UNPUBLISHED

UNITED STATES COURT OF APPEALS 

FOR THE FOURTH CIRCUIT 

No. 07-1948

DAVID SCHWARTZ, 

 Plaintiff - Appellant, 

 v. 

KENNETH BLUM; KENNETH BLUM, II; WILLIAM A. RICHTER, 

 Defendants – Appellees, 

 and 

GRANT THORNTON LLP; SHULMAN, ROGERS, GANDAL, PORDY & ECKER, 

Non-party recipient of Subpoena Duces Tecum, 

 Respondents. 

Appeal from the United States District Court for the District of 

Maryland, at Baltimore. Richard D. Bennett, District Judge. 

(1:06-cv-02851-RDB) 

Argued: October 30, 2008 Decided: January 29, 2009 

Before TRAXLER and SHEDD, Circuit Judges, and HAMILTON, Senior 

Circuit Judge. 

Affirmed in part and vacated in part by unpublished per curiam 

opinion. 

ARGUED: Brian M. Maul, GORDON & SIMMONS, Frederick, Maryland, 

for Appellant. George W. Shadoan, SHADOAN, MICHAEL & WELLS, 

LLP, Rockville, Maryland, for Appellees. ON BRIEF: Roger C. 

Simmons, GORDON & SIMMONS, Frederick, Maryland, for Appellant. 
Unpublished opinions are not binding precedent in this circuit. 

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PER CURIAM: 

 David Schwartz appeals the order of the district court 

dismissing his action against his former business partners 

stemming from the sale of their company, Rent-A-Wreck of 

America, Inc., and its 2006 merger with MBFG, Inc. For the 

reasons that follow, we affirm the decision of the district 

court. We vacate as moot the district court’s order granting 

summary judgment. 

I. 

 Schwartz founded Rent-A-Wreck of America (“RAWA”), a lowbudget car rental company that traded on the NASDAQ stock 

exchange until 2002. At the time of the 2006 merger, Schwartz 

was a major RAWA shareholder, but RAWA’s day-to-day operations 

were overseen by CEO Kenneth Blum, Sr. (“Blum”), and Blum’s son, 

Kenneth Blum II (“Blum II”), who served as president of RAWA 

until 2004. William Richter, who owned a controlling interest 

in RAWA’s preferred stock and a substantial interest in the 

common shares, sat on the Board of Directors. 

 Schwartz alleges that, from approximately 1994 until “the 

early 2000s,” J.A. 372, the Blums mismanaged the company and 

engaged in a pattern of self-dealing with Richter’s acquiescence 

and occasional active assistance. Schwartz alleges, for 

example, that RAWA hired companies owned by Blum II to develop 

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software that was unnecessary; that the Blums leased property to 

RAWA through their own real estate company; that the Blums 

caused RAWA to pay excessive fees for management services 

performed by K.A.B., Inc., a company controlled by the Blums; 

that Blum II and Richter purchased cars through RAWA but 

retained the profits from resale for themselves; that the Blums 

diverted company funds for their own personal use and misused 

company credit cards; and that the Blums and their family 

members used company cars without compensating RAWA. 

According to Schwartz, Mitra Ghahramaniou, RAWA’s financial 

controller, became concerned about this alleged pattern of 

misconduct and financial improprieties and its effect on RAWA’s 

mandatory SEC filings. Ghahramaniou communicated her concerns 

to Richter, who allegedly permitted the Blums to “cover up” 

their activities. J.A. 13. Schwartz claims that, because the 

Blums feared the activities reported by Ghahramaniou subjected 

them to potential individual liability under the Sarbanes-Oxley 

Act, see Pub. L. No. 107-204, § 804, 116 Stat. 745, 801 (2002), 

codified in part at 28 U.S.C. § 1658(b), the Blums caused RAWA 

to delist its shares from the NASDAQ exchange so that SarbanesOxley would no longer apply. The complaint alleges that the 

delisting resulted in a significant drop in the value of RAWA 

shares and eventually lead to the resignation of Blum II as 

president. According to the complaint, a subsequent audit 

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revealed numerous financial irregularities, forcing the Blums to 

repay RAWA for “improper and undocumented expenses.” J.A. 14. 

Schwartz alleges finally that Richter and Blum, in order 

“to extract themselves from the problems created” by their 

conduct, began looking for a company that would purchase RAWA. 

