IRA for benefit of Oppenheimer v. Brenner Cos.,

419 S.E.2d 354, 355 (N.C. Ct. App. 1992).

 

A Misunderstanding and a Larger Issue Uncovered

 

 

 

 

Joseph R. Marek

3L

 

Financial Valuations

Professor Palmiter

Spring 2001


Abstract

The court in IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 355 (N.C. Ct. App. 1992) held that the dissenting shareholders were limited to the statutory appraisal remedy because they failed to allege facts specific enough to support their allegations of fraud and unlawful conduct.  Specifically, the court held that all of the plaintiffs’ allegations were unfounded because they all related to price, which was to be determined in the statutory appraisal hearing.

Issue

Whether the court was correct in subordinating plaintiffs’ allegations of fraud and unlawful conduct to fair price.

Rule

North Carolina General Statute §55-13-02 grants shareholders the right to dissent from a corporate merger.  Upon dissent, a shareholder is entitled to obtain payment for the fair value of his shares.  The statute further states that a shareholder entitled to dissent and “obtain payment for his shares…may not challenge the corporate action creating his entitlement…unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.”

Analysis

The court’s holding in IRA for benefit of Oppenheimer v. Brenner Cos. incorrectly subordinated plaintiffs’ allegations of fraud and unlawful conduct to the determination of fair price.  The official comments to North Carolina General Statute §55-13-02 state that “...the prospect that shareholders may be ‘paid off’ does not justify the corporation in proceeding unlawfully or fraudulently.”  Also, Weinberger v. UOP Inc., 457 A.2d 701 (Del. 1983), which has been adopted into North Carolina law, states that a plaintiff’s allegations can be subordinated to price only when there is no fraudulent conduct.

The holding evidences the court’s misunderstanding of North Carolina statute and the concepts of Delaware law that the North Carolina statute seeks to incorporate.  Additionally, the holding resulted in the court apply a shortsighted analysis which obscured the larger issue in the case – what constitutes fraud and unlawful conduct under the appraisal remedy statute.


 

Introduction

            When corporate mergers force or cash-out minority shareholders, valuation of the shareholders’ interests are guided by North Carolina statute.[1]  Under North Carolina statute, a minority shareholder is entitled to dissent from a corporate merger.[2]  However, the shareholder’s exclusive remedy is receipt of the fair value of his shares, absent unlawful or fraudulent conduct.[3] 

In adopting this statute, the legislature intended to embrace the “entire fairness test” adopted by the Supreme Court of Delaware.[4]  This test requires that all factors and elements, which might be reasonable under the circumstances, be considered in valuing the stock.[5]  Therefore, although a dissenting shareholder may be limited to statutory appraisal in the valuation of his stock, that valuation must consider all relevant factors in determining value and whether there was unlawful or fraudulent conduct.[6] 

The court in IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 355 (N.C. Ct. App. 1992) held that the dissenting shareholders were limited to the statutory appraisal remedy because they failed to allege facts specific enough to support their allegations of fraud and unlawful conduct.[7]  Specifically, the court held that all of the plaintiffs’ allegations were unfounded because they all related to price, which was to be determined in the statutory appraisal hearing.[8]

This holding incorrectly subordinated plaintiffs’ allegations of fraud and unlawful conduct to the determination of fair price.[9]  Additionally, the holding evidences the court’s misunderstanding of North Carolina statute and the concepts of Delaware law that the statute seeks to incorporate.[10]  Furthermore, the incorrect holding resulted in the court apply a shortsighted analysis which obscured the larger issue in the case – what constitutes fraud and unlawful conduct under the statute that provides for an appraisal remedy. 

Part I of this note examines the factual and procedural background of the case.  Part II examines the relevant North Carolina law and the issues presented.  Part III challenges the court’s holding and considers whether the conduct in the case would have amounted to unlawful or fraudulent conduct under the statute.  Finally, this note concludes that the court’s misunderstanding of North Carolina statute, and its incorporated concepts of Delaware law, precluded them from properly examining and analyzing the issues.

