Appendix — Armstrong v. Marathon Oil Co.

@D

90-1095

CASE NO.

In Che

Supreme Court of the United States

OCTOBER TERM 1990

FRANCES A. ARMSTRONG, et al.

Petitioners

v.

MARATHON OIL COMPANY

Respondent

ON WRIT OF CERTIORARI TO

i THE SUPREME COURT OF OHIO

APPENDIX

TO PETITION FOR WRIT OF CERTIORARI

CLYDE KAHRL

Counsel of Record

118 E. Gambier St.

Mt. Vernon, Ohio 43050

(614) 397-2443

JOHN F. KOSTYO

Brimley, Kostvo & Elliott

A Legal Projessional Association

320 §. Main St.

Findlay, Ohio 45840

(419) 423-5700

COUNSEL FOR PETITIONERS

APPENDIX

TABLE OF CONTENTS

Slip opinion of the Court of Appeals of Ohio Third

Appellate District, Hancock County, Frances A.

Armstrong, et al. v. Marathon Oil Co. decided March

29, 1990

Memorandum Decision of the Court of Common Pleas

of Hancock County, Ohio, Frances A. Armstrong, et

al. v. Marathon Oil Co. decided March 18, 1988.

Memorandum Decision of the Court of Common Pleas

of Hancock County, Ohio, Frances A. Armstrong, et

al. v. Marathon Oil Co. decided January 8, 1988.

Opinion and judgment of the Supreme Court of the

State of Ohio, Armstrong v. Marathon Oil Co., decided

September 25, 1987, reported at 32 Ohio St. 3d 397;

513 NE 2d 776.

Slip opinion of the Court of Appeals of Ohio Third

Appellate District, Hancock County, Frances A.

Amnstrong, et al. v. Marathon Oil Co. decided January

14, 1986

Opinion and judgment of the United States Court of

Appeals for the Sixth Circuit, Radol v. Thomas,

decided September 13, 1985, Reported at 772 F.2d

244, 54 USLW 2184, Fed Sec.L.Rep. { 92,289

Denial of Motion for rehearing by the Ohio Supreme

Court, Francis A. Armstrong, et al, v. Marathon Oil

Company, dated November 4, 1987

Judgment Entry of the Court »f Common Pleas of

Hancock County, Ohio, Frances A. Armsirong, et al.

v. Marathon Oil Co, April 6, 1988

Dismissal of appeal by the Ohio Supreme Court,

Francis A. Armstrong, et al, v. Marathon Oil Company,

dated September 26, 1990, reported at 54 Ohio St. 3d

703 (1990).

Text of Statute: Ohio Revised Code section 1701.85

(relief to dissenting shareholder)

Page

A-11

A-17

A-20

A-73

A-95

A-96

A-99

A-100

peioe i. Qsiniind

A-1

FRANCIS A. ARMSTRONG, PLAINTIFF-APPELLANT, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE.

CEDE & CO., PLAINTIFF-APPELLANT, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE.

GORDON HODDINOTT, PLAINTIFF-APPELLANT, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE.

DOUGLAS B. LITTLEWOOD, PLAINTIFF-APPELLANT, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE.

DONALD M. WHITE, PLAINTIFF-APPELLANT, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE

Case Nos. 5-88-11, 5-88-12, 5-88-13, 5-88-14, 5-88-15;

Court of Appeals of Ohio,

Third Appellate District,

Hancock County

Slip Opinion

Date of Judgment entries: March 29, 1990

CHARACTER OF PROCEEDINGS: Civil Appeals from Common Pleas

Court.

JUDGMENTS: Judgments affirmed.

EVANS, J. These cases are appealed from judgments of the Court

of Common Pleas of Hancock County regarding the fair cash value and

interest thereon to be paid to the shareholders of the Marathon Oil

Company ( Marathon) dissenting from the 1982 merger of Marathon and

the United States Steel Corporation(USX).

Appellants, Francis A. Armstrong, et al., initiated this action in

1983 inthe Court of Common Pleas of Hancock County to pursue the

appraisal remedy provided for shareholders dissenting from a fundamental

corporate change (e.g.merger) by R.C. 1701.85. The trial court found that

the stock market price quotation two (2) months prior to the vote

approving the proposed merger was the controlling estimate of fair cash

value. Both Marathon and Armstrong appealed the decision to the Ohio

Supreme Court.

In Armstrong v. Marathon (1987), 32 Ohio St. 3d 397,

(paragraphs two and three of the syllabus), the Ohio Supreme Court

considered the proper method of computation of fair cash value and found

as follows:

"2. Where facts presented to the trial court evidence a reasonably

Suitable,active market of the particular corporate stock under

consideration, and the actual market may be deemed to be

sufficiently active in the trading of such stock, then the trial court

A-2

should give suvsta.ial weight to such evidence.This actual market

price would satisfy the willing seller-willing buyer test set forth in

R.C. 1701.85, and would be the ‘fair cash value’ of such stock. ~

"3. If such active market trading of the stock in question is so

found, the fair cash value is properly measured pursuant to R.C.

1701.85(C) as the stock market price of the shares as of the day

prior to that on which the shareholders’ vote on the corporate

transaction was taken excluding any appreciation or depreciation

in this price resulting from the proposal submitted to the

shareholders."

The Ohio Supreme Court further considered the proper

computation of interest payabie on such fair cash value in Armstrong,

supra, (paragraph five of the syllabus), as follows:

"5. Insofar as R.C. 1701.85 sets forth a ‘special proceeding

within the meaning of section 2505.02 of the Revised Code,’ and

provides for an interest rate based upon all equitable

considerations, then the statutory rate set forth in R.C.1343.01(A)

is not controlling. The rate should be determined from the written

evidence submitted by the parties upon this issue."

Pursuant to these findings the Ohio Supreme Court remanded the

cause to the Court of Common Pleas of Hancock County for the resolution

of two (2) narrow issues. The trial court was to determine, first, “what

appreciation or depreciation, if any, existed due to the U.S. Steel proposal

submitted to the Marathon shareholders" and, second, "what rate of

interest, given various factors not limited by R.C. 1343.01(A), shall in the

court's discretion be awarded the dissenting shareholders." Marathon filed

a motion for rehearing which was denied on November 4, 1987.By

judgment entry filed January 22, 1988, the trial court declared that the

shareholders would not be permitted to engage in further discovery nor

introduce additional expert testimony. Rather, the trial court permitted only

the submission of briefs on the relevant issues with no reply briefs

permitted.

On March 18, 1988, the trial court rendered its decision finding

that the market price of Marathon stock on the day prior to the approval

of the merger was $ 75.75. The court then adjusted this sum to $ 68.43 to

compensate for the appreciation of the stock resulting from the proposed

merger. In regards to the rate of interest to be awarded the tria! court found

8.5% to be equitable.

« — Itis from this judgment that appellants appeal submitting nine (9)

assignments of error. Being substantially related, assignments of error one

(1),two (2) and four (4) will be consolidated for review.

enn nT

A-3

"I. THE COMMON PLEAS COURT DENIED

SHAREHOLDERS DUE PROCESS OF LAW BY DENYING

THE SHAREHOLDERS THE RIGHT TO INTRODUCE

EXPERT TESTIMONY UPON THE ECONOMIC THEORIES

OF THE OHIO SUPREME COURT.

"II. THE COMMON PLEAS COURT-: DENIED

SHAREHOLDERS DUE PROCESS OF LAW BY

DENYINGTHE SHAREHOLDERS THE RIGHT TO PRESENT

FULL ARGUMENTS AND REPLY BRIEFS ONTHE ISSUE

OF FAIR CASH VALUE.

"III [sic) THE COMMON PLEAS COURT DENIED

SHAREHOLDERS DUE PROCESS OF LAW

BYINTERPRETING THE OHIO SUPREME COURT'S

DECISION IN DIRECT CONTRADICTION TOARTICLE I

SECTION 19 OF THE OHIO CONSTITUTION AND ARTICLE

I SECTION 10 OF THEUNITED STATES CONSTITUTION

PROHIBITING THE IMPAIRMENT OF CONTRACTS AS

WELL ASARTICLE II SECTION 28 OF THE OHIO

CONSTITUTION AND THE FOURTEENTH AMENDMENT

OFTHE UNITED STATES CONSTITUTION PROHIBITING

THE TAKING OF PROPERTY WITHOUT DUEPROCESS OF

LAW."

Appellants go to great lengths to demonstrate that "[bJecause the

‘contract clause’ and the ‘just compensation clause’ of the Constitution

mandate that the state provide an appraisal remedy for dissenting

shareholders, that appraisal standard must be interpreted so as to be within

the Constitution".Appellants contend, therefore, that the trial court's

refusal to allow further evidentiary hearings for the introduction of expert

testimony and reply briefs constituted a deprivation of their constitutional

rights of confrontation,cross-examination and due process.

R.C. 1701.85(C) was promulgated to provide an accurate

definition of fair cash value and to guide Ohio courts in the computation of

such. R.C.1701.85(C) reads as follows:

"(C) If the proposal was required to be submitted to the

shareholders of the corporation, fair cash value as to those

shareholders shall be determined as of the day prior to that one

which the vote by the shareholders was taken, and, in the case of

a merger pursuant to section 1701.80 or 1701.801 of the Revised

Code, fair cash value as to shareholders of a constituent

subsidiary corporation shall be determined as of the day before the

adoption of the agreement of merger by the directors of the

A-4

particular subsidiary corporation. 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 exceed

the amount specified in the demand of the particular shareholder.

In_computing such _ fai Vv jation or

(Emphasis added.)

Therefore, the issue of what appreciation or depreciation the stock

incurred as a result of the proposed merger was properly before the trial

court in the initial proceeding which, as noted by the Ohio Supreme Court

in Armstrong, supra, at 401, was "[a] full hearing on the issue of fair cash

value,consisting of approximately three weeks of trial, * * * ".

Accordingly, being a statutory element utilized in computing fair cash

value, appellants had not only opportunity, but a responsibility to

introduce expert testimony pertaining to the appreciation or depreciation in

Marathon stock as a result of the proposed merger in the initial trial.

In light of this, appellants, in support of their second assignment

of error,contend that given the Ohio Supreme Court's adoption of various

complicated economic theories unique to the computation of fair market

value, expert testimony was required to properly address the newly

formulated issues.Appellants argue that the trial court's refusal to permit

additional testimony or reply briefs constituted a deprivation of their

constitutional rights of confrontation, cross-examination and due process.

Upon review of Justice Holmes’ opinion in Armstrong, supra, we

are unable to discem the advancement of any uriique economic theory or

interpretation of R.C.1701.85 by the Supreme Court. Quite the contrary,

the Ohio Supreme Court cites both Vought v. Republic-Franklin Ins. Co.

(1962), 117 Ohio App. 389; and Parten v. Pure Oil Co. (July 1, 1969),

Franklin App. No. 9023, unreported, in interpreting R.C. 1701.85. The

court adopted nothing new but rather reaffirmed and consolidated the

existing Case law and statutory language.

We agree, as argued by appellants, that the Supreme Court cites

numerous academic articles in its opinion. However, these were not

utilized with the intent of incorporating them into the computation of fair

cash value, rather they were offered to aid in the explanation of the views

maintained by other jurisdictions and as rationale for the less complicated

valuation proceedings set forth in Vought, Parten and R.C. 1701.85. For

example, the "efficient market theory" is offered only as rationale for the

A-5

conclusion that the stock market quotation the day prior to the vote for the

proposed merger is an accurate and desirable initial value from which to

compute fair cash value. See, Armstrong, supra, at 410. Another example

cited by appellants is the"hypothetical market value" computation.

However, this theory was already embedded in Ohio law by statutory

mandate in the "willing seller-willing buyer"test found in R.C. 1701.85.

See, Armstrong, supra, at 408.

We note also that the Ohio Supreme Court in Armstrong, supra, at

419, made it quite clear in their opinion that “ * * * the issues, pursuant to

our determination of the first (valuation) issue above, have been

considerably narrowed, and are resolvable without recourse to further

evidentiary hearing."

Appellants' assignments of error one (1), two (2) and four (4) are

not well taken and are overruled.

For their third assignment of error appellants submit the

following:

"Ill. THE COMMON PLEAS COURT ERRED AS A MATTER

OF LAW BY INTERPRETING THE OHIOCORPORATE

APPRAISAL STATUTE ACCORDING TO ECONOMIC

THEORIES EXPRESSLY REJECTED BYTHE OHIO

SUPREME COURT."

We disagree. The Coun of Common Pleas of Hancock County

did not interpret the Ohio corporate appraisal statute by any economic

theories. Rather,the Ohio Supreme Court interpreted the statute and

remanded the cause to the trial court with clear instructions to resolve two

specific, narrow issues. We find that the trial court complied with the

mandate of the Ohio Supreme Court in resolving the issues remanded and

conducted no interpretation of R.C. 1701.85 whatsoever.

Appellants’ assignment of error three (3) is not well taken and is

overruled.

For their fifth assignment-of error appellants submit the following:

"V. THE COMMON PLEAS COURT DENIED

SHAREHOLDERS DUE PROCESS OF LAW BY AWARDING

ARATE OF INTEREST SELECTED SOLELY UPON REVIEW

AND CONSIDERATION OF EVIDENCE NOTPROPERLY

ADMITTED TO THE RECORD."

In support of this assignment of error appellants argue that the trial

court premised its decision, establishing an equitable rate of interest, upon

evidence not properly admitted to the record. More specifically, appellants

cite the trial court's consideration of various excerpts from the Wall Street

Joumal included in appellee's memorandum to the trial court which were

A -6

not properly authenticated. Further, appellants argue that the consideration

of this evidence acted to deny them their constitutional rights of

confrontation,cross-examination and due process because no reply

memoranda nor additional evidentiary hearings were permitted.

Evid. R. 902(6) provides as follows:

"Extrinsic evidence of authenfieity as a condition precedent to

admissibility is not required with respect to the following: Sitios

"(6) Printed materials purporting to be newspapers and

periodicals, including notices and advertisements contained therein."

The Wall Street Journal is such a newspaper or periodical as to

beself-authenticating. While there are further prerequisites to

admissibility appellants raise only the issue of authenticity.

Appellants further argue that the admission and consideration of

such evidence absent an opportunity to confront and cross-examine

constitutes a violation of appellants’ rights of confrontation, cross -

examination and due process.

As noted earlier, appellants had ample opportunity to introduce

evidence and refute that offered by appellee in the initial trial. Furthermore,

the trial court's findings neither cite nor indicate reliance upon the Wall

Street Journal articles submitted by appellee.

Upon noting that no further evidentiary hearings were necessary

and that it was sufficient for the parties to submit written briefs upon the

issue,the Ohio Supreme Court instructed the trial court to proceed "within

its own discretion, [to] determine an interest rate ‘which the court

considers equitable". In so doing, "(t]he trial court therefore should have

considered other evidence as presented by the parties, including, but not

limited to, the prevailing rate of interest for various kinds of loans, the

prime rate over that period of time and any other such evidence". We find

that the trial court complied with the mandate of the Ohio Supreme Court.

Appellants’ fifth assignment of error is not well taken and is

overruled.

For their sixth assignment of error appellants submit the

following:

"VI. THE COMMON PLEAS COURT ABUSED ITS

DISCRETION BY AWARDING A _ RATE OF

INTERESTAGAINST THE MANIFEST WEIGHT OF THE

EVIDENCE."

"Judgments supported by some competent, credible evidence

going to all the essential elements of the case will not be reversed by a

reviewing court as being against the manifest weight of the evidence."

C.E. Morris Co. v. Foley Construction Co. (1978), 54 Ohio St. 2d 279;

A-7

Seasons Coal Co. v. Cleveland(1984), 16 Ohio St. 34 77. The weight to

be given the evidence and the credibility of the witnesses are matters for

the trier of fact, Seasons Coal Co., supra; State v. DeHass (1967), 10

Ohio St. 2d 230; Barton v. Ellis (1986),34 Ohio App. 3d 251, and any

difference of opinion as to the weight and credibility of the evidence is not

a legitimate ground for reversal. Seasons Coal Co., supra.

In the case sub judice, we find the trial court's judgment on

remand as to the correct rate of interest, to be supported by competent,

credible evidence going to all the essential elements of the case. The record

does not demonstrate the in depth rationale of the trial court in determining

8.5% to be the equitable rate of interest, however, the record does not

illustrate any abuse of discretion on the part of the trial court.

Appellants’ sixth assignment of error is not well taken and is

overruled.

For their seventh assignment of error appellants submit the

following:

“VII. THE COMMON PLEAS COURT DENIED

SHAREHOLDERS DUE PROCESS OF LAW BY

AWARDINGA RATE OF INTEREST UNRELATED TO THE

INSTRUMENTS INVOLVED IN THE TRANSACTION,SUCH

THAT WHEN THE IMPROPER INTEREST IS PAID UPON

THE APPRAISED VALUE,THE EFFECT IS TO PUNISH

SHAREHOLDERS FOR SEEKING THE

CONSTITUTIONALLY MANDATEDREMEDY OF

APPRAISAL."

