On certification to the Superior Court, Appellate Division whose opinion is reported at 284 N.J. Super. 168 (1995) (Strasenburgh v. Straubmuller). On appeal from the Superior Court, Appellate Division (Wheaton, Inc. v. Smith). On certification to Superior Court, Chancery Division, Cumberland County (Wheaton, Inc. v. Smith).
The opinion of the Court was delivered by O'hern, J. Justices Handler, Pollock, Garibaldi, Stein and Coleman join in Justice O'HERN's opinion.
The opinion of the court was delivered by: O'hern
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Strasenburgh, et . al. v. Straubmuller, et. al. (A-137)
Wheaton, Inc. v. Smith, et. al. (A-159/169)
Argued April 29, 1996 -- Decided October 23, 1996
O'Hern, J., writing for a unanimous Court.
In this opinion, the Court addresses the share-value rights of certain minority shareholders of Wheaton, Inc., a closely held corporation. The appeal is procedurally complex, involving two separate law suits.
The first action (Wheaton, Inc. v. Smith) involves the appraisal of the fair value for stock belonging to a minority of shareholders who Dissented from Wheaton's 1991 plan for corporate restructuring. Specifically, a majority of the shareholders had voted to transfer the assets of Wheaton to three newly-formed, wholly-owned subsidiaries in exchange for all the capital stock of each of the subsidiaries. Wheaton then advised shareholders who did not approve of the restructuring of their right to Dissent from the corporate action and to demand payment of fair value for their shares under the New Jersey Business Corporation Act (BCA). Twenty-six shareholders Dissented and submitted written notice of their intent to demand payment of fair value.
Thereafter, Wheaton sent to each of its shareholders written notice that December 30, 1991 was the effective date of the restructuring. The Dissenting shareholders made a written demand for payment of fair value for their shares. In response, Wheaton offered to pay the Dissenting shareholders $41.50 per share. The Dissenting shareholders rejected that offer and demanded instead that Wheaton commence an action in Superior Court to determine the fair value of the stock. Several months later, Wheaton began the appraisal action.
Three years later, in June 1995, Wheaton's board of directors voted to rescind the restructuring. To avoid the financial ramifications of a fair value payment, Wheaton filed a motion to dismiss the appraisal action (the rescission motion). The trial court denied Wheaton's motion, holding that rescission of a triggering corporate action after its effective date could not terminate appraisal rights that had already vested. In August 1995, the Appellate Division denied Wheaton's motion for leave to appeal that decision.
Four months later, on December 15, 1995, the Legislature amended the applicable provisions of the BCA . Under one of the amendments, a corporate restructuring that takes the form of that undertaken by Wheaton no longer triggered Dissent and appraisal rights. Wheaton thereafter renewed its request that the trial court dismiss the appraisal action, contending that the amendments clarified the impact of the prior law and that the amendments applied retroactively, thereby terminating the Dissenting shareholders' rights to the fair value of their stock (the retroactivity motion). The trial court denied that motion.
The second case (Strasenburgh v. Straubmuller)was brought by twenty of the twenty-six Dissenting shareholders against individual directors of Wheaton (the North Jersey action). That complaint alleged that company directors had engaged in fraud, misrepresentation, breach of fiduciary duty, waste and violations of state and federal RICO laws. The minority shareholders filing that action consisted of younger-generation shareholders who claimed that Wheaton's directors had misused their positions to manipulate assets and deflate the value of Wheaton stock to their detriment and to the benefit of older-generation shareholders in management positions, who would receive favorable estate tax planning treatment by the corporate restructure.
The trial court granted the directors' motion to dismiss that action, determining the fraud and misrepresentation claims to be vague and conclusory and the breach of fiduciary duty and waste claims to be "derivative," that is, actions that had to be brought by the corporation and not individual shareholders. On appeal, the Appellate Division affirmed the dismissal of the claim for waste but remanded the remaining claims, holding that the shareholders' theory of a "disparate impact" between the older and younger generations stated an individual cause of action.
The Supreme Court granted the directors' petition for certification in the Strasenburgh matter. In addition, in the appraisal action, the Supreme Court granted Wheaton's motion for leave to appeal the denial of the rescission motion and subsequently granted Wheaton's motion for direct review of the retroactivity motion. The appeals were argued before the Supreme Court on April 29, 1996.
Two days after oral argument in the matters, Wheaton announced an "acquisition merger" with Alusuisse-Lonza Holding Ltd.., a Swiss holding company. Under the provisions of that merger, effective April 29, 1996, Wheaton shareholders received $63.00 per share from Alusuisse. Alusuisse requested that Wheaton withdraw its appeals in the appraisal matter, presumably because it believes the fair value of the shares when surrendered in 199l was lower than the 1996 acquisition price of $63.00.
The Dissenting shareholders opposed the withdrawal of the appeals, arguing that their rights would be prejudiced . Instead, they asked the Court to dismiss Wheaton's motions to withdraw its appeals, affirm the rulings on appeal, and remand to the trial court for determination of the fair value of their stock as of 1991.
