THE STATE OF NEW HAMPSHIRE

SUPREME COURT

No. 2009-0708

CARLETON, LLC

v.

RICHARD BALAGUR and MTS DEVELOPMENT CORP.

PLAINTIFF’S BRIEF

Counsel to Carleton, LLC and Bukk Carleton-AppelleeSchuster, Buttrey & Wing, P.A.Barry C. Schuster, Esq., Bar #228079 Hanover Street, P.O. Box 388Lebanon, NH 03766603-448-4780

TABLE OF CONTENTS

TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

STATEMENT OF THE FACTS and CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SUMMARY OF THE ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I. The Trial Court Properly Allocated Expenses among the Parties. . . . . . . . . . . . . . . . . . . . . . 4

A. The Trial Court Correctly Accounted for the $15,908. . . . . . . . . . . . . . . . . . . . . . . 4

B. The Trial Court Correctly Accounted for Payments from MTS to Carleton.. . . . . . 4

C. The Trial Court Correctly Required MTS to Pay for Bookkeeping Services. . . . . . 6

D. The Entire Trial Record Supports the Court’s Order. . . . . . . . . . . . . . . . . . . . . . . . 6

II. The “Interests of Equity” Favor Carleton, LLC’s Receipt of a Full and PromptPayment of the Fair Value of its Shares.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

III. The Trial Court Has the Statutory and Equitable Power to Appoint aCommissioner to Effect the Purposes of RSA 293-A:14.30 through 293-A:14.34.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

IV. The Trial Court Properly Provided for Enforcement in the Event That theElecting Shareholder Failed to Purchase Carleton’s Stock as Required... . . . . . . . . . . 15

A. Defendants Failed to Preserve Claim of “Unfairness” for Appeal. . . . . . . . . . 15

B The Trial Court’s Order Enforces the Intent of the Statute. . . . . . . . . . . . . . . . 18

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

REQUEST FOR ORAL ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

CERTIFICATION OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

TABLE OF CONTENTS OF APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

i

TABLE OF AUTHORITIES

CASES

Achille Gianoni Revocable Trust v. Bristol G.M., CV-99-0496551 (Ct.Sup.12-16-2002). . . . 17

Bendetson v. Killarney, 154 N.H. 637 (2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Bogosian v. Woloohojian, 323 F.3d 55 (1 Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20st

Bogosian v. Woloohojian, 167 F.Supp.2d 491 (R.I. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bogosian v. Woloohijian, 93 F.Supp.2d 145 (R.I. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bogosian v. Woloohojian, 158 F.3d 1 (1st Cir. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bogosian v. Woloohojian, 973 F.Supp. 98 (D.R.I. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20

Bogosian v. Woloohojian, 901 F.Supp. 68 (D.R.I. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Bogosian v. Woloohojian, 882 F.Supp. 258 (D.R.I. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Bogosian v. Woloohojian, 831 F.Supp. 47 (D.R.I. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Bogosian v. Woloohojian, 923 F.2d 898 (1st Cir. 1991). . . . . . . . . . . . . . . . . . . . . 12, 14, 18, 19

Bogosian v. Woloohojian, 749 F.Supp. 396 (D.R.I. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Carleton, LLC v. Richard Balagur & a., No. 2008-0008 (N.H. 1-21-2009). . . . . . . . . . . . 1, 6, 7

Clark v. Sims, 219 P.3d 20 (N.M.App. 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Cox Enterprises, Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-28KRS(M.D.Fla. 12-5-2008).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Cox Enterprises, Inc. v. News-Journal Corp., 510 F.3d 1350 (11 cir. 2007). . . . . . . . . . . . . 10th

Dombrowski v. Dombrowski, 131 N.H. 654 (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Kay v. Key West Development, 72 So. 2d 786 (Fla.1954). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Marsh v. Billington Farms, LLC, No. 04-3123 (R.I. Super. 8-2-2007). . . . . . . . . . . . . . . . 10, 18

ii

Matter of Aube, 158 N.H. 459 (2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Matter of Taines v. Barry One Hour Photo Process, Inc., 123 Misc.2d 529 (1983).. . . . 8, 9, 10

In re McRae, 155 N.H. 259 (2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Peck v. Jonathan Michael Builders, Inc. No. 06-0236 (R.I. Super. 10-27-2006). . . . . . . . . . . 14

Saltz v. Saltz Bros., 84 F2d 246 (D.C. Cir. 1938). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Thorndike v. Thorndike, 154 N.H. 443 (2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

STATUTES

RSA 293-A:14.30 (2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3, 13

RSA 293-A:14.32 (2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

RSA 293-A:14.34 (2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

COURT RULES

N.H. Supreme Court Rule 16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

OTHER AUTHORITIES

4 R. Wiebusch, New Hampshire Practice, Civil Practice and Procedure (2d ed.1997).. . . . . . 13

ABA Committee on Corporate Laws, Model Business Corporation ActAnnotated, (4 ed. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12th

O’Neal & Thompson, Oppression of Minority Shareholders and LLC Members, (2d ed. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

iii

STATEMENT OF THE FACTS and CASE

In its Order dated January 21, 2009, in Carleton, LLC v. Richard Balagur & a. No.

