New York Law Review

Tag: corporate merger

  • Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557 (1984): Exclusivity of Appraisal Remedy for Dissenting Shareholders

    Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557 (1984)

    Under New York Business Corporation Law, shareholders who elect statutory appraisal rights in response to a merger generally forfeit other rights as shareholders, and any action they may bring alleging fraud or illegality is limited to actions seeking equitable relief, not monetary damages, in their individual capacity.

    Summary

    Minority shareholders of Old Shepard dissented from a merger and sought appraisal. They then sued derivatively and individually, alleging an inadequate price due to Vulcan’s controlling influence and director misconduct. The New York Court of Appeals held that exercising appraisal rights generally precludes other actions as shareholders. While an exception exists for actions alleging fraud or illegality, this exception is narrowly construed to allow only individual actions for equitable relief, not derivative suits or actions for monetary damages, as the appraisal proceeding provides an adequate legal remedy.

    Facts

    Shepard Niles Crane and Hoist Corporation (Old Shepard) merged into Shepcan Corporation, a subsidiary of Vulcan, Inc. Appellants, minority shareholders of Old Shepard, dissented from the merger and initiated appraisal proceedings to determine the fair value of their shares. Subsequently, they filed an action as individuals and derivatively on behalf of Old Shepard, alleging that Vulcan, while exerting control over Old Shepard, offered an inadequate price for their stock in the merger agreement. They also claimed that Old Shepard’s directors knew or should have known about untrue statements and material omissions in the merger agreement.

    Procedural History

    The respondent moved to dismiss the complaint. Special Term dismissed the derivative action claims but upheld the individual claims. The Appellate Division reversed, dismissing the complaint entirely. The New York Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    1. Whether shareholders who dissent from a corporate merger and pursue their statutory appraisal rights can simultaneously maintain a derivative action on behalf of the merged corporation.

    2. Whether these dissenting shareholders can maintain an action for money damages in their individual capacity for fraud alleged to have occurred in connection with the merger, absent a primary request for equitable relief.

    Holding

    1. No, because subdivision (k) of section 623 of the Business Corporation Law permits a dissenting shareholder to pursue an appropriate action only in his individual capacity and not as the instigator of a derivative suit.

    2. No, because the exception to the exclusivity rule codified in subdivision (k) of section 623 permits a dissenting shareholder to bring an “appropriate action” in his individual capacity, which is construed to mean an action seeking some form of equitable relief, not monetary damages.

    Court’s Reasoning

    The court reasoned that upon filing a notice of election to dissent and seek appraisal, shareholders relinquish their other rights as shareholders, as per Section 623(e) of the Business Corporation Law, which states they cease “to have any of the rights of a shareholder except the right to be paid the fair value of his shares”. The exception in subdivision (k) allows a dissenting shareholder to bring an “appropriate action to obtain relief on the ground that such corporate action will be or is unlawful or fraudulent as to him”. However, the court interpreted “as to him” to mean that the exception applies only to individual actions, not derivative suits.

    The court further clarified that an “appropriate action” under subdivision (k) is limited to actions seeking equitable relief, such as injunctions or rescission, rather than monetary damages. The court noted that subdivision (k) codified the common-law exception to the exclusivity rule that a proceeding in equity will lie when corporate action is alleged to be fraudulent or illegal. Allowing a legal action for damages would be unnecessarily duplicative, as the appraisal proceeding provides a full monetary recovery. The court stated, “Limiting the exception to equitable relief thereby serves the valid function of denying dissenting shareholders the ability to reopen prior appraisal proceedings and again seek the identical relief merely by alleging fraudulent or unlawful corporate conduct in relation to the merger.” Since the complaint lacked a primary request for equitable relief, the action for monetary damages was not permissible.

  • Billy v. Consolidated Machine Tool Corp., 51 N.Y.2d 152 (1980): Employer Liability as Successor to Negligent Third Party

    Billy v. Consolidated Machine Tool Corp., 51 N.Y.2d 152 (1980)

    The exclusivity provisions of the Workers’ Compensation Law do not bar a common-law action against an employer when the employer’s liability arises solely from its independent assumption, by contract or operation of law, of the obligations and liabilities of a third-party tortfeasor.

