Court Opinion

ID: 9795230
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:23:11.635835+00
Date Added: 2024-06-11T08:28:14.043538
License: Public Domain

Rose, J.,
concurring in part and dissenting in part:
I concur with many of the majority’s conclusions regarding a shareholder’s dissenter’s rights under Nevada’s corporate merger law. However, I dissent because I believe that a minority shareholder has the unconditional right to sue a corporation for fraud or illegality, notwithstanding the fact that the minority shareholder tendered his or her shares with knowledge of the wrongful conduct.
First, a restatement of Cohen’s factual allegations is necessary to understand the corporate overreaching involved in this case. Cohen alleges facts that, if true, present a picture of a rigged merger election brought about by payoffs and sweetheart deals that produced a 53 percent vote of the Boardwalk shareholders to merge with the Mirage Corporation. The merger was necessary to Mirage because Boardwalk owned the land and the casino south of the Mirage property on the Las Vegas Strip, which was vital for Mirage to acquire if Mirage was to go forward with its expansion. Cohen alleges that Mirage executives devised an elaborate plan to secretly acquire Boardwalk and Boardwalk’s 7.8-acre parcel of real property by means of illegal or fraudulent payments to three shareholders who are respondents in this appeal, James Scibelli, Jeffrey Jacobs, and Avis Jansen. These three shareholders provided a clear margin of victory for the merger.

*25
Cohen’s allegations of a pre-merger conspiracy

Cohen alleges that Mirage conspired with the Boardwalk’s controlling shareholders to purchase Boardwalk at an artificially low price by offering special transactions that favored certain members of Boardwalk’s board of directors and certain shareholders at the expense of Boardwalk’s minority shareholders. First, Scibelli, a shareholder and director of Boardwalk, resigned as a director less than two months before the announcement of the proposed merger. Shortly thereafter, the board of directors awarded Scibelli and his company a $450,000 contract to conduct an independent appraisal, rendering a fairness opinion of the proposed merger despite Scibelli’s lack of experience or competence to render any such appraisal opinion of real estate. Cohen alleges that because Scibelli owned warrants issued by Boardwalk that would be rendered worthless if the merger occurred at the proposed $5 per share price, the contract was an indirect way to ensure his vote for the merger and to pay him off for his soon-to-be-worthless warrants. Cohen maintains that a truly independent property appraisal would have cost no more than $20,000.
The second alleged pre-merger conspiracy transaction involved Jansen, a shareholder and chairman of Boardwalk’s board of directors, who was one of the owners of a one-acre undeveloped parcel of real property next to the Boardwalk hotel and casino. Shortly before the merger announcement, Mirage purchased the Jansen parcel for $8 million dollars, $3.4 million more per acre than Mirage eventually paid for Boardwalk’s 7.8-acre developed parcel. Cohen also alleges that Mirage made an agreement with Jansen to buy out the lease for the gift shop that Jansen owned and operated in Boardwalk at a substantial premium.
The third alleged pre-merger conspiracy transaction involved Jansen, Jacobs, and Jacobs’ companies. Shortly before the merger announcement, Boardwalk claimed to need a capital infusion of $3,250,000 to pay interest on its bonds. To raise this money, Boardwalk sold 3,250 “A” preferred shares to Jansen and to Jacobs’ companies at $1,000 per share. The agreement also provided that Jacobs and his companies would receive, for no stated additional compensation, an option to purchase Jansen’s one-acre parcel of real property adjacent to Boardwalk in order to develop the property in a manner that would be beneficial to Boardwalk. After Jacobs received the option, he assigned it to Mirage for $3,735,000, even though it was expressly stated that the option shall not be conveyed to anyone that Boardwalk did not control. The end result was that the infusion of needed money ultimately came from Mirage, while Jacobs and Jansen received additional *26compensation and a strong incentive to support the merger — the purchase of their preferred shares by the merging corporations.
I conclude that Cohen’s allegations of a pre-merger conspiracy, which involves thinly disguised payoffs and sweetheart deals, are sufficient to entitle him to present his evidence to a jury. The only legal question is whether he forfeited that right by accepting payment for his stock with knowledge of some of the facts regarding his allegations of fraud and illegality.

