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Susan A. Guge, et al., v. Kassel Enterprises, Inc., et al.. IA corporation dissolution
This Palo Alto County, Iowa, case involved a family farm held in the form of a subchapter S corporation. The farm was incorporated in 1977, and when the owners died in 2005 and 2017, the shares went to the children. A son held 52.5% of the shares, with two daughters each holding 23.75%. Dissatisfied with his management of the farm, the daughters sued for dissolution under Iowa Code 490.1430, alleging misconduct.
That statute allows the defendant to elect a buyout of the complaining shareholders, and the brother took advantage of that provision. The statute requires the court to set the fair market value, and the case ultimately found its way to the Iowa Supreme Court.
After determining the overall value, the issue became whether there should be a deduction for hypothetical transaction costs that would have been incurred in a market sale. The high court held that such a deduction was proper, and reversed the lower court's determination that such costs should be ignored.
The brother also contended that there should have been a reduction in value to compensate for potential capital gains taxes on the appreciation of the underlying property. But here, where there was no evidence indicating that the property would be sold and such taxes incurred, the high court held that such a deduction would be improper.
The court also held that market value could not be increased due to allegations of the brother's mismanagement.
After addressing witness and attorney fees, the Supreme Court remanded the case.
No. 19-2151 (Iowa June 18, 2021)
Please see the original opinion for the court's exact language.
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Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).
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