Opinion ID: 1907537
Heading Depth: 1
Heading Rank: 6

Heading: The Exclusivity Issue

Text: Defendant directors argued before us that the dissenting shareholders had forfeited any rights to bring shareholder actions by their election to dissent from the 1991 restructuring plan. Section 14A:11-3(2) provides that [u]pon making [a] demand [to dissent], the dissenting shareholder shall cease to have any of the rights of a shareholder except the right to be paid the fair value of [the] shares.... New Jersey adopted this language from the analogous New York provision. See N.Y. Bus. Corp. Law § 623(e). Like New York, New Jersey provides that the appraisal remedy is exclusive. N.J.S.A. 14A:11-5(2) (The enforcement by a dissenting shareholder [of appraisal rights] shall exclude the enforcement of any other right to which [the shareholder] might otherwise be entitled ... except that this subsection shall not exclude the right of [a shareholder] to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is ultra vires, unlawful or fraudulent as to such dissenting shareholder.). The New York language is similar. See N.Y. Bus. Corp. Law § 623(k) (The enforcement by a shareholder [of appraisal rights] shall exclude the enforcement by such shareholder of any other right to which [the shareholder] might otherwise be entitled ... except that this section shall not exclude the right of such shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is unlawful or fraudulent as to [the shareholder].). In contrast, the 1960 Model Act provides no exceptions for bringing suit once a shareholder has dissented. See Model Act § 74 (1960) (Any shareholder making [a demand for appraisal rights] shall thereafter be entitled only to payment as in this section provided....). The statutes in both New Jersey and New York appear to limit the exclusivity of the appraisal remedy to the triggering corporate action. However, a theme that runs through the exclusivity and appraisal provisions is whether the appraisal remedy will provide all the relief to the aggrieved parties that is required. The New York Court of Appeals has taken a narrow view of this interplay, but has allowed the possibility of some equitable relief. In Breed v. Barton, 54 N.Y. 2d 82, 444 N.Y.S. 2d 609, 610, 429 N.E. 2d 128, 129 (1981), the court stated that in choosing the appraisal remedy, the dissenting shareholders abandoned their alternative rights as shareholders. In Breed, even though there were allegations of fraud, the court held that allowing a cause of action in addition to the appraisal proceeding would be duplicative, in that the appraisal proceeding will provide dissenting shareholders with a sufficient recovery of the value of their shares. Id. 444 N.Y.S. 2d at 611, 429 N.E. 2d at 130. In contrast, in Kademian v. Ladish Co., 792 F. 2d 614 (7th Cir.1986), the court allowed minority shareholder claims against directors who had allegedly induced a merger at below market value. The Seventh Circuit allowed the state claims of fraud and misrepresentation to proceed over the objection that the Wisconsin appraisal remedy was exclusive. The decision, however, contains no discussion of whether the majority shareholders had pursued the appraisal remedy or whether that remedy would fully compensate the shareholders for their losses. The court did note that some of the complainants had sold their shares before the triggering merger that would give rise to appraisal rights. The argument of defendant directors for exclusivity of the appraisal remedy would have been more persuasive had not the same directors pressed corporate counsel to oppose the appraisal rights of the dissenting shareholders on the ground that the format of the 1991 restructuring did not trigger dissent and appraisal rights. Had the directors' arguments been accepted in each of the courts, the shareholders would have no remedy for the misconduct. We believe that the Breed analysis is more persuasive. Whether the claimed damages will be fully recoverable in the appraisal action depends on further analysis of the claims, which analysis is also relative to determining whether the claims are derivative.