Title: HMO-W Incorporated v. SSM Health Care System
Citation: 2000 WI 46
Docket Number: 1998AP002834
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: June 7, 2000

2000 WI 46 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
98-2834 
 
 
Complete Title 
of Case: 
 
HMO-W Incorporated,, a Wisconsin corporation, 
 
Plaintiff-Respondent-Petitioner, 
 
v. 
SSM Health Care System, a foreign corporation, 
 
Defendant-Appellant-Cross Petitioner, 
Neillsville Clinic, S.C., a Wisconsin  
corporation,  
 
Defendant.  
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  228 Wis. 2d 815, 598 N.W.2d 577 
 
 
(Ct. App. 1999-Published) 
 
 
Opinion Filed: 
June 7, 2000 
Submitted on Briefs: 
      
Oral Argument: 
April 11, 2000 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Sauk 
 
JUDGE: 
James Evenson 
 
 
JUSTICES: 
 
Concurred: 
      
 
Dissented: 
      
 
Not Participating: BABLITCH, J. did not participate 
 
 
ATTORNEYS: 
For the plaintiff-respondent-petitioner there 
were briefs by Thomas M. Pyper, Theresa M. Hottenroth and Whyte 
Hirschboeck Dudek, S.C., Madison, and Elizabeth Bartlett and Blue 
Cross & Blue Shield United of Wisconsin, Milwaukee, and oral 
argument by Thomas M. Pyper. 
 
 
For the defendant-appellant-cross petitioner 
there were briefs by Earl H. Munson and La Follette Sinykin, LLP, 
Madison, and Peter B. Ritz and Ritz & Caflisch, S.C., Madison, 
and oral argument by Earl H. Munson. 
 
2000 WI 46 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 98-2834 
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
HMO-W Incorporated, a Wisconsin  
corporation,  
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
SSM Health Care System, a foreign  
corporation,  
 
          Defendant-Appellant- 
          Cross Petitioner, 
 
Neillsville Clinic, S.C., a Wisconsin  
corporation,  
 
          Defendant. 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed. 
 
¶1 
ANN WALSH BRADLEY, J.   HMO-Wisconsin (HMO-W) seeks 
review of that part of a published court of appeals decision 
that reversed a circuit court judgment and order applying a 
minority discount in this dissenters' rights action.1  HMO-W 
                     
1 HMO-W Inc. v. SSM Health Care Sys., 228 Wis. 2d 815, 598 
N.W.2d 577 (Ct. App. 1999)(affirming in part, reversing in part 
the judgment and order of the Circuit Court for Sauk County, 
James Evenson, J., and remanding the cause with directions).  
FILED 
 
JUN 7, 2000 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 
98-2834 
 
 
2 
contends that the court of appeals erred when it precluded the 
application of minority discounts in determining the fair value 
of dissenters' shares.  We agree with the court of appeals and 
conclude that minority discounts may not be applied to determine 
the fair value of dissenters' shares in an appraisal proceeding.  
¶2 
SSM Health Care System (SSM) seeks cross-review of 
that part of the court of appeals decision affirming the circuit 
court's determination of the value of HMO-W's net assets.  SSM 
asserts that HMO-W's unfair dealing should be considered when 
determining the fair value of SSM's shares and that the circuit 
court should have bound HMO-W to its initial represented value 
of the corporation's net assets.  We determine that a court may 
consider evidence of unfair dealing as it affects the value of a 
dissenter's shares and that the circuit court properly addressed 
unfair dealing in rendering its determination of HMO-W's net 
value.  Accordingly, we affirm the court of appeals.    
¶3 
The appraisal action at the center of this review 
represents the culmination of a relationship between HMO-W and 
SSM that spanned more than a decade.  In 1983, SSM and a number 
of other health care providers formed HMO-W as a provider-owned 
health care system.  All shareholders assumed minority status in 
this closely held corporation.  SSM and the Neillsville Clinic, 
another shareholder, together owned approximately twenty percent 
of HMO-W's shares. 
¶4 
By the early 1990's, competitive pressures from within 
the health care business led HMO-W to explore the possibility of 
merging with another health care system.  SSM recommended 
No. 
98-2834 
 
 
3 
DeanCare Health Plan (DeanCare), a company with which SSM had 
close connections, as a potential merger partner.  HMO-W later 
eliminated DeanCare from consideration after having met with 
company representatives numerous times to discuss a partnership 
deal.  HMO-W instead proposed a joint venture with United 
Wisconsin Services (United). 
¶5 
Before shareholder approval of the merger, HMO-W 
retained Valuation Research Corporation (VR) to value HMO-W's 
net assets both prior to and upon the merger.  VR prepared a 
final valuation report that HMO-W accepted and which estimated 
the company's net value to fall within the range of $16.5 to $18 
million. 
¶6 
Subsequently, HMO-W's board of directors voted to 
approve the proposed merger with United and to submit the merger 
to a shareholder vote.  In addition to the VR report, the proxy 
materials sent to the shareholders informed them of their 
statutory right to dissent to the merger.  At the shareholder 
meeting, both SSM and the Neillsville Clinic voted against the 
proposed merger.  The merger was nevertheless approved.   
¶7 
Both SSM and the Neillsville Clinic then perfected a 
demand for the payment of their dissenting shares.  Wis. Stat. 
§ 180.1323 (1997-98).2  Abandoning the VR report, HMO-W hired a 
new appraiser to value its assets.  The appraiser arrived at a 
valuation of approximately $7.4 million, and based upon this 
                     
