Fair Value of Shares of Bank of Ripley, Matter of

• Decision Date: 13 November 1990
• Docket Number: No. 19609,19609
• Citation: 184 W.Va. 96,399 S.E.2d 678
• Court: West Virginia Supreme Court
• Parties: In the Matter of Determination Pursuant to Chapter 31, Article 1, Sections 122 and 123 of the Code of West Virginia of 1931, Amended, of FAIR VALUE OF SHARES OF BANK OF RIPLEY, a West Virginia Banking Corporation Owned by Shareholders Dissenting From the Merger of Bank of Ripley with Ripley Bank Merger Subsidiary, Inc., a Subsidiary of City Holding Company.

Page 678

399 S.E.2d 678

184 W.Va. 96

In the Matter of Determination Pursuant to Chapter 31,

Article 1, Sections 122 and 123 of the Code of West Virginia

of 1931, Amended, of FAIR VALUE OF SHARES OF BANK OF RIPLEY,

a West Virginia Banking Corporation Owned by Shareholders

Dissenting From the Merger of Bank of Ripley with Ripley

Bank Merger Subsidiary, Inc., a Subsidiary of City Holding Company.

No. 19609.

Supreme Court of Appeals of

West Virginia.

Nov. 13, 1990.

Syllabus by the Court

1. W.Va.Code, 31-1-123(f), requires dissenting shareholders to tender their shares to the corporation for notation that a demand for payment of the fair value has been made. This tender must be made within twenty days after the demand for payment is made as required by W.Va.Code, 31-1-123(a).

2. At common law, in the absence of a specific statute, the merger or consolidation of a corporation or the sale of substantially all of the corporation's assets required the unanimous consent of its shareholders.

3. W.Va.Code, 31-1-123, grants statutory rights to shareholders who wish to dissent from any of the corporate actions described in W.Va.Code, 31-1-122.

4. Several general rules have developed regarding dissenter's rights statutes. The first is that ordinarily such a statute provides an exclusive remedy for a dissenting shareholder in the absence of a showing of fraud, unfairness, or illegality. On the other hand, dissenter's rights statutes are construed favorably toward the shareholder, particularly where there is no prejudice to the corporation.

5. Failure to comply with W.Va.Code, 31-1-123(f), does not impose an automatic forfeiture of the dissenter's rights. Two circumstances can prevent a forfeiture. First, the corporation has the option not to terminate the shareholder's rights. Second, if the corporation does elect to terminate the dissenter's rights, a court can still excuse the shareholder's noncompliance for good and sufficient cause.

6. Where a dissenting shareholder has otherwise complied with the provisions of W.Va.Code, 31-1-123, but has failed to timely tender his shares for notation as required by subsection (f), such failure will not terminate his dissenter's rights if the delay is insubstantial and the corporation is shown not to have suffered any prejudice.

L. Alvin Hunt, H.F. Salsbery, Jr., Hunt and Wilson, Charleston, for Boggess, Kessel, Hoffman and Buck.

Otis L. O'Connor, Steptoe & Johnson, Charleston, Robert Fisher, Adams, Fisher & Evans, Ripley, Lathan M. Ewers, Jr., Randall S. Parks, Hunton & Williams, Richmond, Va., for City Holding Co.

MILLER, Justice:

This appeal is by shareholders who own approximately 23 percent of the common stock of the Bank of Ripley (the Shareholders). When the Bank of Ripley and a subsidiary of City Holding Company announced their intentions to merge, ¹ the Shareholders sought to exercise their dissenters' rights under W.Va.Code, 31-1-123. Because the Bank and the Shareholders could not agree on the fair value of the Shareholders' stock, the Shareholders filed suit in order to resolve the issue. In an order dated July 19, 1989, the Circuit Court of Jackson County granted the Bank's motion for summary judgment on the ground that the Shareholders' failure to comply with W.Va.Code, 31-1-123(f) terminated their rights under the statute.

The chief issue presented is what effect should be given to the acknowledged reason for the Shareholders' failure to comply timely with one of the statutory steps because their legal counsel misread the statute. The lower court held that the failure to comply timely with the involved statutory step was, as a matter of law, fatal to the attempted exercise of the dissenters' rights. We disagree, and we reverse.

I.

Because W.Va.Code, 31-1-123, is quite lengthy, we will not quote it in full in the margin, but will append it to this opinion. The following is a brief outline of its key provisions: ²

(1) Under subsection (a), prior to or at the shareholder meeting at which the merger is to be voted upon, the dissenting shareholder (i) must file a written objection with the corporation; (ii) must not vote for the merger; and (iii) must make a written demand for the fair value of his stock within ten days after the vote is taken. ³

(2) Under subsection (b), a demand for fair value by a dissenting shareholder cannot be withdrawn without the consent of the corporation. This subsection further outlines events which may deprive a shareholder of relief under the statute.

