New York Law Review

Tag: merger

  • Will v. Gates, 89 N.Y.2d 778 (1997): Easement by Grant Survives Partial Unity of Title

    Will v. Gates, 89 N.Y.2d 778 (1997)

    An easement acquired by grant is not extinguished by merger unless there is a complete unity of title between all dominant and servient estates; partial unity does not terminate the easement rights of other dominant owners.

    Summary

    Plaintiffs sought a declaratory judgment to establish their right to a right-of-way over the defendants’ properties. The defendants argued that the easement was extinguished by merger when they acquired a parcel that included both dominant and servient estates. The Court of Appeals reversed the lower court’s grant of summary judgment to the defendants, holding that merger requires complete unity of title between all dominant and servient estates. Since not all dominant and servient estates were under common ownership, the easement remained valid, and the case was remitted for further consideration of other defenses.

    Facts

    Judge Garrison created a horseshoe-shaped right-of-way when he subdivided his property in 1868, recorded as map No. 32. The right-of-way consisted of northern, southern, and north-south spurs. The plaintiffs, the Wills, acquired a parcel abutting the southern spur in 1977, with a deed granting a non-exclusive easement over the right-of-way depicted on map No. 32. The defendants, the Gates, acquired a parcel west of the north-south spur in 1977, with a deed containing identical language granting a right-of-way over the horseshoe-shaped easement. In 1991, the Gates sold a southern portion of their residential lot, restricting the buyer’s easement rights to the southern spur and extinguishing any rights to the north-south spur over the Gates’ residential parcel.

    Procedural History

    The Wills sued the Swinburne-Browers (the buyers of the southern portion of the Gates’ property) in a prior action, which established the Swinburne-Browers’ right-of-way through the Wills’ property via the southern spur. The Wills then commenced the present action seeking access to the north-south spur. Supreme Court granted summary judgment to the Gates, holding the Wills’ interest had been extinguished by abandonment and adverse possession. The Appellate Division affirmed, finding the easement was extinguished by merger. The Court of Appeals reversed and remitted the case.

    Issue(s)

    Whether an easement is extinguished by merger when the owner of a portion of the servient estate acquires a portion of the dominant estate, but complete unity of title between all dominant and servient estates does not exist.

    Holding

    No, because an easement ceases to exist by merger only when there is unity of title of all the dominant and servient estates.

    Court’s Reasoning

    The Court of Appeals reasoned that an easement appurtenant passes with the grant of the land, even if not expressly mentioned in the deed. Such an easement remains unless conveyed, abandoned, condemned, or lost through prescription. The defendants argued that when the Gates acquired the westerly parcel in 1977, it created a merger because they already owned the servient estate (the residential lot). The Court explained that the merger doctrine stems from the principle that a person cannot have an easement in their own land. However, the Court emphasized that merger requires complete unity of title: “An easement ceases to exist by virtue of a merger only when there is a unity of title of all the dominant and servient estates.” Because other dominant owners existed, and the Gates did not own all of the dominant and servient estates, the easement was not extinguished. The Court found the defendants were not entitled to summary judgment on merger grounds and remitted the case for consideration of adverse possession, abandonment, and other unresolved issues. The Court cited the Restatement of Property § 497, comment c, which states that an easement is “not extinguished under the doctrine of merger by the acquisition by the owner of the dominant or servient estate to title to only a fractional part of the other estate.”

  • Cawley v. SCM Corp., 72 N.Y.2d 465 (1988): Valuation of Dissenting Shareholder’s Stock

    72 N.Y.2d 465 (1988)

    When determining the fair value of dissenting shareholders’ stock in a merger, courts must consider all relevant factors, including nonspeculative post-merger tax benefits accruing to the acquired corporation, and these benefits must be distributed proportionately among all shareholders of the same class.

    Summary

    Cawley, a dissenting shareholder in the merger of SCM Corporation with HSCM Merger Company, sought an appraisal of his shares, arguing that the merger’s tax benefits to SCM, particularly those arising from his exercised incentive stock options (ISOs), increased the fair value of his stock. The New York Court of Appeals held that dissenting shareholders are entitled to receive fair value determined by considering all relevant factors, including nonspeculative tax benefits accruing to the corporation from the merger. The court further held that these tax advantages must be distributed proportionately among all shareholders of the same class, and remanded the case for a hearing.

    Facts

    Hanson Trust PLC initiated a hostile tender offer for SCM. SCM initially rejected the offer but later entered a merger agreement with Merrill Lynch. After a series of competing offers and litigation over lock-up options, Hanson acquired control of SCM and completed a merger, purchasing remaining shares at $75 per share. Cawley, an SCM treasurer, dissented from the merger, arguing that his ISO shares were worth more due to SCM’s tax deductions resulting from the merger triggering a disqualifying disposition of those shares.

