Opinion ID: 2634628
Heading Depth: 2
Heading Rank: 3

Heading: Application of the Dissenters' Rights Statute

Text: The Behrmann Trust argues that the officers and directors engaged in self-dealing in connection with the sale. Specifically, it argues that the officers and directors negotiated their own employment agreements with WBI, granted themselves benefits in connection with the sale that created a conflict of interest, and withheld information about the sale in the proxy notice. The nature of the complaint is that the Behrmann Trust would have been paid more money for the value of its shares if the officers and directors had not breached their fiduciary duty in connection with the sale of the assets. However, having elected the statutory appraisal remedy and not having sought equitable relief from the corporate action, the Behrmann Trust has trigged the exclusivity provision. [9] A dissenting shareholder may not seek compensatory damages in addition to the appraisal remedy when the complaint boils down to nothing more than a complaint about stock price. Grace Brothers, Ltd. v. Farley Industries, Inc., 264 Ga. 817, 821, 450 S.E.2d 814 (1995). The complaint in this case does not seek to rescind the sale. Walter J. Schloss Assocs., 455 N.Y.S.2d at 852 (Mangano, J., dissenting opinion) (dismissing complaint that alleged fraud and breach of fiduciary duty by majority shareholder because there [was] a fatal absence of any primary request for equitable relief.) (citations omitted). Other forms of equitable relief might have been injunction, reformation and rescission of instruments, and specific performance of contracts. Id. at 851 n. 4. The complaint does not seek any of these. We have long held that equity will not act if there is a plain, speedy, adequate remedy at law. Hoffman v. Colorado State Bd. of Assessment Appeals, 683 P.2d 783, 787 n. 13 (Colo.1984); People ex rel. Winbourn v. District Court, 87 Colo. 316, 323, 287 P. 849, 850 (1930). In its compensatory damages action, the Behrmann Trust seeks to receive additional compensation for the fair value of its shares that it has already received in the appraisal action. The statutory appraisal remedy provides an adequate legal remedy for this cause of action.
The Behrmann Trust filed this compensatory damages action two days before it tendered its shares in PRC and dissented from the asset sale. Because it filed the compensatory damages action before it dissented, the Behrmann Trust argues that the Act does not extinguish or even address preexisting shareholder claims. The Behrmann Trust relies on section 7-113-204(2) for the proposition that a dissenting shareholder retains the right to bring fiduciary claims against directors and officers even after the effective date of the proposed corporate action giving rise to the shareholder's right to dissent. The officers and directors argue that section 7-113-204(2) is plainly written to provide that a dissenting shareholder gives up all the rights of a shareholder but the right to receive payment for the shares. § 7-113-204(2). The court of appeals agreed with the officers and directors in this regard, holding that, although the Behrmann Trust argued that it has an action separate and distinct from the appraisal action, the trust surrendered its shares in PRC two days after it filed [the compensatory damages action] and, thus, lost its right to sue for breach of fiduciary duty through mismanagement of assets, self-dealing, waste, or looting. John R. Behrmann Revocable Trust, 74 P.3d at 374. The court of appeals held, and we agree, that under section 7-113-204(2), the appraisal remedy provided the Behrmann Trust with an exclusive remedy. [10] Section 7-113-204(2) states: A shareholder who demands payment in accordance with subsection (1) of this section retains all rights of a shareholder, except the right to transfer the shares, until the effective date of the proposed corporate action giving rise to the shareholder's exercise of dissenters' rights and has only the right to receive payment for the shares after the effective date of such corporate action. § 7-113-204(2) (emphasis added). After the effective date of the corporate action, the dissenting shareholder's only right is to receive payment for its shares. § 7-113-204(2); Breed, 444 N.Y.S.2d 609, 429 N.E.2d at 129 (When [shareholders] exercise the right under [the appraisal statute] to have their stock appraised in a judicial proceeding, they abandoned their alternative rights as shareholders.). This section, when read together with the exclusivity provision, demonstrates that the General Assembly intended to prevent dissenting shareholders, who invoke the statutory appraisal remedy, from maintaining compensatory claims in addition to the appraisal action. § 7-113-204(2); Robert J. Brown, Jr., Colorado Corporation Law & Practice § 10.3 (1990) (once the corporate action is effectuated, dissenting shareholders no longer have rights as shareholders, but have only the right to obtain payment for their shares.) Thus, even though the Behrmann Trust filed its compensatory damages action two days before it tendered its shares, those pre-existing claims must be dismissed unless they fall within the narrow exception to the statute's exclusivity provision. As discussed above, the Behrmann Trust did not request an equitable remedy against the corporate action as its primary form of relief. Thus, the trial court properly dismissed its compensatory damages action.
The Behrmann Trust argues that section 7-113-102(4) does not bar its compensatory damages action because PRC is not a party and this action is against the officers and directors. The officers and directors argue that section 7-113-102(4) is not a defendant-identifying provision that applies only to suits against the corporation itself, but applies when the corporation is the alleged victim. Thus, the officers and directors contend that the statute's exclusivity provision covers actions against the corporation, officers, and directors. We agree. The relevant section of the exclusivity provision states that a shareholder entitled to dissent may not challenge the corporate action creating such entitlement unless the action is unlawful or fraudulent . . . . § 7-113-102(4) (emphasis added). New York has always barred claims against officers and directors under the exclusivity provision if the complaint does not fall within the exception. In the New York Breed and Burke cases, the minority shareholders brought an action against the directors of the corporation. Burke v. Jacoby, 981 F.2d 1372, 1374 (2d Cir.1992)(shareholder brought claims against the corporation's former president and board chairman, Robert Jacoby); Breed v. Barton, 54 N.Y.2d 82, 444 N.Y.S.2d 609, 429 N.E.2d 128, 129 (1981)(shareholders brought an action against individual, George Barton). In both cases, the court held that the exclusivity rule barred their claims. Burke, 981 F.2d at 1380-81; Breed, 444 N.Y.S.2d 609, 429 N.E.2d at 131. Similarly, in more recent New York cases where shareholders brought actions against individuals, New York courts have not distinguished between those claims and claims brought against the corporation. Theodore Trust, 717 N.Y.S.2d at 7-8 (dismissing complaint against individuals because a dissenting shareholder brought only an action seeking money damages and the court held that the exclusivity rule prohibited this); In re Lazar, 262 A.D.2d 968, 692 N.Y.S.2d 539, 540-41 (N.Y.App.Div.1999) (permitting dissenting shareholders to bring claims against directors because their complaint sought equitable relief as its primary form of relief). The drafters of the MBCA adopted the New York formula, and New York law is clear that the Act applies to actions brought against officers and directors. Thus, the statute's exclusivity provision prohibits the Behrmann Trust from bringing this action.
In this court, the Behrmann Trust argues for the first time that we should remand the case to the trial court and instruct the court to permit it to amend its complaint. The Behrmann Trust alleges that its complaint put the officers and directors on notice that it was seeking equitable relief. The Behrmann Trust could have amended its complaint in the trial court under C.R.C.P. 15(a). See Davis v. Paolino, 21 P.3d 870, 873 (Colo.App.2001) (For purposes of this rule, a motion to dismiss does not constitute a responsive pleading.). [11] Because the Behrmann Trust seeks to amend its complaint for the first time on appeal, we will not grant the leave to amend its complaint. See Fladung v. City of Boulder, 165 Colo. 244, 248, 438 P.2d 688, 690 (1968) (holding that the plaintiff was precluded from raising the issue for the first time on appeal.) [12]