Brief Fact Summary. Plaintiffs Frieda Rabkin et al., as minority shareholders of Hunt Chemical Corp., wanted to enjoin the cash-out merger between Hunt and majority shareholder Olin Corp. after Olin purposely avoided a one-year commitment to pay $25 per share to the minority shareholders.
Synopsis of Rule of Law. A party alleging unfair dealing should be allowed an alternative remedy to appraisal if the circumstances would require such a result.
Plaintiffs brought this action against Defendants Hunt, Olin and several of their directors, to enjoin a cash-out merger after Olin offered only $20 per share to the minority shareholders. When Olin initially bought their 63.4% majority stake from Turner and Newall Industries, Inc. for $25 per share, they agreed to a commitment to pay $25 per share if Olin purchased the remaining shares within one year of their initial purchase. Throughout the year Olin directors referred to an eventual cash-out merger of Hunt as if it were a near-certainty. After the year lapsed, Olin directors had a banking firm render a fairness opinion on a $20 per share offer. Four days later, without reviewing the one-year commitment, appraising Hunt’s assets or interviewing Hunt management, the firm declared that the $20 price was fair. Olin’s finance committee approved the merger, and Hunt’s outside directors hired Merrill Lynch to assess the offer. Merrill Lynch assessed the value at $19 to $25
per share. The outside directors, after suggesting a higher price, finally agree to support a $20 price. After the board approved, Olin assured it’s passing by virtue of holding a majority of the shares. Plaintiffs then brought this action to enjoin the merger, arguing that the price was unfair, that Defendants manipulated the timing of the merger to avoid the one-year commitment and that Defendants were obligated as a result of their Securities filing to pay the $25 price. The lower court held that, absent fraud, the only remedy for Plaintiffs was appraisal. Plaintiffs do not want the appraisal value because it is likely lower than the $25 value they believe they are entitled to per the agreement.
Issue. The issue is whether the facts alleged by Plaintiff would only support a remedy of appraisal.
Held. The court held that the lower court’s interpretation of precedent was too narrow, and Plaintiffs have pled facts that would allow a remedy outside of an appraisal. Plaintiffs’ facts demonstrate unfair dealing by Defendants as majority shareholders to Plaintiff minority shareholders, but Plaintiffs’ unique circumstances (they are trying to obtain a contracted-for price rather than the appraised value) merit an alternative remedy.
Discussion. The court combines contract law with Corporate law as they recognize a fiduciary duty for Defendants to not intentionally avoid a commitment made to minority shareholders under the initial purchase contract.