Opposition Brief — Burke v. Jacoby
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No. 92-1490 a
IN THE
Supreme Court of the United States
OCTOBER TERM, 1992
>
JEAN LORELLE BURKE
Petitioner,
ROBERT E. JACOBY,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT
RESPONDENT?’S BRIEF IN OPPOSITION
JOHN HARTIJE*
A. KAIPER WILSON
ROBERT S. SHWARTS
KRONISH, LIEB, WEINER &
HELLMAN
1345 Avenue of the Americas
New York, New York 10105-0202
(212) 841-6000
Attorneys for Respondent
Robert E. Jacoby
*Counsel of Record
April 12, 1993
ee ee
“REST AVAILABLE COP
QUESTIONS PRESENTED FOR REVIEW
1. Did the United States Court of Appeals for the Second
Circuit follow this Court's applicable decisions when it con-
cluded that a claim for violation of Section 10(b) of the Secu-
ritics Exchange Act of 1934 cannot survive a motion for
Summary judgment where there is no evidence that the plain-
tiff suffered any loss as a result of alleged misrepresentations
and omissions?
2. Is there any basis for this Court to exercise its power of
Supervision to require the Second Circuit to certify a question
of settled law to New York State’s highest appellate court?
TABLE OF CONTENTS
PAGE
QUESTIONS PRESENTED FOR REVIEW... «065. casssuee i
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SALOMON! OF THE CARS. ..<<.<ses00s055 50sec 2
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Petitiome;r's LAW oo iis 6 ccavicneue ae eee 5
REASONS FOR’ DEN TING THE WRIT... <<a. sasacuuees 8
I. Petitioner’s inaccurate presentation of her case
provides an independent basis for denying her
PRTG: «aviv scckeseeekcahees 5 eeeee tee se ane 8
Il. The Second Circuit’s decision conforms with this
Court’s applicable standards. .....................05 9
III. There is no basis for this Court to exercise its
power Of supervision to require the Second Circuit
to certify a question of settled law to the New York
State Court of ApOOels.. 065.005 cnc eee 15
CONCLUSIOIN, «os. «+0 s0acsis sans nape ee nina 18
APPENDIX
Slip Opinion of the Court of Appeals for the Second
Circuit, dated December 29, 1992 .............. Al
New York Business Corporation Law § 623 ......... Al9
ill
TABLE OF AUTHORITIES
Cases: PAGE
Affiliated Ute Citizens v. United States, 406 U.S. 128
(EASES CGN arene ee i iz, 3
Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557,
mem WO, Wem OT CEDOR) ooo vcsccicacccccccces 16
Arthur Young & Co. v. Reves, 937 F.2d 1310 (8th Cir.
1991), cert. denied, 112 S. Ct. 1165 (1992).......... 13
Bennett v. United States Trust Co., 770 F.2d 308 (2d Cir.
1985), cert. denied, 474 U.S. 1058 T ) SaaRee ee 13
Breed v. Barton, 54 N.Y.2d 82, 444 N.Y.S.2d 609
aU ss tee yaad oa hock ka ok ow eccn. 16
Carlton v. Franklin, 911 F.2d 721 (4th Cir. 1990)
(unpublished decision reported at 1990 U:S. App.
LEXIS 12946) ......... PMN CaN Ug ah eh as be teed 13
Carroll v. Seacroft, Ltd., 141 A.D.2d 726, 529 N.Y.S.2d
RO 16
Cawley v. SCM Corp., 72 N.Y.2d 465, 534 N.Y.S.2d 344
ON CNL 5 uy sc54 bu ois cavaeesccvccusnucs 16
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ......... 10, 14
Currie v. Cayman Resources Corp., 835 F.2d 780 (11th
Ue ec eyck sa ce sab sudccaxcascns 13
Federal Deposit Insurance Corp. v. Ponce, 904 F.2d 740
ES 17
Huddleston v. Herman & MacLean, 640 F.2d 534 (Sth Cir.
Unit A 1981), aff'd in part, rev'd in part on other
rime, Mae Wm. 57S (1983)... ccc ccc ccacne 13
iV
PAGE
Johnson v. John Deere Co., 935 F.2d 151 (8th Cir.
SB 6 cee ha cles ONE ERROR en ee EERIE 17
Lehman Brothers v. Schein, 416 U.S. 386 (1974)......... 17
LHLC Corp. v. Cluett, Peabody & Co., Inc., 842 F.2d 928
(7th Cir.), cert. denied, 488 U.S. 926 (1988)......... 13
Madison Consultants v. Federal Deposit Insurance Corp.,
(iis w Byer bs Ae < | reese re rere 12
Matsushita Electric Industrial Co. v. Zenith Radio Corp.,
ee ee ee ee er rey rarer 10
McGonigle v. Combs, 968 F.2d 810 (9th Cir.), cert.
dismissed sub nom. Casares v. Spendathrift Farm,
Fe. TES BGs Fe Ce soe che ares Ces cn chewnns <> 13
Rank Organization Ltd. vy. Pathe Laboratories, Inc.,
33 Misc. 2d 748, 227 N.Y.S.2d 562 (Sup. Ct. N.Y.
CE TIED sincere sviadeseckciaevneletvinassesessds 16
Walter J. Schloss Associates v. Arkwin Industries, Inc..,
61 N.Y.2d 700, 472 N.Y.S.2d 605 (1984) (adopting
dissenting opinion of Mangano, J., inthe Appellate
Division as the New York State Court of Appeals’
opinion (90 A.D.2d at 153-62, 455 N.Y.S.2d at
a LY |) ene eT ers ree Ptr ity 15, 16
Wilson v. Ruffa & Hanover, 844 F.2d 81 (2d Cir. 1988),
aff’ d on rehearing sub nom. Wilson v. Saintine
Exploration & Drilling Corp., 872 F.2d 1124
PD AD | reer Pesce fare yy eae
Statutes and Rules:
Securities Exchange Act of 1934 §10(b), 15 U.S.C.
S TEMG) CIRO) oc cesviseensascunasencessneciewneeee 5
PAGE
N.Y. Bus. Corp. Law § 623 (McKinney 1986 & Supp.
1992) (copy appended to this brief) ............2, 15, 16
Rule 10b-5, 17 G.F.R. § 240.10b-5 (1992) .....0 0000000... 5
supreme Court Rule 14.5 ........ 5. cccccccncncscescucccccs 9
Rules of the United States Court of Appeals for the
OUND SWCUE © GEE oe eos vos coe wna dvdcnvceiiene 15
IN THE
Supreme Court of the Wnited States
OCTOBER TERM, 1992
No. 92-1490
—j>_
JEAN LORELLE BURKE,
Petitioner.
—V.—
ROBERT E. JACOBY,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
—<j>_
RESPONDENT’S BRIEF IN OPPOSITION
OPINIONS BELOW
The opinion of the Court of Appeals for the Second Circuit
is reported at 981 F.2d 1372. For the Court’s convenience. a
copy of the slip opinion is included in the Appendix to this
Brief, beginning at page Al.!
] Citations to the Appendix are in the form 5 ewes
nN
STATUTES INVOLVED
In addition to the statutes and regulations identified in the
Petition for a Writ of Certiorari, dated March 12, 1993 (the
Petition”), this case involves New York Business Corporation
Law Section 623, a copy of which is included in the Appendix
to this Brief, beginning at page Al19.
STATEMENT OF THE CASE
Factual Background?
Until August 1986, Ted Bates Worldwide, Inc. (Bates) was
an employee-owned advertising company. Respondent Robert
E. Jacoby was Bates’ President, Chairman of the Board and
Chief Executive Officer, positions he had held since the early
1970's. Petitioner was a vice president of the company.
Bates had two classes of stock—Class A and Class B. Bates’
CEO had unrestricted authority to decide which employees
could purchase Bates’ Class A shares. A Stockholders Agree-
ment otherwise restricted the transfer of the Class A shares.
Those shares could be resold only to Bates, or to designated
employees, at “book value,” a price calculated by dividing
Bates’ net asset value by the number of Class A shares out-
standing. In August, 1986, petitioner Jean Lorelle Burke owned
700 shares of Class A stock. Jacoby owned 27,750 Class A
shares. He also held options covering an additional 80,000
Class A shares. A shareholder resolution adopted in 1982 had
authorized those options. A3.
Jacoby also owned all 30,000 shares of Bates’ Class B stock.
The Stockholders Agreement restricted transfer of the Class B
stock as well, fixing the resale price at 5O¢ per share.
2 This description of the facts and of petitioner’s lawsuit tracks the
description provided by the United States Court of Appeals for the Second
Circuit. See A3-A8.
ah
3
Under Bates’ Certificate of Incorporation, each Class A
share had one vote. Fewer than 500,000 Class A shares were
outstanding in August 1986. Each of the 30,000 Class B shares
had 50 votes. Jacoby, with more than 1,500,000 votes, could
exercise voting control of the company.
