Opinion ID: 1238995
Heading Depth: 1
Heading Rank: 4

Heading: the judicial dissolution claim

Text: ¶ 29 The court of appeals remanded with an order to dismiss the judicial dissolution claim after a forced cash-out merger was instituted while the case was pending on appeal. Notz, 312 Wis.2d 636, ¶ 26, 754 N.W.2d 235. Following that merger, Notz was no longer a shareholder in ATS. [17] ¶ 30 Notz argues that Wis. Stat. § 180.1106(1) [18] explicitly preserves all pending civil claims after a corporate merger. Subsection (d) states a civil . . . proceeding pending . . . against any business entity that is a party to the merger may be continued as if the merger did not occur. . . . Wis. Stat. § 180.1106(1)(d). This statute is not limited or qualified in any way, Notz argues, and it expressly preserves the standing of plaintiffs with pending claims against merged corporations, and ensures that liability follows the merged entities. ¶ 31 The Smith Group argues that the merger statute cannot preserve a claim that Notz lacks standing to pursue. ¶ 32 The court of appeals agreed with the Smith Group; it held that the statute does not address who is entitled to maintain a previously commenced action; it merely says that those actions survive. Notz, 312 Wis.2d 636, ¶ 25, 754 N.W.2d 235. ¶ 33 As we have noted in other cases where we construed Wis. Stat. § 180.1106, this provision is based on Model Business Corporation Act § 11.07, Effect of Merger or Share Exchange. [19] See generally Model Bus. Corp. Act Ann. § 11.07 (Supp. 1998/99) (listing all fifty states as having adopted this rule under the Model Business Corporation Act). While cases dealing with one aspect or another of this provision or its variations abound, the Smith Group has not pointed to any case precisely on point where this provision has been found to work the way the Smith Group says it must. It argues that the provision should be read as allowing a merger to strip shareholder status, and thus standing, from a plaintiff with a non-derivative claim that predates the merger. ¶ 34 We begin by observing that a claim for judicial dissolution based on oppressive conduct, as here, is not a derivative claim. See 12B William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 5820.10 (rev. ed. 2000) (An action for relief from oppressive conduct has been distinguished from a derivative action, since in the former the complaining shareholder is ordinarily seeking some type of individual relief, while in the latter the action is generally for relief on behalf of the corporation as well as other similarly situated shareholders.) Direct claims of a shareholder predating a merger have been upheld, even when brought by a shareholder who after filing the claim lost shareholder status, on the basis that this statute preserves such claims. For example, after determining that some of the plaintiff's claims state[d] personal, as opposed to derivative, causes of action, the Connecticut Supreme Court addressed the effect of the merger on such claims under Connecticut's statute, which like Wisconsin's was based on the Model Business Corporation Act: [20] Nor does the fact of the [corporation's] merger prohibit the plaintiff from proceeding in an individual capacity against [defendants]. The provisions of s. 33-369(e) of the General Statutes clearly state that the post-merger, surviving corporation shall be responsible for the liabilities, including liability to dissenting shareholders, of each of the merging corporations, and that any claim existing at the time of merger against one of the corporations may be prosecuted as if the merger had not taken place. Put another way, the merger does not destroy the existing liabilities and obligations of the individual corporations; to hold otherwise would depart from the clear mandate of the statute and allow for perpetration of a fraud upon corporation creditors or others who, like the plaintiff, possess outstanding claims against the merged corporation. Yanow v. Teal Indus., 178 Conn. 262, 422 A.2d 311, 322 (1979). That court went on to distinguish derivative claims by noting that a derivative claim could only be pursued by one who was a stockholder . . . both at the time of the alleged corporate delict and at the time of the filing of suit. Id. at 323. We have not located any case where a merger was permitted to strip a shareholder of standing he indisputably held at the commencement of the claim. [21] ¶ 35 Far from finding authority in favor of allowing a merger to defeat a pending direct or non-derivative claim, we have found significant case law that supports the opposite inference. Delaware, a jurisdiction to which Wisconsin courts often look for guidance on corporate law, [22] recognizes a relevant exception to the general rule that a loss of standing as a shareholder for any reason, including a merger, is fatal to a derivative claim. [23] Under Delaware law, the exceptions to that well-settled rule include when a merger is perpetrated merely to deprive shareholders of the standing to bring a derivative action[.] Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 354 (Del.1988); see also In re First Interstate Bancorp Consol. S'holder Litig., 729 A.2d 851, 867 (Del.Ch.1998). ¶ 36 Notz has never pursued a derivative claim in this action, and, as noted above, his judicial dissolution claim is not a derivative claim. [24] Delaware's narrow exception to loss of standing as a shareholder is instructive: it illustrates the courts' recognition that mergers can be used fraudulently to attempt to strip plaintiffs of the opportunity, based on the lack of standing or on mootness, to pursue previously filed claims. [25] ¶ 37 The language of the statute is remarkably clear and is cast in the broadest of terms: A civil, criminal, administrative, or investigatory proceeding pending by or against any business entity that is a party to the merger may be continued as if the merger did not occur, or the surviving business entity may be substituted in the proceeding for the business entity whose existence ceased. Wis. Stat. § 180.1106(1)(d) (emphasis added). In applying the text of the statute to the facts in the instant case, it is important to note that the civil proceeding instituted by Notz was pending at the time of the merger. The statute could hardly be written more explicitly to preserve such a claim: as if the merger did not occur. If the merger did not occur, Notz would not have been forced out as a shareholder, and the claim would continue. Therefore, we are satisfied that the judicial dissolution claim may continue. [26] The circuit court should consider the judicial dissolution claim based on oppression in light of the allegations set forth in Notz's amended complaint. Under the circumstances, Notz has not lost standing.