Ehlinger v. Hauser

¶1¶ 122. (concurring). I write in concurrence because I conclude that William Ehlinger (Ehlinger) and Jon Hauser (Hauser) had no binding buy-sell agreement in regard to valuing a shareholder's interest in Evald Moulding, Inc. (Evald). The proposed buy-sell agreement is irretrievably indefinite in that it does not define an essential term of the proposed agreement, i.e., on what basis Evald's assets and liabilities are to be valued in calcu*332lating book value. Accordingly, I conclude that the proposed buy-sell agreement is unenforceable.

¶2¶ 123. I also write in concurrence because I conclude that the majority's theory that the proposed buy-sell agreement is unenforceable due to Hauser's failure to preserve sufficient corporate records to verify Evald's March 31, 2001 balance sheet rests on three unspoken assumptions, with which I am not in agreement. The first assumption is that the proposed buy-sell agreement between Ehlinger and Hauser intended Evald's March 31, 2001 balance sheet to be the basis for determining book value no matter on what basis that balance sheet's assets and liabilities were valued. The second assumption is that Hauser had an obligation to maintain documents sufficient to verify Evald's March 31, 2001 balance sheet. The third assumption is that having the documents that underlie Evald's March 31, 2001 balance sheet will cure any ambiguity or indefiniteness in the proposed buy-sell agreement. None of those assumptions is warranted. Accordingly, for the reasons set forth below, I respectfully concur.

¶3I. BACKGROUND

¶4¶ 124. The lengthy history of this case is ably set out in the majority opinion and need not be repeated here. Suffice it to say that on June 20, 2001, Hauser invoked the disability buyout provision of the proposed buy-sell agreement based on Ehlinger's disability. Because that agreement used the term "book value" as the measure for determining a shareholder's interest in Evald, Hauser calculated what he asserted was the book value of Evald at the relevant time, the end of Evald's fiscal year, March 31, 2001. Hauser offered Ehlinger $431,400 to purchase his stock in Evald.

¶5*333¶ 125. Ehlinger agreed that Evald's book value was the measure for ascertaining the value of his stock, but he concluded that book value had been understated. Therefore, he refused Hauser's offer.

¶6¶ 126. Ehlinger also asked that Evald's financial records be audited and the book value be determined based on that audit. Hauser refused, and because Hauser and Ehlinger are equal shareholders, no audit was done.

¶7¶ 127. In the lawsuit that is now before us, Ehlinger asserted that Hauser had calculated book value on a tax basis, that the accounts receivable were undervalued and that all of the liabilities listed on the March 31, 2001 balance sheet were not valid obligations of Evald. Therefore, he asserted that the March 31, 2001 balance sheet could not be used to determine the true book value of Evald. He also asserted that he had not been provided with sufficient supporting documentation to fully review Hauser's determination of book value.

¶8¶ 128. The circuit court appointed a special magistrate to determine whether book value could be calculated. However, the special magistrate concluded that he could not verify Evald's book value at fiscal year end because of the lack of supporting documentation. He explained that he could not verify Evald's physical inventory, accounts receivable and accounts payable, all of which were material to a determination of book value.

¶9¶ 129. Thereafter, the circuit court determined that the proposed buy-sell agreement was hopelessly indefinite and therefore, unenforceable. Hauser appealed. After concluding that the proposed buy-sell agreement was ambiguous, not indefinite, the court of appeals affirmed the circuit court. Ehlinger v. Hauser & *334Evald Moulding, Inc., 2008 WI App 123, ¶ 31, 313 Wis. 2d 718, 758 N.W.2d 476.

¶10¶ 130. The majority opinion concludes that the lack of documentation to verify the March 31, 2001 balance sheet makes it unnecessary to determine whether the circuit court was correct in determining that the proposed buy-sell agreement was indefinite or the court of appeals was correct in determining that the proposed agreement was ambiguous.1

¶11II. DISCUSSION

¶12A. Standard of Review

¶13¶ 131. Whether an agreement2 is ambiguous is a question of law for our independent review. Moran v. Shern, 60 Wis. 2d 39, 46-47, 208 N.W.2d 348 (1973); Town of Neenah Sanitary Dist. No. 2 v. City of Neenah, 2002 WI App 155, ¶ 9, 256 Wis. 2d 296, 647 N.W.2d 913. We also decide as a question of law whether a proposed agreement is indefinite. See Gerruth Realty Co. v. Pire, 17 Wis. 2d 89, 94-95, 115 N.W.2d 557 (1962).

¶14B. General Contract Principles

¶15¶ 132. An agreement is ambiguous if it is capable of more than one reasonable interpretation. Mgmt. Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 177, 557 N.W.2d 67 (1996). An agreement is indefinite when an essential term of the agreement is so uncertain as to prevent the creation of an enforceable contract. Id. at 178. Determining that a *335contract is ambiguous or that it is indefinite has different consequences for the parties to a proposed contract.

¶16¶ 133. If an alleged agreement is ambiguous, the law presumes that a binding contract has been made and a fact question arises as to what the parties meant by the ambiguous term at the time the agreement was made. Bank of Sun Prairie v. Opstein, 86 Wis. 2d 669, 674-76, 273 N.W.2d 279 (1979); Lemke v. Larsen Co., 35 Wis. 2d 427, 431-32, 151 N.W.2d 17 (1967). Additionally, when an agreement is ambiguous, the meaning of the agreement is not determined solely by the face of the agreement; extraneous evidence of the intent of the parties may also be considered. Patti v. W. Mach. Co., 72 Wis. 2d 348, 351, 241 N.W.2d 158 (1976). The parties to the agreement may testify about what they intended the ambiguous term to mean when they entered into the contract. Id. at 354-55. The trier-of-fact will then determine what the parties intended. Id.