In support of this assignment of error appellants argue that the

disparity in the final amounts received by the dissenting and assenting

shareholders constitutes a denial of due process of law. When the

Marathon shareholders who agreed to the merger cashed in their notes they

received total compensation of $162.15 for each of their shares. According

to the judgment of the trial court on remand the dissenting shareholders

will receive $ 104 for each of their shares.Appellants contend that this

disparity is attributable to an unreasonable interest rate awarded by the trial

court. >a

We disagree. The Ohio Supreme Court in Armstrong and R.C.

1701.85 both provide that in establishing the fair cash value to be paid

dissenters, the court must take into account the appreciation or deprecation

in the market value of the stock attributable to the proposed merger. The

rationale underlying this principle is that, if the stock appreciates as a result

of the merger, the dissenting shareholders should not be entitled to benefit

from the increased value. Likewise, if the market value of the stock

A-8

depreciates, the dissenting shareholders should not be penalized for the

decreased value. On remand, the trial court found the value of the stock on

the day prior to the approval of the merger to be $ 75.75. However, that

sum was adjusted to $ 68.43 so as fot to allow the dissenters to benefit

from the corporate transaction from which they disserited. Therefore, it is

apparent that the application of R.C.1701.85 is likely to produce a fair

cash value to be paid dissenting shareholders different from that feceived

by assenting shareholders unless the fundamental corporate change is

found to have had absolutely no effect on the market price of the stock, an

unlikely possibility. For this court to find that this disparity constitutes a

due process violation would in essence permit dissenting shareholders to

shield themselves from any loss as a result of the depreciation of the stock

and permit them to benefit from any appreciation if the stock, a “no lose"

proposition. This is obviously not the extent of protection the legislature

intended to provide for minority shareholderts dissenting from a

fundamental corporate change.

The Supren\e Court remanded the issue of the interest rate to be

awarded appellants to the trial court with the instructions to distegatd

R.C.1343.01(A) and, instead, consider the various factors introduced by

the parties earlier in the initial trial to arrive at an equitable rate of interest.

The record demonstrates that the trial court complied with the mandate of

the Supreme Court. While we may not have fourid the equitable tate of

interest to have been 8.5%, we ate nonetheless bound by the trial court's

findings absent an abuse of discretion. C.E. Mortis Co., supra.

Appellants seventh assignment of error is not well taken and is

overruled.

For their eighth assignment of error appellants submit the

following:

“Vill. THE COMMON PLEAS COURT PROCEEDED

CONTRARY TO THE JUDGMENT OF THIS COURTIN 1986

AND THE SUPREME COURT IN 1987 AND DENIED

SHAREHOLDERS DUE PROCESS OF LAWBY DENYING

THE RIGHT TO ENGAGE IN DISCOVERY AND

INTRODUCE EVIDENCE TO THOSESHAREHOLDERS WHO

HAD PREVIOUSLY BEEN DENIED THE RIGHT TO

PARTICIPATE IN THETRIAL OF 1984."

« As previously noted, the Ohio Supreme Court did not anticipate

any necessity for further evidentiaty hearings on any of the issues

presented to the trial court on remand. In the initial trial appellants had a

duty to present a complete case on behalf of those reptesented and were in

fact invited by the trial court to introduce testimony as to all relevant

A-9

theories of valuation and interest. The subsequent addition of additional

dissenting shareholders to the class does not grant appellants the right to

introduce further evidence whith they have already had not only an

opportunity but also a duty to present. The Price Trust was the only group

for which the Ohio Supreme Court provided for additional discovery and

proceedings and they have settled their claims.

Appellants’ eighth assignment of error is not well taken and is

overruled.

For their ninth assignment of error appellants submit the

following:

"IX. THE COMMON PLEAS COURT DENIED

SHAREHOLDERS DUE PROCESS OF LAW

BYESTABLISHING THE ENDING DATE FOR THE

PAYMENT OF INTEREST AS THIRTY DAYS FROMTHE

DATE OF THE JUDGMENT, THEREFORE PREJUDICING

SHAREHOLDERS’ RIGHT OF APPEAL."

In support of this assignment of error appellants argue that App.

R. 3 allows an appellant thirty days within which to file a Notice of

Appeal. The trial judge provided the shareholders only thirty (30) days to

comply with his order.Therefore, if the shareholders‘chose to exercise

their right to appeal,they were denied the right to continue to receive

interest on the judgment.

We disagree. As cited by Marathon, appellants entered into a

stipulation in the trial court, filed June 23, 1988, providing essentially as

follows:

"Appellants Francis A. Armstrong, Cede & Co., Gordon T. Hoddinott,

Douglas B.Littkewood, and Donald M. White have withdrawn their

respective Motions for Stay of Order and Judgment Pending Appeal on the

condition that Appellants’ standing to pursue these appeals, including

appeal of the trial court's Judgment Entry of April 6, 1988, and to

potentially obtain additional payments pursuant to future judgments will

not be prejudiced; nor have Appellants waived the right to have these

judgments altered on appeal by the surrender of shares and acceptance of

payment of the amount due them in accordance with the trial court's

Judgment Entry of April 6, 1988."

As is apparent, appellants have filed their appeal, the merits of

which we consider herein. Accordingly, we find that upon entering into

such stipulation appellants waived their right to assign error to the trial

court's entry to the extent that it allows interest for thirty (30) days.

Further, being indirect compliance with R.C. 1701.85 we find no error on

the part of the trial court absent this waiver.

——- iii

Y

Ly

A-10

Appellants’ ninth assignment of error is not well taken and is

overruled.

In conclusion, appellants mischaracterize this appeal by asking

this court to do indirectly what we cannot do directly; overrule the Ohio

Supreme Court. This cause was remanded to the Court of Common Pleas

of Hancock County for the resolution of two very specific issues.

The Supreme Court instructed the trial court as to how to

_ determine the initial fair cash value to be paid the dissenting shareholders

and to adjust for depreciation or appreciation in the value attributable to the

proposed merger.Secondly, the trial court was to consider the relevant

factors in determining an equitable rate of prejudgment interest. In sum,

we can glean no departure in the trial court's findings from the mandate of

the Ohio Supreme Court and the record demonstrates no reversible error.

Accordingly, appellant's nine (9) assignments of error are not well

taken and are overruled. Having found no error prejudicial to the

appellants herein, in any of the particulars assigned and argued, the

judgments of the trial court are affirmed.

Judgments affirmed.

A-11

IN THE-COMMON PLEAS COURT OF HANCOCK COUNTY, OHIO

Frances A. Armstrong,

Plaintiff Case Nos. 82-342-M, 82-365-M,

82-379-M, 82-387-M, 82-400-M,

vs. ; 82-402-M

Marathon Oil Company MEMORANDUM

Defendant

Hebe Ee

March 18, 1988

On September 25, 1987, the Supreme Court of Ohio remanded to

this Court the above case. The remand gave clear and unequivocal

instructions on what this Court was required to do. We are here now to

Carry out the instructions of the remand.

The Court has had the benefit of a protracted hearing before this

Court in October, 1982. It was, as the Supreme Court points out at p. 401

of opinion (The full official citation of the Supreme Court opinion is

Armstrong vs. Marathon Oil Co (1987), 32 Ohio St. 3d 397), a "full

hearing”. At this hearing, the plaintiff dissenting shareholders (hereinafter

collectively "Armstrong”) were permitted over the strenuous objection of

defendant corporation to demonstrate their estimate of the fair cash value of

the stock of defendant, Marathon Oil Co. (hereafter "Marathon"), basing

their estimate of such fair cash value on the intrinsic value of the stock.

At the same time, Marathon in their presentation, approached the

case from the standpoint of the willing seller-willing buyer on the stock

exchange and further upon the general market analysis of the oil industry.

After the original hearing, this Court (and this Judge) ruled that

the fair cash value of the stock of Marathon should be the price of the stock

on the New York Stock Exchange as of January 6, 1982, which was $78

per share. This Court also established a rate of interest to be paid by

Marathon.

When this Court received the opinion of the Supreme Court

reversing the Court of Appeals for the 3rd Appellate Judicial District, the

Court noted that the Supreme Court, speaking through Justice Holmes,

agreed that the fair cash value of the shares of Marathon should be

determined from the market value of the stock when "the indicia of

significant market trading is manifest" (p. 411 of Opinion) and if "a

reasonably sufficient actual market does exist, there is no need to construct

a hypothetical market." (p. 411).

Thus, in determining the fair cash value of stock held by

dissenting shareholders under the statute controlling these matters, (R.C.

A-12

1701.85), the inquiry should first focus on the degree of sales activity on

the major exchanges. That activity becomes, as Justice Holmes points out,

a "benchmark for the willing seller-willing buyer standard" (P. 412).

This Court did look to the major exchanges and found that a

significant amount of sales activity in Marathon stock existed between

willing sellers and willing buyers and held that the key date was January 6,

1982, and not March 10, 1982. In doing so, this Court determined the

closing price of Marathon stock was $78 per share on January 6, 1982.

The statute requires that the court is to look to the fair cash value

of the day prior to that on which the shareholders vote on the corporate

transaction was taken (Opinion, syllabus 3, p 397). Thus, this Court was

in error in assigning a date of January 6, 1982, and should have

established the correct date for the valuation of the stock. This date has

been determined by the Ohio Supreme Coun as March 10, 1982. Pursuant

to that determination this Court entered the date of March 10, 1982, as the

date for the valuation of the stock and established the price of $75.75, the

closing price of the stock on the New York Stock Exchange as the fair

c*sn value of one share of Marathon stock. That evidence is clearly

t. fore~the Court and the Supreme Court has so determined.

But the Supreme Court then says, on p. 413 and its Opinion,

",..all factors concerned with, or reasonably affecting, any appreciation of

the stock should have been reviewed and decided by the trial court.

Accordingly, this matter is reversed and the cause is remanded to the trial

court for the limited determination of what appreciation or depreciation, if

any, existed due to the U.S. Steel proposal submitted to the Marathon

shareholders.

The Court must therefore grapple with the limited issue of the

determination of appreciation or depreciation of the stock, if any, caused

by the U.S. Steel proposal. Other than the interest issue, to be discussed

later on, that is the sole question on the determination of fair cash value.

Before attacking this complex problem, Armstrong suggests that

there are grave constitutional issues here. This is not tenable. If it is true,

and it is expressed quite clearly in State vs Perry (1967), 10 Ohio St. 2d

175, that in criminal matters (where counsel is required - not just urged or

permitted, at every stage of the criminal proceedings) Constitutional issues

cannot be considered in post-conviction proceedings under Section

2953.21 et seg., Revised Code, where they have already been or could

have been fully litigated by the prisoner while represented by counsel (See

Syllabus 7), then how much more clear is it in civil matters that

Constitutional issues cannot be raised where the civil litigants had an

Opportunity to raise such Constitutional issues in the case in chief. There

A-13

were absolutely no constraints placed upon the plaintiffs or any one of

them in the presentation of their case in chief. The Court is further not

impressed by the fact that the case is so old the firm that originally tried it

is no longer in existence. Plaintiff's counsel still includes an original

member of the plaintiff's team and plaintiff's subsequent counsel knew of

the original record and must live with such record.

Amnstrong urges that the due process of any one excluded by this

Court in the original hearing which order of exclusion was reversed by the

Supreme Court has been violated. The Supreme Court has addressed this

issue with respect to the Price Trust (who are no longer in the case having

settled and adjusted their differences with Marathon). That is still

applicable with respect to these others.

The Supreme Court points out on p. 419, "Also, the issues,

pursuant to our determination of the first (valuation) issue above, have

been considerably narrowed, and are resolvable without recourse to a

further evidentiary hearing."

True, Price Trust was given an opportunity to put forward any

new evidence upon such issues as have not already been placed on the

record but the only issue is if the stock was appreciated or depreciated and

the amount of interest. Armstrong says that the new evidence that they

would put forward is that The First Boston Report would have caused the

stock of Marathon to go to $200 on the New York Stock Exchange. This

is not the fact as their own witnesses have shown. Dr. Amling, a very

sophisticated and talented investment consultant and author in the field,

stated that the truth is that the market price of stocks is generally one-third

that of book value. Further, the Radol case (Radol ¢ a vs Thomas, 772 F

2d 244, cert din 106 S Ct 3272) makes it clear that such things as The First

Boston Report (or the Strong Report, made internally by Marathon to

determine asset values of the various divisions and properties of Marathon,

both of which were available prior to US Steel's tender) should not be

admitted in a case involving an alleged (in simplistic terms) breach of a

corporate fiduciary relation. But here, Armstrong did bring up not only the

Strong Report, but the First Boston Report and John Herold's Reports of

the oil industry. To bring on any other witnesses to show that these reports

would cause the stock to rise to the values set forth in those reports is to

fly in the face of Armstrong's own witnesses and is a not very disguised

attempt to reinstitute the intrinsic evaluations procedure denied by the

Supreme Court of Ohio.

What difference would it make in real life? None. The evidence is

before the Court. The issue here (exclusive of interest determination) is

A-14

appreciation or depreciation of Marathon Oil Stock by the Mobil-U.S.

Steel experience.

Mobil Corporation (Mobil) on October 30, 1981, announced a

hostile take-over bid for Marathon Oil Company at $85 per share. On

October 29, 1981, the stock of Marathon Oil Company traded on the New

York Stock Exchange (NYSE) for $63.75 per share. The Mobil

announcement was greeted on the Monday following the announcement of

the proposed take over with a flurry of trading activity. Obviously, an

offer such as this -- $21.25 more than the October 29, 1981, closing price

would be attractive -- and the price on the NYS1J went to almost $90 but

within 20 calendar days thereafter fell to a little under $76. On November

20, 1981, the day after the U.S. Steel offer was made, the price of

Marathon stock per share rose to $108. On January 7, 1982, the day after

U.S. Steel purchased the shares pursuant to their tender the price was

about $76 a share.

Two things are instantly apparent: First: Notwithstanding the fact

that the values established by The First Boston Report which was common

knowledge to every one cognizant of the oil business, the price of

Marathon did not reach $200 or even go near it; and, second: The U.S.

Steel offer did appreciate Marathon's stock price.

Yet it is noteworthy that in this period from October 30, 1981, to

March 10, 1982, stocks in comparable oil companies, both domestic and

international, declined! Only one company's stock went up! And that was

~arathon! And this, despite an "horrendous bear market", as one witness

described it.

The Standard & Poor Index (S & P) for International Oils (which

include Exxon, Gulf, Mobil, Royal Dutch Shell, Standard of California, &

Texaco) shows that in the first week of October, 1981, the index was

210.8. It dropped to 205 in the second week of October, rose to 220.4 in

the first week of December, 1981 and then fell to 182 in the second week

of March, 1982, after having been down to 176.8 in the first week of

March, 1982.

The S & P Domestic Oil Index (consisting of Atlantic-Richfield,

Occidental, Gerry, Phillips, Shell (US), Standard of Indiana, Standard of

Ohio, Sun, and Unocal) followed a similar path reaching its zenith in the

second week of December, 1981, (357.3up from 327.2 in the fourth week

of October) only to drop dramatically to 236.12 in the first week of March,

1982.

So we want to know what is the effect of the US Steel offer on

Marathon's prices on the NYSE? Obviously, the US Steel offer had a great

effect.

A-15

Dr. Robert Hamada testified at length not only on his studies of

the Marathon stock but on the stock market in general. It is not important

to talk of stock market efficiency in the sense of "informationally” or

“value” efficient. We simply cannot say what the price Marathon would

have commanded on March 10, 1982, or even today, had there been no

Mobil or po US Steel tcnder. This Court would have felt better about Dr.

Hamada's analysis if he had shown the Court a projection starting, say on

October 30, 1980, and going to October 29, 1981. If the values had

matched, that would have been impressive. Then an analysis from October

30, 1981, to March 10, 1982, would have been really impressive indeed!

But certainly, Mobil, and particularly US Steel, caused an

appreciation in the value of Marathon's stock and after comparing the

activity of comparable stock in Exhibit M of the opinion of this Court, it is

the opinion of this Court that the stock of Marathon Oil Company was

appreciated to $68.43 per share.

The Radol case (op cit) made it quite clear that a business

judgment was made by Marathon's board of directors and such a judgment

will not be disturbed absent fraud, bad faith, or abuse of discretion (Citing

12 0 Jur 3d §415, at 63-64 (1979); Ohio National Life Ins Co vs Struble,

82 Ohio App 840, appeal dismissed, 150 Ohio St 409 (1948), as well as

RC 1701.59(c).)

It is therefore unnecessary to address a sale of assets; restructuring

of the company, stock splits, liquidations, and the like. Not one shred of

evidence is present now nor has there ever been of fraud, bad faith, or

abuse of discretion. Indeed, one of plaintiff's witnesses testified he

tendered his Marathon stock for Mobil's $85 per share tender. No

evidence of fraud here!

Now we must address interest. In the earlier ruling the Court

established the interest ai 8% per annum based essentially on the maximum

rates of interest established by the Revised Code of Ohio (RC

1343.02(A)). This was determined to be in error by the Supreme Court for

the very good reason that such determination did not consider other

evidence including, but not limited to the prime rate, prevailing rate for

various kinds of loans over the period, and any other such evidence. The

only restraint being that of prohibition against usury.

