Opinion ID: 1536001
Heading Depth: 1
Heading Rank: 7

Heading: burden of persuasion collateral estoppel doctrine

Text: The Court of Chancery's written analysis in its valuation determination contained the following statement: The fact that Reilly's per share value determination serendipitiously turned out to be only 90 cents per share more than Sheshunoff's legally flawed $41 valuation, cannot help but render Respondents' valuation position highly suspect and meriting the most careful judicial scrutiny. As a matter of plain common sense it would appear evident that a proper fair value determination based upon a going concern valuation of the entire company, would significantly exceed a $41 per share fair market valuation of only a minority block of its shares. If Respondents choose to contend otherwise, it is their burden to persuade the Court that $41.90 per share represents MGB's fair value. The Court concludes that the Respondents have fallen far short of carrying their burden, and independently determines that the fair value of MGB at the time of the Merger was $85 per share. [3] The Respondents contend that this statement constituted a misallocation of the burden of proof. The Respondents fail to recognize that this statement by the Court of Chancery was a proper application of the collateral estoppel doctrine. Collateral estoppel and res judicata are related principles of law. Res judicata bars a suit involving the same parties based on the same cause of action. [4] Collateral estoppel prohibits a party from relitigating a factual issue that was adjudicated previously. [5] Accordingly, the collateral estoppel doctrine is referred to as the issue preclusion rule. [6] It is not unusual, as in this case, for the same merger to be challenged in a statutory appraisal action and in a separate breach of fiduciary duty damage action. [7] Irrespective of whether the breach of fiduciary duty damage action or the statutory appraisal action is decided first, the doctrine of collateral estoppel provides repose by preventing the relitigation of an issue of fact previously decided. [8] The test for applying the collateral estoppel doctrine requires that (1) a question of fact essential to the judgment (2) be litigated and (3) determined (4) by a valid and final judgment. [9] In the context of this Merger, the breach of fiduciary duty damage action was adjudicated first. In writing the decision in the statutory appraisal action that is now before this Court, the Court of Chancery specifically noted that it had previously issued an opinion in the companion class action holding that Sheshunoff had performed its appraisal in a legally improper manner. [10] The Court of Chancery also noted the basis for its conclusion was that Sheshunoff had determined only the `fair market value' of MGB's minority shares, as opposed to valuing MGB in its entirety as a going concern and determining the fair value of the minority shares as a pro rata percentage of that value. [11] Pursuant to the doctrine of collateral estoppel, if a court has decided an issue of fact necessary to its judgment, that decision precludes relitigation of the issue in a suit on a different cause of action involving a party to the first case. [12] Accordingly, the Court of Chancery's prior holding in the breach of fiduciary duty damage action collaterally estopped the Respondents from relitigating the factual finding which rejected Sheshunoff s opinion that the $41 per share was the fair value of MGB's stock as of June 30, 1993. The record reflects that the Respondents did not even attempt to present an expert witness from the Sheshunoff firm during the statutory appraisal proceeding. In a statutory appraisal proceeding, both sides have the burden of proving their respective valuation positions by a preponderance of evidence. [13] Nevertheless, the Respondents were collaterally estopped from arguing in the statutory appraisal action that Sheshunoff's $41 determination represented MGB's fair value per share, given the entry of the Court of Chancery's prior holding in the breach of fiduciary duty damage action involving the same Merger. Consequently, it was entirely appropriate for the Court of Chancery to require the Respondents to demonstrate how Reilly's purportedly proper statutory appraisal valuation resulted in only a 90 cents (approximately 2%) per share increase over the legally improper Sheshunoff valuation that had included a minority discount. In doing so, the doctrine of collateral estoppel was correctly applied by the Court of Chancery in the statutory appraisal proceeding.