2008-0008 (N.H. 1-21-2009), this Court affirmed the trial court’s decision determining the fair

value of Carleton, LLC’s (Carleton) stock where another shareholder filed an election to

purchase in lieu of dissolution under RSA 293-A:14.34. In this second appeal, the defendants

challenge the trial court’s order allocating certain expenses between Carleton and the

corporation and requiring the immediate purchase of Carleton’s shares.

MTS Development Corp. (MTS), was formed in 1996 by Richard Balagur and Bukk

Carleton, with each owning 50 shares of stock in the corporation. Other than its bank accounts,

MTS owns only an office building and has no employees. In 2001, Richard Balagur gifted 10 of

his shares to his mother, Adrienne Balagur. By May 2004, following years of disagreement

between Richard Balagur and Carleton over how best to manage the office building in Lebanon

known as the Whipple Building, Carleton petitioned to dissolve the corporation under RSA

293-A:14.30(b). In January 2005, pursuant to RSA 293-A:14.34, Adrienne Balagur filed an

election to purchase Carleton’s stock in lieu of the pending dissolution. When the parties were

unable to agree on a fair value for the stock, the trial court, after a trial, determined the fair

value for the stock which this Court affirmed.1

Carleton thereafter requested that Adrienne Balagur complete the stock purchase

pursuant to her election and on the terms as ordered by the trial court. When she failed to reply

These facts, as well as other detailed background facts, are included in this Court’s1

Order in Carleton, LLC v. Richard Balagur & a., No. 2008-0008 (N.H. 1-21-2009)and Carleton’sbrief thereto.

1

to Carleton’s request to complete the purchase of stock, Carleton filed a Motion to Compel

Purchase Pursuant to Shareholder Election. The defendants objected, admitting in their

supporting memorandum, that

Mrs. Balagur is incapable of paying the $825,000 +/- for the shares.... In view ofthe Court’s decision about the share price there is no question about Mrs.Balagur’s inability to pay the full price from her assets. Second, Mrs. Balaguracknowledged that it would probably be necessary for her to secure financingusing the Whipple Building as security.

Defendants’ Memorandum in Opposition to Plaintiff’s Motion to Compel Purchase Pursuant to

Shareholder Election, dated May 22, 2009. Appellants’ Appendix, p. 53. In their memorandum,

the defendants offer as an alternative that Adrienne Balagur purchase Carleton’s stock in

installments over a 20-year period with interest at 3.5%. However, Mrs. Balagur, is 93 years old

and lives on Long Island, New York, and never attended any corporation board meetings and

never appeared in any of the proceedings before the trial court. Carleton, himself, is 69 years

old.

Accordingly, the trial court granted Carleton’s motion, declined the 20 year purchase

offer from the defendants, and ordered that Carleton’s stock be purchased within 90 days of its

order. The defendants appealed that order.

2

SUMMARY OF ARGUMENT

The defendants offer two categories of arguments, one concerning payments between

Carleton and MTS and the other concerning the procedure for the purchase of Carleton’s

shares.

With regard to the payments, the trial court correctly found that the defendants offered

insufficient evidence to support their claims, for which they bore the burden of proof. Were

there a transcript of the trial court proceedings, it would demonstrate that the payments by MTS

to Carleton and the reimbursements by Carleton to MTS were properly calculated and allocated

and that the trial court’s order is supported by the evidence. Absent such a record, there is no

evidence that the court’s order is unsustainable or erroneous.

With regard to the purchase of stock, the trial court properly denied defendants’ request

to allow Adrienne Balagur to purchase Carleton’s stock over a 20 year period. Such a proposal

would not only deprive Carleton of the remedies provided by RSA 293-A:14.30 through 293-

A:14.34, but it would also force Carleton to initiate proceedings in New York state any time he

required redress to insure payment from Mrs. Balagur or her estate. Absent any evidence to

support defendants’ claims, there is no evidence that the court’s order is unsustainable or

erroneous.

3

ARGUMENT

I. The Trial Court Properly Allocated Expenses Among the Parties.

A. The Trial Court Correctly Accounted for the $15,908.

The trial court’s order dated October 22, 2007, requires Carleton to reimburse MTS

$15,908 for “miscellaneous expenses.” Carleton does not dispute this ruling and has

acknowledged in pleadings and argument before the trial court that this amount is an

appropriate set-off upon the payment of his stock. See, Carleton’s Memorandum Regarding

Motion to Compel Purchase Pursuant to Shareholder Election, Appendix hereto, p. 26.

However, without citation but relying upon the “demands of equity,” the defendants

merely argue that they or MTS should receive interest on this amount. In making its order on

this issue, the trial court properly weighed the equities, namely that Carleton had a number of

claims against the corporation and Richard Balagur and that, since October 2007, the

defendants have had the use and control of the office building which has generated an annual

net operating income of more than $156,000, while Carleton has been removed as a shareholder

and is yet to be paid for his shares.