2 All subsequent references to the Wisconsin Statutes are to 
the 1997-98 volumes unless otherwise indicated. 
No. 
98-2834 
 
 
4 
valuation, HMO-W sent SSM a check for almost $1.5 million as the 
value of SSM's shares.  Disputing HMO-W's valuation of the 
shares, 
SSM 
informed 
the 
company 
that 
SSM's 
fair 
value 
calculation of its shares yielded a figure of approximately $4.7 
million. 
¶8 
Pursuant to Wis. Stat. § 180.1330(1), HMO-W instituted 
a special proceeding to determine the fair value of the 
dissenting shares.  In response, SSM asserted that HMO-W was 
estopped from claiming a company value that was lower than the 
$16.5 
to 
$18 
million 
value 
it 
had 
represented 
to 
the 
shareholders prior to the merger vote. 
¶9 
At trial, several experts testified as to the net 
value of HMO-W.  HMO-W's expert testified that the company's 
value immediately prior to the merger was $10,544,000.  SSM's 
expert submitted the value as $19,250,000.  The circuit court 
accepted the valuation offered by HMO-W's expert, noting various 
flaws in the earlier VR report that called into question the 
accuracy of that report.    
¶10 Upon accepting HMO-W's valuation and observing the 
dissenters' minority status, the circuit court applied a 
minority discount of 30% to the value of the dissenting shares 
No. 
98-2834 
 
 
5 
but refrained from applying a lack of marketability discount.3  
The circuit court concluded that it was required to apply the 
minority discount as a matter of law.  The court then ordered 
SSM and the Neillsville Clinic to repay with interest the amount 
by which HMO-W's initial payment exceeded the court's fair value 
determination.   
¶11 SSM filed a post-decision motion requesting the court 
to clarify whether it had considered SSM's argument that HMO-W 
be estopped from asserting at the appraisal proceeding a  
substantially lower value of its assets than the value set forth 
in the initial VR report.  In response, the court issued an 
order stating that it had considered SSM's arguments and that it 
was affirming its prior decision in HMO-W's favor.  SSM 
appealed.  
¶12 The court of appeals affirmed in part and reversed in 
part, remanding the case for a fair value determination without 
the application of a minority discount.  It held as a matter of 
law that the Wisconsin statutes governing dissenters' rights do 
not allow minority discounts to be applied in determining the 
                     
3 A minority discount addresses the lack of control over a 
business entity on the theory that non-controlling shares of 
stock are not worth their proportionate share of the firm’s 
value because they lack voting power to control corporate 
actions.  Lawson Mardon Wheaton, Inc. v. Smith, 734 A.2d 738, 
747 (N.J. 1999).  A lack of marketability discount adjusts for a 
lack of liquidity in one’s interests in a firm, on the theory 
that there is a limited supply of potential buyers in closely 
held corporations.  Id.  The type of discount at issue in this 
case is the minority discount, and thus we do not address the 
applicability of a lack of marketability discount under the 
statute. 
No. 
98-2834 
 
 
6 
fair value of a dissenter's shares.  HMO-W Inc. v. SSM Health 
Care Sys., 228 Wis. 2d 815, 827, 598 N.W.2d 577 (Ct. App. 1999). 
¶13 The court reasoned that minority discounts frustrate 
the purpose of dissenters' rights statutes, which protect the 
rights of shareholders to voice objection to corporate actions 
and to receive an equitable value for their minority shares.  
Id.  However, the court of appeals affirmed the circuit court's 
determination as to HMO-W's net asset value.  It concluded that 
SSM had failed to prove harm in reliance on the VR report that 
initially valued HMO-W's net assets at $16.5-$18 million.  Id. 
at 828-29. 
¶14 Two issues are currently presented for review, and 
both are issues of first impression for this court.  Initially 
we address the issue of whether a minority discount may apply in 
determining the fair value of a dissenter's shares.  This 
inquiry 
involves 
statutory 
interpretation 
and 
presents 
a 
question of law.  Jefferson County v. Renz, 231 Wis. 2d 293, 
301, 603 N.W.2d 541 (1999).  Second, we address whether a court 
in making its fair value determination may consider evidence of 
unfair dealing  relating to the value of the dissenter's shares. 
 This also presents a question of law.  We review questions of 
law independently of the legal conclusions of the circuit court 
and the court of appeals.  Deutsches Land, Inc. v. City of 
Glendale, 225 Wis. 2d 70, 79-80, 591 N.W.2d 583 (1999). 
¶15 Tracing the evolution of dissenters' appraisal rights 
provides a context for the discussion of the two issues 
presently 
before 
this 
court. 
 
