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A Claim For Fair Value Determination Of Stock Does Not Address Perfected Appraisal Rights

Where a company asks the Business Court only to determine the fair value of its stock pursuant to G.S. ¶55-13-30, the issue of whether the shareholder properly perfected her appraisal rights is not before the court.  Reynolds America v. Third Motion Equities Master Fund, Ltd., et al., 2019 N.C.B.C. 35 (J. Bledsoe).  As a result, evidence of whether the defendant-shareholder has properly perfected his appraisal rights was not relevant in a trial addressing solely the fair value of the company stock.

Defendants were shareholders of Reynolds America, Inc. (“RAI”) at the time it merged into a direct, wholly-owned subsidiary of British American Tobacco (“BAT”).  RAI sent the necessary forms to defendant-shareholders regarding the appraisal value of their shares.  Defendants all timely returned the necessary forms to RAI and then, after being paid RAI’s suggested appraisal value for their shares, timely voiced objections to that value.  RAI instituted an action under G.S. ¶55-13-30 for a judicial appraisal of the shares’ value. RAI did not assert a claim within its lawsuit over whether defendants had properly perfected their ability to dissent from the appraised value.  Prior to trial, RAI noted that it would submit evidence on whether certain defendants had voted in favor of the merger, thereby excluding them from dissenting over the stocks’ appraised value.  Defendants claimed evidence about their dissent (or lack thereof) was irrelevant because there was no pending claim addressing whether they had perfected their dissenter rights.

The Business Court agreed and found that the issue of whether defendants had perfected their appraisal rights was neither required under the plain language of the statute nor had it been asserted as an issue by RAI in the lawsuit.  The Business Court took pains to note that it did not believe that it was precluded from addressing this issue in future matters; only that it was precluded from doing in the instant matter so because RAI had not sought a declaratory judgment or made any type of claim that put the defendants’ appraisal rights at issue.  Because the plain language of the statute did not require the court to first determine whether such appraisal rights had been perfected as a prerequisite to determine the value of all shareholders’ stock, the Business Court found such evidence about perfection was irrelevant to the trial.

Based upon this decision, a company that seeks a judicial appraisal for its stocks’ fair value should also include a claim to determine whether the dissenters have properly perfected their right to challenge the appraised value. 

Additional legal holdings in this case:

  • There is little case law in North Carolina jurisprudence on judicial appraisal actions.  (Opinion, ¶ 23).
  • There is no right to a trial by a jury in a judicial appraisal action.  (Opinion, ¶ 25).
  • North Carolina General Statutes do not contain the 2-step process identified in Delaware law requiring the court to first determine whether the dissenting shareholder is entitled to an appraisal value and, if so, only then determine the value of the stock.  (Opinion, ¶41).

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