    Procedural History

    Cawley filed a petition in Supreme Court, New York County, seeking a determination of the fair value of his shares, which was dismissed. The Appellate Division affirmed the dismissal. Cawley then appealed to the Court of Appeals of the State of New York.

    Issue(s)

    1. Whether the lower courts abused their discretion by disregarding the tax deduction that SCM became entitled to upon the consummation of its merger with HSCM Merger Company, Inc. in assessing the fair value of SCM Corporation stock.
    2. If so, whether the value of this postmerger factor should have been distributed equally among all of SCM’s stockholders or solely to those stockholders whose shares were responsible for this tax advantage.

    Holding

    1. Yes, because Business Corporation Law § 623 (h) (4) authorizes courts to consider relevant post-merger factors, including prospective tax benefits of a given transaction, in determining fair value.
    2. The value should be spread equally among all shareholders of SCM common stock because Business Corporation Law § 501(c) mandates that each share shall be equal to every other share of the same class.

    Court’s Reasoning

    The court reasoned that the 1982 amendment to Business Corporation Law § 623(h)(4) requires courts to consider “all other relevant factors” in determining fair value, including post-merger effects on the corporation. This includes prospective, nonspeculative tax benefits accruing to the acquired corporation from the merger. The court noted that the deduction for acquisition of the ISO shares was a corporate asset of SCM that represented value and arose from the merger. However, because ISO shares were identical in all respects to SCM common stock held by the investment public, Business Corporation Law § 501(c) mandates that ISO shareholders be treated no differently from other SCM common stockholders. The court stated that a dissenting shareholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern. The court rejected Cawley’s argument that his personal income tax situation should be considered because it did not affect the value of SCM’s common stock. The dissenting judge argued that the lower courts properly applied the fair value appraisal criteria and that the majority’s decision effects an asset-specific accounting, complicating appraisal proceedings. Justice Bellacosa dissented that implementation of an appraisal proceeding requires that shares of the same class be equal in all respects to every other share of the class.

  • Rainbow v. Swisher, 72 N.Y.2d 106 (1988): Collateral Attack on Divorce Judgment

    Rainbow v. Swisher, 72 N.Y.2d 106 (1988)

    A divorce judgment from a court with proper jurisdiction is not subject to collateral attack based on an alleged error in failing to incorporate the terms of a settlement agreement, particularly after significant reliance on the judgment by both parties.

    Summary

    Following a contested divorce action, the parties entered into a settlement agreement, stipulating that it would merge into the divorce judgment. However, the judgment issued by the Supreme Court stated that the agreement would be incorporated but not merged. Neither party objected or appealed. Years later, when the plaintiff sued for breach of contract based on the settlement agreement, the defendant argued the agreement didn’t survive the divorce decree. The Court of Appeals held that the defendant could not collaterally attack the divorce judgment due to the court’s jurisdiction and the parties’ reliance on the judgment’s validity.

    Facts

    Plaintiff and Defendant divorced after 23 years of marriage. They signed a settlement agreement stipulating that the agreement would merge into any subsequent divorce decree. The divorce judgment, however, stated that the agreement would be incorporated but not merged. Neither party objected to or appealed from the judgment. Both parties relied on the judgment in subsequent legal proceedings. Plaintiff later sued Defendant for breach of contract based on the settlement agreement.

    Procedural History

    Plaintiff commenced a breach of contract action in Supreme Court. The Supreme Court awarded judgment against the Defendant, finding that the action could be maintained under the settlement agreement. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether a divorce judgment issued by a court with subject matter and personal jurisdiction is subject to collateral attack on the ground that the judgment erroneously failed to embody the terms of the parties’ settlement agreement regarding merger of the agreement into the decree.

    Holding

    1. No, because the divorce court had jurisdiction, the alleged error was correctable upon timely application, and the parties relied on the judgment for a significant period.

    Court’s Reasoning

    The Court of Appeals reasoned that a final judgment of divorce from a court with proper jurisdiction determines the rights of the parties on all issues that were or could have been litigated. “Consequently, where there is a conflict between a settlement agreement and the decretal provisions of a later divorce judgment, the judgment will govern.” Defendant’s failure to challenge the judgment bound him to its terms. While divorce judgments can be subject to collateral attack if the court lacked competence, that wasn’t the case here. The court had jurisdiction, and the alleged error was readily correctable. The court emphasized that rewriting a divorce judgment after ten years of reliance would defeat the plaintiff’s reasonable expectations and undermine the policy of upholding settled domestic relations. The court also referenced the doctrine of equitable estoppel in divorce cases, reinforcing the importance of stability and finality in matrimonial matters.