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Hornberger v. Dave Gutelius Excavating, Inc.

Superior Court of Pennsylvania

December 15, 2017

D. ALLEN HORNBERGER Appellant
v.
DAVE GUTELIUS EXCAVATING, INC. Appellee

         Appeal from the Judgment Entered December 19, 2016 In the Court of Common Pleas of Union County Civil Division at No(s): 15-085

          BEFORE: MOULTON, J., SOLANO, J., and MUSMANNO, J.

          OPINION

          MOULTON, J.

         D. Allen Hornberger appeals from the December 19, 2016 judgment entered in the Court of Common Pleas of the 17th Judicial District (Union County Branch) in favor of Dave Gutelius Excavating, Inc. ("DGE") following a non-jury trial. We affirm.

         DGE is a closely held Pennsylvania corporation that operates an excavation construction business. Hornberger worked as a land surveyor for DGE from March 1999 until November 2011. In February 2006, Hornberger bought 10 shares of common capital stock in DGE pursuant to a stock purchase agreement. On February 16, 2006, Hornberger also entered into a shareholders' agreement ("Agreement") with DGE and other shareholders. Under paragraph 3 of the Agreement, DGE retained the right to redeem Hornberger's 10 shares if he ceased being an employee:

In the event that Hurst, Gramly, Beaver, Shaffer, or Hornberger resign[s], retires, or otherwise voluntarily or involuntarily terminates his employment with [DGE], [DGE] shall have the right to redeem all or part of the shares of stock of [DGE] owned by such Stockholder within thirty (30) days of the Stockholder's termination as to whether it desires to redeem all or part of the stock of [DGE] owned by the Stockholder and, if so, the number of shares which it desires to purchase at a price to be determined and paid in accordance with the provisions of Paragraph 5 hereof. . . .

         Agmt. ¶ 3 (emphases in original). Paragraph 5 of the Agreement further provides:

With respect to the purchase price for any shares in [DGE] of Hurst, Gramly, Beaver, Shaffer, or Hornberger purchased pursuant to Paragraphs 2, 3 and 13 hereof relating to the voluntary or involuntary relinquishment of a Stockholder's shares in [DGE] shall be calculated by reference to the "Adjusted Net Book Value." The term "Adjusted Net Book Value" shall mean the value of [DGE's] shares as of the end of the month immediately preceding the sale or transfer, as determined by [DGE's] independent certified public accountants, subject to the following provisions:
(i) No allowance shall be made for the goodwill or trade name of [DGE].
(ii) Accounts payable shall be taken at face amounts less discounts deductible therefrom, and accounts receivable shall be taken at face amount less discounts less a reasonable reserve for bad debts.
(iii) All real property . . . and all tangible personal property . . . shall be taken into account at their fair market value as of the date of the proposed sale or transfer. . . .

Id. ¶ 5 (emphases in original).

         Hornberger voluntarily quit his employment with DGE on November 30, 2011. After obtaining a valuation from Bradley D. Kellett, an independent certified public accountant ("CPA"), DGE sought to redeem Hornberger's 10 shares of stock for the purchase price of $42, 800. Kellett's valuation letter stated:

I have calculated the adjusted net book value of [DGE] as of August 31, 2013 for use in determining the value to be paid to Allen Hornberger who currently owns 10 shares of common stock of the corporation. . . .
The net book value as of August 31, 2013 is calculated as $6, 436 per share before discounts for a minority interest and lack of marketability. These types of discounts are widely used in valuation methodologies . . . .
. . . I used a conservative minority discount of 30% and a conservative lack of marketability discount of 5%, as appropriate. As a result, the minority interest discount is $1, 931 per share and the ...

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