Ammstrong suggests an effective rate of interest of 17.2~%. This

figure is suggested by the fact that the Supreme Coun set forth in its

opinion that the Court adopt the prevailing rate of interest inasmuch as

Armstrong gave Marathon a long term loan. The Court will note this

argument but it must, under the Supreme Court's opinion at p 420; give

consideration to other factors.

A-16

Plaintiff Litthewood who presented a brief suggested an effective

rate of interest of 17:77% based upon a formula suggested by Professor

Brigham. Again, the Court must give consideration to other factors.

Marathon suggested an interest rate which reflected the rate of

dividend return per share, or 4.2%. This is a historic yield and must be

considered along with other factors.

Marathon also submitted the price of T-bills over the entire period

of this case along with prime rates, Fannie Mae yields on 30 year

mortgages, commercial paper, CD's, even Eurodollars and LIBOR

(London Interbank Offered Rates).

Considering all of these factors over the entire period of the

protracted litigation the Court finds that the equitable interest rate is 8.5%.

The Court therefore having determined the fair cash value of a

share of Marathon Oil Stock to be $68.43, each plaintiff and each holder of

outstanding stock of Marathon shall receive $68.43 for each share of stock

owned plus interest thereon at the rate of 8.5% from March 11, 1982, to

the date of »ayment or until 30 days after entry of judgment, which ever is

earlier. Marathon may deduct from such sum as hereinbefore determined

an amount already paid by Marathon heretofore.

The costs of this matter will be split equally between Armstrong

and Marathon with Marathon paying half and Armstrong the other half.

Marathon to prepare entry. All parties to have exceptions.

ROBERT D. WALKER,

PRESIDING JUDGE

A-17

IN THE COMMON PLEAS COURT OF HANCOCK COUNTY OHIO

FRANCES A. ARMSTRONG, ET AL :

Plaintiff - Case Nos. 82-379-M

82—342—-M,82—387- -M,82—365-M,

vs. : 82—400—H, 82—401—M

IMARATHON OIL COMPANY: MEMORANDUM

Defendant

January 8, 1988

The Court has been asked to continue and stay the proceedings in

this cause by counsel for Frances A. Armsirong in 82-365-M.

Specifically, the motion of plaintiff refers to the establishment by the Court

of January 15, 1988, as the deadline for the identification of expert

witnesses; February 15, 1988, as the deadline for completion of discovery;

and March 14, 1988, for trial.

Several reasons for the motion are set forth in the motion that will be

addressed at the proper time.

The Court has reviewed carefully the decision of the Ohio

Supreme Court decided September 25, 1987 (32 Ohio St 3d. 397).

In that opinion, the Supreme Court of Ohio, held at page 413, that

the trial Court “should have first established the correct date for the

valuation of the stock, i.e., March 10, 1982.” At this time, complying

with that mandate, the Court will establish March 10, 1982, as the date for

the valuation of the Marathon Oil Company stock (MRO, as it was then

identified on the ~Big Board" - The New York Stock Exchange).

Complying with that mandate, it is easy to establish that the price for

Marathon Oil Company stock on that date was S75.75 per share at the bell,

or the closing price of MRO.

The Ohio Supreme Court's opinion at the same page (p 413),

mandates this Court, and again copying direct from Justice Holmes’

opinion: “Second, all factors concemed with, or reasonably affecting, any

appreciat.on of the stock should have been reviewed and decided by the

trial Court.”

To comply with this mandate, the Court has carefully read the

entire transcript of the trial. Orly a few of the witneses address appreciation

and depreciation. To permit any additional testimony would be

counterproductive. When this Court declared that additional experts would

be permitted, this Court was proceeding precipitiously and on the basis of

the case in chief. Both parties were permited a wide range of inquiring to

A-18

the consternation of both sides at the original case. And this Court

proposed to extend that inquiry. Obviously, this is not necessary as the

Supreme Court of Ohio remanded this cause “‘for the limited determination

of what appreciation or depreciation, if any, existed due to the U.S. Steel

proposal submitted to the Marathon shareholders”.

This issue has been addressed by both parties extensively in the

case in chief. This Court must only comply with the clear mandate.

Accordingly, no new experts will be permitted either side but memoranda

will be delivered to the Court by February 15, 1988, on this issue and

arguments will be heard on March 14, 1988. No reply briefs or

memoranda will be permitted. The matter involving Price Trust is now

moot.

But the Supreme Court did, at part V (page 420 of the opinion of Justice

Holmes), note that the Court of Appeals was correct in holding that the

statutory rate of interest was not controlling. The opinion says, "The trial

court therefore should have considered other evidence as presented by the

parties, including, but not limited to, the prevailing rate of interest for

various kinds of loans, the average prime rate over that period of time and

any other such evidence.~ There is but one constraint, that of the statutory

ban on usury (R.C. 1343.01 et sec). To achieve that end therefore

memoranda will be submitted by February 15, 1988, by both sides,

without replies thereto, and arguments on that issue following the

appreciation -depreciation issue on March 14, 1988. It is clear, therefore,

that the Court is not disposed to delay this matter further.

The problems set forth by the Armstrong counsel are real enough.

This case has been going on a long time. It is an extremely costly matter

for all concemed. But the opinion of the Ohio Supreme Court has been

before us for three months now. The opinion of this Court has been

before all parties for five years. The date set forth for argument has been

known by all concemed since the meeting of October 30, 1987, with all

counsel present.

Even if present lead counsel find it necessary to resign, IMr. Kostyo, has

becn involved in the cause since the outset. He lrepresents Cede & Co (82-

342-M), Mr. White (82-387-M), Mr. Littlkewood (82-400-M) and Mr.

Hoddinott (82-401-M). Mr. Kostyo participated agressively in both direct

examination and cross-examina.ion of the several witnesses. He must be

considered as a knowledgeable person on the cases.

The Court also recognizes that lawyers have no stock in trade but

their advice and for this advice they are entitled to be paid but this Court

has an obligation to all the citizens of this county and all the litigants

appearing before to proceed as expediously as possible.

A-19

There is a suggestion thai a writ of cersiorari may be sought from

the Supreme Court of the United States. Notwithstanding, and until such

writ is granted, this wholly state matter will proceed under the clear

mandate of the Ohio Supreme Court for determination of the "fair cash

value” of the Marathon Oil Company stock under the provisions of RC

1701.85.

ROBERT D. WALKER, JUDGE

A-20

THE SUPREME COURT

OF OHIO

ARMSTRONG et al., Appellees; Harrell, Appellee and

Cross-Appellant,

Vv ”

MARATHON OIL COMPANY, Appellant.

Decided Sept. 25, 1987.

Nos. 86-399, 86-400 to 86-405. Reported at 32 Ohio St.3d 397,

513 N.E.2d 776, 56 U.S.L.W. 2219

Syllabus by the Court:

1. Under the terms of R.C. 1701.85, a shareholder who dissents

from a merger or certain other enumerated corporate transactions is granted

the right to seek payment of the “fair cash value” of the shares of the

corporation. That section defines “fair cash value” as the amount a willing

seller, under no compulsion to sell, would be willing to accept, and a

willing buyer, under no compulsion to purchase, would be willing to pay

for a share of stock of the corporation to be merged.

2. Where facts presented to the trial court evidence a reasonably

suitable, active market of the particular corporate stock under

consideration, and the actual market may be deemed to be sufficiently

active in the trading of such stock, then the trial court should give

substantial weight to such evidence. This actual market price would satisfy

the willing seller-willing buyer test set forth in R.C. 1701.85, and would

be the “fair cash value” of such stock.

3. If such active market trading of the stock in question is so

found, the fair cash value is properly measured pursuant to R.C.

1701.85(C) as the stock market price of the shares as of the day prior to

that on which the shareholders’ vote on the corporate transaction was

taken, excluding any appreciation or depreciation in that price resulting

from the proposal submitted to the shareholders.

4. The requirement in R.C. 1701.85(B) that “(t)he court shall

thereupon make a finding as to the fair cash value of a share” dispenses

with the requirement of a jury trial in such special statutory proceeding.

5. Insofar as R.C. 1701.85 sets forth “a special proceeding within

the meaning of section 2505.02 of the Revised Code,” and provides for an

interest rate based upon all equitable considerations, then the statutory rate

————

A-21

set forth in R.C. 1343.01(A) is not controlling. The rate should be

determined from the written evidence submitted by the parties upon this

issue.

6. A trial court may not order parties remaining in an action to

comply with the discovery requests of a party dismissed with prejudice

from the action.

7. When a cause of action is reinstated by a court of appeals and

remanded for further proceedings to the trial court, such reinstatement is in

statu quo ante, and the lower court is required to proceed from the point at

which the error occurred.

Decided Sept. 25, 1987.

The within consolidated cases involve the appeal of issues arising

out of the two-step merger betweeti Marathon Petroleum Company

(“Marathon”) and a subsidiary of the United States Stecl Corporation

(“U.S. Steel”). This merger occasioned the filing of a series of lawsuits by

dissenting shareholders of Marathon in the Common Pleas Court of

Hancock County primarily seeking a determination of “fair cash value” for

their shares of stock pursuant to R.C. 1701.85.

The major issue presented upon appeal by Marathon is whether

the trial court or the court of appeals utilized the correct method of

determining “fair cash value” of the dissenters’ shares. Another issue

presented upon this appeal is the eligibility of certain Marathon

shareholders to participate in the proceedings to determine “fair cash value”

based upon whether they had complied with R.C. 1701.85(A) providing

for the notice to be given to the corporation of thei decision to demand fair

cash value. The trial court determined that improper notice had been given

by some three hundred seventy-one stockholders in that their demand, as

filed by Frances Armstrong, had not properly evidenced Armnstrong’s

agency. The court of appeals reversed. The third issue presented is

whether the court of appeals erred by holding that the trial court had

abused its discretion in denying motions for a continuance of the scheduled

trial on the merits to permit Price Trust, which represented certain

dissenting shareholders, to engage in pretrial discovery upon the issue of

fair cash value. The remaining issues, which shall be explained more fully,

are whether the proceeding under R.C. 1701.85 allows a jury trial or .

joinder of other causes of action and whether the trial court improperly

determined the rate of prejudgment interest.

A+22

The issues which we must resolve ate based upon the following

facts. In 1981, the officers and management of Marathon recognized that

the company might be a target for a “takeover” in that Marathon stock was

selling on the New York Stock Excharige at a price somewhat lower than

the market value of the compartiy’s assets. Accofdingly, Marathon obtained

two valuations, one by First Boston Corporation, a New York ifvestment

banking firm, afid the other by John F. Strong, the assistafit to the

president of Marathon. The First Boston report ifidicated a per-share value

of Marathon stock of between $188 arid $225, whereas the Strong report

indicated a per-share value of Marathon stock of betweefi $276 and $323.

Both of these reports wefe predicated upon the fet equity value of

Marathon, that is, the value of Marathon assets less liabilities.

On October 30, 1981, Mobil Corporation announced a tender

offer to purchase up to forty million shafes (approximately sixty-seven

percent) of Mafathon stock at $85 pet share. Mobil indicated that, if

successful in acquifing at least thirty million shafes (approximately fifty-

one percent of outstanding stock), it would seek to acquite the remaining

shares through an exchange of merger offer, by which shareholders would

receive securities valued by Mobil at $85 per share.

On the following day, Marathons boatd of ditectots called an

emergency session. Thetein, it was determined that the Mobil offer was

grossly inadequate and fot in the best ifiterest of Marathon orf its

shareholders. The board consequently authorized Maratho.i's officers to

take the appropriate steps necessary to block Mobil'’s takeover attempt,

including (1) sending letters to Marathon shareholders urging them not to

tender their shares to Mobil; (2) filing an action seeking to enjoin the Mobil

takeover, (3) initiation of efforts to secure a “white knight,” i.¢., someone

who could extend a friendly takeover tefider, anid (4) conisideration of a

complete of partial liquidation of Marathon. On November 1, 1981,

Marathon filed an action ini the United States District Court alleginig that the

Mobil tender offer violated various federal antitrust regulations, and sought

to enjoin the plarined takeover by Mobil. Marathon’s action was eventually

successful.

The aid of First Boston was enlisted to search for other companies

which might be interested in acquiring Matathon at a price substantially

higher than the Mobil tender offer. This search for a “white knight”

successfully culminated in the announcement, on November 19, 1981, that

Marathon and U.S. Steel had entered into a merger agreement. Under the

terms of the merger proposal, U.S. Steel would extend a tender offer for

A-23

fifty-one percent of the outstanding stock of Marathon at a price of $125

per share. This was to be followed by a merger proposal in which each

remaining Marathon shareholder would receive a $100 face value twelve-

year bond, paying a guaranteed twelve and one-half percent interest, for

each remaining share of Marathon stock.

In acting favorably upon the U.S. Steel offer, it appears from the

evidence that the Marathon board of directors relied upon the opinion of

First Boston, its financial advisor. It was First Boston’s view that the

U.S. Steel offer of $125 per share for fifty-one percent of the stock

combined, with the issuance of the notes for the balance, would have a

“blended value” of $106 per share. Further, it appears that upon First

Boston’s advice, the Marathon board determined that such a price was fair

to Marathon shareholders and, upon advice of counsel, that acceptance of

such an offer would be a reasonable exercise of business judgment. By

December 4, 1981, approximately 91.4 percent of Marathon shares had

been tendered to U.S. Steel. By way of contrast, only approximately

forty-seven percent of Marathon shares had been tendered to Mobil in

response to its tender offer at $85 per share.

As part of the U.S. Steel offer, it received an option to purchase

ten million authorized, but unissued, shares of Marathon for $90 per

share. It also received an option to purchase one of Marathon’s largest

assets, a forty-eight percent interest in the Yates oilfield for 2.8 billion

dollars. Not only was there then litigation in the federal court with respect

to Mobil’s tender offer, but an action was also commenced in federal court

with respect to the U.S. Steel tender offer, particularly the granting of the

above options.

On December 23, 1981, the United States Court of Appeals for

the Sixth Circuit affirmed a district court’s ruling that the two options

granted U.S. Steel were illegal, manipulative and intended to discourage

other tender offers for Marathon stock. It ordered U.S. Steel to relinquish

both options. Upon remand, which occurred the next day, the district court

extended the date by which shareholders could withdraw their acceptance

of the U.S. Steel offer until January 6, 1982. However, the court made no

change of the December 4, 1981 proration date, that is, the date by which

Marathon shareholders had to tender their shares to U.S. Steel.

Thereafter, on January 7, 1982, U.S. Steel purchased

approximately fifty-one percent of Marathon’s stock, consisting of

approximately thirty million of Marathon’s outstanding shares, by

accepting the tenders of more than ninety percent of the Marathon stock on

a a

A-24

a prorated basis. In the interim, Mobil announced that if the U.S. Steel

offer, including the options, were ruled illegal, Mobil would increase its

tender offer to $126 per share. Additionally, Gulf Oil Company then

proposed to discuss a merger with Marathon at a price of approximately

$120 per share, but no meaningful negotiations ever took place.

Subsequently, on March 11, 1982, the second step of the acquisition of

Marathon by U.S. Steel was completed by approval of the merger by

shareholders owning more than two-thirds of all Marathon shares,

including the fifty-one percent now owned by U.S. Steel.

Frances A. Armstrong, an owner of two liundred shares of

Marathon stock, together with a number of shareholders consolidated into

the so-called Marathon Shareholders Committee, and various additional

shareholders, filed petitions ‘n the Hancock County Common Pleas Court.

Their claim was essentially founded upon R.C. 1701.85 and was for the

purpose of seeking a determination and award of the “fair cash value” of

their stock.

In the initial phase of the proceedings, the trial court determined

that approximately four hundred plaintiffs were eligible under the statute to

have the fair cash value determined. Other shareholders were deemed by

the trial court to be ineligible to participate in the proceeding. Among these

were certain plaintiffs for whom Armstrong sought to demand fair cash

value. The trial court determined that Armstrong had failed to include with

her demand letter the evidence of authority to act on their behalf as the

court felt was required by Klein v. United Theaters Co. (1947), 148 Ohio

St. 306, 35 0.0. 298, 74 N.E.2d 319. On this point, the court of appeals

reversed.

In another facet of these cases, Lillian Werk Price, as trustee for a

number of other Marathon shareholders, had been ruled ineligible by the

trial court to participate in the fair cash value proceeding. This

determination was reversed by the court of appeals. Price, upon remand,

twice moved the trial court for a continuance in order to utilize the

extensive discovery of the other plaintiffs in the preparation for trial. The

trial court, exercising its discretion in the matter, denied the motion for

continuance. The court of appeals reversed the trial court on this issue.

Dorothy M. Harrell, proceeding pro se, sought to obtain a jury

trial under the R.C. 1701.85 proceeding. Also, Harrell sought to join a

number of other causes of action into the proceedings below. Moreover, at

trial she sought to present evidence conceming the appropriate amount of

interest which ought to be awarded. The trial court refused joinder as to

A-25

these other causes of action and denied a jury trial. It ruled that the

appropriate rate of interest was no more than eight percent pursuant to

R.C. 1343.01(A). The court of appeals upheld the trial court on the jury

trial and joinder issues, but reversed on the interest issue, which, it was

determined, should have been based upon the evidence offered by the

parties.