A shareholder’s right to sue for fraud or illegality under Nevada’s corporate merger law

At the heart of the controversy are a few key sections of Nevada’s corporate merger law adopted in 1995 and based upon the Model Business Corporation Act of 1984 (“Model Act”). In addition to acknowledging that Nevada’s corporate merger law is based upon the Model Act, the majority states that the Model Act is based upon Delaware and New York case law; and after recognizing this, the majority relies on Delaware and New York case law in interpreting Nevada’s corporate merger law. Official comment to section 13.02 notes that the Model Act basically adopted New York’s formula with regard to a shareholder’s dissenter’s rights.1 The comment further notes:
Because of the variety of situations in which unlawfulness and fraud may appear, [section 13.02(b)] 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.2
I agree with the majority that the case law from New York and Delaware is persuasive authority; however, I disagree that we should rely on this authority in interpreting Nevada’s corporate merger law.
Additionally, the majority’s reliance on Delaware case law has very little persuasive effect upon us for two reasons. First, Delaware has not adopted the Model Business Corporation Act, but rather has enacted its own statutory scheme governing corporate mergers.3 Second, Delaware has both courts of law and equity, and *27maintains the distinction between each type of action.4 Nevada has long since eliminated the distinction between claims seeking legal and equitable relief.5 This legal division affects many Delaware cases and their analyses, and as such, reliance on Delaware case law is often not appropriate.
In any event, I agree with the majority’s conclusion that under NRS 92A.380(2), a minority shareholder may attack the validity of the merger, seeking monetary damages based upon the corporation’s improper conduct during the merger process despite a minority shareholder’s appraisal remedy. Accordingly, as the majority concludes, Cohen’s allegations of fraud are not barred by the fact that he did not assert his dissenter’s rights.

Doctrine of acquiescence

The majority ties a minority shareholder’s acceptance of payment generated by the shareholders’ vote of the merger to a shareholder’s unequivocal right to sue independently for fraud or illegal action. In particular, the majority provides that when a minority shareholder tenders his or her shares with full knowledge of the fraudulent or illegal conduct, the minority shareholder acquiesces in the transaction, and thereby waives his or her right to attack the merger. It is my view that the unqualified right to sue given by Nevada statute is independent from any action taken by a minority shareholder in accepting payment for the then fixed value of his or her shares. Thus, I disagree with the majority’s application of the acquiescence doctrine to minority shareholders who tender their shares.
First, the majority asserts that a minority shareholder can be barred from his or her right to sue for fraud or illegality if he or she accepted payment of the price fixed by the majority shareholders. This seems to be at odds with the clear language of Nevada’s exclusivity provision, which gives any shareholder the unconditional right to sue for fraud or illegality, and is unfair to the individual shareholder who wants to sue for fraud or illegality. The majority requires a shareholder desiring to bring such a suit to abstain from taking the assessed price while the other shareholders *28can do so, even if they are accused of fraud. Additionally, a minority shareholder may well need the money to fight the corporate raiders and business giants. Nothing in Nevada’s corporate merger law states that a minority shareholder loses his or her right to sue for fraud or illegality if he or she takes the set price of the stock, and this court should refrain from adding such language to a clear and unambiguous statute.6 Statutes that are clear and unambiguous should be given their normal and unambiguous meaning.7
In addition, as the Supreme Judicial Court of Massachusetts noted, “[t]he dangers of self-dealing and abuse of fiduciary duty are greatest in freeze-out situations” like this merger, where controlling shareholders and corporate directors choose ‘ ‘to eliminate public ownership.”8 The court noted further that “[i]t is in these cases that a judge should examine with closest scrutiny the motives and the behavior of the controlling [shareholders].”9