At 
common 
law, 
unanimous 
No. 
98-2834 
 
 
7 
shareholder 
consent 
was 
required 
to 
achieve 
fundamental 
corporate changes.  Voeller v. Neilston Warehouse Co., 311 U.S. 
531, 536 n.6 (1941); Fontaine v. Brown County Motors Co., 251 
Wis. 433, 437, 29 N.W. 744 (1947).  Courts and legislatures 
questioned the wisdom of allowing one shareholder to frustrate 
changes deemed desirable and profitable by the majority and thus 
modified tradition by authorizing majority consent.  Mary 
Siegel, Back to the Future: Appraisal Rights in the Twenty-First 
Century, 32 Harv. J. on Legis. 79, 87 (1995).   
¶16 Although 
permitting 
the 
majority 
to 
approve 
fundamental changes was viewed as a solution to the potential 
stalemate attendant to a requirement of corporate unanimity, 
majority consent nevertheless opened the door to victimization 
of the minority.  Rigel Corp. v. Cutchall, 511 N.W.2d 519, 523-
24 (Neb. 1994).  In response, legislatures widely adopted 
statutes 
to 
address 
minority 
victimization 
by 
affording 
dissenters appraisal rights for their shares.  Voeller, 311 U.S. 
at 536 n.6.     
¶17 The appraisal remedy has its roots in equity and 
serves as a quid pro quo: minority shareholders may dissent and 
receive a 
fair value 
for 
their 
shares in 
exchange for 
relinquishing their veto power.  In re Valuation of Common Stock 
of McLoon Oil Co., 565 A.2d 997, 1004 (Me. 1989); Barry M. 
Wertheimer, The Shareholders' Appraisal Remedy and How Courts 
Determine Fair Value, 47 Duke L.J. 613, 619 (1998) (hereinafter 
Wertheimer).  Appraisal thus grants protection to the minority 
No. 
98-2834 
 
 
8 
from forced participation in corporate actions approved by the 
majority.  
¶18 Wisconsin law currently allows a minority shareholder 
to dissent from a fundamental corporate action, such as a 
merger, and to receive the fair value of those minority shares. 
 Wisconsin Stat. § 180.1302(1) states that except in certain 
statutorily defined circumstances, "a shareholder or beneficial 
shareholder may dissent from, and obtain payment of the fair 
value of his or her shares in the event of [a merger or other 
enumerated corporate actions]."  If the shareholder expresses 
dissatisfaction with the payment of shares offered by the 
corporate entity and complies with the appropriate procedures, a 
corporation may institute a special proceeding and petition the 
court to make a binding determination as to the fair value of 
the shares.  See Wis. Stat. §§ 180.1328, 180.1330, and 
180.1302(1). 
¶19 We turn now to address the first issue: whether a 
minority discount may apply in determining the fair value of a 
dissenter's shares.  This issue presents a question of statutory 
interpretation, and we examine first the statutory language to 
discern legislative intent.  State v. Setagord, 211 Wis. 2d 397, 
406, 565 N.W.2d 506 (1997).  If the language is clear, we need 
not look beyond the statutory language to determine that intent. 
 Id.  If the statute is ambiguous, however, we resort to such 
extrinsic aids as legislative history and statutory purpose for 
guidance.  McDonough v. State Dept. of Workforce Dev., 227 Wis. 
2d 271, 277, 595 N.W.2d 686 (1999). 
No. 
98-2834 
 
 
9 
¶20 The definition of fair value set forth in Wis. Stat. 
§ 180.1301(4) provides: 
 
   
"Fair value", with respect to a dissenter's 
shares other than in a business combination, 
means the value of the shares immediately before 
the effectuation of the corporate action to which 
the dissenter objects, excluding any appreciation 
or depreciation in anticipation of the corporate 
action unless exclusion would be inequitable.  
"Fair value", with respect to a dissenter's 
shares in a business combination, means market 
value, as defined in s. 180.1130(9)(a)1. to 4.4 
¶21 HMO-W maintains that under the clear language of Wis. 
Stat. § 180.1301(4), the circuit court retains the discretion to 
apply a minority discount in appropriate circumstances by 
valuing the dissenter's shares as a minority block of shares.  
Because the language is silent as to the applicability of a 
minority discount, there is no indication that the legislature 
aimed to curtail the court's discretion.  HMO-W claims that the 
legislature would have so stated had it intended to impose a 
blanket prohibition against such a discount. 
¶22 Although HMO-W advances a statutory interpretation 
permitting circuit court discretion, it fails, however, to offer 
a standard by which this discretion should be exercised.  HMO-W 
does not definitively set forth any guidelines to contour the 
discretion it contends is inherent in the statute, including 
                     
4 A business combination is a sale, merger, or share 
exchange 
between 
a 
public 
corporation 
and 
a 
significant 
shareholder or an affiliate of the significant shareholder.  
Wis. Stat. § 180.1130(3).  It is undisputed by both parties that 
the transaction at issue in this case does not qualify as a 
business combination. 
No. 
98-2834 
 