Part I:

Background

1.      Factual Background

a.  The Defendant

Brenner Companies Inc. (Brenner), a North Carolina public corporation, was in the business of processing and recycling metal, fabricating steel, and manufacturing refuse containers.[11]  In 1978, Brenner sold its trash collection business, reducing the public demand for its common stock.[12]  Accordingly, Brenner decided to become a private corporation by implementing a forced sale, or cash-out of its minority shareholders.[13]

b.  The Plaintiffs

The plaintiffs, comprised of a small group of minority shareholders, objected to the cash-out merger.[14]  Plaintiffs characterized the stock valuation to be “ridiculously low.”[15]  Plaintiffs filed suit alleging that the “ridiculously low” price was the result of the Brenner Board committing fraud and breaching fiduciary duties.[16]  Accordingly, they sought compensatory and punitive damages, which the court denied.[17]

c.       The Valuation Process[i]

In March 1988, Brennen hired Interstate Securities Corporation (Interstate) to provide a valuation of the company.[18]  Interstate provided Brennen with two valuation reports that utilized three different valuations methods.[19]  The reports priced the company’s stock between $15.93 and $19.12 per share.[20] 

The Brennen Board voted to set the merger stock price at $17.50, the median of the two values.[21]  The Board then requested that Interstate conduct a fairness assessment of the $17.50 price.[22]  Interstate utilized eight different valuation techniques in the fairness assessment, none of which resulted in a value great than $17.50.[23]  Accordingly, the Board approved the cash-out merger at $17.50 per share.[24]  It was this price that the plaintiffs characterized as “ridiculously low.”[25] 

2.  Procedural Background

            In May 1988, plaintiffs sued alleging that the defendants breached their fiduciary duties and committed fraud.[26]  In October 1988, plaintiffs sought, but were denied, a preliminary injunction to enjoin the merger.[27] 

Additionally, plaintiffs’ discovery motions, requesting pre- and post-merger financial information, were denied.[28]  In May 1990, defendants’ motion for summary judgment was granted.[29]  Plaintiffs appealed.[30]

Part II:

The Law

Plaintiffs, dissatisfied over the merger’s price per share, contended that statutory appraisal was not their exclusive remedy.[31]  Rather, plaintiffs’ complaint sought compensatory and punitive damages.[32]  Plaintiffs supported the damage requests by contending that there were issues of material fact regarding the fairness of the merger, breach of fiduciary duty, and commission of constructive and/or actual fraud by the defendants.[33]  Therefore, plaintiffs contended that they were not limited to the statutory appraisal remedy.[34]

1.      North Carolina Statutes

a.  Right to Dissent

North Carolina General Statute §55-13-02 grants shareholders the right to dissent from a corporate merger.[35]  Upon dissent, a shareholder is entitled to obtain payment for the fair value of his shares (emphasis added).[36]  The statute further states that a shareholder entitled to dissent and “obtain payment for his shares…may not challenge the corporate action creating his entitlement…unless the action is unlawful or fraudulent with respect to the shareholder or the corporation (emphasis added).”[37]  In other words, absent fraud or unlawful action, a dissenting shareholder’s exclusive statutory appraisal remedy is receipt of the fair value for his share.[38] 

b.  Fair Value

Fair value, as defined by §55-13-01, “means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects.”[39]  The statute’s official comments state that “the details by which ‘fair value’ is to be determined” is left to the discretion of the parties, or ultimately the courts.[40]  

This interpretation of fair value was embraced in 1990 when the North Carolina Corporation Act became effective.[41]  Prior to 1990, North Carolina General Statute §55-113 specified a statutory appraisal method by which fair value was to be determined.[42]