A corporation may rescind its corporate action after appraisal rights have vested only within a reasonable time after the effective date of the corporate action. Amendments to the BCA that deny appraisal rights in transfers to wholly-owned subsidiaries may be applied retroactively only upon a careful factual analysis that establishes both that it was the Legislature's intent to apply the statute retroactively and that retroactive application of the statute will not result in either an unconstitutional interference with vested rights or a manifest inJustice to the party adversely affected by such application. Election of the appraisal remedy is exclusive only if that remedy will provide the aggrieved parties with a sufficient recovery of the value of their shares. The essential nature of the injuries claimed by the Dissenting shareholders consists of a diminution in share value, which was an injury suffered by all shareholders and is, therefore, derivative.
1. Although the BCA places no time restraints on a corporation's ability to rescind and terminate appraisal rights, principles of logic and statutory interpretation require the action to be rescinded within a reasonable period of time. In assessing a passage that is both reasonable and equitable to the parties involved, a court must consider the corporation's financial position and the consequences of forcing payment of fair value, as well as the prejudice to the Dissenting shareholders by allowing rescission. (pp.17-19)
2. Statutes affecting substantive rights generally should be given prospective application in order to avoid unfair results . The circumstances that will justify retroactive application of a statute are as set forth in Gibbons v. Gibbons and include legislative declaration of an intent to retroactively apply the statute, whether the statute is curative in nature and whether the expectations of the parties warrant retroactive application. However, even if these circumstances justify retroactive application, such application must not result in the unconstitutional interference with vested rights or a manifest inJustice. (pp. 19-21)
3. Although the appraisal remedy is considered exclusive under the BCA, the theme that runs through the exclusivity and appraisal provisions is whether the appraisal remedy will provide all the relief that is necessary to the aggrieved parties. That determination will depend on a factual analysis of the claims asserted in the individual action, which analysis is also relative to determining whether the claims are derivative. (pp. 24-27)
4. The prevailing American rule is that when an injury to corporate stock falls equally upon all stockholders, then an individual stockholder may not recover for the injury to his stock alone, but must seek recovery derivatively in behalf of the corporation. A "special injury" exception to that rule exists where there is a wrong suffered by a plaintiff that was not suffered by all stockholders generally. To determine whether a complaint states a derivative or an individual cause of action, courts examine the nature of the wrongs alleged in the body of the complaint, not the plaintiff's designation or stated intention. (pp. 27-33)
5. The claimed actions of misconduct on the part of the Wheaton directors, if they resulted in an injury, resulted in an injury to all shareholders and not to individual classes of shareholders. Any injury from self-dealing on the part of the directors can be considered in the appraisal action. (pp. 34-36)
The orders of the Chancery Division in the Wheaton matter denying the motions to dismiss the appraisal action are AFFIRMED. The matter is REMANDED to the Chancery Division for further proceedings consistent with this opinion.
The judgment of the Appellate Division in the Strasenburgh matter is REVERSED. The judgment of the Law Division dismissing plaintiffs' complaint is REINSTATED.
The motion of the Smith defendants to intervene is DENIED.
JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion.
The opinion of the Court was delivered by
These appeals essentially concern a dispute about the management of a family business that began as a one-man glass works and evolved into a multi-national corporation. Wheaton, Inc. (Wheaton) is a large, but closely-held corporation that manufactures glass, plastics and scientific equipment. (We use the present tense to describe the situation at the time when we heard this appeal.) All but one of Wheaton's shareholders are family members descended from Dr. Theodore Corson Wheaton, who founded the T.C. Wheaton Co. in 1888. See generally Virgil S. Johnson, Millville Glass 81-86, 101-06 (1971). Today, approximately 150 individual shareholders extend into the fifth generation of Wheaton descendants. The sole non-family member shareholder is Bowater, plc., a British company.
Over time, the shareholder-descendants of the founder began to disagree about the company's strategy for growth. Younger generation shareholders believed that entrenched older-generation shareholders in management positions were impeding the company's growth. Disagreements about strategy turned into legal disputes among shareholders.
When the cases originally came to us they presented important issues of first impression concerning the New Jersey Business Corporation Act (BCA). N.J.S.A. 14A:1-1 to 16-4. Principal issues were whether a transfer of all assets by a corporation to wholly-owned subsidiaries triggered appraisal rights of Dissenting shareholders for redemption of their shares at a fair value, and, if so, whether the company could later rescind the action that had triggered appraisal rights, thereby defeating the appraisal rights. Events, however, have overtaken the issues. The Legislature has amended the BCA to deny appraisal rights in transfers to wholly-owned subsidiaries. A foreign investor has taken over the company. The company no longer seeks to invoke its rescission of the restructuring and now agrees that the shares should be appraised. We conclude that all that essentially remains is a fair ...