B. The Trial Court Correctly Accounted for Payments from MTS to Carleton.

The defendants also raise claims concerning payments of $8,000 and $19,997.35 from

MTS to Carleton. The trial court ordered, and Carleton agreed in the proceedings below, that

the $8,000 was the equivalent of a shareholder payment or dividend, was accrued and paid to all

shareholders and, therefore, simply reduces the amount due for Carleton’s stock. Id..

4

As for the $19,997.35 payment, the evidence showed that this was a reimbursement paid

to all three shareholders ($19,997.35 to Carleton and $19,997.35 to the Balagurs) for taxes they

paid on account of corporate income for MTS. As a Subchapter S corporation for federal tax

purposes, MTS is not taxed on its income which, instead, is taxed to the shareholders. See, In re

McRae, 155 N.H. 259, 264 (2007). This payment was made prior to the change in Carleton’s

status as a shareholder under the court’s orders and the trial court found that the defendants

provided no evidence that this reimbursement to Carleton for 2006 taxes should be paid back to

Mrs. Balagur or to MTS. Further, Mr. Balagur controlled the preparation and filing of the tax

returns and Carleton was forced to seek the assistance of the trial court simply to assure that the

tax returns were filed. Even then, Mr. Balagur filed the tax returns late which forced Carleton to

file repeated extensions for his personal tax return. Had the tax returns been promptly filed,

Carleton would have been reimbursed for those taxes years earlier. The trial court reviewed the

evidence and properly found that the payments to the shareholders for income taxes attributable

to the operations of the office building owned by the corporation was appropriate.

Additionally, the MTS shareholders’ agreement required this reimbursement for

corporate taxes paid by the individual shareholders. Since Carleton was still a shareholder in

2006 and reported income and paid taxes for that year on account of MTS, he was entitled to be

reimbursed for the taxes paid on income attributable to MTS. To deny him that reimbursement

for taxes would unjustly enrich MTS and the defendants. Thus, the trial court sustainably

exercised its discretion in its order on this payment.

5

C. The Trial Court Correctly Required MTS to Pay for Bookkeeping Services.

As for a payment of $2,420.18, the defendants provide no basis how the trial court erred

or unreasonably exercised its discretion in ordering that MTS pay Carleton for bookkeeping

services which Carleton’s office provided to MTS. The trial record showed that Carleton’s

office staff provided bookkeeping services for MTS according to payment terms agreed upon

by the MTS officers, Richard Balagur and Bukk Carleton. Trial Court Order, October 22, 2007.

Further, Carleton terminated those services when ordered to do so by the trial court, at which

time Balagur assumed the bookkeeping services. The court required that MTS pay Carleton for

services previously rendered, which extended back for over a year. That order was proper and

within the court’s discretion and the defendants provided no evidence or testimony to support

their claims. Rather, the trial court’s order reasonably addresses defendants’ claims and is

sustainable based upon the reasoning of and facts found by the court.

D. The Entire Trial Record Supports the Court’s Order.

The defendants’ complaints concerning the plaintiff’s conduct, previously heard by this

Court and the trial court in Carleton, LLC v. Richard Balagur & a., No. 2008-0008 (N.H. 1-21-

2009), carry no more weight now. Rather, they lend support to the trial court’s reasoning to

disengage the relationship of the parties, including its allocation of various expenses

attributable to the operations of the office building. Just as Carleton began this matter with his

request to dissolve MTS because of management differences with Mr. Balagur, Carleton also

disputed Balagur’s counter-complaints at trial and, again now, objects to such continued

6

complaints and relies upon the record and the orders of the trial court and this Court. There is2

no new evidence on any financial issues; the trial court heard Mr. Balagur’s claims during the

course of the trial on the merits in May 2007.

Additionally, MTS had no employees and both Richard Balagur and Bukk Carleton

provided services to MTS for the operation of the building and for which they agreed to receive

payment. The trial court was aware that this circumstance aggravated the disputes between the

two when it allocated costs and charges among the parties. There is no evidence that it

exercised this discretion improperly.

Finally, the defendants argue that the “court has repeatedly and erroneously confused the

identity of the debtor.” Brief, p. 26. This “confusion,” if it exists, arises from the defendants’

collective actions. The trial court correctly wrote that, “[t]he defendants now claim, however,

that Mrs. Balagur is entitled to certain credits.” July 29, 2009 Order, p. 1. Although the only

issue then before the court was the purchase of Carleton’s stock by Adrienne Balagur,

individually, all of the “defendants” pleadings were from Richard Balagur and Adrienne

Balagur, collectively. The Balagurs held themselves out, collectively, as the “defendants”

throughout the proceedings below and their unified pleadings continued without distinction

between the interests of Richard Balagur and Adrienne Balagur. Further, Richard Balagur

consistently referred to himself as one of the “defendants” and has presented arguments on their

behalf regarding the election and credits due on the share purchase. See, e.g. Defendants’

Opposition to Plaintiff’s Motion to Compel Purchase Pursuant to Shareholder Election,

See, e.g., statement of facts in trial court’s October 22, 2007 order (Appellants’2

appendix pp. 8 - 28) and this Court’s January 21, 2009 Order in Carleton, LLC v. RichardBalagur & a., No. 2008-0008.

