Title: Smith v. Kisorin USA, Inc.

State: nevada

Issuer: Nevada Supreme Court

Document:

427 Nev., Advance Opinion 37
IN THE SUPREME COURT OF THE STATE OF NEVADA

WADE SMITH, AN INDIVIDUAL; AND | No, 54988
BRENDA SUE SMITH, AN

INDIVIDUAL, FILED

Appellant:

 

KISORIN USA, INC., A DELAWARE. wl 07 201
CORPORATION,
Respondent.

Appeal from a district court summary judgment in a

 

corporations action. First Judicial District Court, Carson City; James
‘Todd Russell, Judge.
Affirmed.

Sinai, Schroeder, Mooney, Boetsch, Bradley & Pace and Thomas C.
Bradley, Reno,
for Appellants,

Greenberg Traurig and Tami D, Cowden and Brandon Roos, Las Vegas,
for Respondent.

BEFORE CHERRY, GIBBONS and PICKERING, JJ.

OPINION
By the Court, CHERRY, J.

In this appeal, we consider whether a corporation is required
to deliver a dissenters’ rights notice to all stockholders, irrespective of
whether the stockholders hold the stock in street name or are beneficial

stockholders. We conclude that a construction of the applicable statutes

M-Aolek

 
that would require notice to both street name and beneficial stockholders
would place unfeasible requirements on corporations. Due to the
impracticality of delivering notice to beneficial owners, we conclude that
Nevada corporations are required to send dissenters’ notices only to record
stockholders, including those holding the stock in street name.

FACTUAL AND PROCEDURAL HISTORY

In August 2008, appellants and siblings Wade and Brenda
Sue Smith owned shares of common stock in Pachinko World, Inc. ‘The
Smiths’ shares were held in street name by Cede & Co., the nominee for
the Depository Trust Company. Thus, Cede & Co. was the stockholder of
record, while the Smiths were the beneficial owners of the shares.

On August 28, 2008, Pachinko World merged with and into
respondent Kisorin USA, Inc., in accordance with NRS 924.180 (governing
short-form mergers, which may occur when one of the merging companies
owns at least 90 percent of the other company’s shares). Under NRS
Chapter 92, a minority stockholder can dissent from certain actions of a
corporation, including mergers, and obtain payment for the fair value of
his or her shares. NRS 924.380; NRS 92A.410; American Ethanol _v.
Cordillera Fund, 127 Nev. __, __ P.3d __ (Adv. Op. No. 18, May 5,
2011). Thus, as a result of the merger at issue here, Kisorin sent out a

1The term “street name” refers to a “brokerage firm's name in which
securities owned by another are registered.” Black's Law Dictionary 1557
(Gth ed. 2009). A beneficial holder of stock holds equitable title to
corporate stock; however, the stock is not registered under the holder's
name in the corporation's records. Id, at 176. Thus, in practice, the
beneficial holder of stock holds equitable title to the stock that is
registered under the holder in street name.

 

 
oe

 

dissenters’ rights notice and information statement to the minority
stockholders, as required by NRS 92A.410(2). The dissenters’ rights notice
provided that no action was required by the minority stockholders for the
merger to become effective because Kisorin owned at least 90 percent of
the outstanding shares of common stock. The notice further provided that
the merger became effective on August 28, 2008, and each share issued
and outstanding was canceled and converted into the right to receive $0.20.
of the “fair valuo” by following the procedures required by NRS 92.300 to
‘924.500 for a dissenting stockholder,

‘The notice required that the dissenting stockholder must

subject to the rights of the minority stockholder to seek appraisal

 

make a written demand for a “fair value” appraisal to Kisorin within 45
days after the date of mailing of the dissenter’s notice. ‘The notice
provided that in order to receive a cash payment for the appraised value of
the shares, the minority stockholder must complete the letter of
transmittal, together with any required signature guarantees, and present
these documents and the stock certificates to the paying agent. Failure to
submit the stock certificates with the dissenter’s demand would result in
Kisorin having the ability to terminate the minority stockholder’s rights
pursuant to NRS 92A.300 to 924.500. The notice also provided that if the
stockholder failed to make a timely demand, the stockholder would lose
the right to exercise the dissenter’s appraisal rights and would be bound
by the terms of the merger.

