Court Opinion

ID: 6762403
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:32:54.606578+00
Date Added: 2024-06-11T16:02:37.755128
License: Public Domain

H. Brown, J.,
dissenting. The majority construes the complaint as “merely asking for more money” and finds that it must be brought in an R.C. 1701.85 appraisal proceeding. That construction ignores the allegations in the complaint before us, which charge self-dealing and breach of fiduciary duty. The rule adopted by the majority would leave shareholders without a remedy where management, in breach of its fiduciary duty, eliminates a potential buyer (or potential buyers) *16who would pay more than that received from the offer favored by management.
Plaintiff alleged that certain officers and directors of Scott & Fetzer Company (“defendants”) engaged in self-dealing and breached their fiduciary duty to shareholders by structuring the merger with Berkshire Hathaway, Inc. for their own benefit. He claimed that defendants: (1) granted a lock-up option to Berkshire prior to entering the merger agreement, to acquire Scott & Fetzer shares at a set price, and (2) determined that the merger transaction constituted “a change in control” so as to trigger golden parachute agreements by which certain executive officers ' received $30,000,000 in benefits, at the expense of shareholders. Thus, defendants allegedly blocked competitive bidding to benefit themselves and to prevent shareholders from realizing a premium for selling their shares to the highest bidder. Plaintiff prayed, inter alia, that the court declare that defendants breached their fiduciary duty to shareholders and grant him compensatory and rescissionary damages.
The majority finds that plaintiff’s action must be brought under the appraisal statute (R.C. 1701.85) since it challenges the value paid in the cash-out merger. The majority fails to recognize the dynamics of corporate acquisitions. If corporate management engages in a bid-rigging scheme which deprives shareholders of a premium over market price, a complaint cannot be made without challenging the price paid for the stock. But, dissatisfaction with the price paid does not automatically convert the action to a simple demand for the “fair cash value” of a stockholder’s shares. Here, the complaint clearly charges that the directors failed in their duty to obtain the best price possible for the sale of shares.
When a company goes into “play,” potential acquiring companies generally bid more than the market price for a company’s shares.5 Thus, the best obtainable price for the shares cannot be equated to “fair cash value.” The directors owe a duty to the shareholders to obtain the highest price for the shares. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. (Del. 1986), 506 A. 2d 173, 184. The role of the directors becomes that of “ * * auctioneers charged with getting the best price for the stockholders at a sale of the company.’ ” Edelman v. Fruehauf Corp. (C.A.6, 1986), 798 F. 2d 882, 887. The directors must allow the market to operate freely. Plaintiff’s contention (which for the purpose of this appeal we are obligated to accept as true) is that instead of allowing the market to operate freely, the defendants actively interfered in it, thereby breaching their fiduciary duty to shareholders. The majority does not recognize this duty of directors to shareholders. Cf. Crosby v. Beam (1989), 47 Ohio St. 3d 105, 548 N.E. 2d 217 (relating to claims of breach of fiduciary duty in close corporations).
The statutory appraisal proceeding provides no remedy for shareholders deprived of the best offer for their shares when self-dealing directors make a sale at fair cash value or better. R.C. 1701.85 sets forth the *17procedure by which a shareholder may dissent from a proposed merger and obtain the “fair cash value” for his or her shares. Under Subsection (C), the fair cash value of a share is its market value excluding any appreciation in value resulting from the merger proposal.6 Had plaintiff pursued his action via appraisal, he would not have received any premium over market price. Armstrong v. Marathon Oil Co. (1987), 32 Ohio St. 3d 397, 410, 513 N.E. 2d 776, 788 (“The valuation remedy clearly is a remedy that does not give dissenting shareholders any element of value attributable to the transaction from which they have dissented.”). Where the opportunity to obtain a premium price for sale of shares is destroyed by self-dealing officers of a corporation, there should be a remedy. Unfortunately, the majority’s holding eliminates the possibility of remedy for that wrong.
Further, causes of action (such as an action for breach of fiduciary duty) which seek compensation other than the value of a dissenter’s shares must be brought outside the appraisal statute. Armstrong, supra, at 422, 513 N.E. 2d at 798.
As noted by the court of appeals, “[a] statutory appraisal proceeding and a rescissory suit for fraud, misrepresentation, self-dealing and other actionable wrongs to shareholders serve different purposes and should provide different remedies. See Rabkin v. Philip A. Hunt Chem. Corp. (Del. 1985), 498 A. 2d 1099, 1106 (unfair dealing claims based upon breaches of fiduciary duties raise ‘issues which an appraisal cannot address’); Weinberger v. UOP, Inc. (Del. 1983), 457 A. 2d 701, 714 (‘[t]he appraisal remedy * * * may not be adequate in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved’).”
The majority fails to perceive the distinction between a limited attack on the failure to obtain fair cash value for shares and a charge of unfair dealing which results in elimination of the highest and best purchaser. I would affirm the decision reached by the court of appeals.
Douglas, J., concurs in the foregoing dissenting opinion.

 An example illustrates my point. On January 25, 1988, Campeau Corporation of Canada made a hostile tender offer of $47 a share for Federated Department Stores Inc. After the offer, Federated shares rose from just under $36 to $49.
R. H. Macy & Company entered the contest, sparking a bidding war. About ten weeks later, Federated finally accepted Campeau’s offer of $73.50 a share. (New York Times, April 2, 1988, at 1, col. 1.)

 R.C. 1701.85 provides in relevant part:
“(C) * * * The fair cash value of a share for the purposes of this section is the amount that a willing seller, under no compulsion to sell, would be willing to accept, and that a willing buyer, under no compulsion to purchase, would be willing to pay, but in no event shall the fair cash value of it exceed the amount specified in the demand of the particular shareholder. In computing such fair cash value, any appreciation or depreciation in market value resulting from the proposal submitted to the directors or to the shareholders shall be excluded.” (Emphasis added.)