Although R.C. 1701.85(B) provides that the trial court “may

appoint One or more persons as appraisers to receive evidence and to

recommend a decision on the amount of the fair cash value,” the trial judge

here recognized that the statute gave him final responsibility to make a

finding as to the fair cash value of the stock. He consequently opted not to

appoint appraisers in these cases. This was, of course, fully within the trial

court’s discretion under the statute and is not an issue upon appeal.

A full hearing on the issue of fair cash value, consisting of

approximately three weeks of trial, was conducted by the trial court.

Evidence was adduced by the various dissenting shareholders conceming

their estimate of the fair cash value of their shares of stock, based upon the

intrinsic value of the stock. Additionally, evidence of stock value,

primarily based upon the willing seller-willing buyer test upon the stock

exchange, and upon general market analyses of the oil industry, was

addressed by appellant Marathon.

Upon conclusion of the hearings, the trial court rendered an in-

depth decision. It basically concluded that the willing buyer-willing seller

language of R.C. 1701.85 meant market value of a single share of stock

rather than an intrinsic value. The court also found that, under the

circumstances of this case, the stock market price provides the controlling

evidence. However, instead of using the market price of March 10, 1982,

which was the day prior to the vote of the shareholders, and adjusting the

price to avoid the effect of the pending merger as called for by the statute,

the trial court adopted the market closing price of the stock on January 6,

1982, which was $78 per share, as reflecting fair cash value as of March

10, 1982.

The dissenting shareholders appealed, attacking the standard

utilized by the trial court in determining fair cash value. Marathon cross -

appealed challenging the trial court’s use of January 6, 1982, rather than

March 10, 1982, as the date to determine the fair cash price as adjusted.

The court of appeals reversed the trial court as to the dissenting

shareholders’ appeal as well as Marathon’s cross-appeal. This cause is

A-26

now before the court pursuant to the allowance of motions to certify the

record.

Ulmer, Berne, Laronge, Glickman & Curtis, Marvin L. Karp and

Stephen A. Markus, Cleveland, for appellees Armstrong et al. Weasel &

Brimley and John F. Kostyo, Findlay, for appellee White. Benesch,

Friedlander, Coplan & Aronoff, John J. Duffey and Jack Gregg Haught,

Columbus, for appellee Price, Trustee. Dorothy M. Harrell, pro se. Jones,

Day, Reavis & Pogue, John L. Strauch, John M. Newman, Jr., Robert R.

Weller, Susan J. Becker, Cleveland, Rakestraw & Rakestraw and Russell

E. Rakestraw, Findlay, for appellant. Murray & Murray Co., L.P.A.,

Dennis E. Murray and Kirk J. Delli Bovi, Sandusky, urging reversal for

amici curiae, Charles Nickels et al.

HOLMES, Justice.

I

We deal here with the difficult subject of the manner and criteria

for the determination of the amount to be paid to a dissenting shareholder

of a corporation which is to be merged into, or whose assets are to be sold

to, an acquiring corporation. More specifically, we are asked to construe

the Ohio statutes which provide for the compensation payable to such

dissenting shareholders, and the case law which has construed such

statutes. Before addressing the issues presented for resolution, we will

first set forth some of the background on the subject, the pertinent portions

of the current, applicable sections of law, and the legislative history of

Ohio’s and other states’ statutes. We will also consider this court’s case

law as well as the determinations of other Ohio courts on the subject.

In considering the background of the statute at issue, we begin by

noting that early corporations more closely resembled the ordinary

partnership of today, in that the shareholder usually had a personal

financial investment and, more importantly, played a superintending role in

the business to protect his investment. Consequently, the courts of that

time viewed the relationship between shareholder and corporation as a

vesied property right, and the vote of a shareholder owning a single share

of stock was sufficient, by the common-law rule, to block any merger,

sale of major assets or other organic change. 1 Absolute unanimity of all

1. 12B Fletcher, Cyclopedia of the Law of Private Corporations (1984) 342,

Section 5906.1; 2 Hornstein, Corporation Law & Practice (1959) 168, Section

629; Levy, Rights of Dissenting Shareholders to Appraisal and Payment (1930),

15 Cornell L.Q. 420; Lattin, Remedies of Dissenting Stockholders under Appraisal

A-27

shareholders was required to effect any fundamental corporate change. The

basic theory underlying such rule was that the stockholder had purchased a

portion of a going concem, and his approval was necessary to divest him

of that which he had purchased.

Tremendous expansion of commerce in the latter part of the

nineteenth century created the need for larger, more comple, financial

structures. As corporations began to merge and otherwise reorganize to

meet this need, they encountered the barrier of the minority shareholder

backed by the common-law requirement of unanimity. See, e.g., Mason v.

Pewabic Mining Co. (1890), 133 U.S. 50, 10 S.Ct. 224, 33 L.Ed. 524

(shareholder objection destroyed the company); In re Timmis (1910), 200

N.Y. 177, 181, 93 N.E. 522, 523 (purchase of a single share to create a

strike suit). This rule was, of course, much too restrictive to meet the

needs of a growing, modem economy and, thus, corporations began to

circumvent this rule by giving dissenters cash payments. In order to

prevent excessive costs from upsetting the transaction, courts began to

reduce the effect of the rule of unanimity by granting dissenting

shareholders the right to recover the cash value of their shares. See, e.g.,

Lauman v. Lebanon Valley RR. Co. (1858), 30 Pa. 42.

Legislators as well as courts came to view the common-law rule as

an obsolete impairment of beneficial corporate interests, or as negating the

rights of the majority to exercise control over the corporate affairs to which

ownership of their shares entitled them. 2 Ultimately, all states have

provided by statute that unanimity is no longer a requisite to approval by

the shareholders of such fundamental changes in the corporate structure as

merger or sale of assets. See, e.g., Note, Valuation of Dissenters’ Stock

Under Appraisal Statutes (1966), 79 Harv.L.Rev. 1453; Note,

Corporation Law— Dissenting Stockholder’s Right of Appraisal—

Determination of Value (1953), 28 N.Y. U.L.Rev. 1021; Note, The

Statutes (1931), 45 Harv.L.Rev. 233, 236-237; Weiss, The Law of Take Out

Mergers: A Historical Perspective (1981), 56 N.Y.U.L.Rev. 624, 624-628.

2. See fn. 1, supra. See, also, Horwitz, The Transformation in the Conception of

Property in American Law, 1780-1860 (1973), 40 U.Chi.L.Rev. 248; Hills,

Consolidation of Corporations by Sale of Assets and Distribution of Shares

(1931), 19 Calif.L.Rev. 349; Lattin, Equitable Limitations on Statutory or Charter

Powers Given to Majority Stockholders (1932), 30 Mich.L.Rev. 645, 646;

Comment, Statutory Merger and Consolidation of Corporations (1935), 45 Yale

L.J. 105, 112-113; Small v. Sullivan (1927), 245 N.Y. 343, 357, 157 NE. 261,

265 (Lehman, J., dissenting); Alpren v. Consolidated Edison Co. (Sup.Ct.1938),

168 Misc. 381, 5 N.Y.S.2d 254.

A-28

Dissenting Shareholder’s Appraisal Remedy (1977), 30 Okla.L.Rev. 629,

630.

To provide compensation for those shareholders who dissented

from the merger, sale of assets, or change in structure decision by the

majority, legislative enactments were made across the country. The nearly

universal remedy, triggered in various ways, was to provide for an

appraisal of the dissenting shareholders’ stock, and for the corporation to

purchase such stock at the appraised price. See statutes analyzed in Note,

A Reconsideration of the Stock Market Exception to the Dissenting

Shareholder’s Right of Appraisal (1976), 74 Mich.L.Rev. 1023, fn. 2.

Some statutes provide that the court shall appoint a number of

appraisers to determine the value of the dissenting shares, subject to

limited review by the court and based upon the reasonableness of the

appraisal report. “ Other statutes provide that the trial court has discretion

in the appointment of appraisers but must, after hearing all the evidence,

inclusive of that of the experts, make its own determination of the value of

the stock of the dissenting shareholders. 4 Ohio’s statute contains this

approach currently, although it should be noted that the predecessor

section of law, G.C. 8623-72, provided for a mandatory appointment of -

appraisers. Furthermore, many jurisdictions, like Ohio, value the stock as

of the day prior to the shareholders’ vote approving the action. See, e.g.,

Fla.Stat.Ann. Section 607. 247(3) (1977); Mich.Comp.Laws Ann.

Section 450.1768 (1987 Cum.Supp.); Pa.Stat.Ann. Title 15, Section

i515(B) (Purdon, 1987 Cum.Supp.).

A greater divergence of practice exists among states when the

issue becomes one of ascertaining the value of the dissenters’

shareholdings. This becomes obvious upon an initial perusal of the statutes

themselves and their terms which describe the value to be ascertained.

Some merely use the term “value,” 5 while others utilize “fair value,” © or

3. See, e.g., Nev.Rev.Stat. Section 78.510(1) (1986).

4 See, e.g., Ala.Code Title 10, Section 10-2A-163 (1975); Idaho Code Section

30-1-81 (1980); N.H.Rev.Stat.Ann. Section 293-A:82 (1986 Cum.Supp.);

Vt.Stat.Ann. Title 11, Section 2004(e) (1984); Wis.Stat.Ann. Section 180.72(6)

(1986 Supp.). See, also, Del.Code Ann. Title 8, Section 262(c) (1983) (court hears

exceptions to appraiser’s report).

5, See, e.g., Del.Code Ann. Title 8, Section 262(f) (1983) (used interchangeably

with “fair value”); Kan.Stat.Ann. Section 17-6712 (1986 Cum.Supp.).

6 See, e.g., Ala.Code Title 10, Section 10-2A-163 (1975); Fla.Stat.Ann. Section

607.247 (1977); Idaho Code Section 30-1-81 (1980); Ark.Stat.Ann. Section 64-

——

A-29

“fair cash value.” 7 Moreover, the statutes vary according to what is meant

by such terms and the analytical approach required to obtain the final

valuation for the stock. A number define their statutory term as referring to

the stock market value,® when the stock is traded upon a national securities

exchange? or, more specifically, traded upon the New York Stock

Exchange. Otherwise, an appraisal is required.

707 (1980); Iowa Code Ann. Section 496A.78 (1962); Minn.Stat.Ann. Section

302A.473 (1985); Me.Rev.Stat.Ann. Title 13-A, Section 909(1) (1981);

N.H.Rev.Stat.Ann. Section 293-A:82 (1986); Vt.Stat.Ann. Title 11, Section

2004(e) (1984); Wis.Stat.Ann. Section 180.72(6) (1986 Supp.); ALI-ABA Model

Bus. Corp. Act Section 81 (1969); Rev. Model Business Corp. Act Section 13.01

(1984).

7. See, e.g., Nev.Rev.Stat. Section 78-510 (1986); R.C. 1701.85. See, also, Henn

& Alexander, Corporations (3 Ed.1983) 1002, Section 349.

8. See cases collected in Note, A Reconsideration of the Stock Market Exception

to the Dissenting Shareholder’s Right of Appraisal (1976), 74 Mich.L.Rev. 1023,

1024, fn. 4.

9. In Section 80b-2(a), Title 15, U.S.Code, the term “national securities

exchange” is defined as a securities exchange registered as a national securities

exchange under the Securities Exchange Act of 1934. Any exchange may be

registered with the Securities and Exchange Commission as a national securities

exchange by filing a registration statement with the Commissioner. Section

78f(a), Title 15, U.S. Code. Most stock-market exception statutes require that the

stock be listed on a national securities exchange in order to invoke the exception.

See, e.g., Ariz.Rev.Stat.Ann. Section 10-O80(C) (1977); Deering’s Cal.Corp.Code

Ann. Section 1300(b)(1) (1987 Supp.); Del.Code Ann. Title 8, Section 262(b)

(1983); Fla.Stat.Ann. Section 607.244 (1987 Cum.Supp.); Ga.Code Ann. Section

22-1201 (1987 Cum.Supp.); Iowa Code Ann. Section 496A.77 (1987 Cum.Supp.);

Kan.Stat.Ann. Section 17.6712(k) (1974); Md.Ann.Code, Corporations &

Associations, Section 3-202(C) (1986 Cum.Supp.); Mich.Comp.Laws Ann.

Section 450.1762 (1973); N.J.Stat.Ann.’ Section 14A:1.. i (1987 Cum.Supp.);

R.I].Gen.Laws Ann. Section 7-1.1-73 (1985); Va.Code Ann. Section 13.1-730(C)

(1987 Cum.Supp.); Wis.Stat.Ann. Section 180.725 (1986 Supp.). Statutes in

Maine and Tennessee state that the exception applies to stocks traded on “

‘national securities exchange’ as defined under the Securities Exchange Act of

1934, as amended” or “Registered with the Securities and Exchange Commission

pursuant to section 12(g) of * * * the Securities Exchange Act of 1934.”

Me.Rev.Stat.Ann. Title 13-A, Section 908(4)(B) (1981); Tenn.Code Ann. Sections .

48-1-909(c) (1984). Instead of using “national securities exchange,” Georgia,

Pennsylvania and Utah specify the New York Stock Exchange or the American

Stock Exchange, Ga.Code Ann. Section 22-1201 (1987 Cum.Supp.); Pa.Stat.Ann.

Title 15, Section 1515(L) (Purdon, 1987 Cum.Supp.); Utah Code Ann. Section 16-

10-75 (1987).

nati aaa

A-30

Many states depend upon an appraisal proceeding, either by

statute or through an alternative equitable proceeding. Such a proceeding

attempts to ascertain the value of the dissenting shareholders’ stock by

analysis of: intrinsic value; net asset value; going concer value; liquidation

value; net equity value; earnings value of the stock or dividends prospects;

the nature of the enterprise and its relative position within the particular

industry; post-merger gains or synergistic gain; tax benefits to all

concemed; rescission and/or equitable concems. A state may utilize all of

the above factors, at least in theory, or some lesser combination of them.

10 Quite often courts rely upon three principal elements in arriving at the

value of the shares of dissenting shareholders, i.e., net asset value, market

price of the stock on the New York Stock Exchange and the eamings value

(future) of the corporation. This method is commonly referred to as the

“Delaware Block” analysis and allows a trial court to weigh each element

by imposing a multiplier and then rendering an average value. See In re

General Realty & Utilities Corp. (1947), 29 Del.Ch. 480, 52 A.2d 6;

Weinberger v. UOP, Inc. (Del.1983), 457 A.2d 701; Appraisal Remedy,

supra (38 Sw.L.J.), at 779, fn. 10. All of these approaches to a

determination of value of the shares of the dissenting shareholders may be

appropriate under the specific requirements of a state statute, giving

consideration to the salient facts surrounding a given corporate entity.

In determining the present case, we must look to Ohio’s statutory

procedures for determining the amount to be paid to dissenting

shareholders. In the light of such statutes we shall analyze the specific

circumstances of this corporate merger, including the point in time of such

merger, and the evidence or indicia of the value of such stock which

existed at that time. Also, we must look to this court’s interpretation of

such law, and any activity by the General Assembly in this specific area of

the law. The primary statute with which we are concemed is R.C.

1701.85. The predecessor section of law, G.C. 8623-72, provided, as

does the current section, for the payment of the fair cash value to a

shareholder for his shares as of the day prior to the vote of the

shareholders. It also required, as does the current section, that any

10. See, e.g., Coleman, Appraisal Remedy in Corporate Freeze-Outs: Questions of

Valuation and Exclusivity (1984), 38 Sw.L.J. 775; Brudney & Chireistein, Fair

Shares in Corporate Mergers and Takeovers (1974), 88 Harv.L.Rev. 297; Brudney

& Chirelstein, A Restatement of Corporate Freezeouts (1978), 87 Yale L.J. 1354;

but, cf., Toms, Compensating Shareholders Frozen Out in Two-Step Mergers

(1978), 78 Colum.L.Rev. 548, 552, fn. 12.

il

A-31

appreciation or depreciation in consequence of such action must be

excluded from the determination of the fair cash value of the stock. !!