 
10
when a circuit court may apply a minority discount and how much 
of a discount the court should apply. 
¶23 SSM also argues that Wis. Stat. § 180.1301(4) is 
unambiguous, yet maintains that the clear words of the statute 
reflect an opposite intent.  It asserts that the legislature 
intended to prohibit the application of a minority discount by 
its chosen words.  The juxtaposition of the term "fair value" in 
the first statutory sentence with "market value" as it relates 
to business combinations in the second sentence leads SSM to 
conclude that the legislature envisioned two distinct valuation 
approaches.  Each approach is based on the type of shareholder 
asserting dissenters' rights in any particular corporate action. 
¶24 According to SSM, the separate definition of fair 
value to 
mean market 
value 
in the 
context 
of business 
combinations reflects the legislative intent to define fair 
value for shares of non-business combinations without equating 
the term with fair market value.5  Because a minority discount 
                     
5 "Fair market value" represents the amount for which 
property will sell upon negotiations in the open market between 
an owner willing but not obliged to sell and a buyer willing but 
not obliged to buy.  Rosen v. City of Milwaukee, 72 Wis. 2d 653, 
661, 242 N.W.2d 681 (1976).  As commentators have noted:  
 
"Fair value" is not the same as, or short-hand for, 
"fair market value." "Fair value" carries with it the 
statutory 
purpose 
that 
shareholders 
be 
fairly 
compensated, which may or may not equate with the 
market’s judgment about the stock’s value.  This is 
particularly appropriate in the close corporation 
setting where there is no ready market for the shares 
and consequently no fair market value. 
 
No. 
98-2834 
 
 
11
represents a market concept and is premised on the theory that 
controlling shares are worth more on the market than non-
controlling shares, SSM contends that the legislature prohibited 
the application of a minority discount.  
¶25  We agree with SSM that the legislature clearly did 
not intend to render fair value synonymous with fair market 
value when appraising dissenters' shares in a non-business 
combination.  However, this conclusion does not lift the cloak 
of ambiguity.  The words of the statute do not directly answer 
whether the application of a minority discount is permitted in 
determining the fair value of a dissenter's shares.  Because the 
statute is ambiguous with respect to the applicability of a 
minority discount, we turn to extrinsic aids for interpretive 
guidance. 
¶26 The parties have not advanced, nor does there appear 
to be, any legislative history that is instructive in resolving 
this issue.  We therefore proceed to examine the underlying 
purpose of statutes governing dissenters' appraisal rights, the 
evident aim of which is to protect minority shareholders. 
¶27 Appraisal rights represent a legislative response to 
the 
minority's 
lack 
of 
corporate 
veto 
power 
and 
the 
consequential 
vulnerability 
to 
majority 
oppression. 
 
To 
compensate for nominal control, the legislature granted minority 
                                                                  
Joseph W. Anthony & Karlyn V. Boraas, Betrayed, Belittled . . . 
But 
Triumphant: 
Claims 
of 
Shareholders 
in 
Closely 
Held 
Corporations, 22 Wm. Mitchell L. Rev. 1173, 1186 (1996).   
No. 
98-2834 
 
 
12
shareholders the right to receive fair value for their shares if 
they objected to a particular corporate action. 
¶28 Consistent with the statutory purpose in granting 
dissenters' rights, an involuntary corporate change approved by 
the majority requires as a matter of fairness that a dissenting 
shareholder be compensated for the loss of the shareholder's 
proportionate interest in the business as an entity.  McLoon 
Oil, 565 A.2d at 1004.  Otherwise, the majority may "squeeze 
out" minority shareholders to the economic advantage of the 
majority.   
¶29 As the Delaware Supreme Court observed in the seminal 
case of Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1145 (Del. 
1989):   
 
Where there is no objective market data available, the 
appraisal process is not intended to reconstruct a pro 
forma sale but to assume that the shareholder was 
willing to maintain his investment position, however 
slight, had the merger not occurred. . . . [T]o fail 
to 
accord 
to 
a 
minority 
shareholder 
the 
full 
proportionate value of his shares imposes a penalty 
for lack of control, and unfairly enriches the 
majority shareholders who may reap a windfall from the 
appraisal 
process 
by 
cashing 
out 
a 
dissenting 
shareholder, a clearly undesirable result.  
¶30 A minority discount based on valuing only the minority 
block of shares injects into the appraisal process speculation 
as to the myriad factors that may affect the market price of the 
block of shares.  Id.  Examining the purpose of dissenters' 
rights statutes, we conclude that the application of a minority 
discount in determining the fair value of a dissenter's shares 
No. 
98-2834 
 