7

(Appellants Appendix at p. 59). Accordingly, the trial court justifiably accepted the Balagurs’

unified pleadings and correctly appreciated their roles in these proceedings.

II. The “Interests of Equity” Favor Carleton, LLC’s Receipt of a Full and PromptPayment of the Fair Value of its Shares.

The defendants argue that the trial court improperly balanced the equitable interests of

the parties in not permitting Adrienne Balagur to purchase Carleton’s stock over a 20 year

period. Brief, p. 18. The primary basis for their claim is that she, or the Balagurs, erred in their

estimate of the value of the Whipple Building and the decline in the economy. Id. As support

for their position that the trial court improperly exercised its discretion on purchase terms, they

cite Matter of Taines v. Barry One Hour Photo Process, Inc., 123 Misc.2d 529, 474 N.Y.S.2d

362 (1983) (terms and conditions affirmed on appeal at Matter of Taines v. Barry One Hour

Photo Process, Inc., 108 A.D.2d 630 (1 Dept.1985). However, a more carefull reading of thest

text of that case, with facts somewhat similar to those at bar, demonstrates that the trial court

properly recognized the scope of its discretion to direct the share purchase upon the terms that

the court deems appropriate. As the New York trial court in Matter of Taines wrote:

It remains for me to fix the terms and conditions of the corporation'spurchase of the shares, pursuant to the statute. (Business Corporation Law, §1118, subd [a].) I decide that execution may issue forthwith and that no termsand conditions permitting a deferred payment should be imposed by the court,given the history of this corporation and the circumstances of the case.

The legislative purpose of subdivision (a) of section 1118 was to providean alternative to a dissolution while at the same time protecting the interests ofminority stockholders from the actions of the majority. (See N Y Legis Ann,1979, p 143, mem of Finneran.) There is no case law or other statutory guidancethat would define the meaning of the statutory language “upon such terms andconditions as may be approved by the court” or guide the court in the

8

formulation and imposition of proper “terms and conditions”. It seems to me thatsince the Legislature has provided an alternative to dissolution, it has given thecourt discretion in a proper case and upon good cause shown to fix terms ofpayment in order to permit the corporation to continue as a viable businesswithout undue disruption.

I decline to exercise that discretion in the matter at bar, however, giventhe nature of the oppressive conduct of the Barry-Rafton group. In my judgment,this conduct makes it unfair and unjust to permit the corporation the advantageof a deferred payment, to the further disadvantage of the petitioner. As notedabove, this close corporation was in effect a partnership consisting of Taines,Barry and Rafton, clothed with the benefits peculiar to a corporation, such aslimited liability, perpetuity and the like. (Matter of Pivot Punch & Die Corp., 15Misc.2d 713, 715.) That being so, what really happened here is that two partners,owing the third partner “the highest degree of fidelity, loyalty, trust, faith andconfidence” (Matter of Pivot Punch & Die Corp., supra, p 716), forced out thatthird partner and then proceeded to reap the benefits that the business had tooffer. In so doing, they totally destroyed his reasonable expectation of acontinuing one-third interest in a growing and profitable venture.

Barry and Rafton have controlled the corporation for a period of morethan two years, to the exclusion of the petitioner. During this time they haveenjoyed all of the advantages that went with control: they have been able to givesalaries to their sons, in whatever amounts the business could support, withoutthe petitioner's son being given a nickel; they, and not the petitioner, have beenable to collect director's fees; they, and not the petitioner, have had theperquisites and personal advantages available to the management; and they, andnot the petitioner, have had the unfettered discretion to run and expand thebusiness as they saw fit. Last, and far from least, during this period they, and notthe petitioner, have had the use of the petitioner's substantial equity and loaninvestment in the corporation. While it does not affect the value of thepetitioner's shares as of August 27, 1981, it is relevant here to note that the valueof the business has increased greatly since that time, due in no small part to thepetitioner's investment, and that this increase has accrued solely to the benefit ofBarry and Rafton, and not the petitioner.

The petitioner has already been the victim of oppressive conduct (Matterof Barry One Hour Photo Process, 111 Misc.2d 559, supra). In view of thepoints just discussed, to allow lenient terms of payment to the corporation wouldbe to lay another stripe on him

Matter of Taines, 123 Misc.2d at 539-540.

9

MTS, too, is a “close corporation ... in effect a partnership ... clothed with the benefits

peculiar to a corporation, such as limited liability, perpetuity and the like” which has as its only

purpose the ownership and operation of an office building. And, while the shareholders’

activities may not have matched the level of those in Matter of Taines, the trial court here, as

well as there, recognized its obligation to fix purchase terms that are equitable to all. Further,

compared with Matter of Taines, where prompt payment was required despite the presence of

employees and an operating business, prompt payment is even more appropriate here given

that: (1) MTS has no employees; (2) controls only a fixed asset; (3) that asset is an office

building which can be easily mortgaged; (4) the electing shareholder resides out-of-state, and

(5) the ages of the electing and selling shareholders. This is in marked contrast to the business

conducted by News-Journal Corporation in Cox Enterprises, Inc. v. News-Journal Corp., 510

F.3d 1350 (11 Cir. 2007), cited by the appellants to support a purchase in installments. New-th

Journal Corporation operated various newspapers and shopping guides and the trial court found

that the fair value of a 47.5% interest in the corporation was $129,200,000.00. Id. at 1356.

