Opinion ID: 2767479
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: The Minority Shareholders argue they were entitled to appraisal rights because a series of transactions starting with a change in corporate domicile ultimately resulted in an asset sale, and an asset sale triggers appraisal rights for shareholders in a Virginia corporation. The Minority Shareholders assert that the circuit court erred in sustaining the demurrer because it failed to recognize the “step transaction” doctrine or the “equitable substance over form” doctrine in determining that their appraisal rights were not triggered under Virginia law. We disagree with the Minority Shareholders. Virginia statutory law settles this matter, and the circuit court did not err. This Court reviews a trial court’s ruling to grant a demurrer de novo. See Yuzefovsky v. St. John’s Wood Apts., 261 Va. 97, 102, 540 S.E.2d 134, 137 (2001). A trial court will grant a demurrer when the pleading fails to state a cause of action upon which relief can be granted. Code § 8.01-273. For the purposes of the proceedings on the demurrer, the movant admits the truth of all material facts properly pleaded. CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993). 4 Virginia Code § 13.1-722.2 concerns domestication of corporations and in regards to a Virginia corporation becoming a corporation in a foreign jurisdiction, states as follows: B. A domestic corporation not required by law to be a domestic corporation may become a foreign corporation if the jurisdiction in which the corporation intends to domesticate allows for the domestication. Regardless of whether the laws of the foreign jurisdiction require the adoption of a plan of domestication, the domestication shall be approved in the manner provided in this article. The laws of the jurisdiction in which the corporation domesticates shall govern the effect of domesticating in that jurisdiction. A Virginia corporation can “domesticate” by changing the state where it is incorporated. Va. Code § 13.1-722.2. Virginia corporations that decide to domesticate in another state are governed by the laws of that other state once the domestication is completed. Id.; see also Stockbridge v. Gemini Air Cargo, Inc., 269 Va. 609, 613, 611 S.E.2d 600, 602 (2005). Virginia law allowed Tails to become a Delaware corporation, and it is undisputed that Tails properly changed its domicile to Delaware. Virginia Code § 13.1-730 states that minority shareholders are entitled to “appraisal rights” in the event of certain corporate transactions. Appraisal rights give “corporate shareholders who oppose [certain] extraordinary corporate action[s]” the right “to have their shares judicially appraised 5 and to demand that the corporation buy back their shares at the appraised value.” Black’s Law Dictionary 122 (10th ed. 2014). Virginia Code § 13.1-730(A) provides: A shareholder is entitled to appraisal rights, and to obtain payment of the fair value of that shareholder’s shares, in the event of any of the following corporate actions: 1. Consummation of a merger to which the corporation is a party (i) if shareholder approval is required for the merger by § 13.1-718, except that appraisal rights shall not be available to any shareholder of the corporation with respect to shares of any class or series that remain outstanding after consummation of the merger, or (ii) if the corporation is a subsidiary and the merger is governed by § 13.1- 719; 2. Consummation of a share exchange to which the corporation is a party as the corporation whose shares will be acquired, except that appraisal rights shall not be available to any shareholder of the corporation with respect to any class or series of shares of the corporation that is not exchanged; 3. Consummation of a disposition of assets pursuant to § 13.1-724 if the shareholder is entitled to vote on the disposition; 4. An amendment of the articles of incorporation with respect to a class or series of shares that reduces the number of shares of a class or series owned by the shareholder to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share so created; or 5. Any other amendment to the articles of incorporation, or any other merger, share exchange or disposition of assets to the extent provided by the articles of incorporation, bylaws or a resolution of the board of directors. 6 Virginia Code § 13.1-730 tracks closely with the Model Business Corporation Act (MBCA). Compare Va. Code § 13.1-730 with MBCA § 13.02 (2014); see also Allen C. Goolsby & Steven M. Haas, Goolsby & Haas on Virginia Corporations § 15.1 (5th ed. 2014). However, unlike the MBCA, Virginia Code § 13.1-730 does not include appraisal rights upon “consummation of a domestication.” Compare Va. Code § 13.1-730 with MBCA § 13.02(a)(6) (2014). In Virginia Code § 13.1-730(A), the General Assembly chose to grant appraisal rights to minority shareholders in five scenarios. While the General Assembly has incorporated most of the MBCA’s appraisal rights provisions into Virginia Code § 13.1-730, it has not incorporated the MBCA’s provision granting appraisal rights to shareholders in the event of a change in corporate domicile. The General Assembly prescribed a limited list of triggers for appraisal rights and did not include a change in corporate domicile on that list. Applying the statutory canon of expressio unius est exclusio alterius (“the express mention of one thing excludes all others”), we hold that the General Assembly intended to exclude a change in corporate domicile from this list. See Smith Mtn. Lake Yacht Club, Inc. v. Ramaker, 261 Va. 240, 246, 542 S.E.2d 392, 395 (2001). Therefore, the circuit court did not err in ruling that the 7 domestication of Tails as a Delaware corporation did not entitle the Minority Shareholders to appraisal rights. Once a corporation’s state of incorporation is transferred to Delaware, it is subject to Delaware corporate law. Del. Code Ann. tit. 8, § 265(d); Va. Code § 13.1-722.2. Delaware law does not provide appraisal rights for a sale of corporate assets. Del. Code Ann. tit. 8, § 262(b); see also, e.g., Hariton v. Arco Electronics, Inc., 182 A.2d 22, 25 (Del. Ch. 1962) (noting that while most state legislatures have “seen fit to grant the appraisal right to a dissenting stockholder” in both merger and “sale of assets” situations, the Delaware legislature has made that right available “only under the merger statutes”), aff'd, 188 A.2d 123 (Del. 1963); Tanzer v. Int'l Gen'l Indus., 402 A.2d 382, 390 (Del. Ch. 1979) ([A]ppraisal rights are not available on a sale of assets.). The Minority Shareholders urged the circuit court to apply the “step transaction” doctrine or the “equitable substance over form” doctrine to find they were entitled to appraisal rights under Virginia law. On appeal they argue that the circuit court erred by not doing so. The Minority Shareholders note that while it is a question of first impression in Virginia, Delaware courts have applied the equitable step transaction doctrine in interpreting transactions. See, e.g., Noddings Inv. Grp., Inc. v. Capstar 8 Commc’ns, Inc. (Noddings I), No. 16538, 1999 Del. Ch. LEXIS 56, at ,  (Del. Ch. March 24, 1999), aff’d, 741 A.2d 16 (Del. 1999). The step transaction doctrine “treats the ‘steps’ in a series of formally separate but related transactions involving the transfer of property as a single transaction, if all the steps are substantially linked.” Bank of N.Y. Mellon Trust Co., N.A. v. Liberty Media Corp., 29 A.3d 225, 239-40 (Del. 2011) (citing Noddings I, 1999 Del. Ch. LEXIS 56, at  (footnote and internal quotation marks omitted)). For example, in Noddings I, the Delaware Court of Chancery applied the step transaction doctrine when a company “spun off” part of its assets to start a new company, and that new company immediately merged with another company in a planned series of transactions. Id. at - 2. The plaintiffs in that case had a contractual right to purchase shares of the company upon merging, but due to the spin off, they lost that right. Id. The Noddings I court held that because there was evidence the spin off and the merger were in actuality one transaction, the court would grant the plaintiffs the rights they would have had if a traditional merger had taken place.  Id. at .