Court Opinion

ID: 9575705
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:16:07.429583+00
Date Added: 2024-06-11T12:49:48.255934
License: Public Domain

UNIS, J.,
concurring in part, dissenting in part.
The issue in this case is whether plaintiffs’ complaint states a claim for breach of fiduciary duty and civil conspiracy. I cannot agree with the majority’s holding that plaintiffs’ complaint fails to state a claim under either theory. I would hold that plaintiffs’ complaint states a claim for breach of fiduciary duty and civil conspiracy against all defendants1 except defendant attorneys.2 I agree with the majority that the complaint does not state a claim against defendant attorneys. I, therefore, concur in part and dissent in part.
Because plaintiffs’ complaint was dismissed for failure to state a claim pursuant to ORCP 21 A(8),3 this court must accept the allegations in the complaint as “true,” Madani v. Kendall Ford, Inc., 312 Or 198, 201, 818 P2d 930 (1991), and as “facts,” Nicholsen v. Blachly, 305 Or 578, 580, 753 P2d 955 (1988). Moreover, as the majority recognizes, we must give plaintiffs the benefit of all favorable inferences that may be drawn from the allegations. 314 Or at 584. Applying these principles, the following seems to be a fair summary of those pleaded “facts” and favorable inferences to be drawn therefrom.
Plaintiffs Stringer and Schubert and three others founded CDS in 1986. Stock was sold in the corporation until, in 1989, there were 36 shareholders. Stringer and Schubert, *592along with the two nominal defendants in this case, retained about 43 percent of the stock. The stock was sold at about 10 cents a share during this period.
According to the complaint, CDS was successful during this period, and revenues were increasing faster than expenses. In early 1989, again according to the complaint, a third party made a written offer to purchase CDS at a price substantially above what was subsequently offered during the “squeeze-out” merger at issue here. CDS, by vote of the majority of shareholders, rejected the third party’s offer.
The complaint alleges the following:
“In late 1988 or early 1989, the CDS Directors and the larger CDS shareholders, Donald Smith, Mark Kallenberger and Lawrence Custer (collectively referred to herein as the ‘Controlling Shareholders’), decided to squeeze the Minority Shareholders out of their ownership in CDS and to offer then a nominal sum for their stock, which sum was significantly below fair market value of the stock (the ‘Plan’). The principal purpose of the Plan was to deprive the Minority Shareholders of most of the present value of their stock in CDS and to deprive the Minority Shareholders of their share of the anticipated significant rise in the value of CDS stock over the next few years.” (Emphasis added.)
The complaint goes on to allege that the directors and the three larger majority shareholders, whom plaintiffs describe in their complaint as the “Controlling Shareholders,” retained defendant attorneys to incorporate a new corporation, Car Data, as the vehicle for the completion of this plan.
The complaint also alleges that, in furtherance of the plan, the CDS directors and the “Controlling Shareholders” transferred all their CDS stock to Car Data and then solicited the participation of all CDS shareholders except plaintiffs and the two nominal defendants. Once Car Data had obtained by these means a majority of the stock of CDS, a merger was proposed between CDS and Car Data.
As majority shareholder of CDS, Car Data approved the merger with a stock value of $0,002 per share, a price far below that previously offered by the third party. The stockholders of Car data, i.e., the board of directors of CDS and all the former shareholders of CDS except plaintiffs and the two *593nominal defendants, also approved the merger. Plaintiffs allege that, as a result of this vote, the minority shareholders received $9,900 for stock with a fair market value of $290,000.
BREACH OF FIDUCIARY DUTY CLAIM
In plaintiffs’ claim for breach of fiduciary duty, plaintiffs allege that the above acts by the directors, the collective majority of CDS shareholders and Car Data, constitute a breach of their fiduciary duty to the minority shareholders, including plaintiffs. Plaintiffs seek, inter alia, rescission of the merger or, in the alternative, damages equal to the fair market value of plaintiffs’ proportionate share of defendant Car Data on the date of trial, plus punitive damages.
The majority holds that the allegations in plaintiffs’ complaint “show only a disagreement as to price” and do not “permit any inference of self-dealing, fraud, deliberate waste of corporate assets, misrepresentation, or other unlawful conduct.” 314 Or at 590. The majority concludes that plaintiffs have no claim against defendants apart from their remedy under the appraisal statutes, ORS 60.551 to 60.594. This conclusion, in my judgment, ignores allegations that we must accept on an ORCP 21 A(8) motion as “true” pleaded “facts,” and it ignores inferences favorable to plaintiffs that may be drawn from those allegations.
In 1987, the legislature adopted the Revised Model Business Corporation Act (RMBCA) sections 13.30 and 13.31, Or Laws 1987, ch 52, §§ 136 and 137, except for modifications necessary to conform to Oregon’s judicial system. See Report of the Revised Model Business Corporation Act Task Force of the Business Law Section of the Oregon State Bar 63 (March 24, 1987). The sections became ORS 60.591 and ORS 60.594. These statutory provisions provide a dissenting shareholder with an appraisal remedy to secure “fair value” for shares in the event of a corporate act resulting in a merger.