 
Although Kisorin possessed a list of the beneficial stockholders
of Pachinko World who had not objected to sharing their information,
including the Smiths, the Smiths were not directly given notice of the
merger and their dissenters’ rights, Instead, Kisorin provided Cede & Co.

with the dissenter's notice on September 6, 2008, when it mailed the

 

notice to all record stockholders.

Wade Smith declared that he did not receive information
about the merger until November 2008, when he had a discussion with his
transfer agent. Thereafter, he contacted Toshio Hara, a representative of
Kisorin, and requested a copy of the agreement and plan of merger and
the notice of merger. On November 27, 2008, Hara sent Wade Smith the
requested documents. Hara noted that the documents were provided
directly to Wade Smith for his convenierice and that the notice was
previously sent to all stockholders on the stockholder registry, including
Cede & Co., holder in street name for the Smiths.

‘Wade Smith first sent a dissenter's demand on December 4,
2008, Then on January 2, 2009, Wade Smith sent a letter to Hara
informing Kisorin that its fair-value offer was unacceptable, that he was
exercising his dissenters’ rights, and that the fair value of his 867,200
shares was $3,702,944, or $4.27 per share. A dissenter’s demand form
dated January 2, 2009, was attached. Brenda Sue Smith also sent a
dissenter’s demand form dated December 5, 2008. Neither of the Smiths
included with their demands the stock certificates or a written consent
from the stockholder of record, Cede & Co.

 
om ae

 

On January 6, 2009, Wade Smith’s attorneys sent Hara a
letter via facsimile, stating that they were re-noticing Kisorin of Wade
Smith's continued assertion of his right to dissent to the merger and that
Wade Smith was entitled to all rights and remedies afforded to a
dissonting stockholder under NRS Chapter 92A. This letter, also, did not
include with it the stock certificates or a written consent from the
stockholder of record, Cede & Co. On January 22, 2009, Kisorin responded
to the letter, stating that a written notice of the right to dissent was
delivered to all record holders of Pachinko World stock on Septomber 5,
2008, and Wade Smith's demand for payment was made outside the 45-
day period allotted, so he would be paid the merger consideration set forth
in the notice

Kisorin filed a petition asking the district court to determine
the fair value of the stock pursuant to NRS 92A.490(1) and for a
declaratory judgment. After an answer and reply were filed, Kisorin
moved for summary judgment, and the Smiths filed a cross-motion for
summary judgment. The district court entered summary judgment
against the Smiths, concluding that Kisorin, by placing Cede & Co. on
notice of the merger on September 5, 2008, likewise placed the Smiths on
notice of the merger that same day and properly discharged its notice
obligation under Nevada law. The district court also concluded that
stockholders, such as the Smiths, who choose to hold their shares through
a nomince, bear the burden of exercising their stockholder rights through
the nominee. The district court found that the dissenter's notice complied
in all respects with Nevada law and, accordingly, the Smiths had an
affirmative obligation to demand payment for their shares by the 45-day
deadline, which they failed to do. Because of this failure to demand

 
payment, the district court concluded that the Smiths were not entitled to
payment for their stock at their fair value estimate of $4.27 per share
under the Nevada dissenters’ rights statute. Therefore, the district court
granted Kisorin's motion for summary judgment and denied the Smiths’
cross-motion for summary judgment, concluding that the Smiths waived
their right to demand payment for their stock in Pachinko World in an
amount exceeding $0.20 per share. This appeal followed.
DISCUSSION

On appeal, the Smiths raise one issue—whether their failure
to demand payment by the deadline was excused by Kisorin’s failure to
directly provide them with notice of their dissenters’ rights. The Smiths
argue that pursuant to NRS 924.430, Kisorin was required to deliver a
notice to all stockholders entitled to assert dissenters’ rights, irrespective
of whether the stockholders were stockholders in street name or beneficial
stockholders, and that it failed to do so. ‘The Smiths further contend that,
although Kisorin knew that they were beneficial stockholders of Pachinko
World and that it was required to provide them with a written dissenter’s,
notice, it simply chose not to do so. Kisorin contends that the Smiths’
proposed construction of the applicable statutes would place impracticable
requirements on Nevada corporations and would lead to an absurd result.
We agree with Kisorin and affirm the district court's decision because only
stockholders of record are entitled to receive a dissenters’ rights notice
under NRS Chapter 92A.

