Court Opinion

ID: 9550375
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:34:36.896453+00
Date Added: 2024-06-11T15:21:27.746824
License: Public Domain

ADDENDUM
ON DENIAL OF PETITION FOR REHEARING
Our lead opinion holds that Dale and Norma Waters, shareholders in Double L, Inc., are entitled to payment for their shares under the dissenters’ rights provisions of the Idaho corporation code. In a petition for rehearing, Double L has assailed our opinion on numerous grounds. We have considered each argument and have reexamined the record at length. Although the corporation’s position is well advocated by able counsel, we conclude that the lead opinion should stand.
Before responding specifically to the points raised in the petition, we note that it embodies an approach to the case which has produced difficulty since the onset of the corporation’s dispute with the dissenting shareholders. The corporation continues to assert that Mr. Waters has acted in bad faith and is not entitled to invoke the dissenters’ rights statutes. By focusing on the legitimacy of Mr. Waters’ status as a dissenter, the corporation has given insufficient attention to the self-implementing operation of the statutes. The corporation essentially has defaulted under the mandatory provisions for determining the amount to be paid for dissenters’ shares.
The lesson of this case is that a corporation may not ignore the statutory scheme simply because it questions whether the shareholders are entitled to dissent. Where dissent in fact occurs, and the corporation wishes to avoid defaulting on the valuation issue, it must follow the statutory scheme. It may raise the entitlement issue in conjunction with a judicial proceeding which the corporation is required to commence under I.C. § 30-l-81(h). But if the corporation disregards the statutory process and commences no such proceeding because it believes the shareholders have no right to dissent, it takes the risk that a court may rule otherwise in an action eventually brought by the shareholders. That is what happened in this case.
We now turn to the petition before us. Among the points raised, the corporation argues that dissenters’ rights were not triggered by any impairment of preemptive rights because the shareholders never had *268a preemptive right to exercise. This issue is raised for the first time on rehearing, not having been presented to the district court nor to this Court earlier on appeal. Accordingly, we will not address it now. The corporation further asserts that this Court has erred in failing to find the payment demanded by the shareholders to be “unconscionable” and in failing to find that Mrs. Waters never established her status as a separate dissenting shareholder. We have addressed these matters in our lead opinion and we adhere to the views there expressed. However, two other points raised in the petition merit further discussion here.
I
The corporation asserts that no dissenters’ rights were triggered by the sale of assets to Pioneer Astro because the transaction was a “sale in the ordinary course of business” and, in any event, was not a sale of “all or substantially all” of the corporation’s assets. As noted in our lead opinion, Pioneer Astro purchased all of the corporation’s real property and all of its operating equipment. Additionally, Pioneer Astro acquired eighty percent of the corporation’s outstanding stock. In return, Pioneer Astro paid cash for the shares and assets, created a line of credit for the corporation, and leased back the purchased assets. Apparently, the corporation would have us now hold that because its business continued to operate after the transaction was consummated, the transaction could not be regarded as a sale of all or substantially all of the corporation’s assets.
However, the mere fact that the corporation remained in business under the same name is not the critical criterion. The nature of the transaction takes precedence over its form. Our focus is upon the relationship between the assets transferred and those remaining. Here, the corporation sold all of its hard assets, retaining intangible assets of admittedly dubious value. (Indeed, the corporation has asserted throughout this litigation that the Pioneer Astro sale came on the brink of bankruptcy.) Only by renting the hard assets back from Pioneer Astro was the corporation able to continue its operations. This is a classic “sale of assets” transaction. See generally H.G. HENN & J.R. ALEXANDER, LAWS OF CORPORATIONS § 341 (3d ed. 1983). See also MODEL BUSINESS CORP. ACT ANNOTATED § 12.01 (1984) official comment at 1319.
We are similarly unpersuaded that the sale was in the ordinary course of business. The corporation urges that whenever a business seeks financing to prevent insolvency, it acts in the “ordinary course.” While avoiding insolvency may indeed be a legitimate business purpose, we are not convinced that it is, ipso facto, action taken in the “ordinary course.” In the present case, the corporation after the Pioneer Astro transaction was not, in any real sense, the same entity that existed before the transaction.
The “ordinary course of business” test has been construed narrowly by the courts. While it is not intended to limit corporate directors solely to customary daily business activity, the sale of a substantial portion of the capital assets and stock is not considered to be in the ordinary course of business unless the corporate enterprise consists of acquiring and disposing of such property or stock. See generally 19 AM. JUR.2D Corporations § 2663 (2d ed. 1986). Double L does not contend that it previously had engaged in the purchase and sale of capital assets and corporate stock as a regular part of its business.
II
Finally, the corporation challenges the conclusion in our lead opinion that the shareholders were not barred by Mr. Waters’ conduct from dissenting as to the Pioneer Astro transaction. The corporation argues that the record contains numerous facts demonstrating that Waters took actions, both as a director and as a shareholder, indicating that he did not intend to *269dissent from the sale. The corporation contends that Waters’ representations from the outset that he would not interfere with the sale estopped him from later asserting his dissenter’s rights.
As we explained in the lead opinion, “[i]n order to complete the elements of estoppel, the corporation would be required to show that it was prejudiced by [Waters’] misrepresentation.” We concluded that the corporation had failed to demonstrate any detriment because it did not appear from the record that earlier knowledge of Waters’ impending dissent would have materially altered the agreement with Pioneer Astro. We continue to adhere to this view. In fact, the alleged misrepresentation actually enabled the transaction to be consummated at a substantial benefit to the corporation. The fact that Waters later dissented and requested a substantial value for his shares does not transform his previous conduct into an estoppel. Our lead opinion notes that the cost to the corporation of Waters’ conduct could have been limited by tendering to him the actual fair value of his shares before the transaction, or by commencing a judicial proceeding to determine the value, as provided by statute. If (as the corporation has contended) the shares before the transaction had virtually no value, the detriment suffered as a result of Waters’ conduct would have been minimal but for the corporation’s own failure to follow the statutory procedure regarding valuation of shares. The corporation cannot bootstrap its failure to follow statutory procedure into the detriment necessary to invoke the doctrine of estoppel.
Accordingly, the petition for rehearing is denied.
WALTERS, C.J., and HUNTLEY, J. Pro Tem., concur.