¶17¶ 134. On the other hand, if an alleged agreement is indefinite as to an essential term, no enforceable agreement has been made because the parties have not agreed to their particularized obligations. Shetney v. Shetney, 49 Wis. 2d 26, 38, 181 N.W.2d 516 (1970); 1 Corbin on Contracts § 95, at 394 (1963). The requirement that a contract's essential terms be definite stems from requiring mutual assent, or a "meeting of the minds," to create an enforceable agreement. 1 Corbin on Contracts § 4.13, at 634—37 (rev. ed. 1993).

¶18¶ 135. As we have explained, an indefinite agreement is no agreement at all. Gerruth Realty, 17 Wis. 2d at 93. Stated otherwise, "the definiteness requirement is relevant to contract formation, not [contract] interpretation." Mgmt. Computer Servs., 206 Wis. 2d at 178.

¶19¶ 136. An enforceable agreement is not created when an essential term is indefinite. Id.An essential *336term is definite when there is mutual assent as to its meaning by the parties to the agreement. Id.An objective standard is used to determine whether there has been mutual assent. Id.If an essential term of an agreement is indefinite, it renders the contract unenforceable and our analysis of the alleged agreement ends with that determination.

¶20C. Proposed Buy-Sell Agreement

¶21¶ 137. The circuit court held extensive hearings on the meaning of book value. At their conclusion, the court found that " '[b]ook value' could mean anything from simple adoption of the year end statement to an audited determination." Memorandum Decision 1 (Jefferson County Cir. Ct. Nov. 29, 2006). It also found that "[t]he parties' conduct is insufficient to give definite meaning to the vague term." Id. at 2. The circuit court then concluded that it must "grant[] Plaintiffs motion to declare 'book value' undeterminable." Id.

¶22¶ 138. On review, we sustain a circuit court's findings of fact unless they are clearly erroneous. Phelps v. Physicians Ins. Co. of Wis., Inc., 2009 WI 74, ¶ 34, 319 Wis. 2d 1, 768 N.W.2d 615 (citing Steinbach v. Green Lake Sanitary Dist., 2006 WI 63, ¶ 10, 291 Wis. 2d 11, 715 N.W.2d 195). Whether an alleged contract is indefinite can be determined by the trier-of-fact or as a matter of law. Mgmt. Computer Servs., 206 Wis. 2d at 178. Here, according to the findings and conclusions of the circuit court, the indefiniteness of book value could not be made more certain by surrounding circumstances. See Gerruth Realty, 17 Wis. 2d at 92.

¶23¶ 139. I conclude that the circuit court's findings are not clearly erroneous and that the proposed buy-sell agreement is incurably indefinite. First, there is noth*337ing in the record from which to ascertain the basis upon which the parties decided that book value was to be calculated, when the proposed agreement was signed.3 Yet, that is the relevant timeframe for establishing the meaning of book value. See Bank of Sun Prairie, 86 Wis. 2d at 674-76.

¶24¶ 140. Second, while book value is generally accepted as the assets of a corporation less its liabilities, there is no universal method by which a corporation values its assets and liabilities. For example, assets could be valued on a cost basis, a tax basis, a fair market value basis or some other basis. The proposed buy-sell agreement is silent about valuation of Evald's assets and liabilities for purposes of a shareholder buyout. Book value, with no further instructions about what is to be included and on what basis valuation is to be made, is too amorphous a term to provide the definiteness necessary to create an enforceable agreement.

¶25¶ 141. For example, in Gardner v. Gardner, 190 Wis. 2d 216, 527 N.W.2d 701 (Ct. App. 1994), the court of appeals upheld a settlement agreement because the wife was informed by separate counsel that there was a difference between book value and the fair market value of certain stock. Id. at 230-31. Therefore, she could not complain that her husband had not adequately disclosed a major asset in the estate, which was listed as book value. Id.In Wisconsin Department of Revenue v. River City Refuse Removal, Inc., 2007 WI 27, 299 Wis. 2d 561, 729 N.W.2d 396, we described a computation of book value as "subtracting the accumulated depreciation" from "the original purchase price" of assets, during a transfer of assets between a subsidiary and a parent company. Id., ¶ 8.

¶26*338¶ 142. In Schumann v. Samuels, 31 Wis. 2d 373, 142 N.W.2d 777 (1966), the parties had a partnership agreement that addressed buyouts upon retirement. In regard to valuation, that agreement provided:

"[B]ooks shall be kept on... a cash receipts and disbursements method of accounting, with use of inventories. However, this result is to be achieved by making the daily entries on the accrual system and adjusting them on any valuation date to the cash receipts and disbursements method, with use of inventories."

¶27Id. at 374.

¶28¶ 143. Schumann decided to retire, and Samuels elected to purchase his interest under the above quoted provision of the partnership agreement. Id. at 375. We concluded that even though both parties agreed that Schumann's interest could be purchased for book value, the agreement was nevertheless unenforceable. Id. at 376-77. As we explained, "[t]here is no doubt that 'book value' can be almost anything that the parties to a contract clearly define it to be." Id.We then remarked that in Townsend v. La Crosse Trailer Corp., 254 Wis. 31, 35 N.W.2d 325 (1948), we said that book value was " 'the market value of the assets'" less the company's liabilities. Schumann, 31 Wis. 2d at 377 (quoting Townsend, 254 Wis. at 36). We then imposed Townsend's determination of book value on the parties. Id.

