Court Opinion

ID: 9483294
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:16:22.050698+00
Date Added: 2024-06-11T17:49:32.378634
License: Public Domain

RALPH B. GUY, Jr., Circuit Judge,
dissenting.
Although I substantially agree with Judge Brown’s thorough analysis of the Virginia Bankshares decision, I must dissent from that portion of the majority opinion which applies that analysis to the facts of this case. I also write separately to express my doubt that Ohio law would *711recognize the plaintiff-shareholders’ fiduciary duty claim, when it seeks only additional compensation for their shares.
I.
Like the majority, I read Virginia Bank-shares as advancing the possibility that minority shareholders lacking sufficient votes to block a corporate transaction may establish causation for purposes of a section 14(a) suit by showing that the false or misleading proxy statement resulted in the loss of a state remedy. ■ Assuming that there is indeed an analogous private right of action under section 13(e),1 I agree that the “lost state remedy” causation theory may be instructive in this case which, like Virginia Bankshares, involves minority shareholders’ complaints regarding full disclosure in the contested proxy statements. I do not agree, however, that the facts of this case demonstrate an induced forfeiture of the appraisal remedy, and I would therefore decline to allow Howing to stand for our circuit’s full-fledged endorsement of the “lost remedy” theory.
The majority’s adoption of the lost-remedy argument is based on an inference that disclosure of the desired information would have moved the plaintiffs to vote against the transaction (or abstain from voting) and to exercise their appraisal rights within the statutorily prescribed ten-day period. As prior decisions in this case have made clear, however, none of the named plaintiffs voted in favor of the merger. In other words, there can be no suggestion that these plaintiffs were duped by the allegedly misleading proxy statement into voting for the merger on the mistaken belief that the transaction would be in théir best interests. In general, a shareholder’s failure to vote upon receipt of a defective proxy statement — and a subsequent failure to assert the appraisal rights on time — may just as readily suggest that the dissenting shareholder, aware of the proxy’s defects and believing the shares to be worth far more, intends to challenge those defects and seek damages in a separate action.
That this alternative inference is equally as plausible is demonstrated by the facts of this case. Even before the proxy materials were disseminated, a minority shareholder, Belle Efros, sought to enjoin the merger for, among other things, paying the public shareholders “a grossly inadequate price.” Complaint at 6, Efros v. Nationwide Corporation, No. C-2-82-1385 (S.D.Ohio). This early Efros litigation, with which the present case was eventually consolidated, was then addressed in the proxy materials, which .also explained how dissatisfied shareholders may assert their appraisal rights.
Even more' significantly, the named plaintiffs’ own admissions refute the inference that the proxy statement induced them to forfeit the appraisal remedy. Plaintiff McClellan conceded that he “elected not to pursue” his appraisal rights even though he believed that the $42.50 merger price was inadequate. Similarly, the managing partner of. the Howing Company stated that shortly after he received the proxy, he, in consultation with his broker, decided not to vindicate his dissatisfaction with the price through appraisal but to rely instead on the outcome of the Efros litigation. Further, in arguing the motion for class certification, plaintiffs’ counsel stated that they had chosen the more economical route of the class action over individual appraisal actions. The district court’s order conditionally certifying the case as a class action essentially confirmed that the appraisal remedy had been considered and deliberately abandoned:
Although plaintiffs admit that they could have invoked the protections of Ohio’s dissenting shareholder’s statute ... they have chosen to pursue their claims under the federal securities laws and the common law of Ohio.
Given these undisputed facts, I would decline to find that the plaintiffs here were duped or misled into forfeiting the right to assert their objection to the merger price in *712an appraisal action. Thus, this seems to me a poor case for deciding whether this circuit should adopt the “lost state remedy” theory alluded to in Virginia Bank-shares.
II.
In addition, I note briefly my discomfort with the majority’s continued approval of the claim for breach of fiduciary duty. I understand the Ohio Supreme Court cases of Armstrong v. Marathon Oil Co., 32 Ohio St.3d 397, 513 N.E.2d 776 (1987), and Stepak v. Schey, 51 Ohio St.3d 8, 553 N.E.2d 1072 (1990), to mean that while an action for a breach of fiduciary duty may indeed be maintained outside an appraisal proceeding, such action will not be countenanced if it seeks only “to overturn or modify the fair cash value determined in a cash-out merger.” Schey, 553 N.E.2d at 1074. These two eases, according to a recent Ohio Court of Appeals decision,
made it clear that a shareholder cannot disguise what is essentially a cause of action for an appraisal of the value of stock by bringing that cause of action under an allegation of breach of fiduciary duty and fraud. The hallmark for determining whether a cause of action is in essence a disguised request for an appraisal of the value of the stock is the damages which are sought for the cause of action.
Gergely v. Van Voorhis, No. E-90-36, 1992 WL 15956 at *4, 1992 Ohio App. LEXIS 384 (1992) at *11 (Ohio App. Jan. 31, 1992) (citations omitted). See also David L. Kinsella, Ohio’s Newest Claim Outside of an Appraisal for Dissenting Shareholders in a Merger Situation — Breach of Fiduciary Duty, 16 U. Dayton L.Rev. 773 (1990). It seems clear that what these plaintiffs seek is more money for their shares rather than, for example, the disgorgement of profits or the rescission of the merger.
I would affirm the district court’s decision.

. I say "assuming” because, although I joined that part of this court’s original opinion in this case which found a private right of action, I have since had second thoughts and now have serious doubts about that conclusion.