On certification to the Superior Court, Appellate Division, whose opinion is reported at 344 N.J. Super. 83 (2001).
(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).
(NOTE: This Court wrote no full opinion in this case. Rather, the Court's affirmance of the judgment of the Appellate Division is based substantially on the reasons expressed in Judge Steinberg's opinion below.)
The issue before the Court is whether two minority shareholders who object to the cash price offered for their shares in a merger transaction can be considered statutory dissenters, pursuant to N.J.S.A. 14A:11-1, for the purpose of recovering counsel and expert fees.
Kathryn Casey and Sheila Gagliano were minority shareholders of Amboy Bancorporation (Amb oy). Amboy served as a bank holding company with one class of stock and one subsidiary, Amboy National Bank, which conducted business in several branches in central New Jersey. Amboy had 402 shareholders and was extremely successful in the 1990s. As a result, Amboy accumulated capital at a much higher growth rate than its assets, thereby decreasing its return on equity. To remedy this situation, Amboy made several unsuccessful attempts to purchase other banks. In August 1997, the Board of Directors of Amboy (the Board) decided to pursue Subchapter S status to solve its excess capital situation.
The Bank Advisory Group, Inc. (BAG), a community bank advisor specializing in valuation, reorganizations, and mergers and acquisitions, was hired to provide a financial fairness opinion on the proposed transaction to transform Amboy into a Subchapter S entity. On September 10, 1997, Amboy sent all shareholders notice of a forthcoming shareholder vote on the Subchapter S proposal. The anticipated merger plan provided that shareholders who owned 15,000 shares, or who purchased Amboy shares in order to increase their holdings to 15,000 shares, would continue to be shareholders. All other shareholders would receive cash. Casey and Gagliano, who each owned 5030 shares of Amboy prior to the merger, could not take advantage of the purchase right because they could not afford to buy enough shares to reach the required 15,000.
After a merger agreement was executed, a shareholder vote was scheduled for November 19, 1997. On October 24, 1997, BAG gave Amboy a financial fairness opinion in which it concluded that the price of $73 per share was a fair to all shareholders, even those receiving cash. On that same date, Amboy notified all shareholders of the meeting and enclosed a proxy statement with that notification. The proxy statement, among other things, stated that shareholders receiving cash had no right of dissent from the merger and that remaining shareholders had to properly perfect any dissent by strictly complying with the New Jersey Business Corporation Act.
In November 1997, the "cash-out" merger was approved and the majority shareholders retained equity in the newly formed corporation while the minority shareholders were precluded from receiving stock in the new entity and were forced to accept cash for their shares at a price set by the corporation. Several of the minority shareholders with fewer than 15,000 shares who voted against the merger ultimately cashed out by accepting the $73 per share payment. Casey and Gagliano, who voted against the merger, refused to take cash for their shares. Susan Hermanos, who also voted against the merger, refused the cash offer as well. Hermanos owned more than 15,000 shares; therefore, she was able to perfect her dissenters' rights in accordance with N.J.S.A. 14A:11-2 because she received stock rather than cash under the merger.
Casey and Gagliano, along with other minority shareholders, brought breach of fiduciary actions against Amboy's Board of Directors, seeking fair value for their shares and alleging misrepresentation of the terms of the merger. They sought to enjoin or rescind the merger and to obtain fair value. Casey and Gagliano later filed an amended complaint, alleging that they possessed all the rights of statutory dissenters including the right to recover fees.
In May 1998, Casey and Gagliano's action was consolidated with the two other actions. In April 1999, the trial court entered judgment in favor of the minority shareholders and awarded counsel and expert fees to Hermanos, who qualified as a statutory dissenter. The court found the proxy statement materially deficient, that the representation of the $73 per share price was misleading and erroneous, and that the fair value per share was $90. The shareholders that had "cashed-out" were estopped from recovery. In addition, the court refused to award fees and costs to Casey and Gagliano, finding that they did not have dissenters' rights because they were to receive cash under the merger plan.
On appeal, the Appellate Division affirmed in part, reversed in part and remanded. In affirming the trial court, the Appellate Division, among other things, found that the record clearly supported the trial court's conclusion that the proxy statement was materially deficient, misleading, and that the Board of Directors had breached its duty of fair dealing with the minority shareholders. In addition, the Appellate Division affirmed the trial court's determination that counsel fees and costs should not be awarded to Casey and Gagliano because they did not qualify as statutory dissenters. The court reasoned that the language of the statute is clear and unambiguous, leaving no room for judicial interpretation or the need to apply rules of statutory construction or resort to extrinsic evidence such as the statute's legislative history. In addition, the Appellate Division, concerned with the valuation accepted by the trial court, reversed and remanded for a recalculation of what constituted fair value of the Amboy shares.
