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In the Courts: B.C. real estate investment firm treated minority shareholder unfairly, says judge

Huntly Investments obstructed shareholder’s efforts to sell its shares, court finds
The B.C. Supreme Court in Vancouver

“Mi casa es su casa” doesn’t appear to have applied in a dispute between a real estate investment company and a minority shareholder.

Casa Margarita Enterprises Ltd. holds two per cent of the shares in Vancouver’s Huntly Investments Ltd. and claimed in a lawsuit the company acted oppressively by paying out dividends to larger shareholders first and stonewalling Casa in its attempts to sell its Huntly shares, among other claims.

While rejecting Casa’s other claims, B.C. Supreme Court Justice Wendy Baker sided with Casa on those two issues and ordered Huntly to buy out Casa’s shares at a fair value.

Other than the Casa shares, Huntly is owned by a tangle of Wolverton family entities, ranging from small individual ownership stakes and larger stakes for family trusts.

A majority interest is owned by another Wolverton-owned company, Pacific Investment Corporation Ltd. (PIC).

Casa, meanwhile, was owned by Margaret Cowan until her death in 2016. Since then, her estate has been trying to wind up Casa to distribute its value to its beneficiaries.

Casa told Huntly in July 2017 that it wanted to liquidate its Huntly shares and asked if the Wolverton family would buy them, leading to the shareholder oppression battle.

When Casa asked for financial records to support its own valuation of its shares, Huntly declined. Huntly also refused Casa representatives access to the apartment buildings it owned in downtown Vancouver to conduct value assessments, Baker noted.

Brent Wolverton, the CEO of PIC, failed to notify other shareholders of Casa’s intention to sell its shares for months after Casa made its request. And his valuations of the company to facilitate share transfers were broadly based on BC Assessment values of the two apartment buildings.

Brent acknowledged in court that he testified in a separate court case that the Stadacona property’s market value was about $50 million in 2009, despite that year’s BC Assessment valuation at $17 million.

He refused to concede that the BC Assessment value was “not even close to the actual value as he perceived it,” Baker said, adding Brent refused to admit the property’s value had increased between 2009 and 2020.

Baker found Brent was willing to facilitate his family members’ and PIC’s requests to sell shares, but would only offer to buy all of the shares in Casa rather than buy out Casa’s Huntly shares.

And when he made that offer, it was based on a “notional value” of Casa’s Huntly shares that was lower than the value paid to Wolverton family members and PIC for their Huntly shares months later.

“This offer was made by Brent knowing that he had obstructed Casa in its attempt to independently determine the value of the shares,” Baker wrote.

Baker noted Cowan had also attempted to sell her shares before she died. She had ovarian cancer and had reportedly been experiencing financial difficulties.

Based on her longstanding ties with the Wolverton family, she counted on them being open to her selling shares, one friend testified.

When Brent refused, Cowan’s friends testified, the otherwise stoic woman was distraught.

The refusal to buy her shares was also contrary to Huntly’s history – PIC bought out numerous other shareholders outside the Wolverton family, Baker noted.

Baker said refusing to let Casa sell its shares rendered its ownership “essentially valueless” and said Brent and Huntly “have taken advantage of the position of Casa, to their own benefit.”

Baker also found Casa was treated unfairly in a corporate reorganization that resulted in a special dividend to shareholders, which would be paid out in annual instalments over 10 years.

Casa argued this was unfair, as many of the beneficiaries of the Cowan estate were in their 70s or 80s, and their chances of living through the next 10 years to receive the full benefit were far lower than that of the Wolverton shareholders, who were mostly in their 50s.

Brent argued Huntly couldn’t afford to pay out Casa over a shorter period, but in fact, he arranged in May 2022 for the dividend to be paid out in its entirety to PIC. He did this by way of forgiving $5.8 million in debt that PIC owed to Huntly. But that figure was more than $2.5 million higher than its dividend share, Baker noted.