J.A. 14. Ultimately, RAWA entered into a Merger Agreement with 

MBFG. Schwartz alleges that Richter, who held a controlling 

interest in RAWA, and Blum approved the proposed merger even 

though another buyer produced a more favorable tender offer. 

Schwartz claims that Richter and Blum settled on MBFG because, 

unlike the other bidder, MBFG agreed to grant, among other 

things, “a waiver and release of all claims arising from the 

facts contained in the Audit Report.” J.A. 16. 

The Merger Agreement offered RAWA shareholders the option 

of tendering their shares for the price being offered by MBFG or 

dissenting from the proposed merger and pressing their appraisal 

rights. Schwartz opted to accept MBFG’s offer and redeem his 

400,000 shares of RAWA stock. Schwartz concedes that at the 

time he tendered his shares to MBFG, he was fully informed as to 

all material facts related to the merger, including defendants’ 

alleged self-dealing, which occurred years before the merger. 

Based on these factual allegations, Schwartz asserted a 

breach-of-fiduciary-duty claim against all defendants, 

contending that RAWA shareholders did not receive a fair price 

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for the merger. According to Schwartz, RAWA’s “value included 

claims against the Defendants” that were waived in the merger 

transaction and, therefore, MBFG paid less than it should have 

for the merger. J.A. 16. Furthermore, Schwartz alleged in his 

complaint that the value of RAWA’s stock dropped significantly 

when RAWA delisted from the Nasdaq exchange as a result of 

defendants’ failure to adhere to their fiduciary 

responsibilities. 

Defendants moved to dismiss the complaint, arguing that 

Schwartz, having tendered his RAWA shares and accepted the 

consideration offered in the merger proposal, was barred from 

challenging the fairness of the merger price. While the motion 

to dismiss was pending, defendants filed a motion for summary 

judgment asserting that, to the extent Schwartz was pursuing a 

claim based on defendants’ alleged self-dealing and wrongdoing 

as directors or officers of RAWA, such a claim was barred by 

Maryland’s three-year statute of limitations. 

The district court granted the motion to dismiss, 

concluding that under Bershad v. Curtiss-Wright Corp., 535 A.2d 

840 (Del. 1987), Schwartz could not challenge the fairness of 

the merger after tendering his shares and accepting the benefits 

of the 2006 merger. Noting that the nature of Schwartz’s claim 

was “difficult to discern from the Complaint,” J.A. 377, the 

district court decided to address defendants’ motion for summary 

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judgment even though it had granted the motion to dismiss. The 

court granted summary judgment, agreeing with defendants that 

any claim based on the allegations of wrongdoing was barred by 

the statute of limitations. Schwartz challenges both rulings on 

appeal. 

II. 

A. 

 The lack of clarity and precision in Schwartz’s complaint 

complicated the district court’s task in this case. Even on 

appeal with the aid of counsel’s post hoc characterizations of 

the claim asserted by Schwartz, it is indeed difficult to pin 

down Schwartz’s theory. That said, we conclude that the heart 

of Schwartz’s claim is a challenge to the price of the merger. 

This conclusion is confirmed by language in the complaint and 

Schwartz’s opening brief: “The gravamen of Schwartz’s Complaint 

is that [defendants] breached their fiduciary duties . . . which 

resulted in a lower price term being realized from the 2006 

Merger than would otherwise have been obtained.” Brief of 

Appellant at 22; see id. at 23 (“Schwartz’s Complaint is a 

challenge to the terms of the 2006 Merger.”). 

As we understand the claim, the allegations about 

defendants’ improper conduct go to Schwartz’s theory about why

the merger price was unfair. He believes that defendants feared 

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liability as a result of their alleged misconduct and thus 

“bought” protection by agreeing to a lower merger price in 

exchange for a waiver from MBFG. On the face of the complaint, 

however, such a theory is simply not apparent. Nevertheless, 

even if we were to superimpose this theory onto the actual 

complaint, Schwartz’s basic claim would remain the same -- 

defendants negotiated or otherwise caused an unfair, lowball 

merger price. 

Accordingly, although we appreciate the dilemma created by 

the pleadings and understand the district court’s reasons for 

ruling on a second dispositive motion, we conclude that the 

motion for summary judgment was essentially duplicative of the 

motion to dismiss and that it was unnecessary for the court to 

address it. For the reasons that follow, we affirm the district 

court’s dismissal of Schwartz’s complaint and vacate as moot the 

order granting summary judgment. 