(3) Under subsection (c), the corporation is required within ten days after such corporate action to give written notice to each dissenting shareholder and to "make a written offer to each shareholder ... at a specified price deemed by such corporation to be fair value [of the dissenter's shares]." ⁴

(4) Under subsection (d), "[i]f within thirty days after the date such corporate action is effected the fair value of such shares is agreed upon," payment for the shares shall be made within ninety days.

(5) Under subsection (e), if no agreement is reached, the dissenting shareholder must, within sixty days of the date the corporate action was effected, make a written demand that the corporation institute a lawsuit to determine the fair value of his shares. This subsection outlines court procedures and the allocation of costs.

(6) Under subsection (f), "[w]ithin twenty days after demanding payment for his shares, each shareholder demanding payment shall submit the certificate or certificates representing his shares to the corporation for notation thereon that such demand has been made." Moreover, failure to do so will "terminate his rights under this section unless a court ... for good and sufficient cause shown, shall otherwise direct."

(7) Under subsection (g), a method is provided for disposal of the shares acquired by the corporation from the dissenting shareholder.

II.

A.

The parties agree that the Shareholders complied with the initial steps required in W.Va.Code, 31-1-123(a), by filing a written objection before the meeting, by not voting in favor of the merger, and by making a written demand for fair value. The Bank complied with W.Va.Code, 31-1-123(c), by sending a written offer to purchase the Shareholders' stock. No agreement was reached on the fair value of the shares; thus, W.Va.Code, 31-1-123(d), was not applicable. Consequently, the Shareholders advised the Bank in writing that it should file a lawsuit to determine the fair value of the shares, as required by W.Va.Code, 31-1-123(e).

The Bank responded with a letter dated December 1, 1988, advising the Shareholders that the Bank felt that their dissenting rights had been terminated because they did not comply with W.Va.Code, 31-1- 123(f), which requires the dissenting shareholders to submit their certificates to the corporation for a notation that a demand for fair value has been made. This submission must be made within twenty days of the demand for payment.

To sort out these time limits, we begin with W.Va.Code, 31-1-123(a). A written demand for payment by dissenting shareholders must be made within ten days after the vote on the merger. ⁵ Here, the vote on the merger was on October 20, 1988, and the Shareholders made a timely written demand for payment on October 30, 1988. According to W.Va.Code, 31-1-123(f), the Shareholders should have tendered their shares for notation to the corporation within twenty days from the date of demand for payment, or by November 21, 1988. ⁶ The Shareholders failed to meet this deadline, as the Bank correctly advised them by letter dated December 1, 1988.

Within four days after the Bank's December 1 letter, the Shareholders and their attorney met with the Bank's president. While disagreeing with the Bank's interpretation of W.Va.Code, 31-1-123(f), the Shareholders offered to tender their shares for notation, approximately fifteen days after the November 21 deadline. The Bank rejected this offer. Subsequently, the Shareholders filed this civil action to enforce their dissenters' rights.

B.

At common law, in the absence of a specific statute, the merger or consolidation of a corporation or the sale of substantially all of the corporation's assets required the unanimous consent of its shareholders. E.g., Voeller v. Neilston Warehouse Co., 311 U.S. 531, 61 S.Ct. 376, 85 L.Ed. 322 (1941); Salomon Bros., Inc. v. Interstate Bakeries Corp., 576 A.2d 650 (Del.Ch.1989), appeal refused, 571 A.2d 787 (1990); Waters v. Double L, Inc., 114 Idaho 256, 755 P.2d 1294 (1987), decision affirmed, 115 Idaho 705, 769 P.2d 582 (1989). Cf. Anderson v. International Minerals & Chem. Corp., 295 N.Y. 343, 67 N.E.2d 573 (1946). See generally 18A Am.Jur.2d Corporations § 805 (1985 & Supp.1990). In 1931, by statute, we abrogated the common law rule requiring unanimous consent of the shareholders. See W.Va.Code, 31-1-63 (1931). See also W.Va.Code, 31-1-117 (1974). Prior to the enactment of our dissenter's rights statute, W.Va.Code, 31-1-123, a shareholder had no legal means to dissent from a corporate merger, consolidation, or sale of assets or to obtain the fair value of his shares. This section grants statutory rights to shareholders who wish to dissent from any of the corporate actions described in W.Va.Code, 31-1-122. ⁷ Courts have developed several general rules regarding dissenter's rights statutes. The first is that ordinarily such a statute provides the exclusive remedy for a dissenting shareholder ⁸ in the absence of a showing of fraud, unfairness, or illegality. ⁹ See generally 18A Am.Jur.2d Corporations § 809. Although our statute does not contain any specific provisions as to exclusivity, we agree with the general rule. Second, dissenter's rights statutes are construed favorably toward the shareholder, particularly where there is no prejudice to the corporation. As a corollary, such statutes are given a reasonable construction rather than a rigid and technical one. Doubts arising from a...