¶29¶ 144. While we may have reached the correct result for the parties in Schumann, we cannot apply its reasoning here because Townsenddid not decide that book value equaled "market value" of assets less the company's liabilities. Rather, Townsendwas a discovery case in a pre-complaint filing posture where the plaintiff wanted to view a list of documents to determine whether he could file a complaint alleging that the balance sheet *339provided to him was fraudulently constructed. Townsend, 254 Wis. at 36-37. Suffice it to say that the definitions ascribed to book value and the methods used in calculating book value vary considerably from case to case.

¶30¶ 145. Third, Hauser does not contend that the circuit court's finding, that book value under the buy-sell agreement could mean anything from simple adoption of a year end statement to an audited determination, is clearly erroneous. Instead, he argues that the circuit court "incorrectly diagnosed the problem as indefiniteness instead of ambiguity." Hauser's brief in chief, 17. The findings of the circuit court cannot be set aside by simply contending that the legal issue is whether the proposed agreement is ambiguous rather than indefinite.

¶31¶ 146. I conclude that the proposed agreement is indefinite as a matter of law, irrespective of whether that conclusion is based on the circuit court's findings of fact or is simply derived from the face of the agreement. The circuit court's findings of fact are not clearly erroneous, and there is no explanation in the proposed agreement from which one can objectively determine the basis on which Evald's assets and liabilities are to be valued when calculating book value. Accordingly, I would affirm the court of appeals' affirmance of the circuit court, albeit on a different basis.

¶32D. The Majority Opinion

¶33¶ 147. The majority opinion concludes that it is not necessary to determine whether the proposed buy-sell agreement is ambiguous or indefinite.4 The majority opinion asserts:

*340Because Ehlinger cannot now validate any claimed "book value," the contract cannot be enforced regardless of how the term could be defined.5

¶34¶ 148. The majority opinion concludes that Ehlinger had the right to inspect the documentation underlying the March 31, 2001 balance sheet.6 Based on this conclusion, the majority opinion then assumes, without so stating, that Hauser had an obligation to maintain documentation sufficient to verify the figures on Evald's balance sheet. Such an obligation could arise by contract for Hauser or perhaps by statute, if Evald had the obligation. See Kasten v. Doral Dental USA, LLC, 2007 WI 76, ¶ 5, 301 Wis. 2d 598, 733 N.W.2d 300. However, no party testified to an agreement that Hauser would permanently maintain supporting documentation for Evald's balance sheets and the proposed buy-sell agreement contains no such obligation.

¶35¶ 149. Furthermore, no statute requires Evald to permanently maintain supporting documentation for its balance sheets.7 Wisconsin's business corporation law is contained in ch. 180. Wisconsin Stat. § 180.1602 addresses the inspection of corporate records by a shareholder. A shareholder who qualifies for the right to inspect corporate records under § 180.1602(2)(b)8 has a statutory right to inspect the corporation's bylaws under § 180.1602(lm) and three additional categories *341of records pursuant to § 180.1602(2)(a). Those categories of corporate records are:

1. Excerpts from any minutes or records that the corporation is required to keep as permanent records under s. 180.1601(1).9

2. Accounting records of the corporation.

3. The record of shareholders, except as provided in s. 180.1603(3).

¶36§ 180.1602(2)(a). In regard to "accounting records" of a corporation, Wis. Stat. § 180.1601(2) provides that a "corporation shall maintain appropriate accounting records." However, nowhere in ch. 180 are "appropriate accounting records" defined.

¶37¶ 150. In addition, there is no requirement that a corporation permanently maintain accounting records. Wisconsin Stat. § 180.1601(1) identifies those records that must be maintained permanently.10 The listing in § 180.1601(1) includes minutes, actions taken without a meeting and committee actions taken on behalf of the corporation. Accounting records are not among those corporate records that are required to be maintained permanently.

¶38*342¶ 151. Chapter 180, Wisconsin's current business corporation law, was created by 1989 Wis. Act 303, § 13. The type of accounting records for which ch. 180 provides a shareholder's right of inspection has received little judicial scrutiny. However, prior to the enactment of 1989 Wis. Act 303, Wis. Stat. § 180.43(1) (1987-88) was the predecessor of Wis. Stat. § 180.1602(2). Section 180.43(1) (1987-88) provided in relevant part:

Each corporation shall keep correct and complete books and records of account and ... minutes of the proceedings of its shareholders and board of directors ... [and] a record of its shareholders ....

¶39¶ 152. The court of appeals interpreted Wis. Stat. § 180.43(1)11 in Bitters v. Milcut, Inc., 117 Wis. 2d 48, 343 N.W.2d 418 (Ct. App. 1983). In Bitters, the court of appeals addressed a shareholder's request to inspect "interim corporate financial statements." Id. at 48. The circuit court in Bittersconcluded that the interim financial statements were not within the scope of corporate documents to which a shareholder's right of inspection under § 180.43(1) applied. Id. at 49. In affirming the circuit court, the court of appeals concluded that a corporation's obligation to permit shareholder inspection of the "books and records of account . .. undoubtedly [is] one for an annual financial statement." Id. at 51.

¶40¶ 153. Here, the majority opinion presumes that Evald had an obligation to maintain documentation underlying an annual financial statement, the March *34331, 2001 balance sheet.12 However, such an obligation does not arise under either the proposed buy-sell agreement or under a statute.

¶41¶ 154. And finally, even if Evald had maintained the documentation underlying the March 31, 2001 balance sheet on which Hauser asserted that he calculated the book value of Evald, a court, nevertheless, could not calculate the book value of Evald. This is so because of the irretrievable indefiniteness inherent in the undefined, essential term "book value" in the proposed buy-sell agreement.