B. 

 Schwartz argues that the district court erroneously 

concluded that, by accepting consideration from MBFG in exchange 

for his RAWA stock, he essentially acquiesced to the proposed 

merger and could not subsequently challenge the fairness of the 

price MBFG paid for the shares. 

Federal courts sitting in diversity must apply the 

substantive law of the forum state, see Erie R.R. Co. v. 

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Tompkins, 304 U.S. 64, 78 (1938); Food Lion, Inc. v. Capital 

Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir. 1999), including 

its choice of law rules, see Klaxon Co. v. Stentor Elec. Mfg. 

Co., 313 U.S. 487, 496 (1941). The parties agree that Delaware 

law applies to Schwartz’s claim; accordingly, we look to the 

corporate law of Delaware as determined by the highest court of 

that state. See Ellis v. Grant Thornton LLP, 530 F.3d 280, 287 

(4th Cir. 2008) (“As a federal court sitting in diversity, we 

have an obligation to apply the jurisprudence of West Virginia’s 

highest court, the Supreme Court of Appeals of West Virginia.”). 

The district court relied upon the Delaware Supreme Court’s 

Bershad decision, which considered whether an informed 

stockholder -- and Schwartz concedes he was fully informed -- 

can challenge the fairness of the merger price after “vot[ing] 

in favor of a merger or accept[ing] the benefits of the 

transaction.” Bershad, 535 A.2d at 842 (emphasis added). The 

Bershad court answered this question in the negative, holding 

that a stockholder who has “tendered his shares and accepted the 

merger consideration” has “acquiesced in the transaction and 

cannot [subsequently] attack it.” Id. at 848. 

 Despite the apparent death-knell sounded by Bershad for his 

claim, Schwartz contends that numerous Delaware Chancery Court 

decisions have narrowed the scope of Bershad. Representative of 

the decisions cited by Schwartz is In re Best Lock Corp. 

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Shareholder Litigation, 845 A.2d 1057 (Del. Ch. 2001), in which 

the court concluded that Bershad precludes a stockholder from 

challenging the merger price only when he tenders his shares and

affirmatively votes to ratify the merger. Id. at 1079 

(observing that “[t]he result in Bershad would . . . have been 

different . . . if there had not been a ratifying vote of the 

minority shareholders”). Moreover, according to In re Best 

Lock, even if the shareholder votes for the merger and accepts 

its benefits, he may still challenge the fairness of the merger 

in an equitable action. See id.; see also In re JCC Holding 

Co., 843 A.2d 713, 722-23 (Del. Ch. 2003) (“[A] stockholder who 

casts a vote in favor of, or later accepts the consideration 

from, a merger effected by a controlling stockholder is not 

barred by the doctrine of acquiescence, or any other related 

equitable doctrine such as waiver, from challenging the fairness 

of the merger.”). 

 There are some circumstances under which a federal 

diversity court, in determining the applicable state law, can 

consider the decisions of a lower state court. If the highest 

state court has not addressed the issue or the law is unclear, 

the federal court must “forecast a decision of the state’s 

highest court” in light of “canons of construction, restatements 

of the law, treatises, recent pronouncements of general rules or 

policies by the state’s highest court, well considered dicta, 

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and the state’s trial court decisions.” Wells v. Liddy, 186 

F.3d 505, 528 (4th Cir. 1999); see also Private Mortgage Inv. 

Servs., Inc. v. Hotel & Club Assocs., 296 F.3d 308, 312 (4th 

Cir. 2002) (considering, in the absence of decision by the state 

supreme court, a decision by the state’s intermediate appellate 

court to be “the next best indicia of what state law is”) 

(internal quotation marks omitted). No such circumstances 

present themselves here. In Bershad, the Supreme Court of 

Delaware directly addressed this issue. Since that decision, as 

Schwartz concedes, the Delaware Supreme Court has not fashioned 

an exception to Bershad or otherwise narrowed its holding, 

either explicitly or implicitly. Accordingly, we believe that 

Bershad remains controlling and it is dispositive of the claim 

raised by Schwartz. 

III. 

 For the foregoing reasons, we affirm the district court’s 

dismissal of Schwartz’s complaint. To the extent that the 

district court also granted summary judgment, we vacate that 

order. Having reviewed and carefully considered the remaining 

issues raised on appeal by Schwartz, we reject these arguments 

as well. 

AFFIRMED IN PART AND VACATED IN PART