The legislature, however, in adopting the North Carolina Corporation Act, sought to embrace the “entire fairness test” adopted by Supreme of Delaware.[43]  This entire fairness test breaks fair value into two prongs; fair dealings and fair price.[44]  Furthermore, it requires that appraisers and the court “take into consideration all factors and elements which reasonably might enter into fixing of value.”[45]

c.  Fraud and Unlawful Action

In a cash-out merger, a dissenting shareholder’s exclusive statutory remedy is receipt of the fair value of his shares, absent fraud or unlawful conduct.[46]  The statute’s underlying theory, limiting the dissenting shareholders to the fair value, is that a majority of shareholders should be able to approve a corporate merger regardless of the fact that a minority of shareholders disagree.[47]  Since the dissenting shareholders are entitled to the fair value for their shares, they are protected from pecuniary loss.[48] 

The statute’s official comments state that this exclusive remedy, which differs from that specified in the former statutory version, was designed to be in accordance with the principles that have developed in Delaware, New York, and other states regarding the rights and remedies of dissenting shareholders.[49]  

Illustrative of those principles is Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).[50]  Weinberger held that the statutory appraisal remedy was adequate unless “fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross or palpable overreaching are involved.”[51] 

In sum, North Carolina statutes provide that a minority shareholder is entitled to dissent from a merger.[52]  The dissenting shareholder, however, is entitled to obtain only the fair value of his shares unless unlawful or fraudulent conduct is involved.[53]  In appraising the shares, all relevant factors must be considered.[54]  Therefore, after considering all relevant factors, absent unlawful conduct or fraud, the dissenting shareholder’s exclusive remedy is this statutory appraisal method, or receipt of the shares fair value.[55] 

2.      Issues

Plaintiffs characterized the issue as whether statutory appraisal is their exclusive remedy when they are dissatisfied with the merger’s stock price as a result of unfairness, breach of fiduciary duties, and/or fraud.  Plaintiffs contended that any or all of these complaints should be unlawful or fraudulent and thus, they should not be limited to the statutory appraisal remedy.

a.  Unfair Dealings

Plaintiffs argued that the defendants’ acted unfairly by “appropriating for the Brenner family the assets of the Company, by eliminating the public shareholders…at an inadequate price and as a result of unfair dealings.”[56]  The court, however, found that the plaintiffs were unable to demonstrate that the defendants acted unfairly because they were unable to present specific facts of misconduct.[57]  The court found that the plaintiffs’ allegation of unfairness related only to price, which alone “does not render a merger suspect.”[58] 

b.  Breach of Fiduciary Duty

      Plaintiffs argued that defendants’ conduct violated the fiduciary duty the officers and directions owe shareholders under North Carolina law.[59]  Specifically, plaintiffs argued that the Board “failed to provide Interstate with information sufficient to do an accurate valuation.”[60]  Additionally, plaintiffs argued that the Boards failure to investigate Interstates’ valuation breached their fiduciary duty to protect the minority shareholders.[61] 

The court, however, found again that plaintiffs’ complaints could be traced to their disagreement over the price per share.[62]  Therefore, the court held that plaintiffs failed to raise issue of material fact regarding breach of fiduciary duty.[63]

  1. Fraud and/or Constructive Fraud

Plaintiffs alleged both actual fraud and constructive fraud.[64]  First, regarding actual fraud, plaintiffs alleged that defendants “concealed material facts…and made misrepresentations of fact…by engaging in a plan to scheme to defraud minority shareholders.”[65]   The plaintiffs supported this allegation by submitting into evidence proxy statements that they stated contained misrepresentations.[66]  The court, however, again held that the plaintiffs’ claim for fraud was a result of their dissatisfaction over the price received for their stock.[67]  Therefore, the plaintiffs failed to meet the elements required to support a fraud allegation.[68]

