Court Opinion

ID: 9753455
Source: CourtListenerOpinion
Date Created: 2023-08-28 19:14:45.318104+00
Date Added: 2024-06-11T07:25:57.154822
License: Public Domain

Justice CASTILLE,
dissenting.
I must respectfully dissent. The majority reasons that the cash-for-stock merger proposed by appellees is a corporate act, not a shareholder act, and therefore the transaction falls outside the ambit of the stock transfer agreement entered into by the parties (the “Buy-Sell Agreement”). I disagree with this reasoning in two respects.
First, unlike the majority, I believe that the corporation is expressly bound by the Agreement’s transfer restrictions. *216Paragraph 11 of the Buy-Sell Agreement provides, in pertinent part:
11. Agreements by the Corporation. In consideration of the promises of the Stockholders, the Corporation agrees for itself and for its successors and assignees that it shall perform every act that may be required of it to effectuate the provisions of this Agreement, including, but not limited to,
(a) it will not transfer or reissue any of its shares of stock in violation of this Agreement or without requiring proof of compliance with this Agreement;
(b) all stock certificates issued by the Corporation during the life of this Agreement shall be endorsed as stated above;
Buy-Sell Agreement ¶ 11 (emphasis added). This language, in my view, clearly requires the corporation to give effect to all of the provisions in the Buy-Sell Agreement, including the restrictions on the transfer of stock set forth in Paragraph 2, and, thus, prohibits the merger proposed by appellees.
Citing to the non-binding Superior Court decision in Rouse & Assoc., Inc. v. Delp, 442 Pa.Super. 226, 658 A.2d 1383 (1995), as well as a decision from the Eastern District of Pennsylvania, In re Trilling & Montague, 140 F.Supp. 260 (E.D.Pa. 1956), the majority posits that this clear and unequivocal language should not be read to prohibit the merger because restrictive transfer provisions are not “favorites of the law” and are to be strictly construed. The majority contends that in the absence of express language precluding mergers, no intent to impose such a restriction should be inferred. This Court, however, which is the ultimate judicial authority on matters of Pennsylvania corporate law, has noted that “restrictions] [on] the transfer of stock ... have been recognized in this state as serving a useful purpose, lawful and enforcible [enforceable].” In re Estate of Mather, 410 Pa. 361, 189 A.2d 586, 590 (1963) (quoting Bechtold v. Coleman Realty Co., 367 Pa. 208, 79 A.2d 661, 664 (1951)) (further citations omitted). *217In addition, Pennsylvania’s Business Corporation Law specifically authorizes restrictions on the transferability of shares. 15 Pa.C.S. § 1529(b) (“A restriction on the transfer or registration of transfer of securities of a business corporation may be imposed by the bylaws or by an agreement among any number of securityholders or among them and the corporation.”). This Court has repeatedly enforced clear contract language restricting the transfer of stock such as that contained in Paragraph 11 of the Buy-Sell Agreement, and I would enforce the restriction based upon the clear contract language here.
Second, I do not agree that a cash-for-stock merger is solely a corporate act. Pennsylvania’s Business Corporation Law expressly provides that a cash-for-stock merger must be adopted by “the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon of each of the domestic business corporations that is a party to the merger.” 15 Pa.C.S. § 1924(a). While a corporation can propose a cash-for-stock merger, the transaction may not be consummated unless the stockholders have also acted to approve the deal. Indeed, appellees here presented their plan of merger to a vote of the Seven Springs shareholders on October 3, 1998, and a majority of the shareholders approved the transaction.
The majority finds that the fact that the shareholders had to vote on the plan of merger did not “transform! ] th[is] fundamental corporate act” into a stockholder transaction giving rise to the right of first refusal under the Buy-Sell Agreement. Majority at 211. The majority finds that the stockholder vote in favor of the merger plan did not result in the stockholders “disposing of” their shares, as is restricted under the Agreement. Rather, the majority concludes, the favorable vote by a majority of the stockholders merely authorized the corporation to take independent action with respect to the shares.
It is not, however, the actual “disposition of’ shares which triggers the application of the Buy-Sell Agreement, but the “intention” to do so. Paragraph 2 of the Buy-Sell Agreement provides, in pertinent part:
*2182. Option to Corporation Except as provided in paragraph 1, no Stockholder, estate of a Stockholder or transferee who has received any stock in accordance with the provisions of paragraph 1, or any other transferee shall transfer, assign, sell, pledge, hypothecate, mortgage, alienate or in any other way encumber or dispose of all or any part of his stock in the Corporation, or certificates of ownership interest representing the same, now owned or hereafter acquired by him, without first giving to all other Stockholders and to the Corporation at least 30 days written notice by registered mail or personal delivery with receipt acknowledged in writing of his intention to make a disposition of his stock.
Buy-Sell Agreement ¶ 2 (emphasis added). In my view, when a majority of the Seven Springs shareholders voted on October 3,1998 to approve the sale of the company to Booth Creek Ski Holding, Inc. (“Booth Creek”), they manifested their intention to dispose of their stock,1 triggering the notification and right of first refusal requirements under the Buy-Sell Agreement.2
Accordingly, I would reverse the en banc decision of the Superior Court. I therefore respectfully dissent.

. Although the majority does not reach the question, see Majority at 207, I believe that the proposed merger will involve the "disposition of” stock. The phrase "dispose of” is defined as “1. to deal with conclusively; settle; 2. to give away or sell;' 3. to get rid of; throw away.” Webster’s New World Dictionary, 407 (1986). Under the terms of the Agreement of Merger, each share of the company issued and outstanding at the time of the merger shall be converted into the right to receive cash. See Agreement of Merger § 2.29(c). In other words, each shareholder will effectively “give away” or "get rid of” his interest in his shares in exchange for the right to receive a cash payment.

. Indeed, the intent of the majority shareholders to dispose of their stock undoubtedly arose prior to the October 3 vote, i.e., at the June 13, 1998 shareholders meeting where the majority shareholders voted to pursue divestiture exclusively with Booth Creek.