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Holiday Medical Center, Inc. v. Markind

A-0078-07T3 (N.J. Super. App. Div. 2008) (Unpublished)

CORPORATIONS; SHAREHOLDERS; FAIR VALUE —When a corporation under goes certain changes, such as the sale of all of its assets, a shareholder may demand payment for its shares as a dissenting shareholder, but if it doesn’t do so, it is only entitled to a proportionate share of the proceeds from such substantial change.

A for-profit corporation that wholly owned and operated a nursing home sold its property to a religious school. The terms of the scale set a gross sale price of $8 million, $3 million of which was to be donated back to the school. The sale of the nursing home was expected to yield a net of $2 million. A five-percent shareholder dissented from the decision to sell the school and demanded that the corporation commence an action to determine the fair value of her shares. After the shareholder received no response from the corporation, she brought an action for a determination of the fair value of her shares and for an order requiring the corporation to pay that amount. The lower court dismissed her claims on summary judgment, finding that she was not entitled to any more than the $80,000 that she already received for her shares.

On appeal, the Appellate Division disagreed with the shareholder’s argument that the statutory term “fair value” should have been interpreted to mean the highest and best value available. It pointed out that such determinations were at the discretion of the lower court and were only to be disturbed if found to be clearly erroneous or an abuse of discretion. The Court also pointed out that when corporations undergo substantial changes, including the sale of all of its assets, shareholders who disagree can disassociate and demand payment of their shares as dissenting shareholders. Further pointed out was that dissenting shareholders lose all of their rights as shareholders and only retain the right to be paid the fair value of their shares, to be determined by agreement or legal proceedings.

On appeal, the shareholder’s argument that the lower court abused its discretion in determining the fair value of her shares was rejected. The Appellate Division found an open factual issue as to whether the benefit received by the other shareholders, but not the suing shareholder, for the charitable deduction was incorrectly omitted from the valuation since the donation occurred before the corporation determined its share value. Thus, the matter was remanded for a determination of the economic effect of the donation. The Court also found questions remaining as to why the lower court ultimately chose the sale transaction price rather than the going concern valuation reached by an independent appraiser and remanded the matter for an explanation. It also remanded the matter for a determination as to whether the shareholder had a statutory right to attorneys’ fees on the basis that she brought her action after the company failed to respond to her request for an appraisal of the value of her shares.

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