We review an order granting summary judgment de novo.
Cromer v. Wilson, 126 Nev. _, __, 225 P.3d 788, 790 (2010). “Summary
judgment is appropriate when the pleadings and other evidence establish
that no ‘genuine issues as to any material fact [remains] and that the
moving party is entitled to a judgment as a matter of law.” Id, (alteration

 
in original) (quoting Wood v. Safeway, Inc, 121 Nev. 724, 729, 121 P.3d
1026, 1029 (2005)). “The construction of statutes is a question of law,
which we review de novo.” Id. “Further, this court has a duty to construe
statutes as a whole, so that all provisions are considered together and, to
the extent practicable, reconciled and harmonized.” Id, “[W]e consider
‘the policy and spirit of the law and will seck to avoid an interpretation
to an absurd result.” Fierle v. Perez, 125 Nev. _, _, 219
P.3d 906, 911 (2009) (quoting City Plan Dev, v, State, Labor Comm'r, 121
Nev. 419, 435, 117 P.8d 182, 192 (2005).

NRS 92A.410(2) provides that when a merger is effected
without stockholder approval under NRS 92.180, the Nevada corporation
“shall notify in writing all stockholders entitled to assert dissenters’ rights

that leat

 

that the action was taken and send them the dissenters’ notice described
in NRS 92A.430.” NRS 924.430, in turn, provides that the corporation
“shall deliver a written dissenter’s notice to all stockholders entitled to
assert dissenters’ rights” and details what must be included in the notice.
We conclude that the requirement of NRS 92A.410(2) and NRS 92A.430
that all stockholders entitled to assert dissenters’ rights receive a notice
must be read as meaning that a dissenters’ rights notice need only be
directly provided to the holder of record, who holds the stock in trust for or
as agent of the beneficial stockholder, thereby directly and indirectly
providing notice to all stockholders as required by the statutes, We reach
this conclusion because, as discussed below, interpreting the statutes at
issue to require notice to individual beneficial but unrecorded owners
would be impracticable.

Kisorin is not required to send dissenters’ rights notices to

beneficial owners because publicly traded corporations do not have access

 

 
to contact information for all beneficial owners and are, in fact, unable to
obtain this information unless that beneficial owner does not object. 17
C.ER. § 240.14b-2(b)(4)(ii)(B) (2010); id. § 240.14b-3. While Kisorin had
the contact information for some of the beneficial stockholders, it did not
have that information for all of them. At the time of the merger, Kisorin
possessed a list of the beneficial stockholders of Pachinko World who had
not objected to sharing their information. This nonobjecting beneficial
stockholders list included the Smiths’ names, addresses, and ownership
position. However, this was not a complete list of all of the beneficial
owners. While federal regulations provide that a corporation may ask a
record owner to provide a nonobjecting beneficial stockholders list, it has
no means to obtain the objecting beneficial owners list as a matter of right.
See 17 C.F.R. § 240.14a-13(0)(2). Objecting beneficial owners usually
account for 75 percent of the beneficial owners, and nonobjecting beneficial

 

stockholders usually account for the remaining 25 percent, See Marcel
Kahan & Edward Rock, The Hanging Chads of Corporate Voting, 96 Geo.
LJ. 1227, 1244-45 (2008). Accordingly, we conclude that it would be
impracticable to require a corporation to send dissenters’ rights notices to
population that it has no means of identifying as a matter of right.

Based upon this limitation, we conclude that the Legislature,
in NRS 92A.410 and NRS 924.430, could not have intended to require
corporations to send notices to stockholders for whom they have no
information.? Thus, the only reasonable interpretation of those statutes is

2Our conclusion that only record stockholders aro entitled to notice
of a stockholders’ meeting, NRS 78.370(3), accords with NRS 92A.410(1),
which requires that a dissenters’ rights notice be provided in the notice of

continued on next page ...