11. RC. 1701.85 provides: “(A)(1) A shareholder of a domestic corporation is

entitled to relief as a dissenting shareholder in respect of the proposals in

sections 1701.74, 1701.76, and 1701.84 of the Revised Code, only in

compliance with this section. “(2) If the proposal must be submitted to the

shareholders of the corporation involved, the dissenting shareholder shall be a

record holder of the shares of the corporation as to which he seeks relief as of the

date fixed for the determination of shareholders entitled to notice of a meeting of

the shareholders at which the proposal is to be submitted, and such shares shall

not have been voted

in favor of the proposal. Not later than ten days after the date on which the vote

on such proposal was taken at the meeting of the shareholders, the shareholder

shall deliver to the corporation a written demand for payment to him of the fair

cash value of the shares as to which he seeks relief, stating his address, the

number and class of such shares, and the amount claimed by him as the fair cash

value of the shares. “ * * * “(B) Unless the corporation and the dissenting

shareholder shall have come to an agreement on the fair cash value per share of

the shares as to which he seeks relief, the shareholder or the corporation, which

in case of a merger or consolidation may be the surviving or the new corporation,

within three months after the service of the demand by the shareholder, may file a

complaint in the court of common pleas of the county in which the principal

office of the corporation which issued such shares is located, or was located at the

time when the proposal was adopted by the shareholders of the corporation, or, if

the proposal was not required to be submitted to the shareholders, was approved

by the directors. * * * On the day fixed for the hearing on the complaint or any

adjournment of it, the court shall determine from the complaint and from such

evidence as is submitted by either party whether the shareholder is entitled to be

paid the fair cash value of any shares and, if so, the number and class of such

shares. If the court finds that the shareholder is so entitled, the court may appoint

one or more persons aS appraisers to receive evidence and to recommend a

decision on the amount of the fair cash value. The appraisers have such power and

authority as is specified in the order of their appointment. The court thereupon

shall make a finding as to the fair cash value of a share, and shall render judgment

against the corporation for the payment of it,with interest at such rate and from

such date as the court considers equitable. * * * “(C) If the proposal was required

to be submitted to the shareholders of the corporation, fair cash value as to those

shareholders shall be determined as of the day prior to that on which the vote by

the shareholders was taken, and, in the case of a merger pursuant to section

1701.80 or 1701.801 of the Revised Code, fair cash value as to shareholders of a

constituent subsidiary corporation shall be determined as of the day before the

adoption of the agreement of merger by the directors of the particular subisdiary

corporation. 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 exceed the amount

A-32

The prior section of the General Code did not include a definition

of “fair cash value.” Accordingly, this court, in Roessler v. Security

Savings & Loan Co. (1947), 147 Ohio St. 480, 34 0.0. 389, 72 N.E.2d

259, defined the term in the first paragraph of the syllabus, as follows:

“The ‘fair cash value’ which a dissenting shareholder in a

corporation is entitled to receive for his shares in a proceeding brought

! pursuant to Section 8623-72, General Code, is the intrinsic value of the

shares determined from the assets and liabilities of such corporation, upon

consideration of every factor bearing on value.” (Emphasis added.)

This court, in Roessler, further found that the trial court had erred

in instructing the appraisers that “fair cash value” meant a sum equal to that

at which a willing buyer would purchase stock from a willing seller, i.e.,

the “market value” of such stock. It was then determined that such

instruction was prejudicial to the stockholder, in that market value may be

less than the intrinsic value of the stock. Subsequently, and by what has

been termed a response to Roessler, the General Assembly enacted R.C.

1701.85(C), effective October 11, 1955 (126 Ohio Laws 432, 485),

which provided for the definition of “fair cash value” as the willing seller-

willing buyer test.

Significantly, the Comment of the Ohio State Bar Association

Committee which recommended the addition of the definitions to this

section, stated:

“Division (C). This division contains a frequently used definition

of ‘fair cash value.’ This definition is one that is found in a great mass of

judicial decisions both in Ohio and elsewhere, in litigation involving the

value of property, in appropriation suits, tax controversies, and other legal

proceedings in which property must be valued. It is believed that this

definition will give the Bar a clearer test than that of ‘intrinsic value’

established by the Supreme Court in Roessler v. Security Savings & Loan

Co., 147 O.S. 480 (72 N.E.2d 259).” 28 Ohio Bar 102 (Jan. 10, 1955).

Since the adoption of division (C) in R.C. 1701.85, this court has

had no opportunity to discuss the meaning and application of the willing

seller-willing buyer definition to the words “fair cash value” in the

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.”

ee ee

A-33

valuation of the shares of dissenting shareholders. 12 However, a number

of Ohio cases in the courts of appeals involved the interpretation of such

words within R.C. 1701.85. The Court of Appeals for Franklin County

considered the meaning of such terms in Vought v. Republic-Franklin Ins.

Co. (1962), 117 Ohio App. 389, 24 0.0.2d 168, 192 N.E.2d 332. That

court determined the manner by which, under the new definition, the

dissenter’s stock should be valued. The case apparently involved an

appraisal of shares held by the dissenting shareholders of Republic -

Franklin Insurance Company, which company’s stock was not being

traded upon any stock exchange. The dissenting shareholders in Vought

argued that the willing buyer-willing seller standard may not apply where

there are no market transactions from which to gain this data. In such an

instance, they argued, the standard of valuation would be the “intrinsic

value.”

The court, however, held that the adoption of R.C.

1701.85,including its definition of fair cash value, “was a legislative

overruling of the holding of the Roessler case by a deliberate adoption of

the hypothetical market value standard, and that standard is applicable to

the valuation of shares held by dissenting shareholders regardless of the

existence or nonexistence of comparable sales in a suitable existing actual

market.” Id. at 391, 24 0.0.2d at 169, 192 N.E.2d at 334. “Such a

standard generally will permit evidence to be introduced as to any factor

which a reasonable man would take into consideration in determining

value. Actual market conditions are, therefore, open to proper interpretive

evidence.” Id. at 391, 24 0.0.2d at 169, 192 N.E.2d at 333.

In Vought the court pointedly set forth its recognition of the

appropriate factors to be considered in other situations where the active

market trading of the shares of the corporation was involved. The court

stated that: “(u)nder some conditions certain types of evidence may be so

persuasive as to be entitled to a legally preferred status, and other evidence

could become too speculative. If a sufficient actual market existed for

identical items, in which active trading was occurring, such evidence might

be controlling, and other methods of evidencing value (for example,

Original cost or capitalization of earnings) may be excludable. This point

12. At present, Ohio, together with a small but growing minority of other states,

defines the value of a share by the willing buyer-willing seller test. Obviously,

market price of the stock is the focus of such valuation. See, e.g., Ga.Code Ann.

Sections 22-1201 and 1202.

ee

A-34

| would probably be true in most cases involving the valuation of stock

| which is actively traded on the New York Stock Exchange.” Id.

Following the Vought case, the same court of appeals hac further

occasion to discuss and interpret the language of R.C. 1701.85(C) in

Parten v. Pure Oil Co. (July 1, 1969), Franklin App. No. 9023,

unreported. The author of the opinion in the case sub judice was also the

author of the Parten opinion. In Parten, the court stated: “We hereby adopt

and apply this philosophy as set forth in the Vought case to the cause

| before this court.

“As reasonably stated in Vought, ‘in the absence of a suitable

actual market, valuation is difficult and the evidentiary problem can

become very complex.’ However, where there is in fact a presence of such

suitable actual market for the identical stock to be appraised, such evidence

should be controlling.

“If the actual market is deemed to be sufficiently active in its

trading of the particular stock in question, then, giving substantial weight

to such factor does no violence to the willing seller, willing buyer

(hypothetical market) theory.

“Such actual market price would in fact be the willing seller,

willing buyer amount dictated by the statute. From such amount, of

, course, 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

sharcholders.” Id. at 17.

In Parten, on a review of the evidence that had been before the

appraisers and the trial court, the appellate court held that there was “a =

sufficiency of activity in the market for Pure (Oil) shares, and that the time

relationship of such activities on the New York Stock Exchange on the

date in question of July 1, 1965, constituted a sufficient market in which

such trade was in fact occurring.” Id. The court stated that “the evidence of

the actual market price as to be found upon the Stock Exchange, should

have been so persuasive as to be given a preferred status over the other

information and data related to asset value, going concern value, etc., in

determining the ‘willing seller, willing buyer’ fair cash value of such stock

on the appraisal date as provided by the statute.” Id. at 21.

There are several rationales which support the analyses set forth in

Vought and Parten, supra. Generally, modern shareholders do not

purchase stock as emtrepreneurs who closely scrutinize or take an inierest

in corporate operations, but instead seek assured incomes and long-term

lei

A«35

~~ appreciation of their investment. 13 As one commentator has stated: “(I)n

substantially every case other than (those) related to control, the owner of

shares of a company listed on a national securities exchange ftegards

himself as an investor in those securities, rather than as a part of the

corporate enterprise. The investor's objective is not to promote the income

of the corporation but to enhance his distributive share, not to inctease the

corporate assets but to enhance the value of his securities. Since the

measurement of these objectives is provided by the exchanges ... dissent

and appraisal no longer (should be) required.” !4 (Emphasis added.)

Moreover, the putchaser of shares makes, at most, only a limited

commitment to the kind of large corporation that has widely traded stock.

The usual investor has never sought the assets of the corporation or access

to control of its operations. It is therefore most unreasonable to attempt to

value a share of stock, held by a dissenting shareholder, utilizing valuation

techniques oriented upon inner-corporate functions and property holdings

of which the shareholder had little if any knowledge at the time he

purchased the stock.

Not can we fail to notice that the kina of apptaisal procedures

which utilize the various aforementioned approaches to valuation are most

expensive. Such approaches invariably create the spectacle of considerable

sums being spent to haul thousands of documents and numerous, but often

contradictory. expert opinions into court to be analyzed by a trial judge

who may have only a limited frame of reference in such matters.

Furthermore, many of such documents are internal and/or of a confidential

nature, as in the record before us, revealing ordinarily hidden assets and

valuations. As previously mentioned, such knowledge was largely

unknown to the shareholder at the time he purchased his stock.

Consequently, it formed little or no part of his decision to purchase the

stock or, indeed, to dissent from the tender offer and merger. On the other

hand, a great number of studies have shown that stock exchanges, such as

the New York Stock Exchange. have a reasonably efficient market, 15

13. See, ¢.g., Hurst, The Legitimacy of the Business Corporation in the Law of

the United States 1780-1970 (1970).

14 See fn. 8, supra, Note, at 1029, quoting Scott, Changes in the Mode} Business

Corporation Act (1968), 24 Bus.Law 291, 303. Also, business decisions are more

often unaffected by the desires of shareholders. See, ¢.g., 2 Davis, Corporations

(1961) 272-274.

15. See, e.g., Ball & Brown, An Empirical Evaluation of Accounting Income

Numbers (1968), 6 J. of Acc. Res. 159 (fownd that most information contained in

annual earnings announcements is anticipated by the market before the actual

A+36

meaning that the market price of a shafe will ordinarily yoy ' iromes

fashion within a range quite near the actual value of the stock. 16

By utilizing the stock market price as the beginning point of

analysis if cases such as those before us how, a gfeat many advantages

will result to shareholdets and corporations alike. One obvious benefit is

that the scope of arialysis is faitly narrowéd such that the parties may, to a

reasonable degree, predict the outcome of the proceedings. Pre-appraisal

settlement then becomies the better altemative to litigation. The harassment

potential inherent within an appraisal remedy as well as vexatious lawsuits

(by those whose real goal is simply to receive more moriey for theif stock)

will, under the within clarified standard, become much more unlikely.

Further, costs to all shareholders will be ultimately reduced by this more

straightforward proceeding.

The dissenting shareholder will bear fewer costs to exercise his

legal rights since the scope of discovery and concomitant courtfoom

presentations will be lessened. Also, the costs to the majority shafeholders

will decrease sifice less corporate funds will go toward participation in the

appraisal proceeding. Finally, a less complicated valuation proceeding will

advance the goal of streamlining corporate reorganizations and, at the same

time, protect the liquidity and value of the dissenting shareholder's stock.

report is released); Crouch, A Nonlinear Test of the Random-Walk Hypothesis

(1970), 60 Am.Econ.Rev. 199 (serial correlation tested five NYSE stocks for

special conditions and found independence in pricing); Fama & Blume, Filter Rules

and Stock Market Trading (1966), 39 J. of Bus. 226 (application of filter rules to

the DJIA stocks found independence in price behavior); Fama, Fisher, Jensen &

Roll, The Adjustment of Stock Prices to New Information (1969), 10

Intl.Econ.Rev. 1} (study of stock splits on the NYSE supports efficiency theory

sinee the market makes an unbiased forecast of the implications of the split for |

future dividends); Granger & Morgenstern, Spectral Analysis of New York Stock

Market Prices (1963), 16 Kyklos | (use of spectral analysis found independence in

prices in stocks in Standard & Poor's Industrial Index), discussed in Baumol, The

Stock Market and Economie Efficiency (1965) 40- 41; Mandelker, Risk and

Return: The Case of Merging Firms (1974), 1 J. of Finan.Econ. 303 (market

discounts néws of merger many months in advance); Scholes, The Market for

Securities: Subsiitution versus Price Pressure and the Effects of Information on

Share Prices (1972), 45 J. of Bus. 179 (study of secondary distributions found that

market anticipates information implicit in the offering).

16. See, é.g., Cootner, The Random Character of Stock Market Prices (2

Rev.Ed.1967); Mandelbrot, Forecasts of Future Prices, Unbiased Markets, and

“Martingale” Models (1966), 39 J. of Bus. 242; Lorie & Hamilton, The Stock

Market: Theories & Evidence (1973) 75-80.

A-37

Having established the accuracy and desirability of the stock

market price as an initial value in cases such as the one before us, it must

now also be pointed out that the statute requires that any effects of the

subject transaction which are caused by either appreciation or depreciation

of the market price must be removed from such price. 17 Admittedly,

merely adopting the market price established by the trading activity on the

day before the vote to initiate the merger may not suffice to fully eliminate

such effects. 18 However, Ohio’s statutory mandaie is sufficiently broad

to allow inquiry into such factors as may have created a price disparity.

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. On the other hand, any factors relating to the

merger which have artificially depressed the stock’s price ought not to

create a windfall for the tenderer at the expense of the dissenter.

Certainly prices of the stock which prevailed before the market

began to adjust for the impending merger would constitute vaiuable

evidence. This approach is currently utilized in prosecutions under Rule

10b-5 (Section 240.10b-5, Title 17, C.F.R.) (fraud on the market) where

the fraudulent transaction is measured by the difference between the market

price paid for the shares fraudulently obtained and that market price

adjusted for the appreciation or depreciation created by the fraudulent

practice. Moreover, such prosecutions presume not only that the market

efficiently incorporates information into the price but also that the price

otherwise reflects value. See, e.g., Blackie v. Barrack (C.4.9, 1975), 524

F.2d 891, certiorari denied (1976), 429 U.S. 816, 97 S.Ct 57, 50

L.Ed.2d 75; Jennings & Marsh, Securities Regulation: Cases and

Materials (1982) 1186.

Based upon the foregoing, we believe that the applicable law

stated within Parten v. Pure Oil Co. may be applied here. Furthermore, the

later amendments to the dissenting shareholder statute, R.C. 1701.85,

particularly the addition of the terms, willing buyer-willing seller, permit

the dissenting shareholders to elect to receive, in lieu of the tender

consideration, that amount which their shares would have brought on the

market at the time of the merger, had the transaction dissented from never

17. R.C. 1701.85(C) provides, in pertinent part, that: “In computing such fair

cash value, any appreciation or depreciation in market value resulting from the

proposal * * * shall be excluded.”

18. See, e.g., Mandelker, Risk and Return: The Case of Merging Firms (1974), 1

J. of Finan. Econ. 303.

A-38

occurred. The evidence adduced at the trial herein showed that there was

considerable trading of Marathon stock on the New York Stock Exchange.

The record before us indicates that from November 2, 1981 until March

10, 1982, the date of the shareholders’ vote, 35,211,100 shares of

Marathon stock had been traded on the Exchange. The trial court noted in

its opinion that “(i)f we consider that Marathon had 56,689,306 shares

outstanding on March 10, 1982, 62.112% of such shares (was) traded.”

Conceming the sale price of the Marathon stock during this period, the

court noted that: “The high during that period was 108 1/8 and the low was

70 3/4 .” The stock actually closed at 75 3/4 on March 10, 1982.

The trial court, in viewing the market activity of the Marathon

stock upon the Exchange, concluded that R.C. 1701.85, and the case law

available, would require it to give due emphasis, if not controlling

emphasis, to the market price rather than to a theoretical market value

based upon an analysis of various factors including the assets of the

corporation. The court of appeals rejected the trial court’s analysis on this

point. It held that: “(W)hat is to be valued is not the value of a single share

if it were to be sold in an isolated sale, but instead the value per share of all

the shares of the corporation. which can be determined only upon the basis

of a hypothetical market or sale of all the shares of the corporation.”

We conclude that the court of appeals mistakenly viewed the intent

and meaning of the words of the statute as well as the holdings of both

Vought and Parten. The view that fair cash value must be determined by

calculating a pro-rata share of a constructed or hypothetical purchase price

for the entire corporation where there is an actual market for the stock of

the company particularly when the stock is actively traded is simply

incorrect.

As held in Vought, and emphasized in Parten, the Ohio statute

provides for the willing seller-willing buyer standard, which is the market

value definition. It should be applied whenever the indicia of significant

market trading is manifest. Also, evidence of such market activity and

price should be of greatest significance and weight.

The statutory scheme of R.C. 1701.85 was established to enable

courts and their advising appraisers to determine not only the value of

actively traded stock, as in the case sub judice, but also the value of closely

held stock in privately or closely held corporations, which stock has little,

or no, over- the-counter trading activity. In the latter instances, the-trial

court and the appraisers would have no analysis of market activity to

apply. Under such circumstances, they may well apply the so-called

A-39

hypothetical market valuations to the dissenters’ shares. In so doing, the

court may utilize all acceptable accounting principles including asset value,

capitalization of earnings, dividend retums, management, potential growth

of corporate endeavor or product, as well as other acceptable criteria.