Second, plaintiffs alleged that the defendants are guilty of constructive fraud.[69]  They supported this allegation by citing case law which purports that “[c]onstructive fraud is established when proof is presented that a position of trust and confidence was taken advantage of to the hurt of the other.”[70]  The court, however, held this complaint must also fail because the plaintiffs failed to present evidence of harm suffered, “other than the damage from the price they received for their minority shares.”[71]

d.  Denial of Discovery

      During the discovery stage, plaintiffs filed discovery motions requesting Brenner’s pre- and post-merger financial information.[72]  The trial court denied these motions “due to their irrelevancy.”[73]  The appellate court affirmed the denial of these motions.[74]  The appellate court stated that the information that these discovery requests would reveal would only relate to price.[75]  Therefore, the issues “influencing price should be determined in the statutory appraisal proceeding.[76]

In sum, the court held that since plaintiffs’ allegations were tied to their dissatisfaction over the price they received for their stock, they were unfounded.[77]  Therefore, plaintiffs’ exclusive remedy, as proscribed by statute §55-13-02, was statutory appraisal.[78]

III.             Analysis

     The court committed three errors in its analysis of this case.  First, the court incorrectly characterized the issue.  Second, the court incorrectly applied the entire fairness test.  Third, the court incorrectly decided that nondisclosure, breach of fiduciary duty, and unfair dealing were subordinate to price and therefore, not alone sufficient grounds for relief.  These errors precluded the court from making the proper inquiry -- what constitutes fraudulent and unlawful conduct under the appraisal statute. 

First, this section will examine the court’s characterization of the issue.  Second, it will examine the court’s application of the entire fairness test.  Third, it will challenge the court’s decision that discovery and issues regarding unfair dealings and breach of fiduciary duties are insufficient grounds for additional relief when they relate only to fair price.  Finally, it will examine the real issue in the case – what constitutes fraud and unlawful conduct - and offer some possible interpretations.  All of this supports the ultimate conclusion that the court failed to adequately understand and apply the appropriate valuation principles as required by statute and precedent.

1.  Characterization of the Issue

The court characterized the issue as “whether a statutory appraisal is a dissenting shareholder’s exclusive remedy when the shareholder challenges only the fair value or price of the stock….(emphasis added)”[79]  Since this issue, as characterized by the court, was one of first impression, the court looked to the law of other jurisdictions.[80] 

The court found persuasive the reasoning used in Maryland decision Schloss Assoc. v. Chesapeake & Ohio Ry. Co., 535 A.2d 147, (Md. Ct. Sp. App. 1988).[81]  In Schloss, the Maryland court held that the “statutory appraisal right is a wholly adequate remedy…when the shareholders’ objection is essentially a complaint over price.”[82]  The Schloss court’s rational was based on a Maryland statute that provided for an exclusive remedy when shareholders complain only over price.[83] 

            Additionally, the Brenner court looked towards an Ohio case[84].  In Stepak v. Schey, 553 N.E.2d 1072 (Ohio 1990), the court held that a “remedy beyond the statutory procedure is not available where the shareholder’s objection is essentially a complaint regarding the price which he received for his shares.”[85] 

            Furthermore, although not mentioned by the court, such a determination would be consistent with Delaware law.[86]  In Delaware decision Cole v. National Cash Credit Association, the court held that the appraisal remedy is adequate absent “...fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching....”[87] 

The aforementioned precedent all indicates that the court’s decision is not objectionable if shareholders’ complaint is solely based on the price received for stock.  However, the facts of the case reveal that the shareholders’ complaint was not solely based upon the price they received for their stock.  Rather, plaintiffs argued that there was unfairness, breach of fiduciary duties, and/or fraud associated with the valuation of the shares.[88]  Therefore, the court’s mischaracterization of the issue resulted in a shortsighted and incorrect analysis under the entire fairness test.