 
13
frustrates 
the 
equitable 
purpose 
to 
protect 
minority 
shareholders.  
¶31 A dissenting stockholder is thus entitled to the 
proportionate interest of his or her minority shares in the 
going concern of the entire company.  Weinberger v. UOP, Inc., 
457 A.2d 701, 713 (Del. 1983).  Although Wis. Stat. § 
180.1301(4) defines "fair value" as "the value of the shares" 
immediately before the corporate action, the focus of fair 
valuation is not the stock as a commodity but rather the stock 
only as it represents a proportionate part of the enterprise as 
a whole.  In re Shares of Common Stock of Trapp Family Lodge, 
Inc., 725 A.2d 927, 931 (Vt. 1999); MT Properties, Inc. v. CMC 
Real Estate Corp., 481 N.W.2d 383, 387 n.3 (Minn. Ct. App. 
1992). 
¶32 HMO-W 
disputes 
our 
statutory 
interpretation 
and 
contends that as a consequence of our interpretation, different 
classes of shareholders will be subject to disparate treatment. 
Drawing our attention to the stock market exception under Wis. 
Stat. § 180.1302(4), HMO-W asserts that shareholders in publicly 
traded 
companies, 
except 
those 
involved 
in 
business 
combinations, do not have the right of appraisal but rather must 
accept market price for their shares and an implicit discount 
based on minority status. 
¶33 Furthermore, shareholders dissenting from a business 
combination are also subject to the market value for their 
shares notwithstanding their statutory appraisal rights.  Wis. 
Stat. § 180.1301(4).  HMO-W contends that it is therefore 
No. 
98-2834 
 
 
14
inequitable to afford greater protection to shareholders of 
closely held corporations, as would be the unforeseen result of 
our interpretation of Wis. Stat. § 180.1301(4).  
¶34 We address HMO-W's argument by noting that the 
language of the various statutes has created the disparity among 
certain classes of shareholders, in likely recognition of the 
difference between shareholders in public corporations and 
shareholders like SSM in closely held corporations.  See Zenichi 
Shishido, The Fair Value of Minority Stock in Closely Held 
Corporations, 62 Fordham L. Rev. 65, 76-77 (1993).  The 
legislature has also crafted a unique remedy for shareholders of 
a business combination, providing for a fair market value of 
their shares that is the highest sale price during the valuation 
period of 30 days prior to the combination.  Wis. Stat. 
§§ 180.1130(9)(a), 180.1130(15).   
¶35 The price of publicly traded shares generally rises 
upon the announcement of a proposed merger.  See Michael C. 
Jensen & Richard S. Ruback, The Market for Corporate Control, 11 
J. Fin. Econ. 5, 9-14 (1983).  This inflated price often serves 
to offset the implicit discount based on market value.  Indeed, 
at oral argument HMO-W acknowledged that dissenting shareholders 
of business combinations essentially receive a fair market value 
for their shares that is higher than market value.  This is the 
statutory effect notwithstanding the use of the term "market 
value."  Thus, we are not persuaded by HMO-W's argument that our 
interpretation 
of 
Wis. 
Stat. 
§ 180.1301(4) 
contravenes 
legislative intent.  
No. 
98-2834 
 
 
15
¶36 In rejecting the application of a minority discount, 
we join a significant number of jurisdictions that have likewise 
disavowed the minority discount.6  See Wertheimer, 47 Duke L.J. 
at 641-42 (noting that majority of courts have rejected minority 
discount).  These courts have also concluded that a minority 
discount thwarts the purpose of dissenters' rights statutes to 
protect shareholders subjected to an involuntary corporate 
change.   
¶37 Reasoning against a minority discount, courts have 
recognized that to apply such a discount inflicts a double 
penalty upon the minority shareholder and upsets the quid pro 
quo underlying dissenters' appraisal rights.  The shareholder 
not only lacks control over corporate decision making, but also 
upon the application of a minority discount receives less than 
proportional value for loss of that control. 
¶38 Although we note that other courts have applied a 
minority discount to value dissenters' shares in an appraisal 
proceeding, nearly all of the cases have preceded the Cavalier 
                     
6 See, e.g., Cavalier Oil Corp., 564 A.2d 1137 (Del. 1989); 
Rigel Corp. v. Cutchall, 511 N.W.2d 519 (Neb. 1994); In re 
Valuation of Stock of McLoon Oil Co., 565 A.2d 997 (Me. 1989); 
MT Properties, Inc. v. CMC Real Estate Corp., 481 N.W.2d 383 
(Minn. Ct. App. 1992); Woolf v. Universal Fidelity Life Ins. 
Co., 849 P.2d 1093 (Okla. Ct. App. 1992); Friedman v. Beway 
Realty Corp., 661 N.E.2d 972 (N.Y. 1995); Richardson v. Palmer 
Broadcast Co., 353 N.W.2d 374 (Iowa 1984); In re Stock of Trapp 
Family Lodge, Inc., 725 A.2d 927 (Vt. 1999).   See also Arnaud 
v. Stockgrowers State Bank, 992 P.2d 216 (Kan. 1999)(refusing to 
apply minority discount when minority shares acquired by 
corporation, and citing with approval jurisdictions disallowing 
minority discounts); accord Hansen v. 75 Ranch Co., 957 P.2d 32 
(Mont. 1998).  
No. 
98-2834 
 
