Opinion ID: 2630535
Heading Depth: 4
Heading Rank: 3

Heading: The American Law Institute

Text: Finally, we are persuaded by the recommendations of the American Law Institute regarding the interpretation of fair value. The ALI has endorsed the national trend of interpreting fair value as the proportionate share of a going concern without any discount for minority status or, absent extraordinary circumstances, lack of marketability. A.L.I., Principles of Corporate Governance: Analysis and Recommendations § 7.22(a) (1994). To determine fair value, the trial court must determine the aggregate value for the firm as an entity, and then simply allocate that value pro rata in accordance with the shareholders' percentage ownership. A.L.I. § 7.22 cmt. d. The court of appeals explicitly adopted the ALI's definition of fair value, including the exception for extraordinary circumstances. The extraordinary circumstances exception is very limited and is intended to apply only when the trial court finds that the dissenting shareholder has held out in order to exploit the transaction giving rise to appraisal so as to divert value to itself that could not be made available proportionately to other shareholders. A.L.I. § 7.22 cmt. e. In effect, the exception is intended to leave room for trial courts to exercise their equitable powers in certain extraordinary circumstances to ensure that a fair and just result is reached. The court of appeals concluded, as a matter of law, that the facts of this case did not constitute an extraordinary circumstance. We believe the court of appeals erred in explicitly adopting the ALI interpretation of fair value. The precise issue for our review is whether a marketability discount may be applied in ascertaining fair value. We hold that fair value, for the purpose of the dissenters' rights statute, means the shareholder's proportionate ownership interest in the value of the corporation and therefore, it is inappropriate to apply a marketability discount at the shareholder level. Because the issue is not squarely before us, we do not decide the question of whether there may be an equitable exception to this rule, such as the ALI extraordinary circumstance exception, which would allow a trial court to apply a marketability discount under certain circumstances. [18]