¶42¶ 155. To explain further, book value may be based on different valuation methods and still be called "book value." The proposed buy-sell agreement gives no direction as to whether the assets were to be valued on a cost basis, a tax basis, a fair market value basis or some other basis when a shareholder is being bought out. Each choice would produce a different book value. Also, there is no indication of how the liabilities were to be valued. The documentation from which the March 31, 2001 balance sheet was constructed might indicate on what basis the March 31, 2001 balance sheet was stated, but it will not indicate whether the valuation basis used for the balance sheet comports with the term "book value" in the proposed buy-sell agreement. Accordingly, the missing, underlying records do not remove the necessity to analyze whether the proposed buy-sell agreement is indefinite or merely ambiguous.

¶43III. CONCLUSION

¶44¶ 156. I conclude that the parties had no binding buy-sell agreement in regard to valuing a shareholder's interest in Evald because the proposed buy-sell agree*344ment is irretrievably indefinite in that it does not define an essential term of the proposed agreement, i.e., on what basis Evald's assets and liabilities are to be valued in calculating book value. Accordingly, I conclude that the proposed buy-sell agreement is unenforceable.

¶45¶ 157. I also conclude that the majority's theory that the proposed buy-sell agreement is unenforceable due to Hauser's failure to preserve sufficient corporate records to verify Evald's March 31, 2001 balance sheet rests on three unspoken assumptions, with which I am not in agreement. The first assumption is that the proposed buy-sell agreement between Ehlinger and Hauser intended Evald's March 31,2001 balance sheet to be the basis for determining book value no matter on what basis that balance sheet's assets and liabilities were valued. The second assumption is that Hauser had an obligation to maintain documents sufficient to verify Evald's March 31, 2001 balance sheet. The third assumption is that having the documents that underlie Evald's March 31, 2001 balance sheet will cure any ambiguity or indefiniteness in the proposed buy-sell agreement. None of those assumptions is warranted. Accordingly, for the reasons set forth above, I respectfully concur.

¶58¶ 158. (concurring in part, dissenting in part). The majority opinion affirms the decisions of the circuit court and the court of appeals that the buyout (Buy-Sell) agreement, under all the facts and circumstances, is unenforceable; and it remands the case to the circuit court for appointment of a receiver. I concur in these determinations.

¶59¶ 159. I do not agree, however, that the circuit court erred when it permitted Evald Moulding, Inc. to pay attorney fees for representation of the corporation and its president, chief executive officer, and treasurer, *345Jon A. Hauser, who also is a corporation director. In my view, the majority's decision on this issue overlooks critical facts and results in a mistaken interpretation of the indemnification provisions of the Wisconsin corporation statutes. Because the majority's decision on indemnification of attorney fees has ramifications well beyond this case, I respectfully dissent.

¶60I

¶61¶ 160. Dr. William Ehlinger was a dentist who practiced in Watertown. In addition to his dental practice, Dr. Ehlinger invested in a number of business enterprises, including Evald Moulding, Inc. From 1981 until 1985, Dr. Ehlinger, Jon Hauser, and a third shareholder, James Safford, each owned one-third interest in Evald. In 1985 Dr. Ehlinger and Hauser bought out Safford's interest. In 1989 Hauser took over running the business. In 1992 Dr. Ehlinger and Hauser entered into the Buy-Sell Agreement at issue in this case.

¶62¶ 161. The 1992 Buy-Sell Agreement included the following provisions:

3. Transfer upon Disability. Upon a Shareholder becoming totally disabled as defined hereafter, for a period of twenty-four (24) consecutive months, the other Shareholder shall have the first right to purchase all or part of the stock owned by the disabled Shareholder. Any part of the stock owned by the disabled Shareholder not initially purchased by the other Shareholder shall then be offered to the Corporation for purchase. Any part of the stock owned by the disabled Shareholder not purchased by the Corporation must then be purchased by the other Shareholder. The disabled Shareholder or his legal representative shall sell all of the stock owned by the disabled Shareholder at *346the Agreed Purchase Price as defined in Section 6 hereof upon the terms and conditions set forth herein. If there is no disability buy-out insurance for a Stockholder, "totally disabled" as used herein shall be defined as being unable to perform all the substantial and material duties of his employment with Evald Moulding Company, Inc.; or of the occupation or profession he practiced on the date he became disabled. ...

....

6. Purchase Price.

(a) For transfers of all of a Shareholder's stock at his death, or upon his becoming disabled, the purchase price of a Shareholder's shares of stock shall be $350,000.00 or Book Value whichever is greater, except if the Shareholders have determined by unanimous resolution passed subsequent to the date of this agreement that the purchase price shall be other than $350,000.00, then the most recent such resolution shall determine the purchase price. For transfers of all of a Shareholder's stock on threat of involuntary transfer, the purchase price of a Shareholder's shares of stock shall be the book value of said shares as of the end of the last fiscal year.

....

(3) For transfers on a Shareholder being disabled for twenty-four (24) consecutive months, except for payment funded by disability buy-out insurance, payment shall be made 20% within ninety (90) days of the end of the twenty-four (24) consecutive months of disability, and 80% within sixty (60) months after said initial payment. The portion of the purchase payment not paid within ninety (90) days of the end of the twenty-four (24) consecutive months of disability shall bear annual interest equal to the prime rate at Bank One, Watertown, Wisconsin, or at its successor banking institution, and shall be adjusted at the end of each annual quarter. Interest shall be paid at the end of each *347annual quarter, and there shall be no prepayment penalty. For transfers upon such twenty-four (24) consecutive month disability which are funded by disability buy-out insurance payment shall be sought from the insurer and paid over to the disabled Shareholder, as soon as practicable.