The statutory provisions relating to the appraisal procedure are subject to ORS 60.554(2) and must be read in conjunction with that provision. ORS 60.554(2), which is taken from RMBCA section 13.02(b), provides that a dissenting shareholder “may not challenge the corporate action *594creating the shareholder’s entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.” (Emphasis added.) The explanation for the exception provided for in ORS 60.554(2) is that “the prospect that shareholders may be ‘paid off [through the appraisal procedure] does not justify the corporation in proceeding unlawfully or fraudulently.” Official Comment to RMBCA section 13.02 at 1366 in 3 Model Business Corporation Act Annotated (3d ed, 1992 Supp).
Although the type of “unlawful” or “fraudulent” conduct required by ORS 60.554(2) to overcome the exclusive remedy of appraisal is not precisely defined, the Official Comment to RMBCA section 13.02 provides guidance. The Official Comment states:
“Because of the variety of situations in which unlawfulness and fraud may appear, this section makes no attempt to specify particular illustrations. Rather, it is designed to recognize and preserve the principles that have developed in the case law of Delaware, New York and other states with regard to the effect of dissenters’ rights on other remedies of dissident shareholders.” Id. at 1367 (emphasis added).
Thus, “[i]f the corporation attempts an action in violation of the corporation law on voting, in violation of clauses in articles of incorporation prohibiting it, by deception of shareholders, or in violation of a fiduciary duty,” it cannot later hide behind the appraisal remedy provision of the RMBCA. Id. at 1366.
The Official Comment to RMBCA section 13.02(b) singles out Weinberger v. UOP, Inc., 457 A2d 701 (Del Supr 1983), as an example of the case law that section 13.02(b) was designed to recognize and preserve. Id. at 1367. Weinberger recognizes that the statutory appraisal remedy may not be adequate, “particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets or gross and palpable overreaching are involved.” . Weinberger v. UOP, Inc., supra, 457 A2d at 714. Post -Weinberger Delaware decisions clearly recognize that appraisal rights are not the exclusive remedy in the face of allegations of misconduct.
In Sealy Mattress Co. of N.J., Inc. v. Sealy, Inc., 532 A2d 1324 (Del Ch 1987), the Delaware Court of Chancery *595held that the minority shareholders were entitled to a preliminary injunction enjoining a squeeze-out merger. According to the court, “[a]s fiduciaries seeking to ‘cash out’ the minority stockholders of a Delaware corporation in a non-arm’s length merger, the defendants had a duty to be entirely and scrupulously fair to the plaintiffs in all respects.” Id. at 1335 (citing Weinberger v. UOP, Inc., supra, 457 A2d at 710). The Delaware court was concerned that the majority stockholder not be allowed to “time or structure the transaction, or to manipulate the corporation’s values, so as to permit or facilitate the forced elimination of the minority stockholders at an unfair price.” Id.
In Sealy Mattress, the court noted that the corporation’s directors “were obliged to make an informed, deliberate judgment, in good faith, that the merger terms, including the price, were fair and that the merger would not become a vehicle for economic oppression.” Id. Moreover, noted the Delaware court, “the directors (and the majority stockholder, to the extent that it involved itself in such matters) were obliged to disclose with entire candor all material facts concerning the merger, so that the minority stockholders would be able to make an informed decision as to whether to accept the merger price or to seek judicial remedies such as appraisal, an injunction, or a post-merger damage action.” Id.
As in Sealy, none of the fiduciary obligations owed by corporate directors and majority shareholders were satisfied in this case.4 Plaintiffs Stringer and Schubert alleged that the directors of CDS, acting with three certain larger CDS shareholders, developed a plan to squeeze out plaintiffs for a nominal sum, a sum significantly below the fair market value of plaintiffs’ shares. The squeeze-out merger was implemented just after the majority shareholders had rejected a third-party offer to purchase substantially all of CDS assets at a price substantially greater than the $0,002 per share price set in the squeeze-out merger. The squeeze-out merger would have permitted the majority shareholders, which *596includes the six directors of CDS, to sell the CDS assets at this higher price without sharing any of the proceeds with the minority shareholders.
Such conduct by directors and the large shareholders does not meet duties of good faith and fair dealing imposed by Oregon law. See, e.g., Zidell v. Zidell, Inc. (24128), 277 Or 413, 418, 560 P2d 1086 (1977) (“those in control of corporate affairs have fiduciary duties of good faith and fair dealing toward minority shareholders”); ORS 60.357 (requiring a director to discharge the duties of the office “in good faith”); ORS 60.361 (“[a] conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest”). With respect to the minority shareholders of CDS and, in particular, plaintiffs, the allegations of the complaint are, in my view, sufficient to permit an inference of self-dealing and gross, palpable, overreaching conduct — a violation of the fiduciary duty owed to plaintiffs by CDS directors and majority shareholders.5 As such, the case should not have been dismissed at the pleading stage for failure to state a claim.
The majority admits that “[pjlaintiffs’ complaint clearly alleges a disagreement as to valuation, and we also can infer payment by Car Data of an unreasonably low price.” 314 Or at 590 (emphasis added). The majority, however, concludes that the only complaint plaintiffs make is the price of CDS’s stock. Id. That interpretation ignores the means by which that price was alleged to have been determined, and who made that determination.