 
16
Oil decision.7   The rationale underlying the application of the 
minority discount set forth by these courts is that minority 
shares reflect impaired control in corporate decision making and 
therefore should be reduced in value.  We find this rationale 
neither compelling nor equitable.  Rather, the rationale 
underlying Cavalier Oil and the cases disallowing minority 
discounts comports more faithfully with the equity of an 
appraisal remedy and the purpose of protecting dissenting 
shareholders. 
¶39 Our 
interpretation 
is 
also 
consistent 
with 
the 
approach adopted by The American Law Institute (ALI) in its 
Principles of Corporate Governance: Analysis and Recommendations 
(1994) (hereinafter ALI Principles).  Section 7.22(a) provides 
that the fair value of shares should reflect the value of the 
shareholder's 
"proportionate 
interest 
in 
the 
corporation, 
without 
any 
discount 
for 
minority 
status 
or, 
absent 
extraordinary circumstances, lack of marketability."  Id. at 
314-15. 
¶40 Comment e to Section 7.22 further observes that the 
ALI follows those jurisdictions that require "the appraisal 
                     
7 See, e.g., Armstrong v. Marathon Oil Co., 513 N.E.2d 776 
(Ohio 1987); Atlantic States Constr., Inc. v. Beavers, 314 
S.E.2d 245 (Ga. Ct. App. 1984); Perlman v. Permonite Mfg. Co., 
568 F.Supp 222 (N.D. Ind. 1983); McCauley v. McCauley & Son, 
Inc., 724 P.2d 232 (N.M. Ct. App. 1986); King v. F.T.J., Inc., 
765 S.W.2d 301 (Mo. Ct. App. 1988); Hernando Bank v. Huff, 609 
F. Supp. 1124 (N.D. Miss. 1985), aff'd, 796 F.2d 803 (5th Cir. 
1986); Stanton v. Republic Bank of S. Chicago, 581 N.E.2d 678 
(Ill. 1991). 
No. 
98-2834 
 
 
17
court to value the firm as a whole, not specific shares, and to 
allocate 
that 
value 
proportionately, 
absent 
extraordinary 
circumstances."  Id. at 324.  These extraordinary circumstances 
require more than an absence of a trading market in the shares. 
 Rather, a court should apply the exception only when it 
determines that the dissenter has held out to exploit the 
transaction giving rise to appraisal so as to divert value to 
the dissenter that is not available to other shareholders.  Id. 
at 325.  
¶41 HMO-W introduces several cases in which a minority 
discount has been applied to determine the value of a minority 
shareholder's interest.  See Arneson v. Arneson, 120 Wis. 2d 
236, 355 N.W.2d 16 (Ct. App. 1984) (valuation in divorce 
context); Copland v. Wisconsin Dep't of Taxation, 16 Wis. 2d 
543, 114 N.W.2d 858 (1962) (tax valuation); In re Estate of 
Gooding, 269 Wis. 496, 69 N.W.2d 586 (1955) (inheritance tax 
valuation).  By analogy, HMO-W asserts that the rejection of 
this discount in appraising a dissenter's shares is thus 
improper.   
¶42 However, the principles governing valuation of stock 
for tax or property division purposes may not be imported into 
the appraisal process.  That is because the standard of 
valuation in any given context should reflect the purpose served 
by the law in that context.  ALI Principles, Comment e to § 7.22 
at 325.   
¶43 Certain 
settings 
may 
require 
more 
conservative 
valuation and render minority discounts wholly appropriate. 
No. 
98-2834 
 
 
18
Woodward v. Quigley, 133 N.W.2d 38, 44 (Iowa 1965).  Dissenters' 
rights statutes serve a distinct purpose, however, and are 
designed specifically to protect minority shareholders who are 
involuntarily subjected to significant corporate changes.  This 
underlying purpose has its roots in equity and therefore renders 
improper any extrapolation from other contexts with varying 
rooted purposes.  Charles W. Murdock, The Evolution of Effective 
Remedies for Minority Shareholders and Its Impact Upon Valuation 
of Minority Shares, 65 Notre Dame L. Rev. 425, 471-72 (1990).8 
¶44 In sum, we conclude that Wis. Stat. § 180.1301(4) does 
not permit the application of a minority discount in determining 
the fair value of a dissenter's shares.  A minority discount 
runs contrary to the protective purpose of the dissenters' 
rights statute by discounting a minority interest solely because 
it is the minority.  
¶45 Having concluded that a minority discount may not 
apply in determining the fair value of a dissenter's shares, we 
turn 
next 
to 
the 
second 
issue: 
whether 
a 
fair 
value 
determination of a dissenter's shares may include consideration 
of unfair dealing in the valuation of those shares.  SSM 
contends that in this appraisal proceeding, the circuit court 
                     