Second, the majority states that a minority shareholder’s action for fraud or illegality is barred if the shareholder accepted payment knowing the facts that constitute the alleged fraud or illegality. Again, the statute contains no such language, and this position is patently unfair to a minority shareholder. A minority shareholder is deprived of the opportunity of both accepting the set payment for the stock, as everyone else can, and asserting his or her suit for fraud or illegality. The complaining shareholder, and perhaps the whistleblower about corporate fraud, is penalized if he or she accepts payment even though the alleged fraudulent shareholders or corporate directors, may accept such payment with impunity. I consider this unfair and a perversion of the statute that contains no such provision.
Notwithstanding the majority’s reliance on Delaware case law, which I previously addressed, the majority cites to Georgia for its explanation of the doctrine of acquiescence. In Columbus Mills, Inc. v. Kahn,10 the Supreme Court of Georgia asserted general statements of law that support the majority’s position, but that case can be distinguished on its face. In Kahn, minority shareholders brought suit during the merger process, but when the trial court de*29nied their motion to enjoin the merger, they accepted the fixed price for their shares. Subsequently, the trial court dismissed the minority shareholders’ suit, ruling that since the minority shareholders had voluntarily surrendered their suit for the fixed price, they could not thereafter attack the merger in order to obtain more money.11 Contrary to the Georgia Court of Appeals, the Supreme Court of Georgia affirmed that decision.12 Cohen’s case presents a far different factual scenario.
The issue in this case has no controlling precedent and the cases cited by the majority have only marginal persuasive authority. Therefore, we are free to give full effect to the language of the statute in selecting the best precedent for Nevada, giving full consideration to the balance between corporations and shareholders, which Nevada’s corporate merger law is seeking to achieve, as well as other policy considerations. When we do this, we should recognize the grossly inequitable strength between corporations and most shareholders and not make it more difficult than necessary for a minority shareholder to sue for fraud or illegality against business giants and corporate raiders. The majority opinion seems to be doing just the opposite. The majority’s reasoning provides such an inadequate remedy to minority shareholders that the majority practically gives “corporate insiders license to commit fraud and gross breaches of their fiduciary duties with impunity.”13 This should not be the policy of this state.
Even though Nevada’s corporate merger law does not impose a statute of limitations for fraud or illegality actions, the majority arbitrarily imposes such limitations under the mistaken belief that actions for fraud or illegality are part of the merger process and must be commenced during it. I believe this unfairly imposes limitations on a minority shareholder’s unconditional right to sue for fraud or illegality, and also improperly bundles this right to sue with the merger/appraisal process. In my view, a suit for fraud or illegality is separate from the merger process to the extent that the merger can be completed, subject only to a suit for damages against the offending parties, which may or may not include the surviving corporation. The majority seems to concede that such a scenario is possible.
A strict application of the doctrines of acquiescence and estop-pel as espoused by the majority puts further roadblocks in the path of a shareholder suing for fraud or illegality. The application of these general doctrines to condition the right to sue for fraud or illegality distorts the statutory scheme and compels a shareholder *30suing for fraud or illegality to institute his or her action immediately, even though all the facts are not fully developed or capable of quick investigation.
The majority also cites with approval a procedure used by other states to analyze post-merger challenges by minority shareholders and the application of the doctrines of acquiescence or estoppel. Rather than adopt a burden shifting analysis, which necessarily requires the determination of who will determine whether the appropriate burdens have been met, with the judge acting as the jury, I would stick with the procedure usually employed in Nevada. A plaintiff must establish by competent evidence the essential allegations of the complaint if challenged and demonstrate that a question of fact exists. If the plaintiff meets his or her burden, a trial on the contested issues is held. I see no reason why this procedure is not adequate in a case where a minority shareholder is bringing a post-merger challenge and the defense of estoppel or acquiescence is raised.
The Legislature provided shareholders standing to sue for fraud or illegality and it should not be abridged by limitations not imposed by Nevada’s corporate merger law or by the strict application of the doctrines of estoppel or acquiescence.

