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Casey v. Brennan

173 N.J. 177, 801 A.2d 245 (2002)

CORPORATIONS; DISSENTER’S RIGHTS— Buy-out shareholders who receive cash do not have dissenter’s rights.

A bank sought to convert to S Corporation status. To do so, it proposed a cash-out merger which would have left only large shareholders after the merger. If a small shareholder could not purchase enough shares to reach the threshold level, it was required to take cash. The proxy statement included a fairness opinion as to the value per share and notified the shareholders receiving cash that they had “no right of dissent from the merger.” Two smaller shareholders voted against the merger, refusing to take cash for their shares. A third, who also voted against the merger, refused the cash offer, but bought a significant number of shares to reach the threshold level. Because she did so, she was able to perfect her dissenters’ rights because she received stock rather than cash under the merger. The lower court found the proxy statement material deficient, including that the price per share was unreasonably low. It entered a judgment in favor of all three shareholders, but awarded counsel and expert fees only to the one who had purchased additional shares and who qualified as a statutory dissenter. The shareholders who had “cashed-out” was denied any recovery, but the two shareholders who refused the cash were entitled to receive the actual fair value for the shares, as determined by the lower court. The matter was appealed to the Appellate Division which upheld the lower court except for a remand to the lower court “for a calculation of what constituted fair value” of the shares.

The corporation and certain minority shareholders filed petitions for certification with the New Jersey Supreme Court, addressing the fair value issue, among other things, but those petitions were denied. The Court, however, granted certification for the two shareholders who did not accept cash, and focused “on a narrow issue of the denial of counsel and expert fees and costs.” The Supreme Court then affirmed the Appellate Division, holding that “minority shareholders who object to the cash price for their shares in a merger transaction[,] do not qualify as statutory dissenters and, therefore, are not entitled to counsel and expert fees and costs, because pursuant to N.J.S.A. 14A:11-1, they received only cash for their shares.” It did not express its own reasoning, but adopted the opinion of the Appellate Division. According to the Appellate Division, the merger statute “bars dissenting rights if the shareholders ‘receive cash,’ even if other shareholders retain stock in the surviving corporation.” According to the Court, “[i]nitially, New Jersey’s dissenters’ rights statute did not include a cash exception to the appraisal remedy in merger or consolidation transactions.” In 1973, the Legislature “amended the statute and added a cash exception to dissenters’ rights in merger transactions.” Comments to the amendment state that “there is no appraisal right for a shareholder who will receive upon consummation of any such transaction [merger, consolidation, or sale of assets] cash, securities which are either listed on a national securities exchange or held of record by not less than 1,000 holders or a combination of cash and securities.” The Final Report of the Corporation Law Revision Commission “regarding the amendments demonstrate[d] that the objective was to harmonize the treatment of dissenters’ rights in both merger and sale of assets transactions,” removing “certain ambiguities and inconsistencies regarding shareholder appraisal rights.” According to the Corporation Law Revision Commission, before amendment, the statute was “inconsistent in approach as between mergers and consolidations on the one hand, and sales of assets on the other.” Even so, the amendment, while providing a “cash exception” for merger transactions, retained the “wholly for cash” exception in a sale of asset transaction. Even though the corporation intended to exploit that difference, the Appellate Division, looked at the commentary to the amendment that adopted the “cash exception,” and noted that the commentary made no distinction between such phrasing, “implying that the difference [was] inconsequential.” Further, according to the Appellate Division, “[t]here [was] no plausible reason for providing minority shareholders more expansive statutory dissenters’ rights in asset sale transactions than is provided for shareholders who receive cash in merger transactions.”

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