Jeffrey v. American Screw Co.

• Decision Date: 11 June 1964
• Docket Number: No. 2897,2897
• Citation: 98 R.I. 286,201 A.2d 146
• Parties: Charles S. JEFFREY et al. v. The AMERICAN SCREW COMPANY. Equity
• Court: Rhode Island Supreme Court

Page 146

201 A.2d 146

98 R.I. 286

Charles S. JEFFREY et al. v. The AMERICAN SCREW COMPANY.

Equity No. 2897.

Supreme Court of Rhode Island.

June 11, 1964.

Edwards & Angell, Knight Edwards, Richard M. Borod, Providence, Withington, Cross, Park & McCann, Claude B. Cross, John R. D. McClintock, Boston, Mass., for petitioners and intervenors.

Winograd, Winograd & Marcus, Max Winograd, Allan M. Shine, Providence, for respondent.

ROBERTS, Justice.

This petition in equity was brought in the superior court for the appointment of an appraiser under G.L.1956, § 7-5-12, to establish the full and fair value of the shares of stock of the respondent corporation owned by dissenting stockholders thereof pursuant to the pertinent provisions of § 7-5-13. From the appraiser's report fixing the value thereof at $60 per share the petitioners excepted, and after a hearing the superior court entered a decree establishing the full and fair value of each share of the respondent's stock held by the petitioners at $68.75. From that decree the respondent has prosecuted its appeal to this court.

The record discloses that the stockholders of respondent, The American Screw Company, on February 19, 1960 voted to authorize the transfer of substantially all of its property and assets to Noma Lites, Inc. The petitioners in the instant action and the intervenors therein, who together own about 4,990 shares of the common stock of The American Screw Company, did not vote in favor of the proposed transfer and, complying with the pertinent provisions of § 7-5-8, objected thereto and made demand for payment of the full and fair value of the shares held by them.

The respondent rejected petitioners' specific demand but, pursuant to § 7-5-9, made an offer to pay petitioners for said shares at the rate of $50 per share. The instant petition was filed on May 13, 1960, and the superior court, acting thereunder, appointed an appraiser, who on January 29, 1963 entered a final report wherein he found the full and fair value of each share held by the dissenting stockholders to be $60.

An appraiser was appointed under § 7-5-13, which requires that the court appoint some disinterested person 'to appraise the full and fair value of the shares of the dissenting stockholders parties to such proceeding as of the day before the vote was taken without appreciation or depreciation on account of such sale, lease, exchange or other disposition.'

Section 7-5-8, in pertinent part, provides that a dissenting stockholder who has filed an objection to the transaction and made demand for payment 'shall be entitled to be paid the full and fair value of his shares * * * which full and fair value shall for all purposes of this section and §§ 7-5-9 to 7-5-16, inclusive, be deemed to be the amount which the owners of such shares would have been entitled to recover at an action at law with respect thereto in case of a conversion thereof.'

The extent to which the appraiser made his findings in compliance with the statutory directive is in substantial dispute. The respondent contends that the statute limits the appraiser to a consideration of evidence of market value of the stock purged of any distortion in the market price thereof resulting from an abnormal demand and that in the instant proceeding he erred in failing to apply the test in this manner. On the other hand, petitioners contend that the reference to the amount recoverable in an action for a conversion of the stock is to be read in the light of the dissenter's entitlement to the 'full and fair value' of his stock. When so read, they argue, it is clear that the appraiser has a broad discretion to consider and weigh evidence of value factors in any relevant category to determine what the full and fair value of the stock is.

The pertinent provisions of the statute were intended to provide a simple, expeditious procedure for the determination of the full and fair value of the stock of dissenting stockholders to the end that they might be equitable indemnified. The statute contemplates an adjustment of the statutory power of a majority of the stockholders to determine or alter the course of the corporation's existence with the common-law right of any stockholder to prevent or obstruct such action by a majority by conferring upon the dissenting stockholders the right to be compensated fully and fairly for that which they lose by persistence in their dissent. Being fully aware that the statute considered in Dickinson v. Fire Association of Philadelphia, 378 Pa. 396, 106 A.2d 607, unlike ours, specifically directs payment of the 'full market value' and that the court held that the remedy provided therein was not exclusive, it did state expressly that this statute 'provides a dissenting shareholder with a more expedient and direct remedy and minimizes the risk and expense that could conceivably accompany an action at law or in equity to prove actual value * * *.'

One text writer, discussing the purpose of statutes of this type, said: 'To placate the dissenting minority and, at the same time, to facilitate the carrying out of changes of a desirable and extreme sort, appraisal statutes were enacted.' Lattin, Remedies Of Dissenting Stockholders Under Appraisal Statutes, 45 Harv.L.Rev. 233, 237. The same authority noted that an evaluation of the stock of dissenting stockholders raises questions economic rather than legal and that these statutes contemplate that such questions will be submitted to men versed in the intricacies of corporate finance for determination and thus accomplish the purpose of simplifying and expediting the appraisal procedure.

It is our opinion that the provisions of § 7-5-8 linking the measure of damages for conversion in an action at law with the phrase 'full and fair value' were not intended to define restrictively the meaning of that phrase but rather were intended to fix the time as of which such value was to be determined by an exercise of the appraisal procedure. The clear effect of this was to make immaterial and incompetent evidence offered to establish an appreciation or depreciation in the value of stock at a time subsequent to the date of the vote to transfer the assets, which vote the legislature views as constituting a constructive conversion of the dissenters' stock at that time.

It being our opinion that in so doing the legislature was intending to simplify and expedite the determination of the value of such stock, we cannot assume that it intended at the same time to hobble the procedure by promulgating rules as to the competency of evidence on that issue which would serve only to hamper and confuse the class of persons that it appears to have contemplated as being best qualified to make such appraisals. Rather, it is our opinion that the legislature, having acted to confine the determination of the value of stock to a time context and having provided for judicial review thereof, intended that, subject to such limitation in time, the appraiser would have as wide a latitude to consider evidence otherwise competent on that issue as is enjoyed by a court in an action at law for conversion.

An examination of our cases is persuasive that the measure of damages for conversion is usually the value of the property at the time of its conversion, a matter susceptible of being proved by evidence of market value. National Cash Register Co. v. Underwood, 56 R.I. 379, 185 A. 909. It is well settled that market price has probative force on such issue and therefore usually is admissible, but the production of evidence as to market price does not preclude the admission of other evidence for the purpose of affecting the weight thereof. Moss v. Rocky Point Park, Inc., 81 R.I. 327, 103 A.2d 72, 41 A.L.R.2d 657. Because of the effect of economic forces on the intrinsic value of corporate stock, its market price may have little probative force on the question of its full and fair value.

The provisions of the instant statute, in our opinion, are significant of a legislative intent to provide a realistic procedure for the appraisal of the value of the dissenters' stock on the basis of a consideration of all relevant value factors including market value, book value, asset value, and other intrinsic factors probative of value. In short, an appraiser, when determining under the terms of our statute the value of a particular stock, has a wide discretion to consider and weigh evidence of any value factor that in the circumstance of the case...