A prompt purchase of Carleton’s shares also furthers the goal of the election statute to

enable the petitioning shareholder to regain the ability to reinvest its capital elsewhere. See,

e.g., Marsh v. Billington Farms, LLC, No. 04-3123, at 23-24 (R.I. Super 8-2-2007).

When a shareholder seeks dissolution, the non-petitioning shareholders mayavoid dissolution of the corporation ... by purchasing the shares of thepetitioning party under the buyout statute....Instead of engaging in costlylitigation over whether dissolution is appropriate, the corporation's existencecontinues under the ownership of the purchasing party, and the petitioner nolonger participates in the company's future successes and failures. From thepetitioner's perspective, the buyout statute approximates a sale of the entireentity to a third party in an arms length transaction — he or she receives a prorata share of the sale proceeds and may productively invest those proceeds

10

elsewhere.

Id. at p. 7 (citations omitted).

The buyout statute contemplates a streamlined manner for an aggrieved owner towithdraw its capital ... while avoiding dissolution....Once the [shareholders] arepaid the fair value of their interests, they have the ability to reinvest their capitalin whatever manner they choose. They can invest that capital elsewhere,presumably in an investment with expected risks and returns that are similar tothe [corporation], and will be put in essentially the same financial position hadthey remained members, less any litigation and transaction costs.... Therefore,they are fairly compensated for the investment opportunity ... which they have“unwillingly surrendered.”.

Id. at 23-24.

Without a prompt payment, Carleton suffers the lost time value of its money as well as

lost opportunity costs. See, e.g., Matter of Aube, 158 NH 459, 462 (2009) (observing that if

time value of money is unaccounted for, “an otherwise equitable distribution of an asset may be

rendered inequitable due to a delayed payment over a significant amount of time.”)

Finally, while the exercise of discretion in fixing terms and conditions of share purchase

is recognized, only exceptional circumstances will override the expectation under RSA 293-

A:14.34(e) for a full and prompt payment:

It is expected that an order pursuant to subsection (e) will ordinarily provide forpayment in cash....However, mindful that cash settlement may sometimesimpose hardship on the purchasers, subsection (e) recognizes the court’sdiscretion to provide for payment of the purchase price in installments, but “onlywhere necessary in the interests of equity.” In determining whether installmentsare “necessary in the interests of equity,” the court should weigh any possiblehardship to the purchaser against the petitioner’s interest in receiving full andprompt payment of the value of his or her shares. Accordingly, before orderingpayment in installments, the court should be satisfied with the purchaser’sability to meet scheduled payments and to provide security as the court deemsnecessary. Otherwise, the contents of the order under subsection (e) are entirelysubject to the court’s discretion.

11

ABA Committee on Corporate Laws, Model Business Corporation Act Annotated, at 14-173

(4 ed. 2008) (emphasis added). See also, Bendetson v. Killarney, 154 NH 637, 643 (2006)th

(because RSA 293-A:14.34 is nearly identical to the like provision in the Model Business

Corporation Act, courts will look to the official comments of the model act for guidance on the

intended meaning of the election statute). The only limit on the court’s discretion regarding

payment terms and conditions is that its order must reflect the circumstances of the

proceedings. See generally, Cox Enterprises, Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-

28KRS (M.D.Fla. 12-5-2008) (allowing parties to execute agreement for sale of corporation to

third party and giving plaintiff exclusive control over sale process in light of defendant’s

inability to follow through on election to purchase); Bogosian v. Woloohojian Realty Corp., 923

F.2d 898, 904-905 (1 Cir. 1991) (Breyer, C.J.) (terms of shareholder buyout are subject tost

court’s equity power).

In the present case, the evidence supported the order requiring the prompt payment to

Carleton. At no time during the proceedings did the Balagurs ever suggest that she or they

would not purchase Carleton’s shares, but rather represented that it would “be necessary for her

to secure financing using the Whipple Building as security.” Given that the building is worth

over $1,725,000, and has produced a net operating income exceeding $156,000 per year and has

no mortgage or outstanding secured debt, the Balagurs should now simply be held to comply

with their representation.

Under these facts, a protracted installment plan for the share purchase would be wholly

inappropriate in light of the building’s equity and income, Carleton’s right to payment under the

statute and Adriene Balagur’s advanced age and out-of state residence.

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III. The Trial Court Has the Statutory and Equitable Power to Appoint aCommissioner to Effect the Purposes of RSA 293-A:14.30 Through 293-A:14.34.

“The Supreme Court and superior courts have inherent and statutory power to appoint a

receiver when necessary to protect the rights of persons before it in property subject to its

jurisdiction.” 4 R. Wiebusch, New Hampshire Practice, Civil Practice and Procedure §20.02, at

482 (2d ed. 1997) (citations omitted). This general proposition for equitable authority by the

courts in dealing with a variety of corporation actions, including shareholder elections as well

as corporate dissolutions, is well supported. The Balagurs provide no citation or authority to

restrict this equitable and statutory authority.