2.      The Entire Fairness Test

North Carolina General Statute §55-13-02 entitles a shareholder to dissent from a corporate merger and receive the fair value for his shares.[89]  The official comments to North Carolina General Statute §55-13-01 state that this concept of fair value is adopted from the Supreme Court of Delaware’s decision in Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).[90] 

Weinberger held that the concept of fair value embraces the concepts of fair dealings and fair price.[91]  It held, however, that the test is not a bifurcated one as between fair dealings and fair price.[92]  Rather, all aspects of the issue must be examined “…since the question is one of entire fairness.”[93]  Thus, in a “...non-fraudulent transaction, price may be the primary consideration outweighing the fair dealings of the merger (emphasis added).”[94] 

            Note that Weinberger expressly stated that absent fraud, it was not incorrect for the court to find that price was the primary consideration, which outweighs a plaintiffs’ fair dealings claims.[95]  The plaintiffs, however, explicitly allege fraud in their claim.[96]  Therefore, upon a finding that there is an issue regarding fraud, it would be incorrect for the court to resolve all issues regarding fair dealings as being subordinate to price.[97] 

            The court failed to apply the entire fairness test according to the North Carolina statute and Weinberger because it failed to adequately resolve the issue of whether there was fraud (or unlawful conduct).  These issues were not adequately resolved because the court incorrectly considered price as the paramount consideration, and thus incorrectly subordinated to price plaintiffs’ disclosure requests and allegations of fraud and breach of fiduciary duty.[98]              

3.  Fairness of Price is not Controlling

            Plaintiffs alleged that their dissatisfaction over the price received for their stock was the result of an unfair merger, breach of fiduciary duties, and actual or constructive fraud.[99]  They alleged that the Board’s “action is unlawful or fraudulent” and plaintiffs’ exclusive remedy should not be limited to statutory appraisal.[100]  The court, however, reasoned that all of the plaintiffs’ allegations were related to the fairness of the price and that they were unable to “present facts to support any of their underlying theories of recovery other than that of a challenge to the stock value.”[101]  Therefore, plaintiffs were limited to the statutory appraisal remedy.[102]  The court reasoning, however, is flawed for two reasons. 

First, the court’s failure to grant plaintiffs’ discovery motions denied plaintiffs full disclosure, thereby undermining their ability to present facts sufficient to support their allegations.  The full disclosure requirement is fully supported by Weinberger, which has been incorporated into North Carolina statute, and precedent, which the Brenner court relied.[103] 

Weinberger specifically states that the court must determine “whether defendants had disclosed all information in their possession germane to the transaction…and by germane we mean…information such as a reasonable shareholder would consider important.”[104]  Additionally, the Brenner court’s holding relied heavily on the reasoning used in Maryland decision Schloss Assoc. v. Chesapeake & Ohio Ry. Co., which held that the statutory appraisal remedy was exclusive upon full disclosure.[105]  Therefore, full disclosure is a paramount consideration in evaluating plaintiffs’ allegations and the court’s failure to so undermines their holding.

Second, the court failed to understand that the presence of unlawful or fraudulent conduct, regardless of whether it related to price or dealings, was sufficient to entitle plaintiffs to a remedy other than statutory appraisal.[106]  The court’s misunderstanding was evident by their decision regarding the discovery motion, breach of fiduciary duty, and unfair dealings.[107] 

Regarding the denial of discovery, the court held that Brenner’s pre-merger financial information was irrelevant because it was important only as to price.[108]  This reasoning overlooks the possibility that the Board may have, for example, inappropriately withheld price information from the valuation company, which clearly would be considered fraudulent or unlawful conduct (an allegation made by the plaintiffs).  According to the court’s reasoning, however, since the allegedly withheld information deals with price, the fraudulent or unlawful conduct can be overlooked. 