In August 1986, Saatchi & Saatchi Company, PLC (Saatchi)
acquired Bates by merger. The Acquisition Agreement set the
terms of the merger, providing that: (i) before the closing,
Bates would redeem 22,788 Class A shares for $17.4 million
and would redeem Jacoby’s 30,000 Class B shares for $40 mil-
lion; (ii) prior to the closing, Bates could sell 30,000 additional
Class A shares to 23 named employees; and (iii) Saatchi would
pay a total of $450 million in cash to persons who, at the time
of the closing, held Class A shares or options. Each holder of
Class A stock would receive approximately $853.00 per share:
$765.3953 per share upon closing, and an additional $87.6286
per share two years later. Holders of stock options would
receive the same price per share, minus the exercise price of
the option. The Acquisition Agreement provided appraisal
rights for stockholders who dissented. A4.
On May 8, 1986, Bates’ Board of Directors unanimously
approved the Acquisition Agreement and recommended that the
shareholders adopt it at the upcoming shareholders meeting.
Petitioner learned of the proposed acquisition and merger
Shortly after the Board approved it. She was expecting the
acquisition to be presented at the upcoming shareholders meet-
ing, and was hoping to make a lot of money on the deal.
A “full house” attended the shareholders meeting on May 22,
1986. Petitioner testified that the shareholders were “full of
anticipation and hope”; the atmosphere was one of “tailwag-
ging excitement.”
At the meeting, Jacoby, as Chairman cf Bates’ Board, pre-
sented the terms of the Acquisition Agreement, as described
above, to the shareholders.
4
Jacoby read from a script, drafted and approved in advance
by Bates’ legal counsel and financial officers. Jacoby noted
that, if Saatchi did not acquire Bates, the book value of the
Class A stock at the end of the fiscal year would be $390 per
share. Slides, prepared by Bates’ Finance Department and pro-
jected onto a large screen, accurately illustrated the terms of
the proposed merger. When the slide showing the Class A price
of $853 per share appeared on the screen, the shareholders,
including Burke, applauded. A4. With respect to the Class B
stock redemption, Jacoby stated: “We have had a separate out-
side investigation by a respected investment banking house,
Lazard Freres, and they have stated that the price to be paid for
Class B shares which will be redeemed at or prior to closing
for $40,000,000 is a fair one.”?* A4.
Jacoby read the resolutions, prepared by Bates’ counsel
Cahill Gordon & Reindel, to approve the merger. Petitioner and
Bates’ other shareholders then voted without dissent to approve
the Acquisition Agreement and to terminate the Stockholders
Agreement, effective upon consummation of the merger. A4-
AS. The verbatim text of Jacoby’s statement to the sharehold-
ers was preserved and was reviewed by both the District and
Circuit Courts.
The closing occurred approximately 2'/; months later, on
August 7, 1986. During that time, the Acquisition Agreement,
which had been available at the May 22 sharcholders meeting,
remained available for petitioner to review. Petitioner made no
effort to do so.* She did not object to any of the Agreement’s
terms or take any action to block the closing.
3 The exact words of the Lazard Freres opinion were that
“$40,000,000 is reasonable consideration to pay” for the Class B shares.
4 Despite the Agreement’s availability, petitioner first looked at it
four years later, during her deposition in this case in May 1990.
Before the closing, petitioner learned that two secretaries,
whom she did not consider qualified to own Bates stock, were
being allowed to acquire Class A shares. The Acquisition
Agreement provided for those sales to the secretaries along
with 21 other named employees. A4, A18. Petitioner did not
object or take any action to try to stop those stock sales.
Shortly before the ciosing on August 7, 1986, petitioner and
each of Bates’ other shareholders signed a Letter of Trans-
mittal, necessary to arrange for payment. Petitioner did so
without objection.
Pursuant to the Acquisition Agreement, Jacoby received a
total of $112.6 million: $40 million for his 30,000 Class B
shares; $23.6 million for his 27,750 Class A shares; and $49
million for his Class A stock options. For her 700 shares, peti-
tioner received exactly the amounts per share that Jacoby had
told her at the May 1986 shareholders meeting she would
receive. AS. Petitioner accepted her first payment on August 7,
1986, without objection. She received her second and final pay-
ment on August 7, 1988, two years after the closing (as pro-
vided by the Acquisition Agreement), again without objection.
Petitioner never objected or took any action until she sued
Jacoby in March 1989.
Petitioner’s Lawsuit
Petitioner, alone, sued Jacoby for only money damages,
claiming violations of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5, allegedly committed in 1982 and
1986. Her complaint also alleged fraud, breach of fiduciary
duty and breach of Bates’ Stockholders Agreement in con-
nection with Saatchi’s acquisition of Bates. Petitioner's orig-
inal and amended complaints are each styled as a “class
action.”” However, petitioner never sought to certify a class dur-
ing the 2'/, years that the case was pending in the District
Court. No former Bates shareholder ever sought to intervene,
TT OL
6
despite wide-spread publicity of the lawsuit. And no former
shareholder has ever started any other action against Jacoby.
Following extensive discovery, petitioner moved for partial
summary judgment on her claim that Jacoby had breached the
Stockholders Agreement when he received $40 million for his
Class B shares. Jacoby cross-moved for summary judgment
dismissing the entire complaint, principally on the grounds that
there was no evidence that any of the alleged misrepresenta-
tions or omissions had caused petitioner injury and because
New York law barred her state law claims.
The District Court denied petitioner’s motion for summary
judgment and granted Jacoby’s motion in its entirety, dis-
missing all counts of the complaint. A6-A8. Before ruling, the
District Court invited petitioner to submit a post-argument affi-
davit (A6), thereby giving her yet another opportunity to
explain how Jacoby’s disclosure had injured her. Her three-
paragraph affidavit is reproduced in its entirety at pages S5ia-
52a of the Petition to this Court.
The District Court dismissed the allegations of securities
fraud in connection with the Saatchi merger because there was
no evidence that any alleged misrepresentation or omission had
caused petitioner any injury. Rather, petitioner’s own state-
ments to the District Court show that she continued to approve
of the merger, conceding that the purchase price was “‘in all
respects fair and adequate’ (Plaintiff's Memorandum in Oppo-
sition to Defendant’s Motion for Summary Judgment at 54)”
(A14), that “the total sale price was an ‘excellent’ one (P. Mem.
in Opp’n to Summ. J. at 1) and that she is not ‘dissenting from’
the merger (id. at 54).” A7.
The District Court rejected petitioner’s state law challenge
to the redemption of the Class B shares as well. The Court
ruled that since Burke had approved of the merger and had dis-
avowed any desire to rescind the transaction—not wishing to
give up the huge premium over book value she had received
from Saatchi in payment for her shares—she was not entitled
to challenge only that part of the transaction which resulted in
the payment to Jacoby for his Class B shares. A8.
On appeal to the United States Court of Appeals for the Sec-
ond Circuit, Burke reiterated that “[p]laintiff approves of the
merger and the price which Saatchi paid for the Company
(Burke brief on appeal at 39 n.16),” and pursued her attempt to
have much of Jacoby’s payment redistributed to other Class A
stockholders. A8&.
The Second Circuit affirmed the District Court’s grant of
summary judgment to Jacoby in all respects. After carefully
analyzing the District Court’s decision and the entire record,
the Second Circuit, in an opinion by Circuit Judge Amalya
Kearse, ruled that:
“The record thus contains no evidence whatever from
which a reasonable juror could conclude that any of the
alleged misrepresentations or omissions caused Burke any
loss. Accordingly, the District Court properly dismissed
the timely asserted securities claims for lack of evidence
of causation.”
A15 (emphasis supplied).
With respect to Burke’s claim that Jacoby breached his fidu-
ciary duty by accepting $40 million for his Class B shares, the
Second Circuit followed established New York statutory and
case law and affirmed the District Court’s ruling that appraisal
and an action for equitable relief are the only remedies avail-
able to a shareholder who is dissatisfied with a merger. Al5-
Al7.
The Second Circuit also affirmed the dismissal of each of
petitioner’s remaining claims, none of which are presented in
the Petition. As with petitioner’s allegations of federal secu-
rities fraud, the Second Circuit found that petitioner had pre-
sented no evidence to support essential elements needed for
those other claims. All, Al17-A18.
REASONS FOR DENYING THE WRIT
The Petition does not identify a single special or important
reason for granting a Writ of Certiorari. It misrepresents the
record and the Second Circuit's findings in significant respects.
The Second Circuit’s affirmance of summary judgment in
respondent's favor adhered to this Court’s standards and did
not conflict with decisions of the other circuit courts. The Sec-
ond Circuit did not abuse its discretion when it applied settled
Statutory law, as construed by New York State’s highest appel-
late court, to affirm the District Court instead of certifying a
question to New York State’s Court of Appeals. There is no
basis or reason for this Court to exercise its supervisory power.
The Petition should be denied.
I. Petitioner’s inaccurate presentation of her case pro-
vides an independent basis for denying her Petition.
The Petition is replete with factual misrepresentations and
inaccuracies. Five glaring examples are illustrative:
1. Petitioner states that she brought her case as a class
action. Pet. at 1-2.° However, she fails to inform this
Court that she never sought to certify a class. Nonetheless,
petitioner criticizes the Second Circuit for focusing exclu-
sively on petitioner rather than on the shareholders as a
group. Pet. at 6-7. Without any evidence, she attempts to
trade on what other shareholders might have done (Pet. at
11), even though no other shareholder is a party.