However, where a reasonably sufficient actual market does exist, there is

no need to construct a hypothetical market.

As noted, the court of appeals held that the fair cash value must be

determined upon the basis of a sale of “all or substantially all” of the shares

of the corporation, not just upon the determination of value of “‘a single

share” of the corporation. We believe this to be incorrect. As the court in

Parten noted, “‘(t)he statute requires that the appraisal of the fair cash value

be for a share of the stock appraised.” (Emphasis sic ) Id. at 20. The relief

being sought by the dissenting sharehol¢er is “payment to him of the fair

cash value of the shares as to which ne seeks relief. * * * “ R.C.

1701.85(A)(2). It is therefore readily apparent, from the wording of the

statute itself, that the determination of value to be made is of the value of

those shares held by the dissenting shareholders who opted not to join

with the other shareholders in approving the corporate action of merger or

other basic structural change. There is no reason to consider, nor is the

dissenting shareholder entitled to receive, any of the premium value

offered as consideration to those who in fact tendered their shares.

We determined that, in applying its “all, or substantially all”

approach to determine fair cash value of the dissenting shareholders, the

court of appeals also improperly considered the $125 per share offered by

U.S. Steel in the mid-November tender offer which was for fifty-one

percent of Marathon’s stock. This amount must reasonably be considered

as a premium offer, made to enable U.S. Steel to acquire the controlling

stock in Marathon. Further, by its terms, this premium offer was to be

apportioned only among the accepting shareholders and was not to pertain

to the other shareholders. We now hold that where there is considerable

stock market indicia upon which to rely for the determination of fair cash

value, the amount tendered to obtain the controlling interest of the

corporation is not properly includable in the determination. 19 Thus, as the

Supreme Court of Oklahoma noted in Foglesong v. Thurston Natl. Life

Ins. Co. (Okla.1976), 555 P.2d 606, 611: “The purchase of stock to gain

19. See Easterbrook & Fischel, Corporate Control] Transactions (1982), 91 Yale

L.J. 698, 708-711; Toms, supra (78 Colum.L.Rev. 548), at 556 (tender offer bid

is product of bargaining); Henry, Activities of Arbitrageurs in Tender Offers

(1971), 119 U.Pa.L.Rev. 466, 469 (risk that merger may fail is borne by

arbitrageur).

we

A-40

controlling interests is not properly includable in detennining the market

value of the shares of stock, and the court may take judicial notice of the

fact that acquisition of stock to acquire control is frequently made a

premium prices.” (Footnote omitted.) See, also, In re Valuation of

Common Stock of Libby, McNeill & Libby (Me.1979), 406 A.2d 54, 58,

fn. 3 (noting that tender offers frequently, if not usually, involve

premiums in excess of current market price); Gibbons v. Schenley

Industries, Inc. (Del.Ch.1975), 339 A.2d 460, 468 (based upon the

Statutory proceeding).

In determining the “fair cash value” of shares held by dissenting

shareholders under R.C. 1701.85, the inquiry should first focus upon the

degree of sales activity of such stock upon the major exchanges, then the

activity if any upon the smaller exchanges, or over-the-counter sales. If

there is found to be significant activity upon any of these markets, then a

court should focus upon the subject stock’s trading activity as a benchmark

for the willing seller-willing buyer standard. It is our belief that the

legislative amendments intended that where market activity is significant,

that market’s price should be utilized. With proper adjustments for the

impact of the proposed transaction dissented from, such market price-will

allow the dissenter to exit the market in basically the same manner, and by

the same terms, as he entered.

As to the adjustments to the market price to accommodate any

appreciation or depreciation present in that price because of the pendency

of the proposed merger, as required by R.C. 1701.85(C), the trial court

found that its determination of “fair cash value does not include any

‘appreciation,’ which is to say, enhancement of the value of Marathon

stock. * * * “ Marathon argues here that the correct applicable valuation

date was March 10, 1982, and that although the stock market value of a

Marathon share of stock on this date was $75.75, there was significant

evidence that the price was appreciated due to the U.S. Steel merger offer.

The record shows that from January 1, 1981 to October 29, 1981,

Marathon’s stock price had, in what one witness termed “a horrendous

bear market,” a range from a low of $46.125 on May 26, 1981 to a high of

$79.75 on August 13, 1981. Moreover, the average price over the same

period was some $60 per share. On October 29, 1981, Marathon stock

closed at $63.75 on a volume of 369,100 shares. Mobil submitted the

tender offer to purchase up to sixty-seven percent of Marathon stock for

$85 per share on October 30, 1981. Marathon stock traded on the

Exchange at $90 on November 2, 1981. The price then ranged downward

until it reached $77 per share on November 18, 1981, which was the date

A-49

issues yet to be determined and may present any new evidence upon such

issues as has not already been placed within the record.

IV > oa ye ,*

Harrell asserts that the trial court's refusal to grant a jury

trial upon the issue of fair cash value was violative of Section 5, Article I

of the Ohio Constitution, which states, in pertinent part: “The right of trial

by jury shall be inviolate, except that, in civil cases, laws may be passed to

authorize the rendering of a verdict by the concurrence of not less than

three- fourths of the jury.” Appellant also points to R.C. 2311.04 which

provides that: “ * * * Issues of fact arising in actions for the recovery of

money only, * * * shall be tried by a jury * * *.” The scope of such statute

is certainly no greater than the constitutional provision. (13)

In contrast to appellant's claim, R.C. 1701.85(B) provides that:

“The court thereupon shall make a finidng as to the fair cash value of a

share, and shall render judgment against the corporation for the payment of

it * * *.” (Emphasis added.) Quite clearly, this provision dispenses with

the requirement of a jury trial and requires that the finding be made by the

trial court, with or without the aid of an appointed appraiser.

Furthermore, the law of Ohio has, for some time, been that the

constitutional provision for a right to jury trial applies only where trial by

jury existed at common law. As early as 1799, the territorial legislature

established special proceedings to ascertain value to be paid where

otherwise a money damages action would lie. See Willyard v. Hamilton

(1836), 7 Ohio 398. In Willyard, the precise argument as presented in the

case sub judice was set forth as an objection to the statutory grant of power

to a board of commissioners to determine valuation. In commenting on the

applicability of Ohio's constitutional protections for a right to jury trial, the

court made the following observations:

“ * * * Perhaps there is no constitutional question which has ever

been discussed in this country, which has been so completely settled by

contemporaneous construction and universal acquiescence. On what

principle is it that juries are dispensed with in the greater number of our

courts, in courts of equity, courts of admiralty, courts martial, and courts

of justices of the peace. Magna charta declares that no man shall be

deprived of life, liberty, or property, but by the judgment of his peers, or

the law of the land. * * * (A)s juries were unknown in those courts before

the great charter, their disuse constituted a part of the law of the land; and,

therefore, although that charter was the first great instrument which

solemnly guaranteed jury trial to Englishmen, yet it has never been

SS ee” ,t—‘ SlCr

soa .

A-50

supposed that that institution const:tuted a part of the machinery of those

courts. * * *

“The provision in magna charta, which I have referred to, is

transcribed into the ordinance, omitting only the word life. And if the last

six articles of this instrument are of perpetual obligation, then we have in

Ohio the same law and the same course of proceeding as in Enyland, and

very nearly the same as in the other states of the Union. If the law were

otherwise, RO Courts would have time sufficient to try the infinite multitude

of actions which would arise. * * * " (Emphasis sic.) Id. at 402-403.

Th a subsequent Case, Belding v. State ex rel. Heifer (1929), 121

Ohio St. 393, 169 N.E. 301, Ohio’s General Assembly had provided that,

in parentage determinations, the trial court was to determine the amount

payable as child support, maintenance, etc. G.C. 12123, as amended April

30, 1923. In considering whether the statute violated the Ohio

Constitution, this court stated that:

“Tt was not, however, the intention of the framers of that clause *

* * t guarantee the right of trial by jury in all controversies. That guaranty

only preserves the right of trial by jury in cases where under the principles

of the common law it existed previously to the adoption of the

Constitution. The right of trial by jury has uniformly been recognized and

enforced in this state in actions for money, where the claim is an ordinary

debt, but it is equally well recognized U-xt many special proceedings for the

enforcement of a moral duty, where the payment of money is the ultimate

relief granted, does (sic ) not entitle the parties to a jury trial. > * * “ Id. at

396-397, 169 N.E. at 302.

It becomes clear that the special proceeding established by R.C.

1701.85, providing for valuation of shares by the trial court, need not

require the participation of a jury. Obviously such valuations are most

similar to those kinds of proceedings which were exempt at common law.

Accordingly, we find that the General Assembly did not violate the Ohio

Constitution by its creation of the valuation proceeding under R.C.

1701.85.

Vv

R.C. 1701.85(B) provides that following a determination of fair

cash value of the dissenters’ stock, the trial court “shall render judgment

against the corporation for the payment of it, with interest at such rate and

from such date as the court considers equitable.” At trial, the court applied

an interest rate of eight percent based upon R.C. 1343.01(A), which the

A-41

U.S. Steel made its offer. The stock went up following such offer to

$104.25 on November 19, 1981. It stayed at a little over $100 until

December 12, 1981 when the stock began to decline to the mid $70s. The

closing price, as stated, on March 10, 1982, was at $75.75.

The mandate of R.C. 1701.85 is that any appreciation or

depreciation in market value resulting from the proposal submitted to the

directors or to the shareholders shall be excluded. The above review of the

average of the stock market prices of Marathon stock between the date of

the U.S. Steel proposal and the date of the shareholders’ vote, i.e.,

between November 18, 1981 and March 10, 1982, would indicate that

there had not been significant appreciation in such prices. Any fluctuation

was apparently due to normal willing seller-willing buyer activity. The tral

court so found and denied any appreciation factor in its fair cash price

determination.

However, as stated, Marathon argues that there was a

demonstrated appreciation of the stock here, which should be factored in

by the trial court. Marathon argues that the opportunity and prospect of

Marathon stock purchasers’ receiving a note, then valued at slightly more

than $76, for each share of their stock, caused the market price of

Marathon’s shares to stay near that level. Data offered by Marathon’s

expert witnesses showed that Marathon’s stock, absent the merger offer,

would have returned to the range of other comparable oil producing

corporations which, it was shown, declined in price by approximately

thirty percent in that same period. It was testified that, absent the prospect

of exchanging stock for notes, Marathon’s stock would have fallen below

$50 per share, being adjusted to reflect the market and company outlook

during the period of October 1981 to March 10, 1982. (5)

Based upon all of the evidence presented, we hold that the trial

court should have first established the correct date for the valuation of the

stock, i.e., March 10, 1982. Second, all factors concerned with, or

reasonably affecting, any appreciation of the stock should have been

reviewed and decided by the trial court. Accordingly, this matter is

reversed and the cause is remanded to the trial court for the limited

determination of what appreciation or depreciation, if any, existed due to

the U.S. Steel proposal submitted to the Marathon shareholders.

Il.

As previously mentioned, appellee, Frances A. Armstrong, made

demand for fair cash value upon Marathon in her own name and also in the

individual names of various members of the Marathon Shareholders

A-42

Comunittee. She signed the demand letters as attorney in fact and delivered

them on March 22, 1982. The demand letters sc executed were filed within

the ten-day period prescribed by R.C. 1701.85(A)(2) which, in pertinent

part, requires that: “Not later than ten days after the date on which the vote

on such proposal was taken * * *, the shareholder shall deliver to the

corporation a written demand for payment to him of the fair cash value of

the shares as to which he seeks relief * * *.” Approximately three weeks

later, Armstrong provided evidence of her power of attorney to act for the

above shareholders.

Prior to trial, Marathon moved for summary judgment against the

above shareholders asserting that their demand letters were untimely

because no proof of the existence of Armstrong’s power of attorney was

provided until after the ten-day limitation had expired. The trial court

agreed, upon authority of Klein v. United Theaters Co. (1947), 148 Ohio

St. 306, 35 0.0. 298, 74 N.E.2d 319, and its third syllabus paragraph

which states, in pertinent part, that a shareholder has failed to comply with

the statutory demand requirements if he “did not personally make an

objection in writing to the corporation and demand the fair cash value of

his shares, and the only written objection and demand on behalf of the

shareholder was made by an agent who was a stranger to the corporation

and furnished no proof of his authority or agency, although the

shareholder did not vote in favor of the sale.’ (Emphasis added.) Also, it

was Stated in Klein “that such written authority must be displayed to or

filed with the corporation within the time limited.” Id. at 324, 35 O.O. at

305, 74 N.E.2d at 327.

The court of appeals determined that neither the statute nor the

language of Klein required proof of a power of attomey to be presented or

displayed to the corporation within the ten-day period. Although we hold

that the principles of law as set forth in Klein are valid, generally requiring

that proof of an agency relationship be submitted within the ten-day

period, we nevertheless conclude that where the agent is not a stranger to

the corporation, such principles may not be applicable. In this regard, there

are several factual distinctions between the case here and Klein.

Furthermore, because there are several rationales underlying Klein which

are not applicable to the case sub judice, we find that Klein is not

determinative of this case.

As previously mentioned, and also as pointed out in Klein, at

common law a single shareholder could, by his vote, entirely block a

merger or liquidation of assets. Id. at 317, 35 O.O. at 303, 74 N.E.2d at

324-325. Ordinarily, it is the rule that statutes in derogation of the common

A-43

law are to be strictly construed. This rule would more properly apply to the

statutory provisions which strip the shareholder of his power to block the

transaction, and not those which, by way of exchange, grant him the nght

to cash out his stock at a fair price. Of course, very little is to be gained by

strictly construing the statute against the dissenting shareholders especially

since, in the historical development of corporations, prior law allowed

individual shareholders to exercise more’ power. Therefore, those

provisions which regulate *he powers of shareholders need only be as

strictly construed as modern economic necessity would dictate and/or the

General Assembly might specifically require.

Admittedly, the use of a proxy by an agent of the shareholder is in

derogation of the common law since “(t)he right to vote at meetings

(formerly could noi) be delegated.” Id. at 319, 35 0.0. at 303, 74 N.E.2d

at 325. Currently, however, the right to utilize the services of an agent to

vote one’s shares or otherwise exercise the power of a shareholder is

granted by R.C. 1701.48(A) which provides in pertinent part that

shareholders “may be represented at (a shareholders’) meeting or vote

thereat, and execute consents, waivers, and releases, and exercise any of

his other rights, by proxy or proxies appointed by a writing signed by

such person.” (Emphasis added.)

The only relevant portion of this statute amendable to a strict

construction is the manner in which such agency relationship is to be

established, i.e., by an executed writing granting such power as is

intended, and also, by direct inference, that such writing be executed

before the exercise of the power conferred. This, of course, was quite

correctly determined in Klein, supra, at 324, 35 O.O. at 305, 74 N.E.2d a

327. On the other hand, the issue of when such authority ought to be

displayed to the corporation is not comprehended by the statute and, thus,

should not be subjected to a strict statutory or other construction. Whether

the exercise of power granted ought to be narrowly or broadly viewed

regarding the timing issue is properly determined from the necessities and

practicalities of corporate legal circumstances. ©

An example of when the power of attomey or proxy should be

displayed prior to its exercise is demonstrated by those circumstances and

legal implications of voting the shares of stock. For quite obvious reasons,

voting of stock must be done only by those who are the owners of such

stock or their designated agents. Shareholder voting directs and controls

basic corporate policy. The vote determines who will have the

responsibility of conducting the business affairs of the corporate entity.

Consequently, the identity of shareholders or their designated agents must

Se

A-44

be ascertained at the time of, or prior to, shareholder discussions or

voting. And so it is that, ordinarily, without presently demonstrable

authority to act on behalf of one who holds stock, an alleged agent may not

exercise any right, privilege, or power of a shareholder in such matters.

Indeed, the agent’s very admittance to shareholder meetings may be

conditioned upon presentation of proof of such authority, which

safeguards against outside interference into corporate matters.

A demand for fair cash value is, however, quite distinct from

voting the shares, both as to the legal consequences of the act itself as well

as to the pronounced lack of circumstances surrounding the act which

might give rise to a necessary advance proof of written authority to act.

The demand for fair cash value is not the exercise of a voting right. In fact,

under R.C. 1701.85(A), the vote for merger must already have occurred

before the right to make demand for appraisal arises. The legal effect of

such demand is that the shareholder may no longer have any voice in the

corporation’s policy determinations. R.C. 1701.85(E) provides that from

the time of demand notice, all of the shareholders’ rights to vote the shares

(supposing that the class of stock enjoys voting rights), rights to

dividends, as well as all other rights arising from stock ownership “are

suspended.” Also, upon request of the corporation, such shares must be

physically surrendered upon demand in order that the corporation may

“endorse on them a legend to the effect that demand for fair cash vaiue of

such shares has been made.” R.C. 1701.85(A)(5). This may be required

because “after the demand, they are not ‘good delivery’ as shares, since

they then represent merely an unliquidated monetary claim against the

corporation.” Committee Comment to R.C. 1701.85. Thus, rather than

being the exercise of shareholder power, such demand instead functions as

an abdication of rights and interests in the corporation. As a practical

matter, the demand serves only a notice purpose that the shareholder

prefers to sever his connection with the corporation. As previously

mentioned, the dissenting shareholder who makes a demand for faircash |

value will in all probability have’ already unsuccessfully voted against a

merger. See R.C. 1701.85(A). Such dissent, and probability of demand

for fair cash value, are therefore already manifested by the dissenting vote.