8 HMO-W also contends that the prohibition against a 
minority discount is intended to protect shareholders in a 
"squeeze out" situation, not when there is a voluntary exit as 
in the present case.  We find no support for this contention in 
the language of the statute.  Appraisal rights are not limited 
to dissenters who have been forced out of the corporation by the 
majority.  See Rutheford B. Campbell, Jr., Fair Value and Fair 
Price in Corporate Acquisitions, 78 N.C.L. Rev. 101, 108-09 
(1999).  See also MT Properties, Inc., 481 N.W.2d at 388 n.5. 
No. 
98-2834 
 
 
19
should have considered HMO-W's unfair dealing in initially 
setting the company's net value at $16.5-$18 million and 
subsequently representing significantly lower values.  According 
to SSM, the court should have bound HMO-W to its initial 
represented value.  
¶46 We note at the outset that SSM has not pled breach of 
fiduciary duty or sought damages based on such a breach.  
Rather, it states that the issue of unfair dealing is raised as 
an affirmative defense.  SSM has relied on general principles of 
fiduciary duty to support its contention that HMO-W's unfair 
dealing should be considered in the valuation of SSM's shares.  
SSM has also maintained from the initial stage of this action 
that HMO-W should be estopped from claiming a lower value in 
this appraisal proceeding than the value established in the 
initial VR report that was submitted to the shareholders.    
¶47 Both parties rely primarily on Delaware law to support 
their 
respective 
positions. 
 
HMO-W 
contends 
that 
SSM's 
allegation of unfair dealing may not be raised in a statutory 
appraisal proceeding but rather must be instituted in a separate 
action.  Alabama By-Products Corp. v. Neal, 588 A.2d 255, 257 
(Del. 1991).  SSM counters that evidence of unfair dealing as it 
affects the value of SSM's shares may indeed be presented in an 
appraisal proceeding.  See Cavalier Oil, 564 A.2d at 1143-44.   
¶48 Wisconsin law has established that in the absence of 
fraud or breach of fiduciary duty, appraisal represents the 
exclusive remedy for a shareholder objecting to the valuation of 
shares under a plan of corporate merger.  Pritchard v. Mead, 155 
No. 
98-2834 
 
 
20
Wis. 2d 431, 455 N.W.2d 263 (Ct. App. 1990) (examining statutory 
predecessor to current appraisal statute); Kademian v. Ladish 
Co., 792 F.2d 614 (7th Cir. 1986) (analyzing former Wisconsin 
appraisal statute).  Appraisal is a limited remedy, and the 
dissenter in an appraisal proceeding may assert only a right to 
the fair value of the dissenter's shares.  See Kademian, 792 
F.2d at 630.   
¶49 However, Wisconsin law has not shed light on whether 
evidence of unfair dealing and other misconduct in the valuation 
of a dissenter's shares may be presented in an appraisal 
proceeding.  Furthermore, cases in this state have not addressed 
whether actions for fraud or breach of fiduciary duty must be 
brought as separate actions or may be consolidated with an 
appraisal proceeding. 
¶50 Delaware appears to represent the jurisdiction that 
has most frequently addressed whether claims of misconduct and 
wrongdoing may be submitted in an appraisal action.  Recognizing 
the limited scope of an appraisal proceeding, in which the only 
issue to be litigated remains the valuation of a dissenter's 
shares, Delaware has established that claims for fraud and 
breach of fiduciary duty must be instituted separately.  Alabama 
By-Products, 588 A.2d at 257; Cede & Co. v. Technicolor, Inc., 
542 A.2d 1182, 1187-88 (Del. 1988). 
¶51 The ALI, however, observes that no apparent reason 
exists as to why such actions may not be consolidated with an 
appraisal proceeding in the discretion of the court.  ALI 
Principles, Comment e to § 7.22 at 326.  Endorsing the position 
No. 
98-2834 
 
 
21
that courts should not foster a separate and unnecessary damages 
forum, the ALI suggests that courts entertain claims of fraud or 
breach of fiduciary duty in the appraisal proceeding.  Id. at 
333-34 (Reporter's Note No. 5).    Because we determine that the 
allegation of unfair dealing in this case directly relates to 
the issue of fair value, we need not answer the unresolved issue 
of consolidation. 
¶52 When assertions of misconduct such as unfair dealing 
are intertwined with the value of shares subject to appraisal, a 
shareholder may make these assertions within the context of an 
appraisal action.  Cavalier Oil, 564 A.2d at 1143.  In Cavalier 
Oil, the court addressed a shareholder's allegation of corporate 
misconduct because, among other reasons, the allegation directly 
related to the fair value of his shares.  Id. 
¶53 A court determining the fair value of shares subject 
to appraisal must consider "all relevant factors."  Weinberger, 
457 A.2d at 713.  These factors may include evidence of unfair 
dealing 
affecting 
the 
value 
of 
a 
dissenter's 
shares. 
Additionally, courts may examine wrongful actions in gauging or 
impeaching the credibility of majority shareholders with respect 
to their valuation contentions.  Alabama By-Products, 588 A.2d 
at 257.   
¶54 In this case, SSM's assertion of unfair dealing 
concerns the value of its shares.  SSM neither disputes the 
legitimacy of the business purpose to be served by HMO-W's 
merger with United nor contends that the merger should be 
invalidated.  Rather, SSM contends that HMO-W's unfair dealing 
No. 
98-2834 
 