2. Petitioner claims that respondent “surreptitiously”
awarded stock options to himself in 1982. Pet. at 2. The
record shows that Jacoby’s options were “authorized by a
shareholder resolution” in 1982 (A3), that Jacoby had told
the shareholders he would receive stock options, and that
petitioner “knew in 1982 that the stock option plan had
5 Citations to the Petition are in the form “Pet. at
9
been approved by the stockholders and that. . . Jacoby
had been awarded options.” A10.
3. Petitioner claims that Jacoby “concealed” the num-
ber of options he held. Pet. at 3. The record is directly
contrary. As the Second Circuit found: “[{Burke] has come
forward with no evidence of any form of concealment on
the part of Jacoby.” All.
4. Petitioner claims that “both [the District and Circuit]
Courts beiow acknowledged the materiality as well as the
falsity of the challenged statement and omissions.” Pet. at
9. The record clearly shows that neither the District Court
nor the Second Circuit made any finding of materiality
and that neither Court concluded that any statement was
false. Pet. at 39a; A13, Al8.
5. Petitioner claims that the redemption of Jacoby’s
Class B shares “contravened” the Stockholders Agreement
(Pet. at 2), but she does not inform the Court that the
Stockholders Agreement restricted the transfer of both the
Class A and Class B shares. She also fails to tell the Court
that, because of those restrictions, she and the other share-
holders voted to rescind the Stockholders Agreement, and
acknowledged that termination in writing, so they could
receive the huge premium over book value that Saatchi
offered. A4-AS5, Al7.
These inaccuracies and others that abound in the Petition are
an independent reason for dismissing the Petition pursuant to
Supreme Court Rule 14.5.
II. The Second Circuit’s decision conforms with this
Court’s applicable standards.
Properly stated, the first issue presented to the Court is
whether the Second Circuit followed this Court’s decisions
regarding summary judgment. The Second Circuit correctly
identified and applied the proper standards.
10
This Court has recognized that summary judgment is
appropriate when “the record taken as a whole could not
lead a rational trier of fact to find for the nonmoving party
.. . . Matsushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). Summary judgment is
required if the nonmoving party “fails to make a showing suf-
ficient to establish the existence of an element essential to that
party's case, and on which that party will bear the burden of
proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986).
The Second Circuit correctly applied the standard for sum-
mary judgment when it affirmed the District Court’s dismissal
of petitioner’s claims for securities fraud because the record,
developed after exhaustive discovery, contains no evidence to
support a finding that an alleged misrepresentation or omission
caused any loss to petitioner. As the Second Circuit stated:
“The record thus contains no evidence whatever from
which a reasonable juror could conclude that any of the
alleged misrepresentations Or omissi3ns caused Burke any
loss. Accordingly, the district court pre nerly dismissed the
timely asserted securities claims for lack of evidence of
Causation.”
Al5.
The Second Circuit's decision is firmly rooted in the record
which, taken as a whole, shows that petitioner did not suffer
any loss as a result of the alleged misrepresentations or omis-
sions. There is no evidence to link Jacoby’s disclosure to an
identified loss. Rather, there are petitioner’s repeated affir-
mative statements, both in the District and Circuit Courts, that
she “approves of the merger” and is not “dissenting from” it.
A7, A8, Al4, Al7; Pet. at 39a. The record further shows that
petitioner received the exact per share amounts that Jacoby had
told her she would receive, the same amounts required by the
Acquisition Agreement. A4-AS.
11
Petitioner could not have received any larger amount unless
she first dissented from the merger, an action she has repeat-
edly rejected. As the Second Circuit stated:
“The record supports the district court’s view that Burke
had come forward with no evidence that the claimed mis-
representations or omissions caused her any injury, for
She concedes that, whatever importance she might have
placed on the undisclosed information, she would not have
performed the act that was necessary to obtain a better
price for her shares than she received, i.e., dissent from
the merger, either to impede its consummation or to obtain
an appraisal of her shares.”
A14 (emphasis supplied).
The Second Circuit cataloged petitioner’s many opportuni-
lies to provide some evidence linking the alleged misrepre-
sentations and omissions to some loss. Petitioner failed to
identify any such evidence.
“Burke had every opportunity in this litigation to state, if
she could do so in good faith, that she would have dis-
sented from the acquisition if she had known the facts she
contends were misrepresented or concealed. In addition to
the ordinary opportunity to present her case in Opposition
to Jacoby’s motion for summary judgment, she was
invited by the court at oral argument to represent, under
oath, if she could do so in good faith, that she would not
have sold her shares. In response, Burke’s affidavit stated
that she would have objected to ‘the allocation of the pro-
ceeds of the merger’; but she did not state that she would
have dissented, which would have required her to forgo
the large profit to be had on her own shares.”
A 14 (emphasis supplied).
The Petition perpetuates this failure. It merely speculates
that petitioner and the other Bates shareholders might have
“objected” to the redemption of the Class B shares, and some-
12
how forced Jacoby to distribute those monies to the share-
holders, if they had known that Lazard Freres’ opinion referred
to the $40 million paid to redeem the B shares as “reasonable
consideration” rather than as a “fair price.” Pet. at 11. How-
ever, petitioner has never identified any action that she might
have taken to restructure the merger or renegotiate some of its
terms. And petitioner has never provided any proof that such
action likely would have resulted in a re-allocation of the pro-
ceeds of the merger. Cf. Madison Consultants v. Federal
Deposit Insurance Corp., 710 F.2d 57, 64-65 & n.6 (2d Cir.
1983) (to prove causation, plaintiff must identify an available
means of protection and show that, had he pursued such means,
he would have succeeded).
Petitioner had a single investment decision: to approve the
merger and receive a huge premium for her shares or to dissent
from it—an option she has expressly rejected. A7, A8, Al4.
Moreover, what other sharcholders might have done is irrele-
vant. Petitioner was the only plaintiff. No class was ever cer-
tified.
Ignoring this Court’s summary judgment standards and
unable to point to any evidence that the Second Circuit over-
looked, petitioner claims that the Second Circuit failed to fol-
low Affiliated Ute Citizens v. United States, 406 U.S. 128
(1972). See Pet. at 8-9. To the contrary, the Second Circuit
cited, quoted and correctly applied Affiliated Ute. Al2-A13.
The Second Circuit’s analysis of petitioner’s allegations of
securities fraud first identified the elements of a claim:
“{A] plaintiff must show, inter alia, that the defendant,
with scienter, made a misrepresentation of material fact or
failed to disclose a material fact, and that the plaintiff
relied on the misrepresentation or omission and suffered
a loss as a result of the misrepresentation or omission.”
All.
13
The Second Circuit noted that courts sometimes refer to the
reliance element as “transaction causation” and the Causation
clement as “loss causation.” Al1l-Al2. Proof of reliance
requires a showing that the alleged misrepresentations or omis-
sions caused the plaintiff to engage in the transaction; proof of
loss Causation requires a showing that the alleged misrepre-
sentations or omissions caused economic harm to the plaintiff.°
See, e.g., Bennett v. United States Trust Co.. 770 F.2d 308, 313
(2d Cir. 1985), cert. denied, 474 U.S. 1058 (1986).
The Second Circuit then recognized that, under Affiliated
Ute, when omissions are claimed, a plaintiff’s proof of mate-
riality Creates a presumption that can Satisfy plaintiff’s burden
of proving reliance. Al2-13.
However, since the record contained “no evidence whatever”
that petitioner suffered a loss due to a misrepresentation or
omission, the Second Circuit recognized that there was no
proof of the essential element of ioss causation. Thus, the
Court concluded that any questions of fact which might exist
with respect to materiality or reliance become irrelevant to
deciding the summary judgment motion:
6 The Second Circuit has frequently used this analysis in deciding
securities fraud claims. See, e.g., Wilson v. Ruffa & Hanover, 844 F.2d 81, 85
(2d Cir. 1988), aff'd on rehearing sub nom. Wilson v. Saintine Exploration
& Drilling Corp., 872 F.2d 1124 (2d Cir. 1989); Bennett v. United States
Trust Co., 770 F.2d 308, 313 (2d Cir. 1985), cert. denied, 474 U.S. 1058
(1986). Other circuits have adopted this analysis. No circuit court has rejected
it. See, e.g., Carlton v. Franklin, 911 F.2d 721 (4th Cir. 1990) (unpublished
decision reported at 1990 U.S. App. LEXIS 12946); Huddleston v. Herman
& MacLean, 640 F.2d 534, 549 & n.24 (Sth Cir. Unit A 1981), aff'd in part,
rev'd in part on other grounds, 459 U.S. 375 (1983); LHLC Corp. v. Cluett,
Peabody & Co., Inc., 842 F.2d 928, 931 (7th Cir.), cert. denied, 488 U.S. 926
(1988); Arthur Young & Co. v. Reves, 937 F.2d 1310, 1327-28 (8th Cir.
1991), cert. denied, 112 S. Ct. 1165 (1992); McGonigle v. Combs, 968 F.2d
810, 820-21 (9th Cir.), cert. dismissed sub nom. Casares v. Spendthrift Farm,
Inc., 113 S. Ct. 399 (1992): Currie v. Cayman Resources Corp., 835 F.2d 780,
785 (11th Cir. 1988).