The court further endorsed this incorrect reasoning, that fraudulent or unlawful conduct that related to price can be overlooked, when they addressed the plaintiffs’ allegations of unfair dealings and breach of fiduciary duty.[109]  Specifically the court stated that “…each of plaintiffs’ contentions may…be traced to a dispute over the value of the minority shares [price]…” and therefore “…a question to be determined at a statutory appraisal proceeding.[110]  

This reasoning flies in the face of North Carolina statute and precedent.[111]  The official comments to North Carolina General Statute §55-13-02 states that “…the prospect that shareholders may be ‘paid off’ does not justify the corporations in proceeding unlawfully or fraudulently.”[112]  Additionally, precedent states that claims based on other than inadequacy of price will not limit shareholders to the appraisal remedy.[113]  Specifically, Weinberger states that price can be the predominant consideration only when there are no allegations of fraudulent conduct.[114] 

In sum, the court committed two errors.  First, they incorrectly decided that full disclosure was not necessary because the information related to price.[115]  Second, they incorrectly decided that the allegations of unfair dealings and breach of fiduciary duties are insignificant because they related to price.[116]  Therefore, the court incorrectly interpreted and applied North Carolina statute and relevant precedent.[117]   Accordingly, their analysis was shortsighted, incorrect, and resulted in the court failing to address a larger, more relevant issue – whether defendants’ conduct amounted to unlawful or fraudulent action under the North Carolina appraisal statute. 

4.  The Real Issue – What is Unlawful or Fraudulent Conduct?

North Carolina General Statute §55-13-02 grants shareholders the right to dissent from a corporate merger but makes their exclusive remedy receipt of the fair value of their shares “…unless the action is unlawful or fraudulent (emphasis added).”[118]  If the Brenner court correctly characterized the issue and correctly applied the entire fairness test and properly analyzed the issues they would have been confronted with the larger and more significant issue – whether the defendant’s conduct would be considered unlawful or fraudulent under North Carolina General Statute §55-13-02. 

An examination of the legislative history of §55-13-02 indicates that the House Judiciary Committee “saddled the North Carolina courts with the task of determining the extent of the exclusivity by construing the statute’s terms ‘unlawful’ and ‘fraudulent.’”[119]  The courts, however, have not yet interpreted “unlawful” and “fraudulent” in the context of North Carolina General Statute §55-13-02.[120]  Therefore, since there is no definitive guidance as to what is or is not entitled to exception under the statute, an examination of history, statute, and precedent, is in order.

a.  History of the Cash-Out Merger

      Early statutes provided that when a majority sought to approve a merger, minority shareholders would receive shares in the surviving corporation preserving their equity interest.[121]  Thus, the majority had no express power to force out the minority.[122]

Sometime in the 1930’s and thereafter, however, merger statutes began to be drafted and interpreted to allow a majority to force or cash-out minority shareholders.[123]  This was not considered unfair since the minority shareholders received cash in exchange for their stock[124]. 

            As this method of merger became more common, so did the challenges by minority shareholders.[125]  Accordingly, tension arose between a majority shareholder’s fiduciary duty towards treating the minority shareholders fairly and the majority’s power to make corporate decisions.[126] 

            It is against this history that case law and statutes developed, like the one at issue in this case, where the minority shareholder is entitled to receive the fair value for his shares unless evidence of unlawful conduct or fraud exists.[127]  In such a situation, the minority would then not be limited to the fair value of the stock, but would be able to seek additional relief, such as compensatory or punitive damages.[128]     

      b.  Breach of Fiduciary Duty is Fraudulent

       A fair interpretation of North Carolina precedent could support a finding that breach of fiduciary duty is fraudulent conduct entitling a shareholder to relief other than the statutory appraisal remedy.[129]  North Carolina law states that “[d]irectors, officers and majority shareholders owe a fiduciary duty and obligation of good faith to minority shareholders….”[130]  North Carolina courts have held that “a fiduciary duty exists in all cases where there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interest of the one reposing confidence.”[131] 