....

8. Closing of Transactions. The Closing of any transaction hereunder shall take place at the principal office of the Corporation on the date agreed upon by the parties, provided however, that unless otherwise agreed:

....

(b) Disability Transfers. In the event of a transfer upon disability as hereinabove provided, such closing for payments not funded by insurance, shall take place for the first 20% payment, at 10:00 a.m. on the 90th day after twenty-four (24) consecutive months of disability. The remaining 80% shall be payable on a monthly basis with interest as set forth in paragraph 6(b)(3) above.

¶63(Emphasis added.)

¶64¶ 162. In May 1993 Dr. Ehlinger was diagnosed with Parkinson's disease. He took a leave of absence from his dental practice to seek medical treatment. He was never able to resume his practice but did engage in other business activities.

¶65¶ 163. In December 2000 Dr. Ehlinger asked Hauser to make an offer for his one-half interest in Evald. Majority op., ¶ 11. In June 2001 Hauser sent a letter to Dr. Ehlinger invoking the disability provision of the Buy-Sell Agreement. Majority op., ¶ 12. Hauser calculated the book value of Dr. Ehlinger's shares in Evald at $431,400. Id. Dr. Ehlinger did not accept this purchase offer, which was based on Evald's most recent fiscal year-end statement. Id.

¶66*348¶ 164. Dr. Ehlinger may have been annoyed at the manner in which Hauser made his purchase offer. He clearly was not satisfied with the size of the offer. He subsequently called a meeting of the shareholders and directors for April 22, 2002. Dr. Ehlinger made a motion at that meeting that Evald's books be audited but it was not adopted. The shareholders failed to elect directors. Id., ¶ 13. Hauser's subsequent effort to close on his earlier purchase offer also failed when Dr. Ehlinger refused to cash Hauser's 20 percent check.

¶67¶ 165. On April 30, 2003, Dr. Ehlinger filed suit against Hauser and Evald Moulding. The suit asked the court to (1) dissolve the corporation and appoint a receiver, as provided in Wis. Stat. §§ 180.1431 and 180.1432; (2) obtain an accounting of a separate dissolved partnership and liquidate and distribute its assets; (3) declare the respective rights of the parties under the 1992 Buy-Sell Agreement; and (4) issue a preliminary injunction against Hauser to restrain him from implementing redemption of Dr. Ehlinger's stock or exercising a proxy vote of Dr. Ehlinger's shares.

¶68¶ 166. In his suit, Dr. Ehlinger described Hauser as "the President, Treasurer and Chief Executive Officer of Evald Moulding, Inc." Dr. Ehlinger alleged that he sought dissolution of Evald, in part, "because of the actions of defendant Hauser." He complained about the amount of compensation and bonuses paid to Hauser; the employment and compensation of Hauser's relatives; the amount and nature of expenses paid to Hauser and his relatives; Hauser's refusal to consider Ehlinger's relatives for employment by Evald; and "the nonpayment of dividends."

¶69¶ 167. The suit alleged: "On March 26, 2002, the plaintiff served notice of an annual meeting of the shareholders and directors of Evald to address the *349matters that were in dispute regarding the operation of Evald." (Emphasis added.) At the April 22 meeting, Dr. Ehlinger made numerous motions. These motions were recounted in the complaint. The complaint alleged that the "defendant refused" to approve Dr. Ehlinger's motions. The complaint distinguished actions not approved by "the shareholders" from motions not approved by the "defendant."

¶70¶ 168. The complaint stated: "the directors of Evald are deadlocked in the management of its corporate affairs." (Emphasis added.)

¶71¶ 169. The complaint twice asserted that financial statements of the corporation were "prepared by the defendant [Hauser]."

¶72¶ 170. Paragraph 33 stated:

The defendant has assumed total control of Evald and has for over 7 years operated Evald in a manner that benefits primarily and disproportionately the defendant and the members of his family. The defendant is thus acting and will act in a manner that is oppressive to the plaintiff, which constitutes grounds for the judicial dissolution of the corporation at the request of the plaintiff under Section 180.1430(2)(b) of the Wisconsin Statutes.

¶73¶ 171. In sum, although Hauser was undoubtedly a shareholder, he is repeatedly referred to in the complaint in his capacity as an officer or director.

¶74¶ 172. In the complaint, Dr. Ehlinger also named Evald Moulding as a defendant. The suit alleged that "Evald is named as a defendant because plaintiff seeks judicial dissolution of Evald because of impasse and because of the actions of defendant Hauser." Complaint, ¶ 3 (emphasis added). Dr. Ehlinger asked that a receiver be appointed by the court. He asked that the *350receiver, in turn, "make an accounting" of the corporation and "dispose of its business." The complaint was signed by Attorney Ralph J. Ehlinger.

¶75¶ 173. The critical issue in this dissent is whether the circuit court erred when it permitted the corporation to pay attorney fees to represent the corporation's rights and interests in litigation to dissolve the corporation, and attorney fees to represent its officer/director Jon Hauser, whose conduct is alleged to provide the grounds for dissolution. In short, did the circuit court err in allowing attorney fees after thoroughly considering the facts above?