14
“{QJuestions of materiality and reliance are not issues of
material fact in the context of the summary judgment
granted in the present case because, as we read the district
court’s opinion, the court dismissed Burke’s federal secu-
rities claims—whether based on affirmative misrepre-
sentation or omission—for lack of proof of loss
Causation.”
A13-A14 (citations omitted).
The Second Circuit followed this Court’s summary judgment
standards, Stating that:
“If the undisputed facts reveal that there is an absence of
sufficient proof as to one essential element of the claim,
any factual disputes with respect to other elements of the
claim become immaterial and cannot defeat a motion for
summary judgment.”
Al3.
In this Court’s own words:
“In such a situation, there can be ‘no genuine issue as to
any material fact,’ since a complete failure of proof con-
cerning an essential element of the nonmoving party’s
case necessarily renders all other facts immaterial.”
Celotex Corp. v. Catrett, 477 U.S. at 322-23.
Faced with petitioner’s repeated statements to the District
and Circuit Courts that she “approves of the merger” and, even
today, is not “dissenting from” it (A7, A8), no reasonable juror
could conclude that any alleged misrepresentation or omission
caused petitioner any loss. The Second Circuit properly
affirmed the District Court’s grant of summary judgment in
Jacoby’s favor.
15
III. There is no basis for this Court to exercise its power of
supervision to require the Second Circuit to certify a
question of settled law to the New York State Court of
Appeals.
The Second Circuit applied the plain language of the New
York Business Corporation Law (BCL) § 623(k) and case law
established by New York’s highest court to affirm the District
Court’s dismissal of petitioner’s state-law claim of breach of
fiduciary duty. Al15-A17. There was no reason for the Circuit
Court to certify any question to the New York State Court of
Appeals because there was no unsettled issue of state law.
The New York State Court of Appeals permits certification
only when there is no controlling state law precedent:
“Whenever it appears to the Supreme Court of the United
States, any United States Court of Appeals, or a court of
last resort of any other state that determinative questions
of New York law are involved in a cause pending before
it for which there is no controlling precedent of the Court
of Appeals, such court may certify the dispositive ques-
tions of law to the Court of Appeals.”
New York Rules of Court § 500.17(a) (emphasis supplied). See
also Rules of the United States Court of Appeals for the Sec-
ond Circuit § 0.27 (certification limited to “unsettled” ques-
tions of state law).
In this case, the Second Circuit applied settled state law. The
Circuit Court recognized that, under established New York law,
an appraisal proceeding and an “appropriate action” are the
exclusive remedies available to a shareholder who is dissatis-
fied with the payment offered for her shares ina merger. AlS.
Under New York law, an “appropriate action” within the mean-
ing of BCL § 623(k) is one seeking equitable relief. A15 (cit-
ing Walter J. Schloss Associates v. Arkwin Industries, Inc., 61
N.Y.2d 700, 472 N.Y.S.2d 605 (1984) (adopting dissenting
opinion of Mangano, J., in the Appellate Division as the New
16
York State Court of Appeals’ opinion (90 A.D.2d at 153-62,
455 N.Y.S.2d at 847-52)) (Schloss); Breed v. Barton, 54 N.Y.2d
82, 444 N.Y.S.2d 609 (1981)). See also Cawley v. SCM Corp.,
72 N.Y.2d 465, 471, 534 N.Y.S.2d 344, 347 (1988); Alpert v. 28
Williams St. Corp., 63 N.Y.2d 557, 568, 483 N.Y.S.2d 667, 673
(1984). A claim for money damages is barred unless it is made
“ancillary to a grant of traditionally equitable relief.” A16 (cit-
ing Schloss, 90 A.D.2d at 160, 455 N.Y.S.2d at 851).
Petitioner never sought equitable relief or appraisal. To pur-
sue those remedies in the hope of getting more money, peti-
tioner would have had to forego the huge premium Saatchi
agreed to pay for her shares. Instead, petitioner sought only
money damages. As the Second Circuit concluded, BCL
§ 623(k) and Schloss preclude such an action:
“An action for damages alone will not lie, since this
would allow a dissenting shareholder, by merely alleging
fraudulent or unlawful corporate conduct, to seek therein
the identical relief available to him in appraisal pro-
ceedings. . . . Consequently, an action for damages by a
minority shareholder based on the fraudulent or illegal
corporate conduct of the majority in discharging its fidu-
ciary duty would be unnecessarily duplicative.”
A16 (quoting Schloss, 90 A.D.2d at 161, 455 N.Y.S.2d at 851)
(emphasis supplied).
Petitioner’s complaint that she did not receive notice of her
appraisal right is a red herring. Petitioner has always insisted
that she “approves of the merger” and is not “dissenting from”
it. A7, A8, Al4. Petitioner’s own claims moot both the notice
and appraisal issues. In any event, New York law is clear. Inad-
equate notice does not create a claim for money damages. It
merely preserves a right to appraisal. See, e.g., BCL § 623(a);
Carroll v. Seacroft, Ltd., 141 A.D.2d 726, 727-28, 529
N.Y.S.2d 829, 830 (2d Dep’t 1988); Rank Organization Ltd. v.
Pathe Laboratories, Inc., 33 Misc. 2d 748, 753-54, 227
N.Y.S.2d 562, 567-68 (Sup. Ct. N.Y. County 1962).
17
This Court has acknowledged that certification of a question
to a state Court is a matter of discretion:
“We do not suggest that where there is doubt as to local
law and where the certification procedure is available,
resort to it is obligatory. . . . Its use ina given Case rests
in the sound discretion of the federal court.”
Lehman Brothers v. Schein, 416 U.S. 386, 390-9] (1974). A
federal court’s refusal to certify a question to a state court
Should not be disturbed unless there is a clear abuse ot dis-
cretion. See, e.g., Johnson v. John Deere Co., 935 F.2d 151,
154 (8th Cir. 1991): Federal Deposit Insurance Corp. v. Ponce,
904 F.2d 740, 746 (1st Cir. 1990). Even petitioner does not
claim that the Second Circuit abused its discretion, but only
that the Second Circuit’s decision not to seek Certification was
“dubious.” Pet. at 15.
The Second Circuit’s decision not to certify a question in
connection with settled issues of New York State law was well
within its discretion. Petitioner has no basis to invoke the exer-
cise of this Court’s power of Supervision.
18
CONCLUSION
The Second Circuit's decision adheres to decisions of this
Court. It does not conflict with decisions of other circuit courts.
There is no basis or reason for this Court to exercise its power
of supervision. The Petition should be denied in all respects.
Dated: New York, New York
April 12, 1993
Respectfully submitted,
JOHN HARTJE*
A. KAIPER WILSON
ROBERT S. SHWARTS
KRONISH, LIEB, WEINER & ;
HELLMAN
1345 Avenue of the Amencas
New York, New York 10105-0202
(212) 841-6000
Attorneys for Respondent
Robert E. Jacoby
*Counsel of Record
APPENDIX
Al
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
~~
No. 1063—August Term, 1991
(Argued: March 4, 1992 Decided: December 29, 1992)
Docket No. 91-9148
as
JEAN LORELLE BURKE,
Plaintiff-Appellant,
—vV.— o
ROBERT E. JACOBY,
Defendant-Appellee.
Before:
KEARSE and ALTIMARI, Circuit Judges,
and TELESCA, Chief Judge”.
+
Appeal from a judgment of the United States District Court
for the Southern District of New York, Miriam Goldman
.
Honorable Michael A. Telesca, Chief Judge of the United States District
Court for the Western District of New York, sitting by designation.
7953
A2
Cedarbaum, Judge, dismissing complaint charging federal
securities fraud and state law violations.
Affirmed.
o
RICHARD M. MEYER, New York, New York
(Lee S. Shalov, Milberg Weiss Bershad
Specthrie & Lerach, New York, New York,
on the brief), for Plaintiff-Appellant.
JOHN HARTIJE, New York, New York (A. Kaiper
Wilson, Robert S. Shwarts, Kronish, Lieb,
Weiner & Hellman, New York, New York,
on the brief), for Defendant-Appellee.
a
KEARSE, Circuit Judge:
Plaintiff Jean Lorelle Burke, a former employee and
stockholder of Ted Bates Worldwide, Inc. (“Bates” or the
“Company”), appeals from a final judgment of the United
States District Court for the Southern District of New York,
Miriam Goldman Cedarbaum, Judge, dismissing her com-
plaint for damages against defendant Robert E. Jacoby under
§ 10(b) of the Securities and Exchange Act of 1934 (“1934
Act”), 15 U.S.C. § 78j(b) (1988), Rule 10b-5 promulgated
thereunder, 17 C.F.R. § 240.10b-5 (1992), and state law, al-
leging misrepresentations, omissions, breach of contract, and
breaches of fiduciary duty in connection with the acquisition
of Bates by another company. The district court granted
Summary judgment dismissing the complaint principally on
the grounds (1) that certain of the alleged omissions con-
cerned facts already known by Burke, (2) that Burke failed to
7954
EEE
A3
come forward with evidence that she had relied on the alleged
misrepresentations or omissions or that they had caused her
claimed loss, and (3) that certain of her claims were barred by
the statute of limitations. On appeal, Burke contends, inter
alia, that the district court applied erroneous legal standards
of reliance and causation in assessing her federal securities
claims and that partial summary judgment should have been
entered in her favor on the breach-of-contract claim. She also
argues that the district court’s statute-of-limitations ruling
with respect to one of the federal securities claims must be set
aside in light of a recent amendment to the 1934 Act. For the
reasons below, we reject her contentions and affirm the
judgment of the district court.