Also the demand is a further expression of dissatisfaction and seeks

compensation for the dissenting shareholder. Accordingly, there is no

A-45

then-present urgency to ensure, with absolute accuracy, that only those

qualified to make demand are, in fact, doing so. 20

Despite the inapplicability of portions of the Klein case to the one

before us, we nevertheless continue to adhere to our view that a stranger to

the corporation must provide proof of his authority to act prior to any

exercise thereof. There is present both urgency as well as concems of vital

importance when, as correctly determined in Klein, the one claiming

power to act as agent is a stranger to the corporation. Klein, supra, at 322,

35 0.0. at 304, 74 N.E.2d at 326. Such persons are third parties to the

relationship between corporation and shareholder. The corporation has no

obligation to, or authoirty over, one in such position, absent proof of

authority to act. His announcement of‘demand for fair cash value is

attended with the taint of suspicion that he acts on his own. It is, therefore,

only reasonable that the corporation not be required to presume his

authority upon his mere announcement of it. However, the shareholder

who acts for other shareholders should not be held to such a standard. He

is a fully interested party to the proceedings and is himself usually in

harmony with those shareholders whom he represents. Moreover, his

rights in making his own demand flow from his personal ownership of

stock. The nature of his position, we feel, is of sufficient proximity to

entitle him to a reasonable presumption that he possesses the claimed

written authority. The corporation may, of course, insist upon viewing

evidence of such written authority. However, prior to such demand, there

is nO requirement that a shareholder who makes demand for fair cash value

for himself and other shareholders be required to provide evidence of his

authority within the time limits imposed by R.C. 1701.85(A), so long as

20. Klein, supra, made considerable reliance upon the rationales underlying the

Delaware cases, In re Universal Pictures Co. (1944), 28 Del.Ch. 72, 37 A.2d 615,

and Friedman v. Booth Fisheries Corp. (1944), 28 Del.Ch. 211, 39 A.2d 761.

Their persuasiveness and applicability to the Ohio statute generally, and the case

sub judice in particular, are greatly undercut by the fact that the Delaware corporate

law upon which these cases were decided required a dissenting shareholder to

inform the corporation prior to the merger vote of his intent to dissent, and

demand an appraisal. It was this demand notice to which their rationales were

applicable. See, e.g., Zeeb v. Atlas Powder Co. (1952), 32 Del.Ch. 486, 492, 87

A.2d 123, 125-126. Consequently, it would be of vital importance to ensure that

the dissenter’s agent is bona fide prior to his exercise of delegated rights. The

requirement of prior proof of authority flowed from obvious concerns of fraudulent

attempts to influence the merger vote to follow and, as such, was not unlike any

other use of a proxy to vote shares. See, e.g., Zeeb, supra, at 492, 87 A.2d at

126; accord Raab v. Villager Industries, Inc. (Del.1976), 355 A.2d 888.

A-46

such authority in fact exists in writing at the time, and is later submitted to

the corporation within a reasonable time.

In conclusion upon this issue, it is quite apparent that Klein is

distinguishable from the present case. Not only was the agent in Klein a

stranger to the corporation, but he possessed no written authority to act at

the time he did so. In the case here, Armstrong was herself a shareholder,

and no stranger to the corporation. Not only did the required written

authority exist prior to her exercise thereof, but she also possessed such

authority. Moreover, she delivered proof of her authority within a

reasonable time following the filing of demand, and did not, as in Klein,

merely execute powers of attomey on the eve of litigation. We therefore

affirm the decision of the court of appeals as to this issue.

Ii.

Lillian Werk Price, Trustee (hereinafter “Price Trust”) sought a

determination as to fair cash value of those shares held in trust. During the

initial stage of the proceedings, which was specifically devoted to a

determination of which shareholders would be eligible to participate in the

later determination of fair cash value, the trial court sustained a motion for

summary judgment by Marathon Oil against Price Trust. By its entry of

final judgment of February 8, 1983, the trial court ordered Price Trust

dismissed frora the case with prejudice, which order was timely appealed

to the Court of Appeals for Hancock County.

Thereafter, the remaining parties to the statutory proceeding

entered into the trial preparation stage. This involved extensive discovery

among the remaining parties, including interrogatories and depositions.

The discovery ultimately resuited in an exchange of fifteen to twenty

thousand documents. The final pretrial conference was scheduled for

September 14, 1983 with trial to begin on October 3, 1983.

On September 6, 1983, the court of appeals reversed the decision

of the trial court and remanded the Price Trust claim for determination of

the fair cash value of Price Trust’s shares. On September 8, 1983, Price

Trust moved for a continuance of thirty days as to both the pretrial

conference and the trial date. The trial court denied the motion on the very

day it was made, as it also did for the September 14, 1983 motion for

reconsideration. On September 15, 1983, Price Trust requested a

continuance of six months which was again denied on that same day. Price

Trust ultimately appealed this issue, following trial, to the court of appeals

which held that the trial court abused its discretion by denying a

continuance. Marathon has appealed such decision to this court, arguing

A-47

that the trial court’s decision was within its sound discretion. We now

affirm the determination of the court of appeals in part and modify in part.

It is uncontested that Price Trust did not participate in any

discovery from the time of dismissal until such error was corrected by the

court of appeals. This was, of course, the major reason that a continuance

was sought. It is also undisputed that Marathon’s right to’ appeal the

decision of the court of appeals to the Ohio Supreme Court had not lapsed.

Further, the chief counsel for Price Trust was out of town, due to a family

death, from September 6, 1983, which was the day the decision of the

court of appeals was released, until approximately September 12, 1983.

Against the above excellent grounds for granting a continuance,

none of which were contrived, dilatory, or resulted from any act of Price

Trust, Marathon asserts that the trial court had extended to Price Trust's

counsel an invitation to continue discovery pending appeal. Such claim is

based upon correspondence from Judge Walker to Price Trust’s counsel

which stated: “I am enclosing herewith a copy of the entry setting up the

pretrial conference in the Marathon cases for February 22, 1983.

“I understand that each of you (is) appealing certain rulings of the

Court and that the Court of Appeals has not ruled in any of these cases but

you are each welcome to attend. Your participation will be covered by the

Court, however, you have every right to confer with all other counsel.”

(Emphasis added.)

It is Marathon’s contention that Price Trust made “a conscious

tactical decision, in the face of an approaching trial date, not to participate

in the discovery proceedings.” This, it is asserted, was part of a deliberate

risk which Price Trust took “that if the appeal were successful, Price

would be facing a trial date in October of 1983. * * *”

It appears that both Marathon and the trial court have

overbroadened the scope and degree of power availabie to trial courts in

circumstances such as those before us. One who, as Price Trust, is

dismissed with prejudice from a consolidated action before the trial court

no longer has any standing to pursue discovery. Also, it is a contradiction

to dismiss a party’s claim? on its merits, and yet attempt to provide

continued “participation” during the pendency of the appeal. Moreover, a

trial court may not order any remaining parties, such as Marathon, to

comply with discovery requests presented by one who is no longer a party

to the action. Final judgment by the trial court brings io an end its

jurisdiction over the party whose claim is so adjudicated. (11)(12)

A-48

Upon remand from the court of appeals, Price Trust was entitled

to a reasonable discovery period prior to trial. It is basic law that an “action

of the Court of Appgalgin.reversing the cause and remanding the case to

the Court of Common Pleas for further proceedings has the effect of

reinstating the cause to the Court of Common Pleas in statu quo ante. The

cause is reinstated on the docket of the court below in precisely the same

condition that obtained before the action that resulted in the appeal and

reversal.” 5 Ohio Jurisprudence 3d (1978) 426, Appellate Review, Section

717. (Emphasis added.) Furthermore, this court has specifically held that

upon remand from an appellate court the lower court is required to proceed

from the point at which the error occurred. State ex rel. Stevenson v.

Murray (1982), 69 Ohio St.2d 112, 113, 23 0.0.3d 160, 431 N.E.2d

324, 325. In the case sub judice, Price Trust was ruled ineligible to

proceed at what was a preliminary stage in the proceedings. Upon remand,

it therefore should have been permitted to continue the presentation of its

case from its last procedural position prior to dismissal. This would have

entitled Price Trust to a reasonable discovery period to prepare its Case.

Specifically, the correct procedure here would have been to continue all of

the cases for a reasonable period of time.

Price Trust’s claim had been consolidated with the claims of the

other dissenting shareholders into a single action for fair cash value of their

shares. Based upon the statutory command to determine “the fair cash

value of a share “ (emphasis added), it may be concluded that the intent of

the General Assembly was that a single determination under R.C. 1701.85

be conducted and not multiple proceedings upon the same issue, with

various potential outcomes. Had Price Trust sought a continuance for itself

alone, or, had the trial court ordered such, neither of which occurred in the

case here, then Price Trust would have had to overcome both collateral

estoppel and statutory barriers to a later proceeding.

We therefore affirm the determination of the court of appeals that

the trial court erred in this regard. However, from the time of the denial of

the motions for continuance Price Trust has received considerable

documentation, including fifteen to twenty thousand documents six days

before trial. It has since had considerable time in which to make its

evaluation of such material as well as the testimony of the exper

witnesses. Also, the issues, pursuant to our determination of the first

(valuation) issue above, have been considerably narrowed, and are

resolvable without recourse to a further evidentiary hearing. Nevertheless,

Price Trust may, if it so chooses, engage in a limited discovery upon those

Sie te RN OE EM NLOE Pte ol RR ee IY Cadet

A-53

case. However, 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 utilized is

compensable so long as it does not seek to overtum 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. See Radol v. Thomas

(C.A. 6, 1985), 772 F.2d 244, certiorari denied (1986), 477 U.S. ——,

106 S.Ct. 3272, 91 L.Ed.2d 562, wherein a considerable number of

Harrell’s claims were considered and rejected.

The cause is accordingly remanded to the trial court for

proceedings not inconsistent with this opinion.

Judgment affirmed in part, reversed in part and cause remanded.

MOYER, C.J., and PATTON, LOCHER and WRIGHT, JJ.,

concur.

DOUGLAS and HERBERT R. BROWN, JJ., separately concur

in part and dissent in part.

PATTON, J., of the Eighth Appellate District, sitting for

SWEENEY, J.

DOUGLAS, Justice, concurring in part and dissenting in part. I

concur in the judgment of the majority as to the determination of fair cash

value. I unly write separately to indicate my disagreement with the analysis

of the majority on some of the issues such as the questions invoiving the

Price Trust and the Armstrong authority. It is my judgment that the trial

court did a remarkable job under difficult circumstances. Judge Walker's

disposition of the case should be reinstated in its entirety except for the

determination of the fair cash value. It is understandable why Judge

Walker would use the method he used to determine fair cash value rather

than following the strict dictates of R.C. 1701.85(C). However, I read

R.C. 1701.85(C) to be mandatory and therein lies my only disagreement

with the trial court’s judgment. Whichever method is used, that adopted by

the trial judge or the procedure outlined in R.C. 1701.85(C), will make

very little difference in the ultimate fair cash value determination.

Accordingly, I would reverse the court of appeals and remand the

Cause to the trial court for the sole determination of fair cash value using

the formula set out in R.C. 1701.85(C). I would reinstate the remainder of

the judgment of the trial court in al! respects.

A-54

HERBERT R. BROWN, J., concurring in part and dissenting in

part. I agree with the well-reasoned opinion authored by Justice Holmes,

except in one respect.

I cannot agree that the trial judge abused his discretion in not

granting a continuance of the trial date, as requested by the Price Trust. In

complex, multi-party litigation such as the case sub judice, deference must

be given to the problems a trial judge faces in bringing the issues to trial.

Here, there are three reasons to uphold the trial judge’s ruling

denying the continuance: First, Price Trust has raised no substantive issue

that was not presented by the other dissenting shareholders. Second, Price

Trust had available to it the voluminous discovery conducted by the other

dissenting shareholders. Finally, given the disposition which we make on

the valuation issues, it is difficult to see what remains to be discovered.

The majority opinion states: “(T)he issues, pursuant to our determination

of the first (valuation) issue above, have veen considerably narrowed, and

are resolvable without recourse to a further evidentiary hearing.”

(Emphasis added.) Having found that there is no need for an evidentiary

hearing, the majority opinion, in the next sentence, makes the astonishing

pronouncement: “Nevertheless, Price Trust may, if it so chooses, engage

in a limited discovery upon those issues yet to be determined and may

present any new evidence upon such issues as has not already been placed

within the record.” (Emphasis added.)

] think, in charging the trial judge with abuse of discretion, we

demonstrate a lack of sensitivity to the realities of this case.

A-63

al., do contend that net asset value of the stock should be taken into

consideration and indicate that they would like the stock to be valued upon

the basis of net asset value, the fact that they might urge net asset value as

being most indicative of fair cash value does not justify disregard of all of

the evidence adduced by Armstrong, et al. Net asset value was admissible

evidence bearing upon the price that a willing buyer would pay and a

willing seller would accept for substantially all of the shares of Marathon

on the day before the merger vote, as is the evidence of the tender offer of

U.S. Steel and the acceptance thereof by the holders of more than ninety

percent of the shares of Marathon stock.

On the other hand, Marathon's evidence of a value of less than

$50 per share was predicated upon an estimated value of the price for

which the remaining forty-nine percent of Marathon sales would sell in

isolated sales on the New York Stock Exchange, had there been no

merger, ignoring the value of the fifty-one percent of outstanding shares

acquired by U.S. Steel. However, the value per share must take into

account all the shares of Marathon stock, including those acquired by U.S.

Steel through its tender offer. Although Marathon did present testimony

of an expert opinion as to what would have been the stock market price of

Marathon stock on March 10, 1982, had there been no tender offer by

anyone, or if there had been an unsuccessful tender offer, such evidence

was little more than conjecture and, in any event, did not purport to

constitute an opinion as to the per-share value of Marathon stock in a sale

involving all, or substantially all, of the shares of Marathon stock.

Although stock market value may be controlling evidence of the

market value of stock for other purposes, such as estate valuation, R.C.

1701.85 specifically contemplates that a dissenting shareholder will be

paid fair cash value for his stock. Because of the very nature of the

statutory transactions covered by R.C. 1701.85, the result is transfer of

the ownership of the corporation, rather than the isolated sale of a small

fractional portion of the outstanding shares of the corporation. Fair cash

value within the purview of R.C. 1701.85 necessarily, therefore, must

contemplate the per-share value of the corporation stock in a transaction

involving sale of all, or substantially all, of the outstanding shares of the

corporation. For that purpose, the willing buyer/willing seller definition

applies, not with respect to the sale of a single share or small number of

shares of the corporation but with respect to the sale of all, or substantially

all, of the shares of the corporation. Necessarily, this must be a

hypothetical market as indicated in Vought since, ordinarily, there is no

actual market for the sale of all the outstanding shares of stock of a

corporation, although in this case there is evidence both of unsuccessful

A-64

and successful tender offers for a substantial portion of the outstanding

shares of Marathon.

The hypothetical market value approach to determination of fair

cash value, which we have outlined herein, is not only consistent with

present R.C. 1701.85, but also is consistent with the instruction found to

be erroneous by the second paragraph of the syllabus of Roessler. Also,

the hypothetical market approach with respect to all, or substantially all,

the shares of the corporation necessarily precludes fair cash value, being

determined upon the basis of the intrinsic value of the shares. Thus,

the instruction rejected by the second paragraph of the

syllabus of Roessler, the term "fair cash value” means a sum equal to the

price per share, which it is reasonably probable would have resulted from

a sale of all, or substantially all, the shares of the corporation for cash,

after fair negotiation between a bona fide purchaser, able and willing to

buy for cash, but under no compulsion to buy, and an owner willing to

sell but under no compulsion to sell, after fair and reasonable efforts to

obtain the purchaser who would pay the highest price.

Although we agree with Marathon that, under present R.C.

1701.85, fair cash value does not mean intrinsic value, we disagree with

Marathon's hypothesis that, under present R.C. 1701.85, fair cash value

is equal to the market price for which a single share of stock would sell on

the market if offered for sale. R.C. 1701.85(C) does define fair cash value

of a share terms of market value as being the amount "which a willing

seller, under no Compulsion to sell would be willing to accept. and which a

willing buyer, under no compulsion to purchase, would be willing to

pay.” However, R.C. 1701.85(C) does not dispense with the underlying

meaning of fair cash value, and the market must be one upon which all, or

substantially all, of the shares are offered for sale in a single transaction,

the underlying meaning of fair cash value considered by the Supreme

Court in Roessler in adopting the intrinsic value approach to fair cash

value.

The legislature, however, recognized that a willing buyer of all, or

substantially all, the shares of a corporation might not be willing to pay the

per-share intrinsic value for each share of stock because cf other

circumstances. Thus, the legislative defined fair cash value in terms of the

price that a willing buyer would be willing to pay and a willing seller

would be willing to accept, but did not preclude consideration of the per-

share value of all the shares of the corporation sold in a single transaction

because this is essentially the circumstance involved, since in case of a

merger, all of the shares of the corporation are sold or exchanged, and an

A-51

court asserted, was “*(t)he maximum rate of interest in Ohio.” Despite the

fact that such evidence was so offered, it was that court’s view that it need

not consider evidence of other possible rates of interest.

