Cohen v. Mirage Resorts, Inc.
| Decision Date | 07 February 2003 |
| Docket Number | No. 36434.,36434. |
| Citation | 62 P.3d 720,119 Nev. 1 |
| Parties | Harvey COHEN, an Individual, Appellant, v. MIRAGE RESORTS, INC., A Nevada Corporation; Mirage Acquisition Sub, Inc., A Nevada Corporation; Jeffrey Paul Jacobs, an Individual; Louis Sposato, an Individual; James Scibelli, an Individual; Forrest Woodward, an Individual; Avis P. Jansen, an Individual; Jacobs Entertainment, Nevada, Inc., A Nevada Corporation; and Diversified Opportunities Group, Ltd., an Ohio Limited Liability Company, Respondents. |
| Court | Nevada Supreme Court |
Harrison Kemp & Jones, Chtd., and Jennifer C. Popick, Las Vegas; Berger & Montague, P.C., and Jacob A. Goldberg, Jill E. Sterbakov and Sherrie R. Savett, Philadelphia, Pennsylvania, for Appellant.
Schreck Brignone Godfrey and James J. Pisanelli and Todd L. Bice, Las Vegas, for Respondents.
Before SHEARING, ROSE and BECKER, JJ.
The district court dismissed a former shareholder's class action complaint alleging wrongful conduct on the part of the directors and other parties involved in a corporate merger.1 The shareholder appeals, asserting he has standing, individually and on behalf of the class, to bring a suit for monetary damages when wrongful conduct results in an improper merger. Respondents, the directors and other parties involved in the merger, argue that the dismissal was appropriate because the complaint does not seek damages arising from a wrongful merger. Instead, they maintain the complaint seeks to untimely increase the valuation of the merged corporation's shares in violation of the dissenters' rights provisions of NRS 92A.300-92A.5002 or that the complaint is barred by the affirmative defense of acquiescence. Respondents also assert that the complaint seeks damages for harm to the corporation, derivative claims that cannot be brought by former shareholders.
We conclude that some of the allegations and causes of action seek damages for lost profits, usurpation of corporate opportunities, or mismanagement of the corporation, and that these claims were properly dismissed as derivative claims. However, the remaining allegations involve wrongful conduct in approving the merger and/or valuing the merged corporation's shares. These are not derivative claims. Moreover, the exclusive remedy provision of NRS 92A.380 does not bar such claims. NRS 92A.380 does not apply when fraudulent or unlawful conduct relating to the approval of a merger is alleged. Finally, although we recognize the doctrine of acquiescence may bar claims arising from wrongful conduct in the approval of a merger, only in very rare circumstances will the doctrine be applied to dismiss a complaint pursuant to a Rule 12(b) motion to dismiss. Such circumstances do not exist in this case.
Because Nevada is a notice pleading state, the district court should have granted the shareholder's oral request to amend the complaint, clarifying that the shareholder was seeking damages as a result of an improper merger rather than merely contesting the value of the acquisition price after the statutory time frames expired. Therefore, we affirm in part and reverse in part the district court's order and remand this matter for further proceedings consistent with this opinion.
Appellant Harvey Cohen was a minority shareholder in the Boardwalk, a small, publicly held casino on Las Vegas Boulevard, "The Strip." The Boardwalk had 1,200 feet of Strip frontage located between the Bellagio and the Monte Carlo, large casinos in which the Mirage Resorts had an interest.3 Mirage also owned twenty-three acres of land adjacent to the Boardwalk.
Mirage wished to acquire the Boardwalk as well as three parcels of land surrounding the Boardwalk. The three parcels were either owned by entities connected with the Boardwalk's majority shareholders and directors or were subject to options to purchase in favor of the Boardwalk. Mirage sought to negate the Boardwalk's options and acquire the adjacent properties for purposes of expansion.
Mirage made an offer to acquire the Boardwalk's shares through a merger with a Mirage subsidiary, Acquisition. Prior to or contemporaneous with the merger, Mirage acquired the surrounding parcels.
On May 27, 1998, the Boardwalk convened a special shareholder meeting to consider the offer. A majority of the shareholders approved the merger. The merger was consummated on June 30, 1998. Cohen and other members of the class tendered their shares without challenging the merger's validity or claiming dissenters' rights pursuant to NRS 92A.380-92A.500, setting forth the procedures for challenging the valuation of shares in a merger.