I. BACKGROUND
A. The Bates-Saatchi Merger
Prior to August 1986, Bates was an employee-owned ad-
vertising company. Jacoby was its president, chairman, and
chief executive officer, as well as its controlling stockholder.
Bates had two classes of stock. Class A was issued to key ex-
ecutives of the Company. A “Stockholders Agreement” lim-
ited the transferability of such stock, permitting its resale only
to the Company, or to designated employees, at a price
calculated principally by dividing the Company’s net asset
value by the number of Class A shares outstanding. Burke
owned 700 shares of the Class A stock. Jacoby owned 27,750
Class A shares; in addition, as authorized by a shareholder
resolution adopted in 1982, he had options covering 80,000
Class A shares.
All of the Bates Class B stock, of which there were 30,000
Shares, was owned by Jacoby. The Stockholders Agreement
also restricted transfer of the Class B stock, the repurchase
price of which was fixed at $.50 per share. Under the certifi-
7955
A4
cate of incorporation, each Class A share, of which fewer than
500,000 were outstanding, had one vote; each of the 30,000
Class B shares had 50 votes. Thus, Jacoby, with more than
1,500,000 votes, had voting control of the Company.
In August 1986, Bates was acquired by Saatchi & Saatchi
Company, PLC (“Saatchi”). The Acquisition Agreement, ap-
proved by the Bates stockholders in May 1986, principally (1)
required Bates prior to the closing (a) to redeem 22,788 Class
A shares for $17.4 million, and (b) to redeem Jacoby’s 30,000
Class B shares for $40 million; (2) allowed Bates prior to the
closing to sell some 30,000 Class A shares to approximately
20 employees; and (3) required Saatchi to pay a total of $450
million in cash to persons who, at the time of the closing, held
Class A shares or options. Each holder of Class A stock was
to receive $765.3953 per share upon completion of the
acquisition, plus $87.6286 per share two years later, for a
total of approximately $853 per share. Holders of stock
options were to receive the same price per share, minus the
exercise price of the option. The Acquisition Agreement also
provided appraisal rights for stockholders who dissented.
At the May 1986 stockholders’ meeting, Jacoby spelled out
the above terms, noting that, absent the acquisition, the book
value of the Class A stock at the end of the fiscal year would
be $390 per share. When he announced the acquisition price
of approximately $853 per Class A share, the stockholders,
including Burke, applauded. As to the Class B stock
repurchase, Jacoby stated, “We have had a separate outside
investigation by a respected investment banking house,
Lazard Freres, and they have stated that the price to be paid
for Class B shares which will be redeemed at or prior to
closing for $40,000,000 is a fair one.” The shareholders,
including Burke, approved the proposed Saatchi transaction.
They also unanimously approved a resolution terminating the
7956
AS
Stockholders Agreement, effective upon consummation of the
acquisition.
Pursuant to the Acquisition Agreement, Jacoby received a
total of $112.6 million, consisting of the $40 million for his
30,000 Class B shares, $23.6 million for his 27,750 Class A
shares, and $49 million for his Class A stock options. For her
700 shares, Burke received the per-share amounts specified
by Jacoby in the May 1986 stockholders’ meeting presenta-
tion. In her letter transmitting her stock to Saatchi, Burke ac-
knowledged that the Stockholders Agreement restricting
transferability of the stock was rescinded concurrently with
the consummation of the acquisition.
B. The Present Lawsuit
In March 1989, Burke commenced the present action for
damages, alleging that Jacoby had misrepresented or failed to
disclose certain material facts in connection with the Saatchi
acquisition. The complaint alleged principally (a) that Jacoby
had failed to disclose in 1982 that he would receive options
on the Class A shares; (b) that Jacoby had failed to disclose in
May 1986 that, while negotiating with Saatchi, Bates had
received a competing offer that Jacoby summarily rejected;
(c) that Jacoby had failed to disclose in May 1986 how many
Class A stock options he held; and (d) that Jacoby had mis-
represented the investment banker’s opinion of the price for
the Class B shares, stating that the banker had termed the
price “fair,” when in fact the banker had said that the price
was “reasonable.” The complaint also alleged, inter alia, that
Jacoby breached his fiduciary duty (a) by accepting $40 mil-
lion for his 30,000 Class B shares as, in essence, a “control
premium,” and (b) by having Bates sell a total of 3,500 Class
A shares to two employees who were not executives but sec-
retaries. Burke sought damages and an “accounting” of
Jacoby’s profits from the Saatchi transaction.
7957
A6
Following a period of discovery, Burke moved for partial
Summary judgment principally on the ground that Jacoby’s
receipt of $40 million for his Class B shares breached the
Stockholders Agreement. Jacoby cross-moved for summary
judgment dismissing the entire complaint on the grounds,
inter alia, that Burke could not show that any of the alleged
misrepresentations or omissions had been relied on or had
caused her injury, and that she was not entitled to damages on
any of her state-law claims.
After receiving voluminous papers and hearing oral argu-
ment, and after inviting and receiving a postargument affi-
davit from Burke, the district court granted Jacoby’s motion
for summary judgment and denied Burke’s motion. In a
Memorandum Opinion and Order dated October 10, 1991
(“Opinion’’), the court ruled that insofar as Burke’s securities
claims rested on events that occurred in 1982, they were
barred by the one year/three year statute of limitations
adopted in Ceres Partners v. GEL Associates, 918 F.2d 349
(2d Cir. 1990) (one year from discovery, but not more than
three years from occurrence), and Lampf, Pleva, Lipkind,
Prupis & Petigrow v. Gilbertson, 111 S. Ct. 2773 (1991)
(same), and made retroactive by James B. Beam Distilling Co.
v. Georgia, 111 S. Ct. 2439 (1991). As set forth below, the
court dismissed the remaining securities claims on the ground
that Burke had not come forward with evidence of reliance or
Causation, noting that Burke “does not assert that she would
have voted against the merger even if she had been aware of
the extent of [Jacoby]’s self-dealing, and even now, she does
not wish to undo the merger.” Opinion at 2.
As to the claim based on Jacoby’s statement that the
investment banker had said that $40 million was a “fair,” in-
stead of a “reasonable,” price for the Class B stock, the court
stated that Burke failed to show that the “misrepresentation
complained of was at least a ‘but for’ cause of the transaction
7958
EV
A7
in question,” Opinion at 12, and that there was “no evidence
of loss causation,” noting as follows:
At the oral argument of this motion, I invited Burke’s
counsel to submit evidence, in the form of an affidavit
from Burke, that she relied upon Jacoby’s description of
Lazard’s opinion in deciding to sell her shares. (See
Hearing Tr. at 19-20.) In response, Burke submitted an
affidavit stating only: “Had I known of the falsity of that
representation, I would have objected to the allocation of
the proceeds of the merger on the terms then set forth.”
She does not state that she would have dissented from
the merger. Thus, since there is no evidence of loss
Causation, an essential element of a claim of fraud in
connection with the purchase or sale of securities,
Jacoby’s motion for summary judgment on this part of
the Section 10(b) claim is granted.
Opinion at 12. As to the claimed omissions, the court ob-
served that Burke
has never stated that she would have voted against the
merger even if she had been apprised of Jacoby’s option
holdings or potential profit on them, despite my invita-
tion for her to do so. (See Hearing Tr. at 19-20; Burke
Aff.) On the contrary, she has maintained the position
that the total sale price was an “excellent” one (P. Mem.
in Opp’n to Summ. J. at 1) and that she is not
“ “dissenting from’ ” the merger (id. at 54).
Opinion at 14-15; see id. at 17 (as to the third-party offer to
buy the Bates stock, “[a]gain . . . plaintiff has made no
showing that she would have voted against the merger had
She been in possession of the information” and hence “has
failed to make the requisite showing of loss causation”). The
court noted that a § 10(b) plaintiff “must establish that the
7959
A8
misrepresentations complained of caused the injury suffered,”
Opinion at 15, and concluded that
although there may be a genuine issue of material fact as
to whether the omission plaintiff complains of was ma-
terial and misleading, there is no evidence that it affected
her vote or her desire to sell her shares. Thus, the
misrepresentation cannot be said to have caused the al-
leged injury.
Id.
The court also ruled, inter alia, that since Burke disavowed
any desire to rescind the transaction, not wishing to forgo
what she had received in the transaction, she was not entitled
to challenge that part of the transaction that resulted in the
payment to Jacoby for his Class B shares.
Judgment was entered dismissing the complaint, and this
appeal followed.