The court of appeals reversed the decision of the trial court. It held

that the trial court “applied a statutory rate which is neither applicable nor

controlling.” Insofar as R.C. 1701.85 sets forth a “special proceeding”

within the meaning of R.C. 2505.02, and one which provides for an

interest rate based upon all equitable considerations, we are constrained to

agree with the court of appeals that the statutory rate was not controlling.

The trial court therefore should have considered other evidence as

presented by the parties, including, but not limited to, the prevailing rate of

interest for various kinds of loans, the average prime rate over that period

of time and any other such evidence. The sole statutory constraint is found

in R.C. 1343.01 et seq. which prohibits a usurious rate of interest.

We do not, however, consider the statutory allowance of interest,

upon whatever fair cash value is determined, to provide for an additional

hearing. It is sufficient that the parties submit written briefs upon this issue

and their evidence. Upon such basis, the trial court may, within its own

discretion, determine an interest rate “which the court considers equitable.”

There is, of course, no question that such an award is interest upon the

value of the shares and, despite tax considerations, not a damages award.

VI

Finally, Dorothy Harrell appeals the decision of the courts below

which refused to allow her to join numerous other causes of action into the

R.C. 1701.85 proceeding. Supporting her on this issue are amici curiae,

Charles Nickels et al.

These causes of action arise out of the actions of the Marathon

board of directors in structuring and consummating the tender offer-merger

transaction before us. The essence of these claims, primarily equitable in

nature, is that the board of directors and controlling shareholders of their

company breached their fiduciary duties in connection with the initiation,

timing, negotiation, structure, approval, etc., of that merger.

Consequently, plaintiffs and amici would require an inquiry into the entire

fairness of the transaction and, presumably, allow whatever inquiry is

necessary on the issue of the value of the corporation in light of the price

offered to the dissenting shareholders for their stock, citing Weinberger v.

UOP, Inc. (Del.1983), 457 A.2d 701, and Rabkin v. Philip A. Hunt

Chemical Corp. (Del.1985), 498 A.2d 1099. See, also, Singer v.

A-52

Magnavox Co. (Del. 1977), 380 A.2d 969; Tanzer v. International General

Industries, Inc. (Del.1977), 379 A.2d 1121.

Although not dwelt upon in the briefs, Rabkin, supra, and Singer

supra, allow the maintenance of an alternative cause of action in addition to

the Delaware statutory proceeding for the appraisal of dissenting

shareholders’ stock. Del.Code Ann. Title 8, Section 262 (1975). The -

Delaware statute,-of course, relied specifically upon the stock market price

as representing the value of the stock. Id. at Section 262(k), deleted by

amendment (1983). By allowing the additional cause of action outside the

Statutory guidelines, the courts of Delaware permitted analysis of the

amount offered to minority shareholders under theories of breach of

fiduciary duties, lack of proper business purpose in cashing out the

minority shareholders, gross inadequacy of price, misrepresentations in

the proxy statement, failure to consider the “full value” of the shares, and

that by breach of these fiduciary duties, the corporation failed to pay the

full, fair value of the shares held. Obviously, such causes of action,

centering as they do around the issue of whether the transactions provided

“entire fairness” to the dissenters, permit a full inquiry into the intrinsic

value of the dissenters’ stock utilizing “any techniques or methods which

are generally considered acceptable in the financial community and

ertt i admissible in court.” (Emphasis added.) Weinberger, supra, a

713.

The issue accordingly narrows to whether the statutory proceeding

under R.C. 1701.85 is the exclusive means for the determination of the

price that shall be paid for those shares held by the dissenting

shareholders. For those reasons which follow, we must hold that the

Statutory proceeding alone should be used to determine such value.

As demonstrated in Part I, supra, the legislature has evidenced a

specific intent to narrow price considerations to those pertinent to the

willing buyer- willing seller standard. R.C. 1701.85(C). This invariably

refers to the market price of the stock and, where sufficiently traded, the

stock market price. Moreover, we have indicated the preferability of the

stock market price as representative of the value of the dissenters’ shares.

The causes of action contended for go well beyond the stock market

standard.

Therefore, the statutory proceeding under R.C. 1701.85 is the

sole means for determining the value of a dissenter’s shares in the present

21. See fns. 5-10, supra, and accompanying text.

A-55

LILLIAN WERK PRICE, TRUSTEE, ET AL., PLAINTIFFS-

APPELLANTS

CROSS-APPELLEES, v. MARATHON OIL COMPANY (NOW

MARATHON

PETROLEUM (COMPANY), DEFENDANT-APPELLEE CROSS-

APPELLANT

GORDON T. HODDINOTT, PLAINTIFF-APPELLANT CROSS-

APPELLEE, v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE CROSS-

APPELLANT

DONALD M. WHITE, PLAINTIFF-APPELLANT CROSS-APPELLEE

v.

MARATHON OIL COMPANY, DEFENDANT-APPELLEE CROSS-

APPELLANT

CEDE & CO., ET AL., PLAINTIFFS-APPELLANTS CROSS-

APPELLEES,

v. MARATHON OIL COMPANY, DEFENDANT-APPELLEE CROSS-

APPELLANT

DOUGLAS B. LITTLEWOOD, PLAINTIFF-APPELLANT CROSS-

APPELLEE,

v. MARATHON OIL COMPANY, DEFENDANT-APPELLEE

CROSS-APPELLANT

FRANCIS A. ARMSTRONG, ET AL, PLAINTIFFS-APPELLANTS

CROSS-APPELLEES, v. MARATHON OIL COMPANY,

DEFENDANT-APPELLEE CROSS-APPELLANT

Price, Hoddinott, White, Cede & Co., Littlewood,

Armstrong v. Marathon Oil Co.

Nos. 5-84-4; 5-84-5; 5-84-6; 5-84-7; 5-84-8; 5-84-9

Court of Appeals, Third Appellate District of Ohio, Hancock

County, Ohio

January 14, 1986;

DISPOSITION: Judgment reversed and cause remanded. JUDGES:

WHITESIDE, J., of the Tenth Appellate District, sitting by assignment in

the Third Appellate District. GUERNSEY, P.J., and MILLER, J., concur.

OPINION: WHITESIDE, J.

This is an appeal from a judgment of the Hancock County Court

of Common Pleas with respect to valuing the shares of Marathon Oil

Company (hereinafter Marathon) the day before its merger with a

subsidiary of the United States Steel Corporation, the subsidiary being

named Marathon Petroleum Company. nl The appellants, Frances A.

Armstrong, et al., are dissenting shareholders (hereinafter Armstrong, et

A-56

al.), who objected to the merger and brought this action pursuant to R.C.

1701.85.

Early in 1981, the management of Marathon recognized that

Marathon might be a "takeover" target because Marathon stock was

selling on the New York Stock Exchange at a price significantly lower

than the market value of the company's assets. Accordingly, Marathon

had two market evaluaiions made, one extemally by First Boston

Corporation, a New York investment banking firm, and the other

internally by John F. Strong, the assistant to the president of Marathon.

The First Boston report indicated a per-share value of Marathon stock of

between $188 and $225; whereas, the Strong report indicated a per-share

value of Marathon stock of between $276 and $323. Both of these reports

were predicated upon the net equity value of Marathon, that is, the value of

Marathon assets less liabilities.

On October 30, 1981, Mobil Corporation announced a tender

offer to purchase up to forty million shares (approximately sixty-seven

percent) of Marathon stock at $85 per share and indicated that, if

successful in acquiring at least thirty million shares (approximately fifty-

one percent of outstanding stock), Mobil would seek to acquire the

remaining shares through an exchange or merger offer, by which

shareholders would receive securities valued by Mobile at $85 per share.

The next day, the Board of Directors of Marathon, called into emergency

session, determined the Mobil offer to be grossly inadequate and not in the

best interest of Marathon or its shareholders and authorized Marathon

officers to take steps necessary to block Mobil's takeover attempt,

including: (1) the sending of letters to Marathon shareholders urging them

not to tender their shares to Mobil; (2) filing an action seeking to enjoin the

Mobil takeover, (3) the undertaking of efforts to secure a "white knight" to

extend a friendly takeover tender; and (4) consideration of a complete or

partial liquidation of Marathon.

On November 1, 1981, Marathon filed an action in the United

States District Court seeking to enjoin the planned takeover by Mobil,

which action was eventually successful. The aid of First Boston was

enlisted to search for other companies which might be interested in

acquiring Marathon ata price substantially higher than the Mobil offer.

Such search for a “white knight" was successful culminating in the

announcement on November 19, 1981, that Marathon and U.S. Steel had

entered into a merger agreement. Under the U.S. Steel proposal, U.S.

Steel would extend a tender offer for fifty-one percent of the outstanding

stock of Marathon at a price of $125 per share, to be followed by a

merger proposal in which each remaining Marathon shareholder would

A-57

receive a $100 face value twelve-year bond, paying a guaranteed twelve

and one-half percent interest, for each remaining share of Marathon stock.

Although approximately forty-seven percent of Marathon shares

were tendered to Mobil in response to its tender offer $85 per share, by

December 4, 1981, approximately 91.4 percent of Marathon shares had

been tendered to U.S. Steel.

As part of the U.S. Steel offer, it received an option to purchase

ten million authorized, but unissued, shares of Marathon for $90 per

share, as well as an option to purchase one of Marathon's largest assets, a

forty-eight percent interest in the Yates field for 2.8 billion dollars. Not

only was there litigation in the federal court with respect to Mobil's tender

offer, but also an action was commenced in federal court with respect to

the U.S. steel tender offer.

On December 23, 1981, the United States Court of Appeals for

the Sixth Circuit affirmed a district court ruling that the two options

granted U.S. Steel were illegal and manipulative and ordering U.S. Steel

to relinquish them. On the next day, upon remand, the district court

extended to January 6, 1982, the withdrawal date, by which shareholders

could withdraw their acceptance of the U.S. Steel offer but made no

change of the December 4, 1981 proration date, that is the date by which

Marathon shareholders had to tender their shares to U.S. Steel.

Accordingly, on January 7, 1981, U.S. Steel purchased approximately

fifty-one percent of Marathon stock, consisting of approximately 30

million of Marathon's outstanding shares, by accepting the tenders of more

than ninety percent of the Marathon stock on a proration basis.

In the interim, Mobil announced that, if the U.S. Steel offer

including the options were ruled illegal, it, Mobil, would increase its

tender offer to $126 per share. Additionally, Gulf Oil Company proposed

to discuss a merger with Marathon ata price of approximately $120 per

share, but no meaningful negotiations took place.

Subsequently, on March 11, 1982, the second step of the

acquisition of Marathon by U.S. Steel was completed by approval of the

merger by shareholders. owning more than two-thirds of all Marathon

shares, including the fifty-one percent now owned by U.S. Steel.

Thereafter, dissenting shareholders, following the procedures of R.C.

1701.85, commenced this action to have the value of their shares

determined and paid for by Marathon. At the ensuing trial, the dissenting

shareholders, Armstrong, et al., presented evidence, including expert

testimony that the value of Marathon stock on March 10, 1982, was

between $163 and $235, one expert testifying the value to be 4200, plus or

minus fifteen percent (Tr. 1026-1027), and another testifying that the value

< adh ooo |

Pah prc mtn anes 1s Ee a0

A-58 :

was approximately $197 per share (Tr. 1865-1881). Marathon introduced

expert evidence that the per-share value of Marathon stock on March 10,

1982, would be as low as $47.43. (Tr. 2564.) On March 10, 1982, the

day befcre the approval of the merger, Marathon stock sold on the New

York Exchange for $75.75. The trial court rendered a sixty-five page

decision, finding the per-share value of Marathon stock on March 10,

1982, to be $78 per share. It is from the ensuing judgment that the

dissenting shareholders, Armstrong, et al., have appealed, raising eight

assignments of error as follows: "I. The Common Pleas Court erred in its

determination of "Fair Cash Value.’ "II. The Common Pleas Court erred in

awarding interest at the rate of only eight percent per annum. "III. The

Common Pieas Court erred in ruling the demands for fair cash value made

pursuant to valid powers of attomey were ineffective. "IV. The Common

Pleas Court erred in ruling the powers of attomey signed by plaintiffs

Auer, Hutchins and Lott to be ineffective. "V. The Common Pleas Court

erred in ruling the demand of plaintiffs Kitzler to be ineffective. "VI. The

Common Pleas Court erred in ruling that the term ‘deliver’ as used in R.C.

@ 1701.85 means ‘physical receipt’ by Marathon.

"VII. The Common Pleas Court erred in failing to find that

plaintiffs Moore, Turkin and Flowers demonstrated ‘good cause’ for their

failure to deliver their share certificates to Marathon for legending. "VIII.

The Common Pleas Court erred in failing to award all plaintiffs semi -

annual payments of interest."

Additionally, Marathon filed a cross-appeal and a cross-

assignment of error as follows: "In determining the fair cash value of a

share of Marathon stock on March 10, 1982, the Court of Common Pleas

erred in using the market value of Marathon stock as of January 6, 1982,

since that value overstated fair cash value and did not, in accordance with

O.R.C. @ 1701.85, calculated fair cash value as (i) the market price at

which a wiiling buyer and a willing seller would and did transfer a share of

Marathon stock on March 10, 1982, the day prior to the shareholder vote

on the merger in question, (ii) with such market price adjusted to exclude

appreciation due to the pending merger."

The threshold issue, and that raised by Armstrong's first

assignment of error, and by Marathon's cross-assignment of error, is

whether the trial court erred in its determination of fair cash value of

Marathon shares both from a factual and legal standpoint; that is, whether

the trial court correctly applied R.C. 1701.85.

In Roessler v. Security Savings & Loan Co. (1947), 147 Ohio St.

480, the Supreme Court held in the first paragraph of the syllabus: "The

‘fair cash value’ which a dissenting shareholder in a corporation is entitled

A-59

to receive for his shares in a proceeding brought pursuant to Section 8623-

72, General Code, is the intrinsic value of the shares determined from the

assets and liabilities of such corporations, upon consideration of every

factor bearing on value."

At that time, former G.C. 8623-72 contained no definition of fair

cash value but provided that a dissenting shareholder "shall be paid the fair

cash value of his shares as of the day before the vote was taken authorizing

any such action, excluding from such fair cash value any appreciation or

depreciation and consequence of the consolidation or other matter which

entitled him to such relief * * *." Former G.C. 8623-72 also provided that

appraisers should be appointed to determine this fair cash value upon

instructions from the court as to their duties, and that the court "on such

evidence as the court may consider relevant," should confirm the award of

the appraisers if it be found to be reasonable. In 1955, former G.C. 8623-

72, then recodified as R.C. 1701.80, was amended and renumbered R.C.

1701.85, to include a definition of fair cash value, which definition

remains in effect in present R.C. 1701.85(C), which provides in pertinent

part: "In the case where the proposal was required to be submitted to the

shareholders of the corporation, fair cash value shall be determined as of

the day prior to that on which the vote by the shareholders was taken. * *

* The fair cash value of a share for the purposes of this section, is the

amount which a willing seller, under no compulsion to sell, would be

willing to accept, and which a willing buyer, under no compulsion to

purchase, would be willing to pay, but in no event shall the amount thereof

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.”

It is apparent that the legislature sejected the intrinsic value

definition of fair cash value adopted by the first paragraph of the syllabus

of Roessler and, instead, adopted the equivalent of the trial court

instruction rejected by the second paragraph of the syllabus of Roessler

that:'[T}he term "fair cash value” means a sum equal to the price which it is

reasonably probable would have resulted from a saie of said shares for

cash, after fair negotiation between a bona fide purchaser, able and willing

to buy for cash, but under no compulsion to buy, and an owner willing to

sell, but under no compulsion to sell, after fair and reasonable efforts to

obtain the purchaser who would pay the highest price."

The simplistic approach to determination of fair cash value of

stock traded on the New York Stock Exchange, or other equivalent

exchange, would be to obtain the New York Stock quotation for the day

Oe eee

Sere a tA in ka hl os de

A-60

before the stockholder vote resulting in the merger. However, necessarily,

such a stock market price will be influenced by the merger proposal and

must be adjusted for appreciation or depreciation in price as a result of

such proposal. However, such simplistic approach, as is demonstrated by

the evidence in this case, is not necessarily indicative of fair cash value.

While stock may be traded on a stock exchange, it also may be sold

privately and may be sold in large groups-between individuals, including a

transaction such as took place in this case by the U.S. Steel acquisition of

fifty-one percent of the shares of Marathon through a tender office.

Significantly, the legislature elected no to change the determination

from fair cash value to fair market value but, instead, defined fair cash

value in terms of willing buyer and willing seller after adjustment for

appreication or depreciation resulting from the action from which the

shareholder dissents.

In Vought v. Republic-Franklin Ins. Co. (1962), 117 Ohio App.

389, a hyp

This text is long and has been trimmed here. Open the source document for the complete record.