On September 28, 1999, Cohen filed suit for damages, alleging breach of fiduciary duty and/or loyalty by the Boardwalk's majority shareholders, board of directors and financial advisors, as well as tortious interference claims against Mirage and Acquisition. Cohen asserts Mirage conspired with the Boardwalk's majority shareholders and directors to purchase the Boardwalk at an artificially low price by offering special transactions to majority shareholders and/or members of the Boardwalk's board of directors. Cohen claims that Mirage bought land or rights owned or controlled by majority shareholders or directors in properties around or involving the Boardwalk at inflated prices. Cohen contends that these shareholders and directors then agreed to approve or recommend the merger for an amount per share that was less than the fair value of the Boardwalk's stock. Finally, Cohen asserts that the directors mismanaged the Boardwalk, causing decreased profits, and that they or majority shareholders usurped corporate opportunities.
The remaining allegations involve the company that rendered a fairness opinion to the Boardwalk's stockholders regarding the value of Boardwalk's stock and the merger price. Cohen alleges that a former Boardwalk director controlled the company and that the ex-director received special incentives to prepare an inaccurate opinion.
Respondents moved to dismiss for failure to state a claim upon which relief could be granted, denying any wrongdoing. Respondents argued that, even assuming the truth of the allegations, Cohen had no standing to sue for breach of fiduciary duty because he failed to exercise his statutory rights to dissent to the merger and tendered his shares pursuant to the merger. Respondents further asserted that the provisions of NRS 92A.300-92A.500 are the exclusive method for a dissenting shareholder to challenge the value of a merged corporation's stock, and that Cohen and the class shareholders were barred from challenging the value of the stock because they failed to exercise their statutory right to dissent. Respondents also contended that because Cohen and the class were no longer shareholders, they could not bring derivative claims for lost profits and usurpation of corporate opportunities.
Cohen responded by acknowledging that an ex-shareholder cannot bring derivative claims and that a shareholder who wanted to challenge the price set for acquiring a corporation's stock in a merger was limited to the time lines and valuation proceedings set forth in NRS 92A.300-92A.500. Cohen contended, however, that the complaint asserted that the merger was approved unlawfully or as a result of wrongful conduct and therefore the time frames set forth for an appraisal proceeding did not apply. Thus, he should be permitted individually, and as a representative of the class, to establish that the merger was approved as a result of wrongful conduct on the part of the directors or majority shareholders.
Cohen claimed that if the merger was accomplished through wrongful conduct, then he had the right to seek monetary damages, including any difference in value between the merger price and the fair value of his stock. Because he was seeking monetary damages arising from an allegedly invalid merger, Cohen contended the claims were individual and not derivative in nature and the motion to dismiss should be denied. Cohen also indicated that if the court found the complaint confusing, he would gladly amend it to clarify his position. In reply, respondents alleged that the complaint did not state a cause of action for damages relating to an invalid merger. Respondents contended that the complaint was simply a thinly disguised method of attacking the value of the Boardwalk's shares in violation of NRS 92A.440(3).4 Respondents also asserted that Cohen knew about all of the alleged wrongdoing before tendering his shares. Respondents argued that when a shareholder tenders his shares with full knowledge of facts that would justify challenging the validity of the merger, he or she acquiesces in the merger and is barred under the doctrine of acquiescence from later challenging the merger. Therefore, according to respondents, Cohen was barred from seeking monetary damages over a year after he tendered his shares with full knowledge of any irregularities.
Although matters outside the complaint were attached to or addressed in the pleadings, the district court declined to convert the motion to one for summary judgment. The district court granted respondents' motion to dismiss, finding that all of Cohen's claims were derivative in nature and that Cohen and other ex-shareholders lacked standing to assert the claims. Cohen then filed this appeal.
This case involves the rights of dissenting shareholders to challenge the validity of corporate mergers, issues of first impression in the State of Nevada. Under Nevada law, a corporate merger must be approved by a majority of the corporation's shareholders.5 The existing shareholders then substitute their stock ownership in the old corporation for stock ownership in the new merged corporation.6 Shareholders who oppose the merger are not forced to become stockholders in the new corporation. Instead, the statutes give such...
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