Source: https://supreme.justia.com/cases/federal/us/311/531/
Timestamp: 2019-04-25 21:46:26+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 311 › Voeller v. Neilston Warehouse Co.
A state statute providing that, where a corporation authorize the sale or other disposition of all or substantially all of its assets, a dissenting shareholder shall have the right to be paid the fair cash value of his shares, and that the amount demanded of the corporation by the dissenting shareholder as such fair cash value shall, after six months -- if the corporation doe not make a counter-offer, request an appraisal, or abandon the sale -- conclusively be deemed to be equal to the fair cash value, held, in its operation as to majority stockholders, not a deprivation of their property without due process in violation of the Fourteenth Amendment, although the statute made no provision for notice to them as individuals, or opportunity for them to be heard, in respect to the dissenting stockholder's demand. P. 311 U. S. 535.
The corporation sufficiently represents the majority stockholders for the purposes of notice and of invoking the jurisdiction of this Court on the constitutional question. P. 311 U. S. 537.
136 Ohio St. 427, 26 N.E.2d 942, reversed.
Certiorari, post, p. 624, to review a judgment denying recovery to minority stockholders upon a state statute held unconstitutional.
We granted certiorari in this case, 311 U.S. 624, to review a decision of the Supreme Court of Ohio invalidating a state statute on the ground that it constituted a denial of procedural due process guaranteed by the Fourteenth Amendment. [Footnote 1] The statute in question provided that the value placed upon his stock by a dissenting shareholder should, after six months and under certain circumstances, "conclusively be deemed to be equal to" the fair cash value. [Footnote 2] The state court held that, since the statute required that the demands of the dissenters be made known only to the corporation, the majority shareholders were unconstitutionally deprived of property without notice and an opportunity to be heard.
Concretely, the question was raised here in the following manner: petitioners, holders of stock in respondent corporation, were among those who dissented when a vote was called on a sale of substantially all the corporate assets. Two-thirds of the shareholders voted for the sale, which was thereupon consummated. Petitioners gave written notice to the corporation of their objection, the number of shares they held, and the claimed fair cash value of their stock. The corporation refused in writing to pay the amount asked, but made no counter-offer.
Neither party filed a petition for appraisal. After six months had elapsed, petitioners filed suit in the Court of Common Pleas, asking that judgment be rendered in their favor for the amounts originally claimed.
All of these proceedings were in accordance with the applicable Ohio law. [Footnote 3] In their suit, petitioners relied on a section of that law which provided that the value claimed by the dissenting shareholders should "conclusively be deemed to be equal to" fair cash value if the corporation had neither made a counter-offer nor requested an appraisal. [Footnote 4] One of the majority shareholders filed an intervening petition on behalf of herself and all other shareholders similarly situated, alleging that the section of the statute involved was unconstitutional. A judge of the Court of Common Pleas struck out this intervention at the request of petitioners, saying that the statute was constitutional, the petition for intervention irrelevant, and the majority shareholders without standing to intervene. [Footnote 5] No appeal was taken from this ruling. When the case came on for trial on the merits, a different judge sat, and it was his opinion that the statute was unconstitutional. The Court of Appeals, one judge dissenting, reversed the trial court, and was itself reversed, two judges dissenting, by the Supreme Court of Ohio.
"an unconstitutional operation against the majority stockholders as being violative of the due process section of the 14th Amendment to the federal Constitution."
And the correctness of that conclusion is the only question properly before this Court. All other questions presented involve state law, for the conditions under which corporations shall organize and operate are matters within the exclusive province of the state, so long as those conditions do not clash with the national Constitution.
conclusively be deemed equal to the fair cash value. The corporation was given the right to avoid the effect of being compelled to pay the claimed value either by making a counter-offer or by requesting an appraisal. In addition, it was given the right to avoid both appraisal and payment of the claimed value by abandoning its original purpose to sell its assents. The dissenting shareholders could, by requesting an appraisal, likewise avoid accepting the corporation's counter-offer. Thus, the corporation is compelled to pay or the dissenting shareholder to accept payment of the amount of the offer or counter-offer only if none of the many available alternatives are pursued before the expiration of a six-month period. The provisions in effect operate as statutes of limitations. After the lapse of a period of time, given defenses -- attacks on value -- can no longer be asserted.
of the system and its most distinctive attribute -- representation of the collective interest of shareholders by selected corporate management.
There is nothing unusual in such a holding; the rights of parties are habitually protected in court by those who act in a representative capacity; an executor or administrator may act for the beneficiaries of an estate; a receiver may represent the collective interests of stockholders, partners, or creditors; a lawyer may appear for his clients, and a corporation may represent the collective interests of its shareholders. In this case, in fact, the unappealed ruling of the trial judge on the attempted intervention by the majority stands as an adjudication that, in those respects here material, the majority had committed their interests to the corporation itself.
136 Ohio St. 427, 26 N.E.2d 442, 445.
Ohio Code Ann. (Throckmorton, 1940) § 8623-72, paragraph 7.
Ohio Code Ann. (Throckmorton, 1940) §§ 8623-65, 8623-72.
"If such petition [for appraisal] is not filed within such period, the fair cash value of the shares shall conclusively be deemed to be equal to the amount offered to the dissenting shareholder by the corporation if any such offer shall have been made by it as above provided, or, in the absence thereof, then an amount equal to that demanded by the dissenting shareholder as above provided."
"The failure to take advantage of the statutory provisions may result unfortunately for other stockholders, but their remedy would be against those directors who were derelict in their duty."
At common law, unanimous shareholder consent was a prerequisite to fundamental changes in the corporation. This made it possible for an arbitrary minority to establish a nuisance value for its shares by refusal to cooperate. To meet the situation, legislatures authorized the making of changes by majority vote. This, however, opened the door to victimization of the minority. To solve the dilemma, statutes permitting a dissenting minority to recover the appraised value of its shares were widely adopted. See SEC Report on the Work of Protective and Reorganization Committees, Part VII, pp. 557, 590. The Ohio appraisal statute here in issue was not adopted until after respondent had acquired its charter, but the Ohio Constitution expressly reserves to the state the right to alter or repeal the corporate law. Ohio Const., Art. 13, § 2.
Tyler v. Judges, 179 U. S. 405; Hendrick v. Maryland, 235 U. S. 610, 235 U. S. 621. And see Mr. Justice Brandeis, concurring, in Ashwander v. Tennessee Valley Authority, 297 U. S. 288, 297 U. S. 347-348, and cases there cited.
Christopher v. Brusselback, 302 U. S. 500, 302 U. S. 504; cf. Kersh Lake Drainage District v. Johnson, 309 U. S. 485, 309 U. S. 491.

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