This authority has been affirmed in a number of corporate settings involving disputes

and deadlocks among shareholders as well in the dissolution context. For instance, RSA 293-

A:14.32(a) permits a “court in a judicial proceeding brought to dissolve a corporation [to]

appoint one or more receivers to wind up and liquidate, or one or more custodians to manage

the business and affairs of the corporation.” Likewise, RSA 293-A:14.32(c)(2) authorizes the

“custodian [to] exercise all of the powers of the corporation, through or in place of its board of

directors or officers, to the extent necessary to manage the affairs of the corporation in the best

interests of its shareholders and creditors.” See also, O’Neal & Thompson, Oppression of

Minority Shareholders and LLC Members, §7.22 at 7-150 (2d ed. 2004) (“A custodian differs

from a receiver in that the custodian is authorized to manage the business and affairs of the

corporation rather than to wind up and liquidate the corporation.”).

Moreover, this authority is specifically recognized in numerous corporate

circumstances. In the shareholder dispute reported in Clark v. Sims, 219 P.3d 20 (N.M.App.

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2009), the court ordered one shareholder to buy out the shares of the other or, if the shareholder

became unwilling or unable to complete the purchase, that the corporate property consisting of

real estate be sold. In a case involving a deadlock between two equal shareholders, the court in

Saltz v. Saltz Bros., 84 F2d 246, (D.C. Cir. 1938) stated that “[u]nder such circumstances a

court of equity may appoint a receiver to preserve the property of the corporation, administer it,

and, if necessary, dispose of it for the protection of the creditors and the benefit of the owners.”

Id. at 248. Likewise, in Peck v. Jonathan Michael Builders, Inc. 06-0236 (R.I. Super. 10-27-

2006), aff’d, 940 A.2d 640 (R.I. 2008), the trial court wrote that “its inherent power to appoint a

receiver is broad and has been supplemented by the statutory powers to liquidate and dissolve a

corporation.” Finally, in Bogosian v. Woloohojian Realty Corp., 923 F.2d 898 (1 Cir. 1991)st

(Breyer, C.J.), the court noted:

[T]raditionally corporate liquidation and reorganization proceedings areproceedings in equity...Court supervised buyouts are simply one method ofrestructuring a corporation intended to avoid the more drastic dissolutionremedy...[Respondent] provides us with no reason, nor can we think of any, whya legislature would want a court to lose its equity powers when a corporation, inthe midst of a dissolution proceeding, elects the buyout alternative.

Id. at 904 (citations omitted).

In this case, the court’s equity power to appoint a commissioner for the sole purpose of

assuring the purchase of stock pursuant to a shareholder’s election is exactly what the Bogosian

court was addressing. The trial court provided adequate time for performance and exercised its

equitable authority with restraint only to assure that the purchase, as elected, occurred.

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IV. The Trial Court Properly Provided for Enforcement in the Event That theElecting Shareholder Failed to Purchase Carleton’s Stock as Required.

A. Defendants Failed to Preserve Claim of “Unfairness” for Appeal.

The defendants have argued that requiring the sale of the Whipple Building is unfair to

the “non-electing shareholder(s).” However, the evidence demonstrates that the election

belongs to both defendants and that the claim of unfairness was not raised below. Although the

defendants represented in their pleadings that Mrs. Balagur made the election, she, herself,

never appeared at any court proceeding in this matter. As noted, she did not attend corporate

meetings, she is 93 years old and resides on Long Island in New York. On the other hand, her

son, Richard Balagur, from whom she received her shares as a gift, is a professional real estate

manager and investor, and owns a number of commercial properties and is now the sole

manager of the Whipple Building. While the Balagurs use the phrase “non-electing

shareholder(s),” Richard Balagur is the only non-electing shareholder. Together, they control

100% of the corporation.

Furthermore, any claim that the sale of the Whipple Building causes unfairness to

Richard Balagur is new and was never presented to the court below. Thus, this issue was not

preserved for appeal. Rather, in the defendants’ prior pleadings they both argued that “Mrs.

Balagur acknowledged that it would probably be necessary for her to secure financing using the

Whipple Building as security.” Defendants’ Opposition to Plaintiff’s Motion to Compel

Purchase Pursuant to Shareholder Election, dated May 22, 2009, at 7 (emphasis added). See

also, Id. at 10 (“[Adrienne Balagur] is prepared to pay 20% of the purchase price up front, with

the remaining 80% paid out in installments secured by a first mortgage on real estate owned by

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the corporation.”) (emphasis added). In the Balagurs’ pleadings and arguments to the trial

court, they represented that financing the Whipple Building was their expectation.

Mr. Balagur, apparently, now objects to the court’s enforcement of the statutory

election, even though his pleadings represented that the Whipple Building would be used to

finance the purchase. His complaint of unfairness was not presented as an issue to the court

below and defendants failed to preserve this issue for appeal. See generally, N.H. Supreme

Court Rule 16(3)(b); Dombrowski v. Dombrowski, 131 NH 654, 662 (1989); Thorndike v.