¶76II

¶77¶ 174. In the 1980s, a national "director and officer liability crisis" led to enactment of legislation to "give added protection to corporate officials who act within the scope of their corporate duties." Paul Milakovich, A Comprehensive Approach: Director and Officer Indemnification in Wisconsin, 71 Marq. L. Rev. 407, 407 (1988). Wisconsin passed legislation to address this "crisis" in 1987. 1987 Wis. Act 13. The new legislation created Wis. Stat. § 180.044 (1987-88). 1989 Wis. Act 303 renumbered § 180.044 to § 180.0851 and made insignificant modifications. Section 180.0851 now reads:

Mandatory indemnification. (1) A corporation shall indemnify a director or officer, to the extent that he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation.

(2)(a) In cases not included under sub. (1), a corporation shall indemnify a director or officer against *351liability incurred by the director or officer in a proceeding to which the director or officer was a party because he or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perforin a duty that he or she owes to the corporation and the breach or failure to perform constitutes any of the following:

1. A willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest.

2. A violation of the criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful.

3. A transaction from which the director or officer derived an improper personal profit.

4. Willful misconduct.

(b) Determination of whether indemnification is required under this subsection shall be made under s. 180.0855.

(c) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the director or officer is not required under this subsection.

(3) A director or officer who seeks indemnification under this section shall make a written request to the corporation.

(4) (a) Indemnification under this section is not required to the extent limited by the articles of incorporation under s. 180.0852.

(b) Indemnification under this section is not required if the director or officer has previously received *352indemnification or allowance of expenses from any person, including the corporation, in connection with the same proceeding.

¶78Wis. Stat. § 180.0851 (emphasis added).

¶79¶ 175. In his Comment, Paul Milakovich made the following observations:

Wisconsin has recently joined numerous other states in passing protective statutes.... With the adoption of these statutes, directors and officers of Wisconsin corporations can make decisions without the unreasonable threat of outrageous litigation expenses or personal liability.

....

In codifying its indemnification provisions for directors and officers, the Wisconsin legislature took a rather unique approach. While most states have adopted mandatory indemnification provisions in limited situations and permissive indemnification in all others, Wisconsin has combined both approaches into a single mandatory indemnification section. Wisconsin continues to require a corporation to indemnify its directors and officers to the extent they were successful on the merits in the defense of a proceeding. However, the difference under the 1987 legislation can be seen in circumstances which do not fall within this "success on the merit" language. Section 180.044(2) of the Wisconsin Statutes now provides that a corporation shall indemnify a director or officer against liability unless it is determined that the director or officer breached or failed to perform a duty he or she owed to the corporation and the breach or failure to perform constitutes:

(a) A wilful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest;

(b) A violation of criminal law, unless the director *353or officer has reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful;

(c) A transaction from which the director or officer derived an improper personal profit; or

(d) Wilful misconduct.

If any of these criteria occur, the director or officer cannot be indemnified under Wisconsin law. Like the statute dealing with the limitation of a director's liability, this provision applies to all Wisconsin corporations unless the corporation provides otherwise.

¶80Milakovich, supra, at 428-29 (footnotes omitted).

The area of director and officer indemnification is one in which the Wisconsin legislature has adopted a vastly different approach than that adopted by other states. Most states require indemnification to the extent a director or officer is successful on the merits of his or her actions and they permit indemnification in most other circumstances. Wisconsin, on the other hand, requires indemnification in instances when the officer or director is successful on the merits and in situations in which the corporate official is not successful on the merits, as long as the individual's conduct does not fall within the statutory exclusions. This indemnification provision is unique in that it provides a director or officer the assurance that indemnification will be available, unless the corporation limits this right in its articles of incorporation.

¶81Id. at 436 (footnotes omitted).

¶82¶ 176. These 1988 observations are echoed in the Wisconsin Practice Series by Jay E. Grenig and Nathan Fishbach. They write:

The "mandatory" indemnification rights are straightforward and consistent with common past prac*354tices. They are not mandatory, however, since any corporation may limit them in its articles of incorporation. Under these provisions, an officer or director is entitled to indemnification for expenses (including reasonable attorney fees) if they successfully defend in a proceeding in which they are a party because they are such officer or director. Even if the officer or director is unsuccessful in its defense of a proceeding, it is entitled to indemnification by the corporation for all liability, including expenses, unless the liability resulted from criminality, willful misconduct, conflict of interest, or improper personal profit by the director.

¶832 Grenig & Fishbach, Wisconsin Practice Series: Methods of Practice § 52.71 (4th ed. 2004).1

¶84III

¶85¶ 177. We must examine the text of Wis. Stat. § 180.0851, considering this historical and analytical background. Subsection (1) reads as follows:

Mandatory indemnification. (1) A corporation shall indemnify a director or officer, to the extent that he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation.

¶86Wis. Stat. § 180.0851(1) (emphasis added).

¶87¶ 178. This subsection presents several obvious questions in light of Jon Hauser's status as a director and officer, as well as a shareholder. What does the phrase "if the director or officer was a party because he *355or she is a director or officer of the corporation" mean? Does it mean that if the "director or officer" also is a significant shareholder, the director or officer loses his right to mandatory indemnification? Does it mean that if a director or officer is sued partly in his capacity as a director or officer and partly in his capacity as a shareholder, the director or officer loses his right to mandatory indemnification?

¶88¶ 179. In my view, a director or officer has a right to indemnification "to the extent that he or she has been successful on the merits or otherwise in the defense of a proceeding... if the director or officer was a party because he or she is a director or officer of the corporation." Wis. Stat. § 180.0851(1).