II. DISCUSSION
On appeal, Burke, stating that “[p]lainuff approves of the
merger and the price which Saatchi paid for the Company”
(Burke brief on appeal at 39 n.16), pursues her attempt to
have much of the payment received by Jacoby redistributed to
other Class A stockholders. She contends principally that, in
light of an amendment to the 1934 Act, her securities claim
based on the 1982 stock options is not barred by the statute of
limitations; that the district court applied erroneous legal
standards of reliance and causation to her other federal
securities Claims; that the court erred in ruling that statutory
appraisal was her only remedy for the claim that Jacoby
breached his fiduciary duty to Bates shareholders by receiving
$40 million for his 30,000 Class B shares; and that the court
erred in not ruling that as a matter of law the $40 million
7960
a
A9
payment to Jacoby for his Class B shares breached the
Stockholders Agreement. For the reasons below, we find no
basis for reversal.
A. The Statute of Limitations on the 1982 Nondisclosure
Claim
Burke contends that notwithstanding the one year/three
year limitations period for claims under Rule 10b-5 estab-
lished by Ceres Partners v. GEL Associates, 918 F.2d 349
(“Ceres”), and Lampf, Pleva, Lipkind, Prupis & Petigrow vy.
Gilbertson, 111 S. Ct. 2773, and the ruling in James B. Beam
Distilling Co. v. Georgia, 111 S. Ct. 2439, requiring that the
one year/three year rule be applied retroactively, her claims
based on 1982 events have been revived by the recently en-
acted § 27A of the 1934 Act, 15 U.S.C.A. § 78aa-1 (West
Supp. 1992), which modifies the retroactivity of the one
year/three year rule. Her reliance on § 27A is misplaced.
Section 27A(b) provides that the limitation period for a
claim under § 10(b) or Rule 10b-5
commenced on or before June 19, 1991 — (1) which was
dismissed as time barred subsequent to June 19, 1991,
and (2) which would have been timely filed under the
limitation period provided by the laws applicable in the
jurisdiction, including principles of retroactivity, as such
laws existed on June 19, 1991, shall be reinstated on
motion by the plaintiff.
15 U.S.C.A. § 78aa-1(b) (West Supp. 1992) (emphasis
added). As indicated by the language emphasized, this section
does not authorize reinstatement of a claim that would have
been time-barred under the principles applicable on June 19,
1991. Leaving aside the question of whether, in light of
§ 27A(b), the Ceres rule, adopted by this Court prior to June
19, 1991, is to have retroactive application to claims filed
7961
Al0
prior to the Ceres decision, see Henley v. Slone, 961 F.2d 23,
25-26 (2d Cir. 1992), that section affords Burke no relief, for
her claim was time-barred even under pre-Ceres precedent.
See generally Grondahl v. Merritt & Harris, Inc., 964 F.2d
1290, 1292-93 (2d Cir. 1992) (no need to analyze
applicability of Ceres if claim would also have been barred
under pre-Ceres rule).
Prior to Ceres, a Rule 10b-5 action that accrued in New
York and was brought in a district court within New York
was time-barred in this Circuit if not brought “within six
years from the time the cause of action accrued or within two
years from the time the wrongdoing was, or with reasonable
diligence should have been, discovered.” Armstrong v.
McAlpin, 699 F.2d 79, 87 (2d Cir. 1983); see also Stull v.
Bayard, 561 F.2d 429, 431-32 (2d Cir. 1977), cert. denied,
434 U.S. 1035 (1978). Here Jacoby’s allegedly wrongful ac-
quisition of stock options occurred in May 1982. The issuance
of such options was approved at the 1982 annual meeting of
stockholders, and Jacoby disclosed at that meeting that he was
one of the employees who would receive options pursuant to
the plan. Though Burke claims that she did not know in 1986
how many options Jacoby held, she does not dispute that she
knew in 1982 that the stock option plan had been approved by
the stockholders and that she knew in 1982 that Jacoby had
been awarded options. The claim in the present action that
Jacoby violated the securities laws in 1982 by not informing
stockholders prior to their approval of the stock option plan
that he intended to award himself 80,000 shares was not
asserted until 1989, more than six years after the options were
issued and more than six years after Burke knew that some
options had been awarded. Thus Burke’s claim would have
been untimely even prior to the adoption of the one year/three
year limitations period in Ceres. Accordingly, even if Ceres
were not to be applied retroactively to claims pending at the
7962
All
time of its decision, § 27A(b) does not authorize
reinstatement of Burke’s claim.
Burke’s contention that even the six-year limitations period
Should not bar her claim because of principles of equitable
estoppel has no merit. The record plainly reveals that Burke
had sufficient facts to inquire, if she had been interested, into
precisely how many shares were optioned to Jacoby, and she
has come forward with no evidence of any form of
concealment on the part of Jacoby.
B. Reliance and Causation
In her challenge to the dismissal of the remaining securities
claims, Burke contends that the district court, in finding
dispositive her failure to show that she would have dissented
from the acquisition had she had full knowledge of the facts,
applied erroneous standards of reliance and causation. Even if
we interpreted the district court’s opinion as imposing an
improper standard of reliance with respect to Burke’s claims
of misleading omissions, the court’s standard of causation
was Clearly proper, and hence we see no basis for reversal.
Rule 10b-5 makes it unlawful, in pertinent part, “[t]o make
any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made,
not misleading, . . . in connection with the purchase or sale of
any security.” 17 C.F.R. § 240.10b-5. In order to prove a
claim under § 10(b) or Rule 10b-5, a plaintiff must show,
inter alia, that the defendant, with scienter, made a
misrepresentation of material fact or failed to disclose a ma-
terial fact, and that the plaintiff relied on the misrepresenta-
tion or omission and suffered a loss as a result of the misrep-
resentation or omission. See, e.g., Bloor v. Carro, Spanbock,
Londin, Rodman & Fass, 754 F.2d 57, 61 (2d Cir. 1985). The
reliance element of the claim is sometimes referred to as
7963
Al2
“transaction causation,” and the causation element is some-
times referred to as “loss causation.” See, e.g., Litton Indus-
tries, Inc. v. Lehman Brothers Kuhn Loeb Inc., 967 F.2d 742,
747 (2d Cir. 1992); Bennett v. United States Trust Co., 770
F.2d 308, 313 (2d Cir. 1985), cert. denied, 474 U.S. 1058
(1986). The two concepts are closely allied, for there gener-
ally is no causation without reliance. There can, however, be
reliance without causation.
A plaintiff’s burden with respect to the reliance element of
a Rule 10b-5 claim may vary depending on whether the claim
alleges fraudulent representations or fraudulent omissions. In
connection with a claim that the defendant has affirmatively
made false statements, plaintiff must demonstrate that he or
she relied on the misrepresentation when entering the
transaction that caused him or her economic harm. See, é.g.,
Wilson v. Ruffa & Hanover, P.C., 844 F.2d 81, 86 (2d Cir.
1988), aff d on reh’g sub nom. Wilson v. Saintine Exploration
& Drilling Corp., 872 F.2d 1124 (2d Cir. 1989); Schlick v.
Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir. 1974),
cert. denied, 421 U.S. 976 (1975). In connection with a claim
of material omission, however, “positive proof of reliance is
not a prerequisite to recovery. All that is necessary is that the
facts withheld be material in the sense that a reasonable
investor might have considered them important in the making
of this decision.” Affiliated Ute Citizens v. United States, 406
U.S. 128, 153-54 (1972); see also duPont v. Brady, 828 F.2d
75, 78 (2d Cir. 1987) (“ ‘in instances of total non-disclosure,
. . . it is of course impossible to demonstrate reliance’ ”)
(quoting Titan Group, Inc. v. Faggen, 513 F.2d 234, 239 (2d
Cir.), cert. denied, 423 U.S. 840 (1975)). Thus, “once the
plaintiff establishes the materiality of the omission by a
preponderance of the evidence, the burden shifts to the
defendant to establish also by a preponderance of the evi-
dence that the plaintiff did not rely on the omission in making
7964
Al3
the investment decision.” duPont v. Brady, 828 F.2d at 76:
see also Litton Industries, Inc. v. Lehman Brothers Kuhn Loeb
Inc., 967 F.2d at 748.
Summary judgment should be granted only if there is no
genuine issue as to any material fact. Fed. R. Civ. P. 56(c). In
order to obtain that relief, the moving party need not prove
that his opponent’s case is wholly frivolous. When a defen-
dant has moved for summary judgment on the ground that
undisputed facts reveal that the plaintiff cannot establish an
essenual element of the claim, on which element the plaintiff
has the burden of proof, and the plaintiff has failed to come
forth with evidence sufficient to permit a reasonable juror to
return a verdict in his or her favor on that element, summary
judgment should be granted. See, e.g., Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248-49 (1986). If the undisputed
facts reveal that there is an absence of sufficient proof as to
one essential element of the claim, any factual disputes with
respect to other elements of the claim become immaterial and
cannot defeat a motion for summary judgment. See, e.g.,
Celotex Corp. v. Catrett, 477 U.S. at 322-23; Knight v. U.S.
Fire Insurance Co., 804 F.2d 9, 11-12 (2d Cir. 1986), cert.
denied, 480 U.S. 932 (1987); Quarles v. General Motors
Corp., 758 F.2d 839, 840 (2d Cir. 1985) (per curiam).