Both Amboy and certain minority shareholders filed petitions for certification, addressing the fair value issue, among other things. The Supreme Court denied both of those petitions. The Supreme Court granted Casey and Gagliano's cross-petition for certification, focusing on the narrow issue of the denial of counsel and expert fees and costs.
HELD: Judgment of the Appellate Division is affirmed for the reasons expressed in Judge Steinberg's written opinion. Kathryn Casey and Sheila Gagliano, two minority shareholders who object to the cash price offered for their shares in a merger transaction, do not qualify as statutory dissenters and, therefore, are not entitled to counsel and expert fees and costs because, pursuant to N.J.S.A.14A:11-1, they received only cash for their shares.
Judgment of the Appellate Division is AFFIRMED.
JUSTICE STEIN, dissenting, in which JUSTICE LONG joins, is of the view that the merger and sale of assets statutes should be construed harmoniously to bar dissenters' rights only when the underlying transaction is "wholly for cash," thereby assuring equal treatment of all shareholders and justifying preclusion of dissenters' rights to appraisal and counsel fees. Construing the statute to deny dissenters' rights in merger transactions, where some shareholders are offered only cash while other shareholders retain stock in the new entity is contrary to the policy reasons, purpose, and design of dissenters' rights and the rationale for the cash exception, especially in the context of "cash-out" mergers. In addition, the obvious incongruity in awarding counsel and expert fees to Hermanos but not to Casey and Gagliano reveals how a literal reading of the statute that ignores the spirit and purpose of dissenters' rights will lead to unreasonable results.
CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, VERNIERO, LAVECCHIA and ZAZZALI join in this PER CURIAM opinion. JUSTICE STEIN filed a separate dissenting opinion in which JUSTICE LONG joins.
Based on the Court's grant of a cross-petition for certification filed by plaintiffs Kathryn Casey and Sheila Gagliano, 170 N.J. 389 (2001), the sole issue before us is whether appellants can be considered statutory dissenters pursuant to N.J.S.A. 14A:11-1 in connection with their efforts to secure an award of counsel and expert fees.*fn1 In respect of that issue, the judgment of the Appellate Division is affirmed, substantially for the reasons expressed in the opinion of Judge Steinberg. 344 N.J. Super. 83 (2001).
CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, VERNIERO, LaVECCHIA, and ZAZZALI join in this opinion. JUSTICE STEIN has filed a separate dissenting opinion, in which JUSTICE LONG joins.
The issue before the Court is whether two minority shareholders who object to the cash price offered for their shares in a merger transaction can be considered statutory dissenters, pursuant to N.J.S.A. 14A:11-1, for the purpose of recovering counsel and expert fees. In the transaction, a "cash-out" merger, the majority shareholders retained equity in the newly formed corporation but minority shareholders were precluded from receiving stock in the new entity and were forced to accept cash for their shares at a price set by the corporation. The majority affirms the Appellate Division's holding that plaintiffs Kathryn Casey and Sheila Gagliano were not statutory dissenters because they would receive only cash for their shares under the corporate merger transaction plan, and therefore could not rely on the statute as a basis for an award of such fees.
Because the purpose of the appraisal remedy is to protect minority shareholders from unfair treatment, in a transaction "wholly for cash" in which all stockholders receive cash for their shares, majority and minority shareholders are treated equally and the appraisal remedy is unnecessary. Recognizing that rationale, our statute dealing with a sale of assets transaction bars dissenting rights when the sale is "wholly for cash," N.J.S.A. 14A:11-1(1)(b)(ii)(A). The merger statute at issue here bars dissenting rights if the shareholders "receive cash," even if other shareholders retain stock in the surviving corporation. N.J.S.A. 14A:11-1(1)(a)(1)(B). The Appellate Division applied the merger statute literally in concluding that dissenters' rights were barred, even though the rationale for excluding dissenters' rights was inapplicable.
In my view, the merger and sale of assets statutes should be construed harmoniously to bar dissenters' rights only when the underlying transaction is "wholly for cash," thereby assuring equal treatment of all shareholders and justifying preclusion of dissenters' rights to appraisal and counsel fees.
The procedural history and factual background are set forth in the Appellate Division's opinion. Casey v. Brennan, 344 N.J. Super. 83 (2001). Defendant Amboy Bancorporation served as a bank holding company, "a shell with one class of stock and one subsidiary, Amboy National Bank, that conducted its business in thirteen branches in Central New Jersey." Id. at 93. "Transactions in Amboy stock were handled by 'market-makers' instead of ...