Thorndike, 154 NH 443, 447-448 (2006) (finding petitioner’s appeal did not refer to any

location in the record where issues raised for the first time on appeal had been addressed

below).

Even more so, however, the trial court did not simply order that the Whipple Building

be sold as an initial matter. Rather, the trial court was aware that this case began in 2005; that

the election was made in 2006; that the trial occurred in 2007; and, that on January 21, 2009,

this Court affirmed the order on fair value. Given the duration of the proceedings and Adrienne

Balagur’s stated intent to purchase Carleton’s stock, the Balagurs were adequately on notice,

after years of proceedings, that the purchase would now proceed. Therefore, in its July 29, 2009

Order, the trial court provided an additional period of 90 days within which to purchase the

shares and simply included a provision to assure that the purchase occurred. Thereafter, only if

compliance did not occur and the shares were not so purchased, would the sale of the Whipple

Building be authorized. There is no evidence that 90 days was an unreasonable period of time

to conclude the purchase of Carleton’s stock, or that Adrienne Balagur would be unable to

complete the purchase within that time, whether by drawing on savings or other property or by

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obtaining a mortgage - as they stated she would do. Further, at no time did she or Mr. Balagur

ever seek to revoke the election to purchase.

Finally, the defendants’ reference to a reverse veil piercing is inapposite. Not only do

none of the cases cited by the appellants arise in the context of a closely held corporate

dissolution or shareholder election, but the weight of authority confirms the court’s authority to

order the sale of corporate assets in a dissolution, and likewise, in a shareholder election. The

record before the trial court also shows that the defendants raised no objection when the court

ordered a mortgage on the Whipple Building to secure the payment of Carleton’s shares. Order

on Pending Motions, March 12, 2008, Appellants’ Brief, p. 236. Achille Gianoni Revocable

Trust v. Bristol G.M., CV-99-0496551 (Ct.Sup.12-16-2002) (ordering mortgage on corporate

real property to secure payment by individual electing shareholder’s payment of the share

purchase). The imposition of a mortgage on the corporate real estate is functionally no different

than ordering the property sold if the election fails to occur.

Even before the model acts provided a statutory structure for dissolutions and

shareholder elections in lieu of dissolution, courts had authorized the sale of corporate real

estate in their efforts to resolve similar shareholder disputes. In Kay v. Key West Development,

72 So. 2d 786 (Fla.1954), the Florida Supreme Court found the trial court “clearly in error”

when it ruled that it did not have the authority to order the sale of the corporation’s sole asset, a

single piece of real estate. Id. at 788. The court wrote:

[A] deadlock was created, resulting in a situation rendering it impossible toreach an agreement on either a sale of said lands or a division of the samebetween the respective interests....

Had this property been acquired by these two parties as tenants in common, the

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remedy of partition would have been immediately available in the event of adisagreement between them as to the price, manner or method of sale. The factthat the title is taken in the name of a corporation should not be allowed to createa legal vacuum which could well result in a situation that might be seriouslyinjurious to one party who may be entirely free of fault or place one party at theabsolute mercy of the other.

... If ever there was a case where equity should intervene and provide a solutionto a problem, it is in an instance such as this. In providing relief we can see noviolence to any legal or equitable principle. It is not necessary in granting suchrelief to dissolve the corporation. Neither do we feel that intervention by a courtof equity under the circumstances revealed by this record is in any way meddlingwith the internal affairs of corporate management.

The Legislature ... recognized the necessity for providing for relief in instancesof this kind....We see no reason, however, why the chancellor below, in the entryof an appropriate decree in this case, may not follow the pattern delineated bythe statute and give substantially the same relief under its broad equity powerswithout getting into the question of whether the corporate entity itself may bedissolved by decree of the court. As we view the matter, full relief can begranted without destroying the legal existence of the corporation.

Id. at 787-789 (citations omitted).

In Bogosian v. Woloohojian Realty Corp., 923 F.2d 898 (1 Cir. 1991) (Breyer, C.J.),thest

court echoed this equitable authority to require the sale of corporate real estate where the court

stated that it could “think no reason why a legislature would want a court to lose its equity

powers when a corporation, in the midst of a dissolution proceeding, elects the buyout

alternative.” Id. at 904.

B. The Trial Court’s Order Enforces the Intent of the Statute.

One purpose of the shareholder election statute is to provide a “streamlined manner for

an aggrieved owner to withdraw its capital ... while avoiding dissolution....” Marsh v. Billington

Farms, LLC, No. 04-3123, at 23-24 (R.I. Super 8-2-2007). In seeking to satisfy that purpose,

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the trial court required that Carleton’s stock be purchased within 90 days in order to bring an

end to the differences between the parties.

The defendants are mistaken when they assert that the “court’s orders set a harmful

precedent.” The solution they propose, a 20 year payout by Mrs. Balagur, would not only

deprive Carleton of his property but would make Carleton a forced creditor at an interest far

below the investment returns from the Whipple Building. Even more so, the defendants’

proposal would only ensure proceedings reminiscent of “Jarndice v. Jarndice” in Dickens’

Bleak House, or the real-life disputes involving Elizabeth Bogosian and Woloohijian Realty.

