Opinion ID: 1816952
Heading Depth: 1
Heading Rank: 14

Heading: Shareholders' Equitable Rights

Text: At common law, a corporation could not effect a merger without the unanimous consent of its stockholders. See, e.g., Shidler v. All American Life & Financial Corp., 775 F.2d 917 (1985); Botts v. Simpsonville & B.C. Turnpike Co., 88 Ky. 54, 10 S.W. 134, 10 Ky.L.Rptr. 669 (1888). In McLeod v. Lincoln Medical College, 69 Neb. 550, 559, 98 N.W. 672, 673 (1904), this court addressed the propriety of a squeeze-out merger at common law: No man can be compelled to dispose of his stock in a corporation, or other property interests, because, in the judgment of the parties so compelling him, it is for his interest financially and otherwise so to do. (Emphasis supplied.) Accordingly, this court held that the merger was void ab initio. Id. Many courts, however, recognized the potential abuse inherent in requiring unanimous stockholder consent prior to the consummation of a merger. See Tanner v. Lindell Ry. Co., 180 Mo. 1, 79 S.W. 155 (1904) (addressing this issue in context of sale of assets). When unanimous consent was required, a single shareholder, even one who owned a single share, could block the merger of an entire corporation. Id. As the Tanner court stated, Because all the stockholders have not consented to the sale it does not follow that the sale will be set aside regardless of the consequences. Tanner v. Lindell Ry. Co., 180 Mo. at 17, 79 S.W. at 158. Thus, the court held: [T]he minority stockholders ... may have out of the proceeds of the sale ... the market value of their stock at the date of the sale or their proportional share of the proceeds ... and, if the transaction be made with bad faith, they may, under some circumstances ... have the sale set aside and a rehabilitation of the corporation, or, if equity requires it, and the application is timely ... they may have an injunction to arrest the transaction. Id. at 21-22, 79 S.W. at 159-60. The holding in Tanner demonstrates that minority shareholders have the right to dissent and receive fair value for their shares in equity, even in the absence of a statutory right. See, also, e.g., Gabhart v. Gabhart, 267 Ind. 370, 370 N.E.2d 345 (1977); Wunsch v. Consolidated Laundry Co., 116 Wash. 44, 198 P. 383 (1921); Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S.E. 309 (1912). Moreover, that equitable right could be invoked as readily in the banking context as in any other. Equitable Trust Co. v. Columbia National Bank, 145 S.C. 91, 142 S.E. 811 (1928). See, also, Baugh v. Citizens & Southern National Bank, 248 Ga. 180, 281 S.E.2d 531 (1981) (applying dissenter's rights statute). The appellee minority shareholders' contention that the shareholders of a bank retain rights in equity, regardless of the absence of a right to receive payment under the dissenters' rights statute, was implicitly recognized in Schmid v. Clarke, Inc., 245 Neb. 856, 515 N.W.2d 665 (1994). In Schmid, the minority shareholders of a bank that was to be merged out of existence were to receive $3.75 per share of stock and an additional $1.50 per share if they signed a covenant not to compete. Two shareholders brought an action against the bank's holding company, the holding company which purchased the bank, and the subsidiary of the latter holding company, alleging theories of conspiracy, breach of fiduciary duty, restraint of trade, and contract, all of which were apparently based upon the covenant not to compete. The court specifically noted, and the minority shareholders conceded, that under Neb.Rev.Stat. § 21-2079 (Reissue 1991), shareholders of a banking corporation, unlike ordinary business corporations, do not have the right to dissent from a merger and receive the fair market value for their shares. (Emphasis supplied.) 245 Neb. at 860, 515 N.W.2d at 668. Nonetheless, this court held that the minority shareholders had waived their right to dissent to the merger and were estopped from bringing their claims, because they failed to object to the merger application before the Department. Schmid v. Clarke, Inc., supra . This court's reliance on theories of waiver and estoppel implies that the minority shareholders had equitable rights because waiver and estoppel are equitable defenses. See Welch v. Welch, 246 Neb. 435, 519 N.W.2d 262 (1994). If the minority shareholders in Schmid were without equitable rights, the court would not have had an occasion to discuss waiver and estoppel, for one cannot waive nor be estopped from asserting a right which does not exist. Therefore, Schmid stands for the proposition that minority shareholders retain rights in equity separate and distinct from the right to dissent and receive fair value for their shares pursuant to § 21-20,138. See, also, Doyle v. Union Ins. Co., 202 Neb. 599, 277 N.W.2d 36 (1979). We conclude that bank shareholders possess an equitable right to receive fair value for their shares in the event that they are canceled by a cash-out merger, regardless of their exclusion from such rights under § 21-20,138(3). However, equity no longer requires the unanimous consent of a corporation's shareholders to approve a merger, so long as equity ensures that the shareholders receive fair value for their shares. To the extent that McLeod v. Lincoln Medical College, 69 Neb. 550, 98 N.W. 672 (1904), indicates otherwise, it is disapproved.