Additionally, the North Carolina courts have held that “constructive fraud is established when proof is presented that a position of trust and confidence was taken advantage of to the hurt of the other.”[132]  Therefore, North Carolina’s appraisal statute limiting shareholders solely to an appraisal “unless the corporate action is fraudulent” is open to such an interpretation whereby constructive fraud, which can result from a breach of fiduciary duties, is fraudulent conduct.”[133]

            c.  Breach of Fiduciary Duty is Unlawful

      An examination of the legislative history of the North Carolina Corporations Act indicates that unlawful conduct might result from the breach of fiduciary duties, and thereby be considered outside the exclusivity of the appraisal statute.[134]  This is supported by the fact that when the Act was originally introduced, the appraisal exclusivity provision contained language limiting unlawfulness to procedural violations.[135]  The House eventually deleted this limiting language leaving only an unlawfulness requirement.[136]  Therefore, this implicitly indicates that unlawfulness is not limited to mere procedural violations and may include breach of fiduciary duties.[137]

            Furthermore, in keeping with the statutes adoption of laws that are in accordance with those of other jurisdictions, it is insightful to consider a New York precedent.[138]  In Alpert v. 28 Williams Street Corporation, the court held “[w]hen a breach of fiduciary duty occurs, that action will be considered unlawful and the aggrieved shareholder may be entitled to equitable relief.”[139]  Therefore, it would be a fair interpretation to find that breach of fiduciary duties constitute unlawful action. 

In sum, although there is no explicit legislative or judicial guidance, it is suggested that a breach of fiduciary duties can be considered fraudulent and/or unlawful conduct.[140]  Therefore, had the court correctly analyzed the case, the plaintiff may not have been limited to the statutory appraisal remedy.

IV. Conclusion

The Brenner court held that all of the plaintiffs’ allegations were unfounded because they all related to price.[141]  This holding incorrectly subordinated plaintiffs’ allegations of fraud and unlawful conduct to the determination of fair price.[142]  Thus, this holding evidenced the court’s misunderstanding of North Carolina statute and the concepts of Delaware law that the statute seeks to incorporate.[143] 

The incorrect holding resulted in the court apply a shortsighted analysis, which obscured the larger issue in the case – what constitutes fraud and unlawful conduct under the appraisal remedy statute.  North Carolina statute, precedent, and legislative history all support an interpretation that breach of fiduciary duty is fraud and/or unlawful conduct.[144]  Therefore, had the court correctly characterized and analyzed the issue, they could have reached the conclusion that plaintiffs were not limited to the statutory appraisal remedy.  

 



[i] The plaintiffs made no challenges to the valuation process itself.  Rather, plaintiffs challenge price exclusively by arguing that they are entitled to remedies other than provided by the appraisal because of the defendants unlawful and/or fraudulent conduct. 



[1] N.C. Gen. Stat. §55-13-02(a) & (b) (2000).

[2] N.C. Gen. Stat. §55-13-02(a) & (b) (2000).

[3] N.C. Gen. Stat. §55-13-02(a) & (b) (2000).

[4] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[5] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[6] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[7] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[8] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[9] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983); N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[10] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983); N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[11] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 355 (N.C. Ct. App. 1992).

[12] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 355 (N.C. Ct. App. 1992).

[13] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).  Brenner originally implemented a stock repurchase program in order to become private but later decided that a freeze out merger would allow them to avoid federal regulations regarding “going-private” transactions. 

[14] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[15] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[16] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[17] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[18] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[19] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[20] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[21] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[22] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[23] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[24] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[25] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[26] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[27] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[28] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[29] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[30] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[31] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[32] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[33] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[34] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[35] N.C. Gen. Stat. §55-13-02(a) (2000).

[36] N.C. Gen. Stat. §55-13-02(a) (2000).

[37] N.C. Gen. Stat. §55-13-02(b) (2000).

[38] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[39] N.C. Gen. Stat. §55-13-01(1) (2000).

[40] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[41] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[42] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[43] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[44] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[45] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983). 

[46] N.C. Gen. Stat. §55-13-02 (2000).

[47] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[48] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[49] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[50] Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).

[51] Weinberger v. UOP, Inc., 457 A.2d 701, 714 (Del. 1983).

[52] N.C. Gen. Stat. §55-13-02 (2000).

[53] N.C. Gen. Stat. §55-13-02 (2000).