¶89¶ 180. The lengthy rendition of the facts in this dissent establishes beyond dispute that Hauser was sued in large part because of his actions as a director or officer. For instance, in Paragraph 33 of the Complaint, quoted in ¶ 170 above, Hauser is accused of acting in a "manner that is oppressive to the plaintiff, which constitutes grounds for the judicial dissolution of the corporation ... under Section 180.1430(2)(b)." Section 180.1430(2)(b) provides that the circuit court may dissolve a corporation if a shareholder [e.g., Dr. Ehlinger] establishes "(b) [t]hat the directors or those in control of the corporation [e.g., Hauser] have acted, are acting or will act in a manner that is illegal, oppressive or fraudulent." Wis. Stat. § 180.1430(2)(b) (emphasis added).

¶90¶ 181. Paragraph 33 of the complaint is only part of the evidence that Hauser was sued in his capacity as a director or officer. Dr. Ehlinger alleged that Hauser prepared the financial statements, and Hauser was forced to defend them. Dr. Ehlinger alleged that Hauser refused to consider Dr. Ehlinger's relatives for employ*356ment. In my view, any interpretation of the statute that disqualifies a director or officer from mandatory indemnification if the director or officer is not sued exclusively as a director or officer, is dead wrong.

¶91¶ 182. A second question in interpreting Wis. Stat. § 180.0851(1) concerns the phrase "to the extent that he . . . has been successful on the merits or otherwise in the defense." By its terms, this phrase cannot mean that the director or officer must prevail on the bottom line or in every respect.

¶92¶ 183. One of the critical issues in the litigation was whether Dr. Ehlinger was disabled, thereby giving Hauser the right to invoke the disability provision of the Buy-Sell Agreement. Dr. Ehlinger alleged in his complaint that he "is not totally disabled and has not in the past been totally disabled for purposes of the 1992 Buy-Sell Agreement." See, complaint at ¶ 48. The circuit court found, however, that Dr. Ehlinger was "totally disabled" within the meaning of the agreement. See majority op., ¶ 23. This determination was made after a "five-day bench trial." Id.After this finding, the court moved on to a determination of "book value." In addition, many of Dr. Ehlinger's allegations against Hauser were never found as facts by the circuit court. The circuit court did not find that Hauser made "improper personal profit" or that his action was "illegal, oppressive or fraudulent." Moreover, even though the corporation is on track to be dissolved, it is not yet certain that Dr. Ehlinger's final share of the assets will exceed Hauser's offer of $431,400. As a result, it cannot be said that Hauser was not successful to any extent in the trial.

¶93¶ 184. If Hauser was sued because he was a director or officer of the corporation and if he was successful "on the merits or otherwise" to some extent in the defense of the proceeding, he is entitled to "reasonable *357expenses" as a matter of law. He is entitled to reasonable expenses "to the extent" he was successful, under Wis. Stat. § 180.0851(1).

¶94¶ 185. Director/officer indemnification is not a matter of discretion under subsection (1). When certain facts are present, a director or officer has a right to indemnification. The circuit court must be given latitude to determine the "extent" of success and the reasonableness of expenses, but it cannot deny reasonable expenses altogether. The majority makes a profound legal error if it disqualifies Hauser because he was not sued exclusively as a director or officer or because he did not prevail completely in the circuit court.

¶95¶ 186. The majority attempts to avoid clear answers to the issues surrounding § 180.0851(1) by asserting that Hauser failed to comply With the "formalities" of applying for indemnification under § 180.0851(1) by making a written request to the corpdration, per § 180.0851(3). Majority op., ¶¶ 97-98.

¶96¶ 187. The majority seriously suggests that Jon Hauser is disqualified from receiving the mandated indemnification under subsection (1) because he failed to sit down and write a letter to Evald's president, Jon Hauser, or Evald's treasurer, Jon Hauser, requesting payment of attorney fees. This disqualification assumes that there is no document that Hauser could produce that would qualify as "a written request" and that he could not make such a written request now. The majority does not come to grips with the meaning of Wis. Stat. § 180.0851(4) (b).

¶97¶ 188. The majority then moves to Wis. Stat. § 180.0851(2), which also requires indemnification unless the director or officer "breached or failed to perform a duty" owed to the corporation but also requires the *358director or officer to follow one of the "means" set out in Wis. Stat. § 180.0855 to secure indemnification.

¶98¶ 189. Wisconsin Stat. § 180.0851(2) provides:

(2)(a) In cases not included under sub. (1), a corporation shall indemnify a director or officer against liability incurred by the director or officer in a proceeding to which the director or officer was a party because he or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perform a duty that he or she owes to the corporation and the breach or failure to perform constitutes any of the following:

1. A willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest.

2. A violation of the criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful.

3. A transaction from which the director or officer derived an improper personal profit.

4. Willful misconduct.

(b) Determination of whether indemnification is required under this subsection shall be made under s. 180.0855.

(c) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the director or officer is not required under this subsection.

(3) A director or officer who seeks indemnification under this section shall make a written request to the corporation.

*359(4) (a) Indemnification under this section is not required to the extent limited by the articles of incorporation under s. 180.0852.

(b) Indemnification under this section is not required if the director or officer has previously received indemnification or allowance of expenses from any person, including the corporation, in connection with the same proceeding. (Emphasis added.)

¶99¶ 190. The majority does not deny attorney fees because the circuit court made a determination that Hauser "breached or failed to perform a duty that he" owed to the corporation "and the breach or failure" constituted one of the four disqualifying actions set out in subsection (2)(a)1. through 4. Rather, the majority concludes that Hauser may have been eligible for attorney fees under Wis. Stat. § 180.0851(2) but he failed to seek them in a proper manner under Wis. Stat. § 180.0855(5) ("By a court under s. 180.0854."). Majority op., ¶¶ 97, 103, 119.