See, Bogosian v. Woloohojian, 973 F.Supp. 98, 109 (D.R.I. 1997) (plaintiff has been effectively

a forced creditor for the past eight years). The series of cases under Bogosian involved a stock-

purchase election in a corporation which owned real estate. While the chronological listing of

the Bogosian cases cover many issues, they demonstrate the all too real potential for the

lengthy, on-going disputes which the court and Carleton seek to avoid.

Bogosian v. Woloohojian, 749 F.Supp. 396 (D.R.I. 1990) (denial ofmotion to revoke its election to purchase);

Bogosian v. Woloohojian, 923 F.2d 898 (1st Cir. 1991) (Breyer, C.J.)(affirming district court order directing defendants execute mortgage in favor ofplaintiff in amount of $10,000,000.00 as security for payment of her shares;affirming award of interim distributions to plaintiff of $10,000/month during thependency of suit with all payments to be credited against her final award; Breyer,CJ, acknowledges courts’ broad equity powers under the buyout statute,specifically, and that, traditionally, corporate liquidation proceedings areproceedings in equity);

Bogosian v. Woloohojian, 831 F.Supp. 47 (D.R.I. 1993) (motion tomodify initial report of special master on real estate valuation);

Bogosian v. Woloohojian, 882 F.Supp. 258 (D.R.I. 1995) (adoptingreports by special master on valuation of corporation’s real estate and addressing

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plan for satisfaction of the purchase price, recognizing that setting appropriateterms and conditions constitutes equitable proceeding);

Bogosian v. Woloohojian, 901 F.Supp. 68 (D.R.I. 1995) (granting motionto vacate order of magistrate judge). Appeal dismissed without opinion at 86F.3d 1146 (1st Cir. 1996);

Bogosian v. Woloohojian, 973 F.Supp. 98 (D.R.I. 1997) (terms andconditions for sale of assets including compound interest for eight year forcedcreditor status);

Bogosian v. Woloohojian, 158 F.3d 1 (1st Cir. 1998) (reversing districtcourt ruling rejecting deferred tax liability adjustment );

Bogosian v. Woloohijian, 93 F.Supp.2d 145 (R.I. 2000) (district courtvaluation on remand);

Bogosian v. Woloohojian, 167 F.Supp.2d 491 (R.I. 2001) (post-remandon valuation to amend complaint to add claims of oppression and squeeze-out);

Bogosian v. Woloohojian, 323 F.3d 55 (1 Cir. 2003) (appeal of districtst

ruling denial of continuance, adverse evidentiary rulings, and interestdetermination).

The trial court rightly recognized that the relationship between Carleton and the

Balagurs was not acceptable to either party and that a prompt separation would serve them and

avoid the possibility of the Bogosian proceedings.

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CONCLUSION

The trial court correctly allocated the costs and expenses between Carleton and MTS.

There is no evidence that the trial court unsustainably exercised its discretion in requiring

Carleton to account for his dividends, requiring MTS to pay for its agreed upon bookkeeping

services and in reimbursing all shareholders for the corporate taxes each paid. These orders are

reasonable and are supported by the evidence.

The trial court reasonably accepted the representation by both defendants that Adrienne

Balagur would purchase Carleton’s stock, and would do so by mortgaging her property or the

corporation’s property. The trial court properly declined the defendants’ suggestion which

would reduce Carleton to a forced, long-term creditor of an out-of-state debtor or estate while

the Balagurs reap hundreds of thousands of dollars in profits from the in-state real estate.

Adrienne Balagur should be held to her election to purchase and the Balagurs should

now be required to perform as they both represented. The trial court’s order provided adequate

time for performance and merely ensured that Carleton’s stock will be purchased. Based upon

the evidence before the court, including the defendants’ own representations, the trial court

properly ordered the prompt and full payment for Carleton’s shares.

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REQUEST FOR ORAL ARGUMENT

The plaintiff, Carleton, LLC requests that its counsel, Barry C. Schuster, Esq., be

allowed to present its oral argument before the Court.

Respectfully submitted:Carleton, LLCBy its Attorneys:

March 3, 2010 By:________________________Barry C. Schuster, Esq., Bar #2280Schuster, Buttrey & Wing, P.A.79 Hanover Street, P. O. Box 388Lebanon, NH 03766603-448-4780

CERTIFICATION OF SERVICE

I hereby certify that two (2) copies of this Brief were mailed this 3 day of March 2010rd

to Geoffrey Vitt, Esq., attorney for Richard Balagur and Adrienne Balagur.

_____________________________Barry C. Schuster, Esq.

22

TABLE OF CONTENTS OF APPENDIX

Motion to Compel Purchase Pursuant to Shareholder Election.. . . . . . . . . . . . . . . . . . . . . . . . 24

Plaintiff’s Memorandum Regarding Motion to Compel PurchasePursuant to Shareholder Election .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

23