In the present case, there may be, as the district court noted,
questions of fact as to whether the alleged omissions were
material, or whether the description of the Lazard Fréres
opinion was a material misrepresentation, in the sense that
reasonable stockholders might have considered the accurate
information important to their decisions as to whether or not
to vote for the acquisition. And it may be, as to the claims of
omissions, that the undisclosed information was material,
thereby prima facie establishing reliance. But these questions
of materiality and reliance are not issues of material fact in
7965
Al4
the context of the summary judgment granted in the present
case because, as we read the district court’s opinion, the court
dismissed Burke’s federal securities claims—whether based
on affirmative misrepresentation or omission—for lack of
proof of loss causation. See Opinion at 12, 15, 17.
The record supports the district court’s view that Burke had
come forward with no evidence that the claimed misrep-
resentations or omissions caused her any injury, for she con-
cedes that, whatever importance she might have placed on the
undisclosed information, she would not have performed the
act that was necessary to obtain a better price for her shares
than she received, i.e., dissent from the merger, either to
impede its consummation or to obtain an appraisal of her
shares. Burke had every opportunity in this litigation to state,
if she could do so in good faith, that she would have dissented
from the acquisition if she had known the facts she contends
were misrepresented or concealed. In addition to the ordinary
opportunity to present her case in opposition to Jacoby’s
motion for summary judgment, she was invited by the court at
oral argument to represent, under oath, if she could do so in
good faith, that she would not have sold her shares. In
response, Burke’s affidavit stated that she would have
objected to “the allocation of the proceeds of the merger’; but
she did not state that she would have dissented, which would
have required her to forgo the large profit to be had on her
own shares. At no point did Burke suggest that she would
have voted against the acquisition had she known any or all of
the facts she claims were not disclosed to her. In the district
court, she termed the purchase price “‘in all respects fair and
adequate” (Plaintiff's Memorandum in Opposition to
Defendant’s Motion for Summary Judgment at 54); and in
this Court, as noted above, she stated that she still approves of
the merger.
7966
—_
Al5
The record thus contains no evidence whatever from which
a reasonable juror could conclude that any of the alleged mis-
representations or omissions caused Burke any loss. Accord-
ingly, the district court properly dismissed the timely asserted
securities claims for lack of evidence of causation.
C. The Challenge to the Payment for the Class B Shares
Burke contends that the district court erred in ruling that
her remedies for the claim that Jacoby breached his fiduciary
duty to Bates shareholders by accepting $40 million for his
30,000 Class B shares were limited to her statutory appraisal
right or equitable relief. We disagree.
In ruling that Burke was limited to her appraisal rights, the
district court relied on § 623(k) of the New York Business
Corporation Law, which provided that
[t]he enforcement by a shareholder of his right to receive
payment for his shares in the manner provided herein
[i.e., by an appraisal proceeding] shall exclude the
enforcement by such shareholder of any other right to
which he might otherwise be entitled by virtue of share
ownership, . . . except that this section shall not exclude
the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that
such corporate action will be or is unlawful or fraudulent
as to him.
New York Bus. Corp. Law § 623(k) (McKinney 1986). An
“appropriate action” within the meaning of § 623(k) is an ac-
tion seeking equitable relief, and that type of action and the
exercise of the right of appraisal are the dissatisfied stock-
holder’s only avenues of relief. See Walter J. Schloss Asso-
ciates v. Arkwin Industries, Inc., 61 N.Y.2d 700, 472
N.Y.S.2d 605 (1984) (adopting dissenting opinion of Man-
gano, J., at the Appellate Division as Court of Appeals opin-
7967
Al6
ion), rev'g 90 A.D.2d 149, 455 N.Y.S.2d 844 (2d Dep’t 1982)
(“Schloss”); Breed v. Barton, 54 N.Y.2d 82, 444 N.Y.S.2d
609 (1981). Money damages are not available except as
“ancillary to a grant of traditionally equitable relief.” Schloss,
90 A.D.2d at 160, 455 N.Y.S.2d at 851. As the Schloss court
explained:
An action for damages alone will not lie, since this
would allow a dissenting shareholder, by merely alleging
fraudulent or unlawful corporate conduct, to seek therein
the identical relief available to him in appraisal
proceedings. For example, where, as here, there is “a
forced liquidation or sale of the minority shareholders’
stock incident to a merger” . . . the full and proper
monetary recovery of the fair value of the dissenters’
shares may be obtained in appraisal proceedings in
which the discharge of the majority’s fiduciary duty to
the minority can be weighed in determining fair value
.... Consequently, an action for damages by a minority
shareholder based on the fraudulent or illegal corporate
conduct of the majority in discharging its fiduciary duty
would be unnecessarily duplicative.
Id. at 161, 455 N.Y.S.2d at 851 (footnote omitted). The
equitable relief to which an award of damages could be ancil-
lary means relief other than a so-called request for an ac-
counting that is merely a request for damages in another form.
See id. at 162 n.6, 455 N.Y.S.2d at 852 n.6 (“The complaint
does not seek to have defendant . . . account to plaintiff as
representative of the premerger corporation but appears to
request an accounting and payment of improperly withheld
funds by [defendant] to plaintiff in its individual capacity,
revealing plaintiff’s real, and, in fact stated, intent, i.e., to
obtain damages.”’).
7968
Al7
Burke’s complaint requested compensatory and punitive
damages, together with an accounting that the district court
properly viewed as essentially a request for damages. Burke
made no attempt to obtain traditionally equitable relief such
as a rescission of the merger. As indicated above, she took the
position in the district court that the purchase price was “‘in all
respects fair and adequate,” and that she was not “dissenting”
from the merger. (Plaintiff's Memorandum in Opposition to
Defendant’s Motion for Summary Judgment at 54.) Her
request for an “accounting,” like the request in Schloss, was
not for equitable relief from Jacoby as to funds belonging to
the Company but rather sought funds he received in his
individual capacity. Schloss forecloses that relief.
Accordingly, we affirm the district court’s dismissal of
Burke's state-law breach-of-fiduciary-duty claim concerning
the redemption of Jacoby’s Class B stock.
D. Other Arguments
Burke's other challenges to the dismissal of her complaint
do not require extended discussion. Her breach-of-contract
claim, on which she contends the court should have granted
summary judgment in her favor, was properly rejected as a
matter of law. That claim relied on the Stockholders Agree-
ment. The stockholders, however, in voting to approve the
Saatchi acquisition, explicitly voted to rescind the Stockhold-
ers Agreement to coincide with the acquisition. Further, each
Class A stockholder, including Burke, acknowledged the
termination of the Stockholders Agreement in transmitting his
or her Class A shares to consummate the acquisition. Since
Burke has disavowed any desire to rescind or dissent from the
acquisition, the Stockholders Agreement affords her no basis
for a claim.
Burke’s complaint that Class A stock was improperly is-
sued to two of Bates’s secretaries, who were not “key execu-
7969
Al8
tive employees” entitled to such stock was also properly
dismissed. A schedule attached to that Agreement listed the
two secretaries and the other employees who were to receive
Class A shares prior to the closing; we see no indication in the
record that if any of the authorized Class A shares had not
been issued to the persons listed in the schedule, they were to
be issued to others such as Burke. Further, the Acquisition
Agreement specified, to the hundredth of a cent, the price to
be paid to stockholders for each Class A share; we see no
indication that if any of the authorized shares were not issued
in accordance with the schedule, the price paid for the already
issued shares was to be increased. Burke presented no
evidence from which an inference could be drawn that had
she been notified of the sales, or had they not been made, she
would have received a greater price per share. Thus, we up-
hold the district court’s rulings that the issuance of shares to
the secretaries was not material to Burke’s vote on the
‘merger, was not material to the surrender of her stock, and did
not cause her any injury.
CONCLUSION
We have considered all of Burke’s arguments on this ap-
peal and have found in them no basis for reversal. The judg-
ment of the district court is affirmed.
7970
Al9
NEW YORK BUSINESS CORPORATION LAW § 623
§ 623. Procedure to enforce shareholder’s right to receive
payment for shares.—(a) A shareholder intending to enforce
his right under a section of this chapter to receive payment
for his shares if the proposed corporate action referred to
therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a
vote, or at such meeting but before the vote, written objec-
tion to the action. The objection shall include a notice of his
election to dissent, his name and residence address, the num-
ber and classes of shares as to which he dissents and a
demand for payment of the fair value of his shares if the
action is taken. Such objection is not required from any
shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of share-
holders without a meeting.
(b) Within ten days after the shareholders’ authorization
date, which term as used in this section means the date on
which the shareholders’ vote authorizing such action was
taken, or the date on which such consent without a meeting
was obtained from the requisite shareholders, the corporation
shall give written notice of such authorization or consent by
registered mail to each shareholder who filed written objec-
tion or from whom written objection was not required,
excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to
have elected not to enforce his right to receive payment for
his shares.
