Stepak v. Schey

Moyer, C.J.

The issue presented by this appeal is whether a complaint alleging breach of fiduciary duty and challenging the price per share paid in *10 a cash-out merger must be brought under R.C. 1701.85, the appraisal statute.

Plaintiff-appellee contends that “a claim that the directors of a corporation breached their fiduciary duty to obtain the best price obtainable for all of the shareholders when the company was being marketed for sale is not preempted by the appraisal statute, R.C. 1701.85.”

For the reasons that follow, we hold that an action for breach of fiduciary duty may be maintained notwithstanding R.C. 1701.85; however, such action may not seek to overturn or modify the fair cash value determined in a cash-out merger.

In Armstrong, supra, one of the questions faced by this court was whether “R.C. 1701.85 is the exclusive means for the determination of the price that shall be paid for those shares held by dissenting shareholders.” Id. at 421-422, 513 N.E. 2d at 798. The plaintiffs in Armstrong challenged the price offered for their shares, and alleged, inter alia, that “the board of directors and controlling shareholders * * * breached their fiduciary duties in connection with the initiation, timing, negotiation, structure, approval, etc., of * * * [the merger involved in that case].” Id. at 421, 513 N.E. 2d at 797. We held that the statutory proceeding under R.C. 1701.85 is the sole means for determining the value of a dissenter’s share. We further commented that “this is not to say that causes of action which seek compensation other than the value of a dissenter’s shares of stock are not maintainable. Provable injury under whatever theory asserted is compensable so long as it does not seek to overturn or modify the fair cash value determined. Such theory may not, however, be joined to the R.C. 1701.85 proceeding, but is a separate cause of action subject to the applicable statute of limitations and res judicata.” Id. at 422, 513 N.E. 2d at 798.

We are asked here to determine whether that observation in Armstrong allows the maintenance of an action for breach of fiduciary duty outside the appraisal statute.

The Armstrong comment was predicated on Radol v. Thomas (C.A. 6, 1985), 772 F. 2d 244 , certiorari denied (1986), 477 U.S. 903 , wherein the court was faced with the question of whether the Marathon Oil Board of Directors breached its fiduciary duties to the shareholders by structuring the merger transaction between Marathon Oil and United States Steel in a way that preserved the board’s control over Marathon Oil. Id. at 246. The Radol court recognized that an action for breach of fiduciary duty may be maintained outside the appraisal statute, R.C. 1701.85. Id. at 257.

Our decision in Armstrong recognizes that an action for breach of fiduciary duty may be brought outside the appraisal statute. This conclusion is in accord with our decision in Johnson v. Lamprecht (1938), 133 Ohio St. 567 , 11 O.O. 297 , 15 N.E. 2d 127 , at paragraph three of the syllabus, and the decisions of other jurisdictions permitting nonstatutory remedies for fraud, ultra vires acts, illegality and breach of fiduciary duties. See Walter J. Schloss Associates v. Chesapeake & Ohio Ry. Co. (1988), 73 Md. App. 727, 738-739, 742 , 536 A. 2d 147, 153, 155 ; Mullen v. Academy Life Ins. Co. (C.A.8, 1983), 705 F. 2d 971, 973-975 ; Steinberg v. Amplica, Inc. (1986), 42 Cal. 3d 1198, 1210-1211 , 233 Cal. Rptr. 249, 256-257 , 729 P. 2d 683, 691 .

We next consider whether an action for breach of fiduciary duty, essentially alleging that the board of directors and executives of a company failed to obtain the highest possible price in a *11 cash-out merger, may be maintained outside the appraisal statute.

At the core of plaintiff’s action for breach of fiduciary duty is the allegation that the price per share paid in the cash-out merger is inadequate because it is not the highest price that could have been obtained.

The appraisal statute, R.C. 1701.85, is designed to provide compensation for those shareholders who dissented from the merger. Armstrong, supra, at 403, 513 N.E. 2d at 782. It provides for the payment of fair cash value to a shareholder for his or her shares as of the day prior to the vote of the shareholders. Where there is an actual market for the identical stock to be appraised, such evidence controls the determination of fair cash value. From such amount there must be excluded either appreciation or depreciation if either is found to be present as a result of the proposal acted upon by the shareholders. Id. at 408, 513 N.E. 2d at 786. Thus in a merger situation, the board of directors’ obligation to dissenting shareholders is the payment of fair cash value. There is no reason to consider, nor is the dissenting shareholder entitled to receive, any of the premium offered as consideration to those who in fact tendered their shares. Id. at 412, 513 N.E. 2d at 790.

As the majority in Armstrong observed at 422, 513 N.E. 2d at 798, an action for breach of fiduciary duty is maintainable outside the appraisal statute “so long as it does not seek to overturn or modify the fair cash value determined.” In essence, we recognize that remedy beyond the statutory procedure is not available where the shareholder’s objection is essentially a complaint regarding the price which he received for his shares. Schloss Associates, supra, at 748 , 538 A. 2d at 158. Such valuation questions are the traditional subjects of an appraisal. Rabkin v. Phillip Hunt Chemical Corp. (Del. 1985), 498 A. 2d 1099, 1105 . The obvious benefit of this approach is that it makes more unlikely vexatious lawsuits by those whose goal is simply to receive more money for their stock. Armstrong, supra, at 409, 513 N.E. 2d at 788.

Plaintiff does not allege that his shares were undervalued. Rather, he alleges that he should have received more money for his shares. Plaintiff, in essence, challenges the value paid for his shares in the cash-out merger. Such action, merely asking for more money, per Armstrong must be brought under the appraisal statute, R.C. 1701.85.

The issue addressed by the concurring opinion, whether appellee brought his breach of fiduciary claims timely, was not addressed by the parties and is not an issue in this case.

For the foregoing reasons, the judgment of the court of appeals is reversed and the judgment of the trial court is reinstated.

Judgment reversed.

Sweeney and Re snick, JJ., concur.

Holmes and Wright, JJ., concur in the syllabus and judgment.

Douglas and H. Brown, JJ., dissent.