According to the allegations in plaintiffs’ complaint and to inferences favorable to plaintiffs that may be drawn from those allegations, the directors of CDS hatched a plan to capture some of the corporation’s stock at a bargain. This action, again taken from the. complaint, was undertaken immediately following a purchase offer that these same directors, in their official capacity, had rejected. The inference drawn is that the directors of CDS, realizing the value of their stock, determined to capture as much of that value as possible *597for themselves. To do so, however, they needed to create a majority voting block.
To that end, the complaint alleges, the directors formed a paper corporation that had no assets whatsoever. The directors then transferred their CDS stock to the new corporation, Car Data. The complaint alleges that the purpose of the new corporation was to deprive a minority of the shareholders of CDS stock of the value of that stock. Surely the majority does not mean to hold that it is lawful for the directors of a corporation to plot unlawfully against some of the corporation’s shareholders as long as those shareholders can subsequently defeat the unlawful plot through judicial action to determine the fair value of the company’s stock. Yet that is the effect of the majority’s holding.
I believe that the complaint alleges a breach of the fiduciary duty that the directors of CDS owed to plaintiffs as shareholders of CDS. The complaint does not allege that the directors wanted to “squeeze out” minority shareholders for the benefit of the corporation; it alleges that they conspired to steal some or most of the value of their stock by using a pseudo squeeze-out merger.6 Car Data, the majority shareholder of CDS, was the vehicle used to accomplish that goal. The other shareholders who then joined the directors are implicated in the same misconduct.7 Though they may not, as the majority states, have owed plaintiffs a fiduciary duty as shareholders, it nonetheless would be unlawful for them to conspire with the directors of the corporation to increase the value of their stock by creating a paper corporation with the intent to devalue temporarily the corporation’s stock.
The inference fairly drawn from the complaint is that there was no “merger” in this case to which one could apply an appraisal remedy. Car Data, the complaint alleges, was no more than the alter ego of CDS’s own directors and *598several of its largest shareholders. Its purpose, again according to the complaint, was to create a majority voting block to devalue the corporation’s stock.
Had the three larger majority shareholders (“Controlling Shareholders”) conspired with the CDS directors to reject a legitimate purchase offer and then sold all CDS’s assets to Car Data at far below market value so that they could resell Car Data at a windfall price, I do not believe that the majority would find it as difficult to find “overreaching.” Yet, in this case, an allegation that certain shareholders and the directors of CDS created a paper corporation in order to accomplish the same result through a “merger” is considered insufficient. I do not believe that the drafters of the RMBCA or the Oregon legislature intended to create a vehicle for this kind of business practice simply because they wished to facilitate legitimate business mergers when there is a disagreement among shareholders over the wisdom of the merger.
In Joseph v. Shell Oil Co., 498 A2d 1117, 1122 (Del Ch 1985), the Delaware Court of Chancery cautioned:
“Because all inferences in the allegations in a complaint must be construed in favor of the plaintiffs, and because each suit is unique, complaints asserting a claim of unfair dealing as to a tender offer or freeze-out merger must be read carefully to determine if an appraisal will provide an adequate remedy if the claims prove to be true. Great care must be taken not to unjustifiably relegate objecting stockholders to an appraisal proceeding because to do so might have the result of precluding the imposition of an adequate remedy for serious breaches of fiduciary duty.”
Appraisal actions are exclusive remedies only when the disagreement is over whether or not to accept an otherwise legitimate merger offer. When that is not the case, other courts allow actions to be pursued apart from an appraisal statute. See, e.g., Rabkin v. Phillip A. Hunt Chemical Corp., 498 A2d 1099 (Del Supr 1985); Coggins v. New England Patriots Football Club, Inc., 397 Mass 525, 492 NE2d 1112 (1986); Edelman v. Fruehauf Corp., 798 F2d 882, 886-87 (6th Cir 1986); Stepak v. Schey, 51 Ohio St 3d 8, 553 NE2d 1072 (1990).
*599CIVIL CONSPIRACY CLAIM
Plaintiffs’ complaint, in my opinion, also states a claim for civil conspiracy. In Bonds v. Landers, 279 Or 169, 566 P2d 513 (1977), this court upheld a judgment based on a theory of civil conspiracy,8 stating:
“ ‘A civil conspiracy is a combination of two or more persons by concerted action to accomplish an unlawful purpose, or to accomplish some purpose not in itself unlawful by unlawful means.’ 15A CJS 596, Conspiracy § 1(1), citing Bliss v. Southern Pacific Co., 212 Or 634, 321 P2d 324 (1958); Pitts v. King, 141 Or 23, 15 P2d 379, [modified 141 Or 35,] 15 P2d 472 (1932).” 279 Or at 174.
Plaintiffs allege that defendants adopted a “plan” to deprive plaintiffs of the value of their stock. The underlying wrongful act was the breach of fiduciary duty by the directors and the collective majority of shareholders. Thus, the “concerted action” or “plan” of defendants to accomplish this unlawful act constitutes civil conspiracy.
CONCLUSION
In sum, I concur in that part of the majority’s opinion that holds that plaintiffs’ complaint fails to state a claim for breach of fiduciary duty and civil conspiracy against defendant attorneys. As against all other defendants, however, plaintiffs’ complaint alleges facts that, if proved and considered along with favorable inferences to be drawn therefrom, would establish their right to recover for breach of fiduciary duty and civil conspirary. I would hold, therefore, that defendants’ ORCP 21 A(8) motions should have been denied, except as to defendant attorneys.
Fadeley, J., joins in this opinion.