¶100¶ 191. There are two problems with this legal conclusion. First, there is no time limit for an application for indemnification. A director or officer who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. Wis. Stat. § 180.0854(1). The statute does not prescribe a time. In my view, it is not too late to apply now. See Wis. Stat. § 180.0851(4)(b). Support for this interpretation is found in Wis. Stat. § 180.0851(2)(c): "The termination of a proceeding by judgment [or] order... does not, by itself, create a presumption that indemnification of the director or officer is not required under this subsection." Wis. Stat. § 180.0851(2)(c) (emphasis added). If nothing else, Hauser applied to the court of appeals when he filed his brief in the cross-appeal.

¶101*360¶ 192. Second, as the majority notes, "[o]n four occasions, [Dr.] Ehlinger asked the circuit court to enjoin Hauser from paying for the litigation with corporate funds." Majority op., ¶ 92. On four occasions, the court denied the motions. The court of appeals thereafter affirmed the circuit court. The majority seizes on another technicality — that Hauser did not initiate an application to the circuit court for approval of attorney fees — to avoid determining the issue on the merits. Nonetheless, four times the issue was before the circuit court. Four times the circuit court knew that the court was required to order indemnification if it determined that director Hauser or officer Hauser was entitled to indemnification under § 180.0851(1) or (2), or if director Hauser or officer Hauser was "fairly and reasonably entitled to indemnification in view of all the relevant circumstances, regardless of whether indemnification is required under s. 180.0851(2)." Wis. Stat. § 180.0854(2) (b). The court made four decisions. It is virtually impossible now for an appellate court to conclude that the circuit court erroneously exercised its discretion on either the facts or the law under subsection (2).

¶102¶ 193. Unless the circuit court erroneously exercised its discretion, the amount of an attorney fee award typically is left to the discretion of the circuit court. Stuart v. Weisflog's Showroom, 2008 WI 22, ¶ 14, 308 Wis. 2d 103, 746 N.W.2d 762. Appellate review of an award of attorney fees is limited to whether the trial court properly exercised its discretion. Benkoski v. Flood, 2001 WI App 84, ¶ 10, 242 Wis. 2d 652, 626 N.W.2d 851 (citing Hughes v. Chrysler Motors Corp., 197 Wis. 2d 973, 987, 542 N.W.2d 148 (1996)). "While the basis for an exercise of discretion should be set forth in the record, it will be upheld if the appellate court can *361find facts of record which would support the circuit court's decision." Peplinski v. Fobe's Roofing, Inc., 193 Wis. 2d 6, 20, 531 N.W.2d 597 (1995). Stated differently, "[a] reviewing court is obliged to uphold a discretionary decision of a trial court, if it can conclude ab initio that there are facts of record which would support the trial judge's decision had discretion been exercised on the basis of those facts." Schmid v. Olsen, 111 Wis. 2d 228, 237, 330 N.W.2d 547 (1983) (citing Maier Constr., Inc. v. Ryan, 81 Wis. 2d 463, 473, 260 N.W.2d 700 (1978)).

¶103¶ 194. The discussion above pertains to Hauser personally, as a director and officer. But the corporation also was entitled to representation, because the circuit court determined that Evald Moulding was "more than a nominal party." Dr. Ehlinger's suit was, in part, a suit for declaratory judgment to determine the rights of the parties under the Buy-Sell agreement. The corporation was explicitly mentioned in the Buy-Sell Agreement and given authority to buy shares. More important, Dr. Ehlinger's suit was intended to dissolve the corporation. Corporate dissolution is not automatic. Dickman v. Vollmer, 2007 WI App 141, ¶ 27, 303 Wis. 2d 241, 736 N.W.2d 202. When the court appoints a receiver, however, the receiver may be paid "from the assets of the corporation." Wis. Stat. § 180.1432(4).

¶104¶ 195. A corporation is an entity "distinct and apart from its members or stockholders." Legion Clubhouse, Inc. v. City of Madison, 248 Wis. 380, 385, 21 N.W.2d 668 (1946). A corporation is treated as an entity separate from its stockholders "under all ordinary circumstances." Jonas v. State, 19 Wis. 2d 638, 644, 121 N.W.2d 235 (1963). These judicial pronouncements are grounded in the corporation statutes, which provide in Wis. Stat. § 180.0302:

*362General powers. Unless its articles of incorporation provide otherwise, a corporation has perpetual duration and succession in its corporate name and has the same powers as a natural person to do all things necessary or convenient to carry out its business and affairs, including but not limited to power to do all of the following:

(1) Sue and be sued, complain and defend in its corporate name.

....

(10) Conduct its business ... and exercise the powers granted by this chapter in or outside this state.

¶105Wis. Stat. § 180.0302.

¶106¶ 196. The corporation's power to sue and be sued and to defend in its corporate name necessarily entails the right to retain. and compensate counsel. In his complaint, Dr. Ehlinger asked the court to "dispose of [the corporation's] business." The corporation had the right to resist that request.

¶107¶ 197. This court should not assume that, upon remand, a receiver will sell Evald Moulding, that Jon Hauser will purchase the corporation, and that Dr. Ehlinger will emerge from this litigation a much wealthier man. We do not know whether Hauser will have the means to purchase the business if he is forced to repay all attorney fees to the corporation. We do not know whether this corporation will survive in any form.

¶108¶ 198. I believe the majority is incorrect on the facts and the law and is doing serious damage to Wisconsin's corporate indemnification statute. For the reasons herein stated, I respectfully dissent.

¶109¶ 199. I am authorized to state that Justice MICHAEL J. GABLEMAN joins ¶¶ 159-198 of this opinion.