[54] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[55] N.C. Gen. Stat. §55-13-02 (2000).

[56] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[57] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[58] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[59] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[60] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[61] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[62] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[63] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[64] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 355 (N.C. Ct. App. 1992).

[65] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[66] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[67] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[68] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 359 (N.C. Ct. App. 1992).

[69] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[70] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[71] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[72] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 356 (N.C. Ct. App. 1992).

[73] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[74] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[75] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[76] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[77] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[78] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[79] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[80] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[81] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[82] Schloss Assoc. v. Chesapeake & Ohio Ry. Co., 536 A.2d 147, 158 (Md. Ct. Sp. App. 1988).

[83] Schloss Assoc. v. Chesapeake & Ohio Ry. Co., 536 A.2d 147, 154 (Md. Ct. Sp. App. 1988).

[84] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[85] Stepack v. Schey, 553 N.E.2d 1072, 1075 (Ohio 1990).

[86] Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del. 1983).

[87] Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del. 1983).

[88] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[89] N.C. Gen. Stat. §55-13-02(a) (2000).

[90] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[91] Weinberger v. UOP, Inc., 457 A.2d 701, 712 (Del. 1983).

[92] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[93] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[94] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[95] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358, 359 (N.C. Ct. App. 1992).

[96] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[97] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358, 359 (N.C. Ct. App. 1992).

[98] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 357 (N.C. Ct. App. 1992).

[99] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[100] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[101] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[102] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[103] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[104] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).

[105] Schloss Assoc. v. Chesapeake & Ohio Ry. Co., 536 A.2d 147, 158 (Md. Ct. Sp. App. 1988).

[106] N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[107] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[108] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[109] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[110] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[111] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[112] N.C. Gen. Stat. §55-13-02 (n. 2) (2000).

[113] Umstead v. Durham Hosiery Mills Inc. 578 F. Supp. 342 (W.D.N.C. 1982); Austell v. Smith, 634 F. Supp. 326 (W.D.N.C. 1986).

[114] Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[115] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[116] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 358 (N.C. Ct. App. 1992).

[117] N.C. Gen. Stat. §55-13-02 (n. 2) (2000); Umstead v. Durham Hosiery Mills Inc. 578 F. Supp. 342 (W.D.N.C. 1982); Austell v. Smith, 634 F. Supp. 326 (W.D.N.C. 1986); Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).

[118] N.C. Gen. Stat. §55-13-02(a) (2000).

[119] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 515 (1991).

[120] N.C. Gen. Stat. §55-13-02(a) (2000).

[121] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 506 (1991).

[122] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 506 (1991).

[123] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 506 (1991).

[124] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 507 (1991).

[125] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 507 (1991).

[126] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[127] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[128] Austell v. Smith, 634 F. Supp. 326 (W.D.N.C. 1984). 

[129] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[130] Meiselman v. Meiselman, 58 N.C. App. 758 (1982).

[131] Hajmm Company v. House of Raeford, Inc., 94 N.C. App. 1, 12 (1989).

[132] Stilwell v. Walden, 70 N.C. App. 543, 540 (1984); Hajmm Company v. House of Raeford, Inc., 94 N.C. App. 1, 12 (1989).

[133] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 541 (1991).

[134] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 540 (1991).

[135] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[136] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[137] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[138] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 542 (1991).

[139] Alpert v. 28 Williams Street Corporation, 473 N.E.2d 19, 26 (N.Y. 1984).

[140] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 508 (1991).

[141] IRA for benefit of Oppenheimer v. Brenner Cos., 419 S.E.2d 354, 360 (N.C. Ct. App. 1992).

[142] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983); N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[143] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983); N.C. Gen. Stat. §55-13-01(n. 3) (2000).

[144] Julie Gwyn Hudson, The Exclusivity of the Appraisal Remedy Under the New North Carolina Business Corporation Act: Deciding the Standard of Review for Cash-Out Mergers, 69 N.C.L. Rev. 501, 541 (1991).