Court Opinion

ID: 8963686
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:55:38.938276+00
Date Added: 2024-06-11T17:10:16.187223
License: Public Domain

JAMES HUNTER, III, Circuit Judge:
dissenting:
My colleagues would remand this ease to determine whether defendant Connecticut National Bank (CNB) had a reasonable basis for selecting a 46% tax rate in calculating a five-year cash flow projection for Nutri/Systems. The parties do not dispute that use of the 46% rate was accurate under the tax laws as they existed at the time CNB gave its opinion. Thus, in rendering its fairness opinion, the bank did no more than rely on the law as it existed. Because I believe that CNB reasonably may rely on the law, I respectfully dissent.
The question before us is not whether the 46% rate was the only one that CNB reasonably could have chosen, but whether there was a reasonable basis for its choice. Eisenberg v. Gagnon, 766 F.2d 770, 776 (3d Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 343, 88 L.Ed.2d 290 (1985). The majority holds that CNB may have acted unreasonably in relying on the existing tax rate because Congress was then working on major tax reform legislation which would lower the top marginal income tax rate for corporations. CNB had a more than ample basis for choosing the existing rate. The tax rate on which CNB relied was the law; there was no other law due to take effect. At the time of the fairness opinion, the tax reform law still was being considered by a joint committee of the House and Senate. It had been passed by neither body, nor signed by the President. This fact alone provides a sufficient reasonable basis for CNB’s choice of tax rate.
Even had the lower rate been ready to take effect, CNB’s choice of rate would be reasonable. Tax reform was predicted to extend far beyond tax rates. As the majority notes, there was substantial uncertainty about what the “bottom line” effect of all the changes would be. I cannot agree with the majority, however, that the securities laws required CNB to speculate on all the intricacies and effects of major legislation. Further, the cash flow projections extended over five years. Given the rising federal deficit and the several impending elections, CNB could not be certain that any lowered rate would not be increased within that five-year span. In the face of this uncertainty, the tax reform was being widely-publicized as “revenue neutral.” This combination of factors provides CNB a reasonable basis to conclude that the existing 46% rate would not be far off the “bottom line” under the new laws.
*191I cannot agree that, by applying the law as written in making its projections, CNB acted without a reasonable basis for its opinion. I therefore dissent.