(c) Within twenty days after the giving of notice to him,
any shareholder from whom written objection was not
required and who elects to dissent shall file with the corpora-
tion a written notice of such election, stating his name and
residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair
value of his shares. Any shareholder who elects to dissent
from a merger under section 905 (Merger of subsidiary cor-
poration) or paragraph (c) of section 907 (Merger or consoli-
A20
dation of domestic and foreign corporations) or from a share
exchange under paragraph (g) of Section 913 (Share
exchanges) shall file a written notice of such election to dis-
sent within twenty days after the giving to him of a copy of
the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent, held by him of
record, that he owns beneficially. A nominee or fiduciary
may not dissent on behalf of any beneficial owner as to less
than all of the shares of such owner, as to which such nomi-
nee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the share-
holder shall cease to have any of the rights of a shareholder
except the right to be paid the fair value of his shares and
any other rights under this section. A notice of election may
be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as
provided in paragraph (g), but in no case later than sixty
days from the date of consummation of the corporate action
except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice
of election shall be extended until sixty days from the date an
offer is made. Upon expiration of such time, withdrawal of a
notice of election shall require the written consent of the cor-
poration. In order to be effective, withdrawal of a notice of
election must be accompanied by the return to the corpora-
tion of any advance payment made to the shareholder as pro-
vided in paragraph (g). If a notice of election is withdrawn,
or the corporate action is rescinded, or a court shall deter-
mine that the shareholder is not entitled to receive payment
for his shares, or the shareholder shall otherwise lose his dis-
senters’ rights, he shall not have the right to receive payment
for his shares and he shall be reinstated to all his nghts as a
shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to
payment of any intervening dividend or other distribution or,
if any such rights have expired or any such dividend or distri-
A21
bution other than in cash has been completed, in lieu thereof,
at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corpo-
rate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares repre-
sented by certificates shall submit the certificates representing
his shares to the corporation, or to its transfer agent, which
shall forthwith note conspicuously thereon that a notice of elec-
tion has been filed and shall return the certificates to the share-
holder or other person who submitted them on his behalf. Any
shareholder of shares represented by certificates who fails to
submit his certificates for such notation as herein specified
shall, at the option of the corporation exercised by written
notice to him within forty-five days from the date of filing of
such notice of election to dissent, lose his dissenter’s rights
unless a court, for good cause shown, shall otherwise direct.
Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation together
with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation
except those which the original dissenting shareholder had at
the time of transfer.
(g) Within fifteen days after the expiration of the period
within which shareholders may file their notices of election to
dissent, or within fifteen days after the proposed corporate
action is consummated, whichever is later (but in no case
later than ninety days from the shareholders’ authorization
date), the corporation or, in the case of a merger or consoli-
dation, the surviving or new corporation, shall make a writ-
ten offer by registered mail to each shareholder who has filed
such notice of election to pay for his shares at a specified
price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices
of election to dissent have been received and the aggregate
number of holders of such shares. If the corporate action has
A22
been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has sub-
mitted the certificates representing his shares to the corpora-
tion, as provided in paragraph (f), of an amount equal to
eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a state-
ment that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by
the corporation promptly upon submission of his certificates.
If the corporate action has not been consummated at the time
of the making of the offer, such advance payment or state-
ment as to advance payment shall be sent to each shareholder
entitled thereto forthwith upon consummation of the corpo-
ration action. Every advance payment or statement as to
advance payment shall include advice to the shareholder to
the effect that acceptance of such payment does not consti-
tute a waiver of any dissenters’ rights. If the corporate action
has not been consummated upon the expiration of the ninety
day period after the shareholders’ authorization date, the
offer may be conditioned upon the consummation of such
action. Such offer shall be made at the same price per share
to all dissenting shareholders of the same class, or if divided
into series, of the same series and shall be accompanied by a
balance sheet of the corporation whose shares the dissenting
shareholder holds as of the latest available date, which shall
not be earlier than twelve months before the making of such
offer, and a profit and loss statement or statements for not
less than a twelve-month period ended on the date of such
balance sheet or, if the corporation was not in existence
throughout such twelve month period, for the portion thereof
during which it was in existence. Notwithstanding the forego-
ing, the corporation shall not be required to furnish a bal-
ance sheet or profit and loss statement or statements to any
shareholder to whom such balance sheet or profit and loss
statement or statements were previously furnished, nor if in
connection with obtaining the shareholders’ authorization for
or consent to the proposed corporate action the shareholders
were furnished with a proxy or information statement, which
included financial statements, pursuant to Regulation 14A or
A23
Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such
offer, the corporation making the offer and any shareholder
agree upon the price to be paid for his shares, payment there-
for shall be made within sixty days after the making of such
offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for
any such shares represented by certificates.
(h) The following procedure shall apply if the corporation
fails to make such offer within such period of fifteen days,
or if it makes the offer and any dissenting shareholder or
shareholders fail to agree with it within the period of thirty
days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court
in the judicial district in which the office of the corporation
is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is
a foreign corporation without an office in this State, such
proceeding shall be brought in the county where the office of
the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder
may institute such proceeding for the same purpose not later
than thirty days after the expiration of such twenty day
period. If such proceeding is not instituted within such thirty
day period, all dissenter’s rights shall be lost unless the
Supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation
upon the price to be paid for their shares, shall be made par-
ties to such proceeding, which shall have the effect of an
action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon
each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons,
A24
and upon each nonresident dissenting shareholder either by
registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be ple-
nary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court
to make such determination, is entitled to receive payment
for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting share-
holder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the
fair value as of the close of business on the day prior to the
shareholders’ authorization date. In fixing the fair value of
the shares, the court shall consider the nature of the transac-
ton giving rise to the shareholder’s right to receive payment
for shares and its effects on the corporation and its share-
holders, the concepts and methods then customary in the rel-
evant securities and financial markets for determining fair
value of shares of a corporation engaging in a similar trans-
action under comparable circumstances and all cther relevant
factors. The court shall determine the fair value of the shares
without a jury and without referral to an appraiser or ref-
eree. Upon application by the corporation or by any share-
holder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not lim-
ited to, disclosure of any expert’s reports relating to the fair
value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of
section 3101 of the civil practice laws and rules.
(5S) The final order in the proceeding shall be entered
against the corporation in favor of each dissenting share-
holder who is a party to the proceeding and is entitled thereto
for the value of his shares so determined.
(6) The final order shall include an allowance for interest
at such rate as the court finds to be equitable, from the date
the corporation action was consummated to the date of pay-
ment. In determining the rate of interest, the court shail con-
sider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money
aie el
A25
during the pendency of the proceeding. If the court finds that
the refusal of any shareholder to accept the corporate offer
of payment for his shares was arbitrary, vexatious or other-
wise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs
and expenses, including the fees and expenses of its counsel
and of any experts employed by it. Notwithstanding the fore-
going, the court may, in its discretion, apportion and assess
all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders
who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph
(e), if the court finds that their refusal to accept the corpo-
rate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess
all or any part of the costs, expenses and fees incurred by
any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any
of the following: (A) that the fair value of the shares as
determined materially exceeds the amount which the corpora-
tion offered to pay; (B) that no offer or required advance
payment was made by the corporation; (C) that the corpora-
tion failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corpo-
ration in complying with its obligations as provided in this
section was arbitrary, vexatious or Otherwise not in good
faith. In making any determination as provided in clause (A),
the court may consider the dollar amount or the percentage,
or both, by which the fair value of the shares as determined
exceeds the corporate offer.
(8) Within sixty days after final determination of the pro-
ceeding, the corporation shall pay to each dissenting share-
holder the amount found to be due him, upon surrender of
the certificates for any such shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of
the agreed value therefor or of the amount due under the
final order, as provided in this section, shall become treasury
Shares or be cancelled as provided in section 515 (Reacquired
shares), except that, in the case of a merger Or consolidation,
A26
they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder
under this section at a time when the corporation is insolvent
or when such payment would make it insolvent. In such
event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such
event be deemed withdrawn with the written consent of the
corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of credi-
tors of the corporation, but have rights superior to the non-
dissenting shareholders, and if it is not liquidated, retain his
right to be paid for his shares, which right the corporation
shall be obliged to satisfy when the restrictions of this para-
graph do not apply.
- (3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the
corporation within thirty days after the corporation has given
him written notice that payment for his shares cannot be
made because of the restrictions of this paragraph. If the dis-
senting shareholder fails to exercise such option as provided,
the corporation shall exercise the option by written notice
given to him within twenty days after the expiration of such
period of thirty days.
(k) The enforcement by a shareholder of his right to
receive payment for his shares in the manner provided herein
shall exclude the enforcement by such shareholder of any
other mght to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and
except that this section shall not exclude the right of such
shareholder to bring or maintain an appropriate action to
obtain relief on the ground that such corporate action will be
or is unlawful or fraudulent as to him.
(1) Except as otherwise expressly provided in this section,
any notice to be given by a corporation to a shareholder
under this section shall be given in the manner provided in
section 605 (Notice of meetings of shareholders).
A27
(m) This section shall not apply to foreign corporations
except as provided in subparagraph (e)(2) of section 907
(Merger or consolidation of domestic and foreign corpora-
tions). (Amended by L. 1962, Ch. 834, § 40; L. 1963, Ch.
746, § 15; L. 1965, Ch. 803, §§ 20-22; L. 1982, Ch. 202,
§§ 3-9; L. 1982, Ch. 928, §§ 38-40; L. 1986, Ch. 117, § 3.)
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.