Roland International Corp. v. Najjar

QUILLEN, Justice,

dissenting:

With deference and respect for the Court’s decision and the majority opinion, I, with regret, find it necessary to express a different view. My regret stems not only from the obligation of the appellate process, but also from the fear that this separate view, so devoid of absolutes, will at best be a whimper in an area of the law that properly commands public scrutiny.

No issue is taken with the broad principles. Majority stockholders do “owe their corporation and its minority shareholders a fiduciary obligation of honesty, loyalty, good faith and fairness.” 1 The duty does arise, as the majority opinion here notes, “from long-standing principles of equity” and the application of such principles is both sound and commendable. 2 And a Delaware Court should “not be indifferent to *1038 the purpose of a merger when a freeze-out of minority stockholders on a cash-out basis is alleged to be its sole purpose.” 3

But, as I perceive it, the Court is tending to flesh out broad equitable principles into rules and formats that automatically hold mergers “made for the sole purpose of freezing out minority stockholders [are] an abuse of the corporate process”, 4 that anticipate and delineate matters “reserved for another day”, 5 that require “fairness hearing[s]” without express reference to any specific allegations, 6 and that establish, as the majority opinion illustrates here, preconceived “threshold requirement^]”. The very uniqueness of equity is its ability to react on a case-by-case basis without the rigidity of pigeonholes. It is a mistake to “[confound] equity jurisdiction with the right of the plaintiff to maintain *1039 his suit, and to obtain the equitable relief.” 7

I do not minimize the fiduciary problem so forthrightly faced by this Court in the Singer case. Rather, tribute should be paid to its enormity. It arises in various context procedurally (motion for preliminary injunction, motion to dismiss, motion for summary judgment, trial, appeal), factually (history of relationships, needs of all minority stockholders, needs of majority stockholder, the temporal economics — both corporately and generally, the rights of third parties), and legally (type of merger, class action, statutory remedy, relief sought, allegations made). But to say there is a fiduciary duty “only begins analysis” and “gives direction to further inquiry.” 8 It should not be the trigger to a series of mechanics more akin to legislative detail and administrative. regulation than equitable review. The inquiry should be as long, or as short, as equity requires.

In this case, the inquiry should be short. On June 20, 1977, the date the merger became effective, the statutorily required notice was sent to the minority stockholders informing them of the short form merger of Landro Corporation into Roland International Corporation which cashed out the Roland stockholders other than Landro. On December 28, 1977, well over five months after the 20 days the statute gives a stockholder to demand an appraisal, 9 the plaintiff filed this class action seeking compensatory damages. 10

While the complaint does give the necessary Singer recital that the “sole purpose was to enable Landro to obtain 100% ownership of the business and assets of Roland at a price which was grossly inadequate and unfair to its shareholders”, the plaintiff does not seek to continue his equitable participation in Roland or injunctive relief of any kind. He wants to be cashed out. The whole thrust of the complaint is directed to an alleged “gross and fraudulently inadequate price”. 11

In short, the plaintiff comes to Court more than five months after the required notice to the corporation under the statutorily established appraisal procedures and says he wants more money for his shares and the privilege of subjecting the defendants to a separate class action. He does not specifically allege or even argue to any precision why the statutory appraisal proce *1040 dure is inadequate in this case. 12 In my opinion, he has failed to state a claim upon which equitable relief can be granted and the Court below erred in not granting the motion to that effect.

I respectfully dissent.

. Singer v. Magnavox Co., Del.Supr., 380 A.2d 969, 977 (1977).

. For a helpful general discussion which concisely gives the historical precedent for Singer , see Rothschild, Going Private and Singer: A Balanced State Law Standard for Fiduciaries, Del.Corp.Law Seminar 2-16-79, scheduled for fall publication in the Securities Regulation Law Journal and 4 Del.J.Corp.Law (1979). The Singer opinion uniquely dramatized the fiduciary duty of the majority stockholder in a merger context and was clearly a landmark case of reconciliation in Delaware corporate law. But, in some instances it can be a mistake to permit an equitable decision in a given case to become a rule of equitable law which fails to consider fully the factual and procedural variations of subsequent cases. “An opinion in a particular case, founded on its special circumstances is not applicable to cases under circumstances essentially different.” Brooks v. Marbury, 24 U.S. (11 Wheat.) 78, 91 , 6 L.Ed. 423, 426 (1826).

