Opinion ID: 1117163
Heading Depth: 1
Heading Rank: 2

Heading: Mixed Entity Merger Statutes (K.S.A. 17-7701 et seq. )

Text: The plaintiffs argue that K.S.A. 17-7707(k) applies to the transaction in this case and preserves their right to a buyout price determination. Since 1995, Kansas law has contained specific and separate provisions authorizing and governing a merger or consolidation involving a domestic LLC and one or more other domestic or foreign business entities at least one of which is not an LLC. Hecker, The Kansas Revised Limited Liability Company Act, 69 J.K.B.A. 16, 38 (Nov./Dec. 2000). These provisions are discussed in K.S.A. 17-7701 et seq., the Mixed Entity Merger statutes. The following statutes are relevant to this case: K.S.A. 2005 Supp. 17-7701(d) provides: (d) Subject to the provisions of this section, any merger or consolidation between one or more domestic corporations and any one or more constituent entities at least one of which is not a corporation, one or more domestic limited partnerships and any one or more constituent entities at least one of which is not a limited partnership, or one or more domestic limited liability companies and any one or more constituent entities at least one of which is not a limited liability company shall be governed by and subject to the provisions of K.S.A. 17-7701 through 17-7708, and amendments thereto. K.S.A. 17-7703 provides: Subject to the provisions of K.S.A. 17-7701 through 17-7708, any one or more domestic corporations may merge or consolidate into or with any one or more persons at least one of which is not a corporation, any one or more domestic limited partnerships may merge or consolidate into or with any one or more persons at least one of which is not a limited partnership, and any one or more domestic limited liability companies may merge or consolidate into or with any one or more persons at least one of which is not a limited liability company. K.S.A. 17-7704(c) provides that each constituent entity shall enter into a written agreement of merger or consolidation, which includes the manner and basis of converting the interests or shares of stock in each constituent entity in the merger or consolidation into interests, shares or other securities or obligations, the case may be, of the surviving entity, of the new entity or of any other person, or, in whole or in part, into cash or other property. K.S.A. 2005 Supp. 17-7705(a)(2) provides that a constituent entity that is a domestic limited partnership shall have the agreement of merger or consolidation approved by all general partners and by all of the limited partners unless otherwise provided in the certificate or agreement of limited partnership. In this case, the limited partnership agreement of MR Imaging Center, L.P., was amended immediately prior to the merger to expressly allow it to be approved by a two-thirds vote. K.S.A. 17-7707(k), addressing the effects of consummation of merger or consolidation, provides: Nothing in K.S.A. 17-7701 through 17-7708 shall abridge or impair any dissenter's appraisal shares or their equivalent rights that may otherwise be available to the members or shareholders or other holders of an interest, in any constituent entity. A constituent entity is defined as each person that is a party to a merger or consolidation subject to K.S.A. 17-7701 through 17-7708. K.S.A. 17-7702(a). The plaintiffs and the defendants seem to agree that the merger between MR Imaging Center, L.P., and MRI, LLC, is governed by this statutory authority. They disagree, however, whether this is the only statutory authority which can be utilized in assessing statutory appraisal or buyout rights to the limited partners in this case. The right to appraisal under Kansas law is purely statutory. Wichers v. Solomon Valley Feed Lot, Inc., 10 Kan. App. 2d 486, 487, 704 P.2d 383 (1985). Appraisal statutes should be liberally construed for the protection of the dissenting shareholders; however, `a liberal construction does not call for an abandonment of orderly procedure prescribed by statute.' [Citation omitted.] Vernon v. Commerce Financial Corp., 32 Kan. App. 2d 506, 509, 85 P.3d 211 (2004). In Wichers, the Kansas Court of Appeals held that dissenting shareholders exercising their appraisal rights were not entitled to an element of value they sought which was specifically excluded by the appraisal statute. 10 Kan. App. 2d at 487. The defendants rely upon the doctrine of independent legal significance in support of their argument. Under the doctrine of independent legal significance, action taken under one article of the Kansas Corporation Code is legally independent and its validity not dependent upon nor to be tested by the requirements of other unrelated sections under which the same result may be attained by different means. In re Hesston Corp., 254 Kan. 941, Syl. ¶ 7, 870 P.2d 17 (1994). In Hesston, this court found that merger is legally distinct from redemption under the Kansas Corporation Code, in that Article 67 allows one or more corporations to merge or consolidate, and Article 64 governs redemption of the stock. 254 Kan. 941, Syl. ¶ 8. The defendants argue the doctrine of independent legal significance prevents the plaintiffs from inferring any appraisal rights from the partnership-to-partnership merger statutes found in KUPA, specifically, K.S.A. 56a-906(e), because the exclusive authority for the merger in this case was under K.S.A. 17-7701 et seq., which does not provide for appraisal rights. Citing various merger statutes, the defendants point out that no appraisal rights exist for the merger of two limited partnerships under K.S.A. 56-1a609 of KRULPA and that appraisal rights must be contained in the operating or merger agreements for the merger of two limited liability corporations under K.S.A. 2005 Supp. 17-7682. They contend it is the prerogative of the legislature to provide appraisal rights for one form of merger but not for another, and each entity merger must comply with the strictures of the authorizing statute and is limited to the remedies found in the authorizing statute. The plaintiffs counter that the doctrine of independent legal significance requires, rather than precludes, that plaintiffs be granted their buyout price remedies under KUPA. They reason that if Via Christi performed this merger under the Mixed Entity Merger statutes, then the entire statutory framework for the merger applies. They contend the defendants' argument disregards the express language of the Mixed Entity Merger statutes, which preserves any dissenter's appraisal shares or their equivalent rights that may otherwise be available to the members or shareholders or other holders of an interest, in any constituent entity. (Emphasis added.) See K.S.A. 17-7707(k). None of the other statutory provisions, as discussed below, provide for the merger of a limited partnership with a limited liability company. As such, the parties are correct that K.S.A. 2005 Supp. 17-7701(d) and K.S.A. 17-7703 provide the statutory authority for the merger in this case, and the parties are bound by that authority pursuant to the independent legal significance doctrine. Although these statutes do not themselves grant statutory appraisal or buyout rights, the plaintiffs are correct that the doctrine of independent legal significance would not preclude looking outside of the Mixed Entity Merger statutes based upon the plain language of K.S.A. 17-7707(k), which preserves any appraisal or equivalent rights which may otherwise be available to the limited partners in this case. In fact, the defendants seem to acknowledge that this doctrine does not preclude looking beyond K.S.A. 17-7701 et seq., as they concede that subsection (k) would not abridge appraisal rights that might exist in the operating or merger agreement of a limited liability company under K.S.A. 2005 Supp. 17-7682. Thus, our analysis shifts to whether the provisions of KRULPA or KUPA provide for statutory appraisal or buyout rights to the limited partner plaintiffs in this case.