 Elizabeth A. Perry and James B. Kargman are named as nominal defendants. Both were CDS shareholders who were not solicited to transfer stock to Car Data and did not vote for the merger.

 Defendant attorneys are Richard M. Botteri and Weiss, Descamp & Botteri, an Oregon professional corporation. In the complaint, plaintiffs allege only that the controlling shareholders of CDS retained legal services to “assist them in squeezing out the Minority Shareholders.” The complaint does not state, and it cannot be inferred from the compliant, that the attorneys were made aware that the purpose of the merger was to temporarily devalue CDS’s stock in order to capture for the majority shareholders some of the true value of the minority shareholders’ stock. It is not unlawful simply to assist in an otherwise legitimate squeeze-out merger.

 The trial court also denied plaintiffs’ leave to replead.

 It is unclear at this preliminary stage which, if any, of the defendants exercised majority shareholder control. Nevertheless, the allegation that the directors and the three larger CDS shareholders worked in concert to control CDS, together with the other allegations in plaintiffs’ complaint, are sufficient to state a claim against those shareholders.

 Once the directors and the three larger shareholders of CDS transferred their stock to Car Data, it became the single majority shareholder in CDS.

 The majority recognizes that, in certain circumstances, such as a parent-subsidiary merger, courts may require that a cash-out merger have some business purpose, not just be undertaken to squeeze out minority shareholders. See 314 Or at 590 n li. In this case, not only is there no business purpose for the merger of two corporations that share directors and majority shareholders, but the merger is alleged to be for the sole purpose of depriving the minority shareholders of one corporation of the value of their stock.

 See, infra, “Civil Conspiracy Claim.”

 In Bonds, this court cited with favor the elements of civil conspiracy as set out in 15A CJS 599, Conspiracy § 1(2). Those elements are: “(1) Two or more persons, and for this purpose a corporation is a person; (2) an object to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful overt acts; and (5) damages as the proximate result thereof.” Bonds v. Landers, 279 Or 169, 174, 566 P2d 513 (1977).