Derivative claims

Nevada’s corporate merger law gives a shareholder the right to sue for fraud or illegality “with respect to him or the domestic corporation’ ’ and nowhere does it state that the claim may not ask for relief that is derivative in nature.14 The direction given by the statute is just the opposite. Once again, I believe the majority is ignoring the clear statutory language and putting additional conditions on the unequivocal right to sue for fraud or illegality. Under NRS 92A.380(2), an aggrieved shareholder should be able to sue for any damages that were proximately caused by illegal or fraudulent acts.
But even assuming that the general distinction between shareholders’ individual or derivative actions is applicable to this case, I think the majority’s analysis of what constitutes an individual claim is far too narrow. First, the majority seems to imply that if the fraudulent or illegal actions cause the corporation damage, then such damage is not sufficiently independent to be that of an individual shareholder. I believe, as the statute states, that a shareholder can sue for damage caused him or her by fraud or illegality even though the corporation may have also suffered damage. Indeed, the statute provides that the shareholder can sue “with respect to him or the domestic corporation.”15 Second, I think any *31evidence of fraud or illegality that causes damage to a shareholder may be alleged in the complaint and should be admissible at trial. Therefore, it seems that the majority improperly eliminates allegations of land acquisitions and issued bonds that relate to the fraudulent allegations, as well as excessive fees paid for an appraisal report.
By classifying Cohen’s first category of allegations as derivative, the majority strips Cohen of three of his major allegations of excessive payments to directors in order to bring about a favorable vote on the merger. It is alleged that three Boardwalk shareholders and directors received exorbitant fees in the following manner shortly before the merger vote: (1) Scibelli is alleged to have been given an appraisal fee of $450,000, twenty times what was reasonable and customary; (2) Jansen is alleged to have been paid an excessive $8,000,000 for his parcel of real property next to the Boardwalk land; and (3) it is alleged that a private sale of $3,250,000 of preferred shares was made by Boardwalk to Jansen and Jacobs, and the assignment to Jacobs’ companies of Boardwalk’s option to purchase Jansen’s real property, which Jacobs’ companies assigned, contrary to the agreement, to the Mirage for $3,750,000. While the majority acknowledges that this evidence may be admissible to show “wrongful conduct” in the merger process, I see no reason why these are not proper allegations of specific wrongdoing. It seems to me to be part and parcel of an action for fraud or illegality.
I do agree with the majority that Cohen’s second category of allegations is clearly individual claims. However, the majority goes on to conclude that such allegations are derivative claims because there are no allegations actually seeking rescission or challenging the validity of the merger: “[Bjecause the complaint fails to contain a claim actually seeking rescission or challenging the validity of the merger, the complaint, as worded, sets forth derivative, not individual claims.”16
This conclusion resembles a requirement imposed in some states where the distinction between law and equity courts is still recognized and relief seeking “equitable relief,” such as rescission or injunctive relief, must be pleaded to satisfy jurisdictional requirements of an equity court. The majority requires that a minority shareholder in Cohen’s position must allege the invalidity of the merger and ask to rescind or enjoin it rather than just ask for monetary damages. And although an old refrain in this opinion by now, nothing in the statute requires that the suing shareholder must ask for rescission or injunction of the merger, and Nevada eliminated the distinction between law and equity long ago.
*32I do agree that allegations of general mismanagement are derivative and improper in this lawsuit unless they have a reasonable relation to the fraud or illegality charged. I further agree that Cohen should be given the right to amend his complaint as permitted by the majority opinion.

Conclusion

The Nevada Legislature provided minority shareholders the unequivocal right to sue for fraud or illegal conduct that brought about a merger. A minority shareholder tendering his or her shares and receiving payment should not hobble this unequivocal right. To do otherwise would permit inequitable results as in this case, where a complaining minority shareholder will be deprived of his legal right to sue the corporate raiders and business giants who are alleged to have brought about a merger by fraud and illegality. The Legislature set a balance between business and shareholders, determining that minority shareholders should have the unfettered right to sue for illegal or fraudulent action that brings about a merger. This court should not upset that balance by erecting obstacles for a complaining shareholder.
Because I agree with the majority’s conclusion that a minority shareholder may file an action for fraud or illegality despite the appraisal remedy, but disagree with the majority’s reliance on Delaware case law and its application of the doctrine of acquiescence, I respectfully concur in part and dissent in part.

 See Model Bus. Corp. Act. Ann. § 13.02 cmt. at 13-16 (3d ed. Supp. 1996).

 Id. at 13-17.

 See Robert W. Hamilton, The State of State Corporation Law: 1986, 11 Del. J. Corp. L. 3, 22 (1986).

 See generally Kurt M. Heyman & Patricia L. Enerio, The Disappearing Distinction Between Derivative and Direct Actions, 4 Del. L. Rev. 155 (2001) (noting that Delaware continues to guard the distinction between legal and equitable jurisdiction).

 See Botsford v. Van Riper, 33 Nev. 156, 196, 110 P. 705, 712 (1910) (noting that the district court administers legal and equitable relief); see also Nev. Const, art. 6, § 14 (“There shall be but one form of civil action, and law and equity may be administered in the same action.”).

 See Salas v. Allstate Rent-A-Car, Inc., 116 Nev. 1165, 1168, 14 P.3d 511, 513-14 (2000) (noting that this court seeks to give effect to the Legislature’s intent, and in doing so, this court seeks to look at the plain language of the statute).

 See Bd. of County Comm’rs v. CMC of Nevada, 99 Nev. 739, 744, 670 P.2d 102, 105 (1983) (“A reading of legislation which would render any part thereof redundant or meaningless, where that part may be given a separate substantive interpretation, should be avoided.”).

 Coggins v. New England Patriots Football Club, 492 N.E.2d 1112, 1117 (Mass. 1986).

 Id.

 377 S.E.2d 153 (Ga. 1989).

 Id. at 154.

 Id.

 Steinberg v. Amplica, Inc., 729 P.2d 683, 698 (Cal. 1986) (Bird, C. J., dissenting).

 NRS 92A.380(2).

 Id.

 See majority opinion ante p. 23.