 

 
8

that they require corporations to send dissenters’ rights notices only to
record stockholders, who then, in turn, can provide notice to the beneficial
stockholders for whom they hold the stock in street name. We reach this
conclusion because of one very important reason—corporations do not
have the right to access all beneficial owners’ information. If we
determined that beneficial owners must be notified, corporations would be
unable to comply with the law. The Legislature could not have intended
this absurd result. Accordingly, beneficial owners who are not also
stockholders of record, such
issenters' rights notice under NRS 92A.410 and NRS 924.430.

the Smiths, are not entitled to be sent a

 

 

» continued

the stockholder meeting at which the vote on a proposed corporate action
will be taken,

As an alternative ground for affirming the judgment, Kisorin
contends that because both the Smiths and the owner in street name,
Cede & Co., failed to submit a sufficient demand for payment with the
stock certificates attached, they lost their right to a dissenter’s appraisal.
We agree. While the Smiths attempted an untimely dissent, it does not
appear from the record that the Smiths attached the stock certificates or
Code & Co.'s written consent, as was required by the dissenters’ rights
notice and Nevada law. See NRS 92A.400(2)(a); NRS 92A.440(5) (stating
that when a stockholder “does not demand payment or deposit his or her
certificates where required, each by the date set forth in the dissenter’s
notice, {he or she] is not entitled to payment for his or her shares under
this chapter”). Moreover, the Smiths do not contend that they fulfilled
these requirements. Even if the demand deadline was waived, the Smiths
provide no support for their argument that their failure to properly dissent
should also be waived. Therefore, we also affirm the district court's
summary judgment on this ground.

 

 

 
Moreover, in Enstar Corp. v, Senouf, 585 A.2d 1351, 1354-55,
(Del. 1987), the Delaware Supreme Court discussed a similar situation
and came to the same result. The court noted that

[t]he use of security depositories by brokerage
firms now is a common practice. The decision in
that regard, however, is a matter which is strictly
between the broker and its clients. ... In making
that choice, the burden must be upon the
stockholder to obtain the advantages of record
ownership....The legal and practical effects of
having one’s stock registered in street name
cannot be visited upon the issuer. ‘The attendant
risks are those of the stockholder, and where
appropriate, the broker. ... “If an owner of stock
chooses to register his [or her] shares in the name
of a nominee, he {or she] takes the risks attendant
upon such an arrangement, including the risk that
he [or she] may not receive notice of corporate
proceedings, or be able to obtain a proxy from his
[or her] nominee”... Here, the problem is one
between the [shareholders] and their brokers.

Id, at 1354-56 (citations omitted) (quoting American Hardware Corp. v,
Savage Arms Corp,, 136 A.2d 690, 692 (Del. 1957)). Indeed, under this
framework, the only reasonable interpretation of the statutes at issue is

 

 

that notice must be sent to record holders and not beneficial owners,

 

 
Based on the foregoing, we affirm the summary judgment of
the district court because Kisorin properly provided the dissenters’ rights
notice to Cede & Co. as required by Nevada law.

 

 
  

herry
wy
a
Gibbons
fi Ls
Pickering

“The Smiths further contend that a Nevada corporation is required
to comply with both the NRS Chapter 92A dissenters’ notice requirements
and with the notice requirements set forth in the Code of Federal
Regulations. See Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248 (1984)
(holding that stato law is preempted by federal law if the state law
conflicts with federal law or if “the state law stands as an obstacle to the
accomplishment of the full purposes and objectives of Congress”). ‘The
pertinent federal regulations require that a corporation send
communications to the holder in street name, who then is required to
timely send the information to the beneficial owners unless the
corporation “does not provide assurance of reimbursement of [the record
holder's} reasonable expenses.” 17 C.F.R. § 240.14b-2(0\(2)(1) (2010); see
also id. § 240.14a-13(a)(1)-(6); id, § 240.14b-2(b)(3), Consequently, if a
corporation declines to reimburse the holder in street name, a beneficial
owner may not receive materials from the corporation. Therefore, under
federal law, Kisorin fulfilled its requirements by sending the notice to the
stockholder in street name,