed suit for specific performance of the agreement. However by this time the corporation was experiencing serious financial difficulties and by Dresden's own admission the corporation was insolvent in the sense that it was unable to meet its debts as they matured. (Tr. 96). In June, 1971 the stock was effectively rendered worthless when the creditors foreclosed their mortgage on the hotel, bought in the property at the foreclosure sale, and then secured a deficiency judgment against the corporation. The district court noted that "[as] of trial [June, 1973] the corporation had no assets and owed considerable sums of money. The book value of its shares therefore is zero or less...." (App. at 370a). Nevertheless, the court ordered specific performance of the agreement, and further directed that judgment be entered in Dresden's favor in the amount of $250,000 together with interest from May 1, 1971 and attorneys fees should Willock fail to perform. (App. at 380a-81a).
The circumstances leading up to the execution of this singularly improvident and one-side stockholder's agreement began in April 1967 when Willock visited the office of Frank Miller, Esq., an attorney practicing law in New York City for the purpose of seeking representation in obtaining a divorce. Willock was then 29 years old. He had attended Carnegie Institute of Technology for two and a half years majoring in painting and design. He did not complete the required work for a degree. (Tr. 136). From the fall of 1961 until 1967 Willock was engaged in the photography business in association with two other individuals in the operation of a photographic studio. (Tr. 137). Willock's parents were people of considerable means, and according to Willock's deposition testimony, he was the recipient of between $25,000 and $30,000 a year as beneficiary of three trust funds. (Deposition at 6-7).
Arnold Dresden, a member of the New York bar since 1936, was in May of 1967 associated in the practice of law with Frank Miller. Miller turned Willock's matrimonial matter over to Dresden, who over the course of a year brought it to a conclusion, securing Willock a divorce and a custody and propery settlement. During that year Willock also conferred with Dresden with respect to a hotel project in the Virgin Islands which Willock was interested in developing. (Tr. 10). Initially, Willock and a friend, one John Morris were desirous of forming an association with a Mr. Malling-Holme of Morningstar Beach Club, with Willock investing money in Morningstar to rehabilitate the existing property and to build 30 or more new hotel units. However they had reached an impasse in their negotiations with Malling-Holme, and so they asked Dresden "to speak to Mr. Malling-Holme and see if [he] could finalize their position...." (Tr. 11). Dresden did negotiate on their behalf with Mr. Malling-Holme, both in the Virgin Islands and in New York, but arrangements with him were never finalized. (Tr. 12).
When the Malling-Holme deal fell by the wayside Willock and Morris asked Dresden, who had experience in real estate and other commercial ventures, to go down to the Virgin Islands and look at possible alternate sites for the construction of a hotel. (Tr. 19). He did so, and recommended to Willock and Morris purchase of a 16 acre site at Red Hook. He also looked at the present location of the Lime Tree Beach Hotel but did not recommend it. Despite his recommendation, Willock and Morris rejected the Red Hook site and opted for the present location. Dresden negotiated with the owner and purchased the property for $900,000. (Tr. 21).
Apparently fairly early in the proceedings there was a discussion about Dresden and Frank Miller being paid for their services in connection with Willock's Virgin Islands project by taking a stock interest in a corporation which had been organized to take over the property. A letter, dated June 4, 1968 on Miller's letterhead addressed to Dresden, reads:
I have this day accepted a check from Norman Willock in the sum of $17,500, representing payment in full for our services, jointly and severally, in connection with his Virgin Islands project and in extinguishment of our projected stock interests.
I have today paid you therefrom, the sum of $8,000, which represents a full accord and satisfaction between us and for all services rendered by you in all office matters to date, except Jefferson Estate.
Will you please acknowledge our understanding by appending your signature below.