Opinion ID: 2219481
Heading Depth: 1
Heading Rank: 2

Heading: The Valuation.

Text: Iowa Code section 490.1301(4) provides this definition:  Fair value , with respect to a dissenter's shares, 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. There is usually no established market for the shares of a closely held corporation, so the valuation of a dissenter's shares is far from an exact science. See Sieg, 512 N.W.2d at 279-80. Because so many factors bear on the question of value, we have said that [i]t is unwise to attempt to state every factor that may bear on value of stock in a particular case. Robbins v. Beatty, 246 Iowa 80, 91, 67 N.W.2d 12, 18 (1954). Despite the plethora of factors that may be examined in these cases, however, we have identified three of the more widely used methods of appraisal: market value, investment value, and net asset value. Sieg, 512 N.W.2d at 278; Richardson v. Palmer Broadcasting Co., 353 N.W.2d 374, 378 (Iowa 1984). In this case, the district court considered eight bases for valuation: the book or net asset value, the adjusted asset value, the amount actually paid for the company in connection with the merger, the amount suggested by a consultant approximately two years before the merger, the amount Baysden himself had agreed to pay for the company stock approximately one year before the merger, and three appraisals offered by experts. Valuations in the record (excluding an appraisal by Baysden's expert) range from a negative amount based on the book value to $11.24 per share. While Baysden's expert set the value at $27.00 per share, based on a general rule of thumb using gross commissions in the business, the court found this evidence not credible. Just prior to the merger, two minority shareholders other than Baysden had negotiated the sale of their shares based on a value of $1.075 per share plus a signing bonus, raising the total consideration for the stock to $9.56 per share. The court concluded that, based on all of the evidence, this value was the most appropriate for purposes of establishing the value of the dissenter's shares. On our review of the record, we agree. Baysden claims, however, that the low valuation was based on an assumed company liability that was not valid. Specifically, he claims that the principal shareholder of the acquiring corporation had obtained a deferred compensation package that Baysden claims was fraudulent and amounted to a breach of fiduciary duty. Of course, a majority shareholder may not favor himself to the detriment of the minority. Cookies Food Prods., Inc. v. Lakes Warehouse, 430 N.W.2d 447, 451 (Iowa 1988); Linge v. Ralston Purina Co., 293 N.W.2d 191, 194 (Iowa 1980). If such wrongdoing occurs, the shareholders may seek recovery for breach of fiduciary duty. See Linge, 293 N.W.2d at 194. However, Baysden's attack on this alleged wrongdoing is misplaced for two reasons: (1) an action to establish fair value is not the proper vehicle for recovery of damages for the wrongdoing, and (2) the claims lack identity of partiesthe valuation issue involves the corporation while a claim for fraud or breach of fiduciary duty would be against the alleged wrongdoer. The Delaware Supreme Court has considered this issue and has held that fiduciary duty/common-law fraud claims are not allowed in appraisal actions. See Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1143 (Del. 1989) (distinguishing the case because of its unusual facts); Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1189 (Del.1988). We hold that any claim of breach of fiduciary duty must be presented in a separate action and that it is not appropriate to consider it in a case under section 490.1330 to value the shares of a dissenting shareholder. On our de novo review of the record, we agree that the fair value of the stock for purposes of section 490.1330 is $9.56 per share, and that this amount should not be increased on a ground that the corporate liability in question was not valid.