 
22
directly reduced the fair value of shares owned by SSM and that 
the appropriate remedy for HMO-W's unfair dealing should involve 
valuing the entity at the original net value advanced by HMO-W: 
$16.5-$18 million.  Because the assertion of unfair dealing 
relates to the value of SSM's shares, we determine that it is a 
proper subject for consideration in this appraisal proceeding. 
¶55 Having determined that SSM's allegation of unfair 
dealing may be raised in this appraisal action, we now conclude 
that the circuit court adequately considered the evidence of 
unfair dealing in rendering its fair value determination.  A 
fair value determination is necessarily a fact-specific process. 
In re Trapp Family Lodge, 725 A.2d at 931 (quoting McLoon Oil, 
565 A.2d at 1003).  We will not upset a circuit court's findings 
of fact unless they are against the great weight and clear 
preponderance of the evidence.  Cogswell v. Robertshaw Controls 
Co., 87 Wis. 2d 243, 250, 274 N.W.2d 647 (1979).  
¶56 SSM invokes principles of fiduciary duty and estoppel 
to 
assert 
that 
HMO-W 
should 
be 
bound 
to 
the 
initial 
representation of its net asset value.  Because HMO-W endorsed 
the VR report that it submitted as part of its proxy materials 
to shareholders, and as a result secured shareholder approval 
for the United merger, SSM contends that HMO-W cannot now 
subvert the appraisal process by disavowing the VR report.  If 
HMO-W had reservations about the validity of the report, SSM 
claims that HMO-W was under a duty to inform its shareholders of 
potential flaws, particularly in light of the significance of 
the report in influencing shareholder approval.    
No. 
98-2834 
 
 
23
¶57 According to SSM, HMO-W's actions in asserting lower 
values in the subsequent appraisal proceedings are evidence of 
unfair dealing because these actions reduced the fair value of 
SSM's shares.  SSM claims that HMO-W's unfair dealing was 
reflected in its decision to hire a new appraiser for the 
purposes of maligning the VR report and consequently offering to 
SSM a significantly depressed value for its dissenting shares.  
In remedying HMO-W's unfair dealing, SSM urges this court to 
bind HMO-W to the initial representation of the company's value, 
thereby altering the fair value of SSM's dissenting shares.     
¶58 We note that the circuit court addressed SSM's 
arguments of unfair dealing in the valuation of HMO-W.  The 
record reflects that the court examined all of the relevant 
evidence, including the allegations of corporate misconduct. The 
court 
determined 
that 
HMO-W 
had 
not 
made 
a 
material 
misrepresentation to its shareholders and that the initial VR 
report contained several flaws.    
¶59 Upon hearing testimony from three experts and the 
corporate officers of HMO-W, SSM, and United, the court rendered 
a decision accepting the valuation of HMO-W's second appraiser. 
 We perceive no reason for the court to have relied solely on 
the value and methodology of the first appraiser or to have 
accepted a valuation it deemed inaccurate.  The circuit court is 
in the best position to gauge the credibility of witnesses and 
the relative weight to be given to their testimony.  Cogswell, 
87 Wis. 2d at 250.  Furthermore, the court decides fair value 
No. 
98-2834 
 
 
24
and is not required to accept any one party's represented 
valuation.  See Wis. Stat. §§ 180.1301(4), 180.1330(1).    
¶60 As the circuit court apparently concluded, SSM has 
failed to establish that it relied to its detriment on the 
initial VR report 
or 
that 
but for 
the 
report, HMO-W's 
shareholders would not have approved the United merger that 
forced SSM to sell its shares.  See Fritsch v. St. Croix Cent. 
Sch. Dist., 183 Wis. 2d 336, 344, 515 N.W.2d 328 (Ct. App. 1994) 
(detrimental reliance an essential element of estoppel claim). 
In this appraisal proceeding, the circuit court properly 
considered SSM's assertion of unfair dealing as it affected the 
fair value of the shares owned by SSM.  The court then made a 
determination of HMO-W's net value that is not against the great 
weight and clear preponderance of the evidence.   
¶61 In sum, we conclude that a minority discount may not 
be applied to determine the fair value of a dissenter's shares 
in an appraisal action.  This discount unfairly penalizes 
dissenting shareholders for exercising their legal right to 
dissent and does not protect them from oppression by the 
majority.  We further conclude that in an appraisal proceeding, 
the court may entertain assertions of misconduct that relate to 
the value of a dissenter's shares.  In this case, the circuit 
court properly considered SSM's evidence of unfair dealing and 
rendered a determination of HMO-W's net value that is supported 
by the record.  Accordingly, we affirm the court of appeals. 
By the Court.-The decision of the court of appeals is 
affirmed. 
No. 
98-2834 
 
 
25
¶62 WILLIAM A. BABLITCH, J., did not participate. 
 
No. 
98-2834 
 
 
1