    Summary

    The New York Court of Appeals addressed whether an employer, USM Corporation, could be sued in a common-law tort action for the death of its employee, Billy, caused by a defective machine manufactured by a company USM later acquired. Billy’s widow received workers’ compensation benefits but also sued USM, arguing USM assumed the liabilities of the machine’s manufacturer. The Court held that while the “dual capacity” doctrine does not allow suits against employers in their roles as property owners or equipment manufacturers, USM could be liable as the successor to the liabilities of the negligent third-party manufacturer.

    Facts

    Billy, an employee of USM Corporation, died when a 4,600-pound part from a vertical boring mill broke loose and struck him during his employment. The machine was designed and manufactured decades earlier by Consolidated Machine Tool Corporation and Farrel-Birmingham Company. Through a series of mergers, USM Corporation absorbed both Consolidated and Farrel-Birmingham, assuming their liabilities. Billy’s widow received worker’s compensation benefits and then commenced a common-law tort action against USM, alleging the accident resulted from defects in the machine’s manufacture and design.

    Procedural History

    The Special Term and the Appellate Division granted summary judgment to USM Corporation, dismissing the claims based on the exclusivity provision of the Workers’ Compensation Law. The plaintiff appealed to the Court of Appeals. The Court of Appeals reversed the lower courts’ rulings regarding USM’s liability as a successor corporation but affirmed the dismissal of claims against Emhart Corporation (USM’s parent company) and the defunct manufacturing corporations.

    Issue(s)

    1. Whether the “dual capacity” doctrine allows an employee to sue their employer in common law for injuries sustained because of the employer’s role as the owner of the premises or manufacturer of equipment.

    2. Whether the exclusivity provision of the Workers’ Compensation Law bars a common-law action against an employer when the employer’s liability stems from its assumption of a third-party tortfeasor’s liabilities through corporate merger.

    3. Whether a parent corporation can be held liable for the actions of its subsidiary.

    Holding

    1. No, because the employer’s duty to provide a safe workplace is inseparable from their other roles arising from the employment relation.

    2. No, because the exclusivity rule does not shield an employer from liabilities it voluntarily assumed as a successor to a third-party tortfeasor.

    3. No, because there was no showing Emhart disregarded the separate identity of USM.

    Court’s Reasoning

    The Court rejected the “dual capacity” doctrine, stating that employers cannot be treated as having dual legal personalities. The obligation to provide a safe workplace is integral to the employment relationship, and allowing suits based on an employer’s roles as property owner or equipment manufacturer would undermine the workers’ compensation scheme. The Court quoted Williams v. Hartshorn, 296 NY 49, 50-51, stating that “an employer remains an employer in his relations with his employees as to all matters arising from and connected with their employment. He may not be treated as a dual legal personality, ‘a sort of Dr. Jekyl and Mr. Hyde.’”

    However, the Court distinguished the case from typical “dual capacity” scenarios. USM’s liability stemmed from its voluntary assumption of the liabilities of Consolidated and Farrel-Birmingham, the original manufacturers. The court reasoned that these manufacturers would have been subject to suit as third-party tortfeasors had their corporate identities been preserved. Permitting USM to avoid these assumed liabilities due to the worker’s compensation law would be inequitable. The court emphasized that “[I]n compensation law, social policy has dispensed with fault concepts to the extent necessary to ensure an automatic recovery by the injured workman; but the disregard of fault goes no further than to accomplish that object, and, with payment of the workman assured, the quest of the law for the actual wrongdoer may proceed in the usual way” (quoting 2A Larson, Workmen’s Compensation Law, § 71.10, at p 14-2).

    Regarding the claim against Emhart, the parent corporation, the Court reiterated the general rule that corporations are distinct from their shareholders, and liability cannot be imposed on shareholders solely based on ownership. There was no evidence Emhart disregarded USM’s separate identity or directly intervened in its affairs. The Court found that “At the very least, there must be direct intervention by the parent in the management of the subsidiary to such an extent that ‘the subsidiary’s paraphernalia of incorporation, directors and officers’ are completely ignored (Lowendahl v Baltimore & Ohio R. R. Co., 247 App Div 144, 155, affd 272 NY 360, supra).” Therefore, summary judgment for Emhart was appropriate.