. Singer v. Magnavox Co., supra, 380 A.2d at 979 . The careful phrasing quoted is useful in setting the context of the opinion. Frequently, broad language in corporate cases is extracted from limited contexts and misapplied. See Bruce v. E. L. Bruce Company, 40 Del.Ch. 80 , 174 A.2d 29, 30 (1961). See also Arsht, The Business Judgment Rule in Delaware and Its Applicability to the Fiduciary Responsibilities of Directors, Officers and Controlling Stockholders, Del.Corp.Law Seminar 2-15-79, 4 Del. J.Corp.Law (1979).

. Singer v. Magnavox Co., supra, 380 A.2d at 980 . As I understand it, the minority stockholder’s right is based on the cash-out breach of fiduciary duty and not on a vested property right. As has been noted, “a stockholder in any merged corporation who receives stock in the continuing enterprise obviously has the form of his investment changed from what it was prior to the merger.” Terrell and Ranney-Marinelli, What Constitutes a Valid Purpose for a Merger?, 51 Temple Law Quarterly 852, 862-863 (1978). See also Coyne v. Park & Tilford Distillers Corp., 37 Del.Ch. 558 , 146 A.2d 785 , 789 (1958), aff'd 38 Del.Ch. 514 , 154 A.2d 893 (1959), and McBride, Delaware Corporate Law: Judicial Scrutiny of Mergers—The Aft ermath of Singer v. The Magnavox Company, 33 The Business Lawyer 2231, 2234-2235 (1978). While the “purpose” of corporate actions should not be foreclosed from equitable inquiry, the limitations of a “purpose” inquiry should also receive consideration. See the dissenting opinion of Judge Moore in Green v. Santa Fe Industries, 2d Cir., 533 F.2d 1283, 1299-1308 (1976), rev’d 430 U.S. 462 , 97 S.Ct. 1292 , 51 L.Ed.2d 480 (1977). See also Borden, Going Private-Old Tort, New Tort or No Tort?, 49 N.Y.U.L.Rev. 987, 1001-1002 (1974) for notation of circumstances where take-outs are advantageous to the minority. The view taken in this separate opinion makes it unnecessary for me to consider the discussion of purpose under the short merger statute set forth in Stauffer v. Standard Brands, Inc., 41 Del.Ch. 7 , 187 A.2d 78, 80 (1962).

. Tanzer v. International General Industries, Inc., Del.Supr., 379 A.2d 1121, 1122 (1977). The Tanzer case arose on an appeal from a denial of a preliminary injunction where the complaint alleged that the “sole purpose of the merger was to benefit [the parent majority stockholder] by facilitating [its] future long range debt financing.” Review could have been limited to an “abuse of discretion” standard. Gimbel v. Signal Companies, Del.Supr., 316 A.2d 619, 620 (1974). But perhaps the expanded review was useful in light of the newness of Singer and the then Chancellor’s opinion in the Court below. See Recent Developments in Delaware Corporate Law, 3 Del.J.Corp.Law 19, 71-74 (1977).

. Tanzer v. International General Industries, Inc., supra, 379 A.2d at 1125 . It is difficult for me to abstractly scrutinize for “ ‘entire fairness’ as to all aspects of the transaction.” One commentator has noted: “ ‘Entire fairness’, as used in Singer and- Tanzer , remains a somewhat elusive concept. The phrase was derived from an earlier case, Sterling v. Mayflower Hotel Corp., 33 Del.Ch. 20 , 93 A.2d 107 (1952), where the Delaware Supreme Court rejected a challenge to a parent-subsidiary- stock-for-stock merger upon determining that the consideration being paid to the minority was adequate by standards of valuation used in statutory appraisal actions. However, in Singer and Tanzer , the term was utilized in a context where the Court was holding that appraisal was not an adequate or exclusive remedy.” Drexler, Recent Developments: Fiduciary Duties to Minority Stockholders, Proceedings of the 17th Annual Corporate Counsel Institute, Northwestern University School of Law, Chicago, Illinois, October 5, 1978, pp. 9-12. Fairness can perhaps usefully “be analyzed as subsuming two separate concepts: fair dealing and fair price.” Nathan and Shapiro, Legal Standard of Fairness of Merger Terms Under Delaware Law, 2 Del.J.Corp.Law 44, 46 (1977). Even then some fair dealing can at least frequently be related to price. In Sterling, the issue was stated in terms of “substantial equivalent in value”. 93 A.2d at 110 . It should perhaps be noted that on remand summary judgment was granted for the defendants in the Tanzer case. Tanzer v. International General Industries, Inc., Del.Ch., 402 A.2d 382 (1979). The matter is again on appeal. No. 155, 1979.

