# Fed. Sec. L. Rep. P 92,071 Ann Brown v. Ferro Corp.

> Court of Appeals for the Sixth Circuit · June 7, 1985 · 763 F.2d 798

URL: https://www.frixlaw.com/law-library/cases/9473543

## Case

- **Full name:** Ann BROWN, Plaintiff-Appellant, v. FERRO CORP., Et Al., Defendants-Appellees
- **Court:** Court of Appeals for the Sixth Circuit
- **Decided:** June 7, 1985
- **Citations:** 763 F.2d 798; 1985 U.S. App. LEXIS 19745
- **Precedential status:** Published
- **Opinion:** Concurrence by Merritt
- **Judges:** Merritt, Wellford, Gilmore
- **Cited by:** 78 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9473543

## How later opinions describe it (automated extraction)

- stating that stockholder lacked standing to file derivative suit challenging officer's severance agreement program as payments were contingent on change of control and change of control was not presently foreseeable
- noting that a ripeness analysis includes a discretionary determination beyond the Article III standing considerations
- affirming dismissal on ripeness grounds as to claims that company leaders improperly created “golden parachutes,” which had yet to be used, involved “speculation] as to the future course of events”

## Opinion text

MERRITT, Circuit Judge,
dissenting.
The plaintiff stockholder alleges that Ferro Corporation has been injured because $1.5 million has been removed from the Corporation’s unrestricted use and placed in an escrow account to assure that funds are available to cover the “golden parachute” severance agreements. The fact that interest is being earned on the funds in the escrow account is beside the point; the foregone opportunity to put the funds to their most profitable use constitutes a tangible, real and continuing injury to the Corporation. In this allegation of injury, Brown has clearly met the requirement that loss or damage to the Corporation must be claimed in order to maintain a shareholder’s derivative action. 13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5947, at 83 (rev. perm. ed. 1984); Barsan v. Pioneer Savings & Loan Co., 163 Ohio St. 424 , 127 N.E.2d 614 (1955).
The majority opinion ignores these allegations of immediate injury, and argues that the case is not ripe for adjudication because it is unclear whether a change in control will occur, triggering the golden parachutes, and because a new board may decide to alter or eliminate the golden parachutes at some time in the future. This argument misapplies the ripeness doctrine and has the plain consequence of eliminating any opportunity to challenge the legality of the severance agreements through a shareholder’s derivative action.
Under the doctrine of ripeness, “ ‘problems of prematurity and abstractness’ ... may prevent adjudication in all but the exceptional case.” Young v. Klutznick, 652 F.2d 617, 625 (6th Cir.1981) (quoting Buckley v. Valeo, 424 U.S. 1, 114 , 96 S.Ct. 612, 680 , 46 L.Ed.2d 659 (1976)). The doctrine rests on the “values of avoiding unnecessary constitutional determinations and establishing proper relationships between the judiciary and other branches of the federal government.” 13A C. Wright, A. Miller, E. Cooper, Federal Practice and 0Procedure § 3532.1, at 120 (2d ed. 1984). As the Court stated in Abbott Laboratories v. Gardner, 387 U.S. 136, 148 , 87 S.Ct. 1507, 1515 , 18 L.Ed.2d 681 (1967), the basic rationale of the ripeness doctrine is to “prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies.”
The present case involves the validity under Ohio law of agreements calling for funds to be set aside today so that they may be available for future change of control compensation. There is no constitutional issue presented, and this court is not asked to pass upon the validity of legislative or administrative action. The separation of powers concerns justifying the ripeness doctrine are not present in this case, and the majority has taken ripeness principles from their proper context and applied *804 these principles without regard to their underlying rationale. 1
Moreover, even if the ripeness doctrine did apply here, courts invoking ripeness must first “determine whether the issues tendered are appropriate for judicial resolution,” and then “assess the hardship to the parties if judicial relief is denied at that stage.” Young v. Klutznick, 652 F.2d at 625 (citing Toilet Goods Association v. Gardner, 387 U.S. 158 , 162, 87 S.Ct. 1520, 1523 , 18 L.Ed.2d 697 (1967)). The issue presented here is whether the golden parachutes serve a valid business purpose, and there is little question but that this issue is “appropriate for judicial resolution.”
Even more importantly, very real hardship may be caused by our failure to consider the validity of the golden parachutes at this time. The hardship is the probable loss of any possibility of challenging the severance agreements through a shareholder’s derivative action. A shareholder’s derivative action is the property right of the corporation on whose behalf it is asserted, and under O.R.C. § 1701.82, all “property of every description” of a merged corporation is possessed by the surviving or new corporation into which it is merged. 2
Interpreting a very similar Delaware statute, the Delaware Supreme Court has recently held that a target company’s former shareholder had no standing after the target had become the wholly owned subsidiary of its acquiror to bring a derivative action challenging golden parachutes because only the parent held stock in its wholly owned subsidiary and hence only the parent could maintain a derivative action against the subsidiary's former officers. Lewis v. Anderson, 477 A.2d 1040 (Del.1984).
The clear implication of the statutory passage of the derivative action to the acquiring corporation is that Ferro Corporation shareholders will lose their opportunity to challenge the golden parachutes after a merger or change of control, even as that same change of control activates the parachutes and delivers up to $5 million in compensation to the departing officers. Thus, under the majority’s decision, the shareholder is barred by the ripeness doctrine from challenging the parachutes before an acquisition or merger, and barred by the statutory passage of corporate property rights from challenging the parachutes after the acquisition or merger. A derivative action challenging the golden parachutes could only be brought by the acquiring corporation, but the practical likelihood of this is slim; the possibility that the acquiror would challenge the golden parachutes would only stiffen target management’s opposition and thereby negate a primary reason for creating the golden parachutes.
Consequently, I would hold that ripeness does not bar Brown from bringing the present action, and that the prerequisites for maintaining this derivative action have been met.
. Although purportedly relying on ripeness, the decision in Mills v. Esmark, 544 F.Supp. 1275, 1290 (N.D.Ill.1982), in fact held that mere allegations that golden parachute agreements had been recommended did not state a claim because "[pjlaintiffs fail to allege that Esmark and its principal officers actively entered into the agreements at issue” (emphasis supplied).
. In pertinent part, O.R.C. § 1701.82 provides:
Effect of merger or consolidation: limitation of action.
(A) When a merger or consolidation becomes effective:
(1) The separate existence of each constituent corporation other than the surviving corporation in a merger shall cease;
(3) The surviving or new corporation possesses all assets and property of every description, and every interest therein, wherever located, and the rights, privileges, immunities, powers, franchises, and authority, of a public as well as of a private nature, of each of the constituent corporations, and all obligations belonging to or due to each of the constituent corporations, all of which are vested in the surviving or new corporation without further act or deed.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9473543. Public record. Not legal advice.