. 1 Pomeroy’s Equity Jurisprudence (5th Ed.) § 131, p. 180, “The discretionary exercise or nonexercise of equitable . . . jurisdiction . in one case is not precedent in another case where the facts differ.” Cook v. Fortson, 329 U.S. 675, 678 , 67 S.Ct. 21, 22 , 91 L.Ed. 596, 598 (1946).

. Mr. Justice Frankfurter in Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 86 , 63 S.Ct. 454, 458 , 87 L.Ed. 626, 632 (1943).

. 8 Del.C. § 262(b)(2). A stockholder who demands an appraisal has 120 days from the date of the merger to file a petition in the Court of Chancery. 8 DelC. § 262(c). An appraisal proceeding is akin to a class action. See 8 Del.C. § 262(c) and (h).

. Although not in the complaint, and therefore not before the Court on the instant appeal from the denial of a motion to dismiss the complaint, the record includes an affidavit showing that on June 20, 1977 there were 329 public stockholders owning 76,659 shares (2.4% of Roland’s common). Of these, 4 stockholders owning 2,030 shares wrote to demand an appraisal. One later surrendered his shares and one filed a petition on October 17, 1977 in the Court of Chancery seeking appraisal pursuant to 8 Del.C. § 262(c). Petition of Joseph K. Mikita, Civil Action No. 5439.

.While, in light of the relief sought, it does not appear to me to warrant discussion here, it should perhaps be noted that the complaint alleges that an uncertain condition as to fair value was fostered by accounting practices evidently permitted as a result of delisting of Roland’s stock from the American Stock Exchange, that some emphasis is placed on current increases in sales and potential earnings and profits, that an unasserted claim exists against directors and officers as a result of a 1974 loan and that, in the context of a change in accounting methods, certain normal corporate reports, evidently regular when prepared, were misleading to stockholders in the merger setting. It does not allege that any of this information was unavailable to and unknown by the plaintiff at the time of the required merger notice. In any event, the only issue raised is value.

. At oral argument, counsel in broad terms noted the one statutory limitation, 8 Del.C. § 262(f), on valuation [“fair value exclusive of any element of value arising from the accomplishment or expectation of the merger”] and recited generally evidence difficulties as to post merger earnings, the possibility of a premium payment and the extension of the fairness doctrine beyond price. None of these items is persuasive grounds for the inadequacy of the remedy in the current context. Tri-Continental Corp. v. Battye, 31 Del.Ch. 523 , 74 A.2d 71, 72 (1950). There appears here to be no desirable reason to create an unnecessary damage forum, particularly now in light of recent efforts to promote the adequacy of the statutory remedy. See 60 Del.Laws, Ch. 371 (1976) and Raab v. Villager Indus. Inc., Del.Supr., 355 A.2d 888 (1976), cert. den. 429 U.S. 853 , 97 S.Ct. 147 , 50 L.Ed.2d 129 (1976). See also Berkowitz, Delaware Chills Freeze-Outs: A Critical Brief of Singer v. The Magnavox Company and Tanzer v. International General Industries, Inc., 3 Del.J.Corp.Law, 426, 427 (1978). Certainly this Court should not foster an unnecessary damage forum because of any judicial limitation placed on the statutory appraisal procedure. Rather, we should encourage this legislatively established valuation process to be open to generally accepted techniques of evaluation used in other areas of business and law.