Multitex Corp. of America v. Dickinson

• Decision Date: 23 August 1982
• Docket Number: No. 81-7087,81-7087
• Citation: 683 F.2d 1325
• Parties: MULTITEX CORPORATION OF AMERICA, Plaintiff-Appellee, Cross-Appellant, v. Peggy A. DICKINSON, Thomas H. Norris, and Kelly D. Cornelius as executors of the will of Robert L. Dickinson, deceased, and 3000 Shares of Stock in Colormasters, Inc., a Georgia Corporation, represented by certificates nos. 19 and 23, Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1325

683 F.2d 1325

MULTITEX CORPORATION OF AMERICA, Plaintiff-Appellee, Cross-Appellant, v. Peggy A. DICKINSON, Thomas H. Norris, and Kelly D. Cornelius as executors of the will of Robert L. Dickinson, deceased and 3000 Shares of Stock in Colormasters, Inc., a Georgia Corporation, represented by certificates nos. 19 and 23 Defendants-Appellants, Cross-Appellees.

No. 81-7087.

United States Court of Appeals Eleventh Circuit.

Aug. 23, 1982.

Powell, Goldstein, Frazer & Murphy, Robert W. Patrick, Thomas S. Richey, Atlanta, Ga., for defendants-appellants, cross-appellees.

Smith, Shaw, Maddox, Davidson & Graham, James D. Maddox, Rome, Ga., for plaintiff-appellee, cross-appellant.

Appeals from the United States District Court for the Northern District of Georgia.

Before MORGAN, TJOFLAT and JOHNSON, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

This appeal raises questions of the proper application of the dissenting shareholder provisions of the Georgia Business Corporation Code, Ga.Code Ann. §§ 22-1201, 22-1202 (1977). We have carefully considered both parties' challenges to the final judgment entered by the district court and for the reasons stated below conclude that the enumerated errors do not warrant alteration of that judgment.

I. FACTS

The controversy underlying the legal questions before us arises from the merger of Colormasters, Inc., a Georgia corporation, into plaintiff-appellee (cross-appellant) Multitex Corporation of America, a corporation formed pursuant to the laws of Tennessee. The merger was authorized at a special meeting of Colormasters shareholders on April 11, 1978. Defendant-appellant Dickinson, ¹ a minority shareholder, filed timely notice of election to dissent from the merger and demanded that he be paid "fair value" for his 3000 shares of Colormasters stock. Multitex offered Dickinson $21,000 ($7.00 per share) as the stock's fair value as of the close of business on the day prior to the date of merger authorization. Dickinson rejected the offer, and Multitex filed this action under section 22-1202(g) seeking appraisal of the Colormasters stock. Suit was originally brought in the Superior Court of Fulton County, Georgia, but defendant Dickinson removed the action on ground of diversity of citizenship to the United States District Court for the Northern District of Georgia.

On defendant's motion, the district court pursuant to rule 39(b), Federal Rules of Civil Procedure, ordered the case to be assigned for jury trial. ² Subsequently, the parties by stipulation limited the jury determination to the question of the fair value of Dickinson's stock. After hearing expert testimony introduced by both parties, the jury awarded a verdict for $45,600 ($15.20 per share). The trial court later ordered that Multitex pay seven percent prejudgment interest and post-judgment interest at the rate of twelve percent, but denied Dickinson's request for attorneys' fees and expenses incurred for experts.

Dickinson filed notice of appeal from the court's denial of fees and expenses as well as the limitation of prejudgment interest to seven percent. Multitex cross-appealed challenging the jury determination of the stock's fair value. The appeal and cross-appeal present four basic issues: (1) did the trial judge adequately instruct the jury on evaluating the "fair value" of Colormasters stock; (2) whether Multitex was properly assigned the burden of proof and the burden of going forward with evidence of the worth of the Colormasters stock; (3) whether the limitation of prejudgment interest to seven percent was an abuse of discretion by the trial judge; and (4) whether Dickinson was improperly denied an award of attorneys' fees and expenses for experts.

II. DISCUSSION

A. Jury Instructions on Fair Value of the Colormasters Stock.

Our initial inquiry focuses on the proper interpretation of section 22-1202(g) (4) which provides in relevant part

(The court) shall proceed to fix the value of the shares, which, for purposes of this section, shall be the fair value as of the close of business on the day prior to the shareholders' authorization date, excluding any appreciation or depreciation directly or indirectly induced by such corporate action or its proposal.... The court may appoint an appraiser to receive evidence and recommend a decision on the question of fair value. Such appraiser shall have the power, authority and duties specified in the order appointing him, or in any order supplemental thereto.

Multitex argues that the term "fair value" as used in this provision encompasses three elements: net asset value, investment value and market value. Multitex further contends that the district court erred in refusing to give the jury instructions setting forth each of these elements and requiring that each be considered in valuing Dickinson's stock.

Nowhere in the Georgia Business Corporation Code is the term "fair value" defined, nor has it been subject to judicial interpretation by any Georgia court. Multitex argues that since the provision was adopted in 1968 from the New York Business Corporation Law, we should employ the "bag and baggage" doctrine of statutory construction and look to applicable New York court decisions. Under that doctrine as previously employed by Georgia courts, "when a statute has been adopted from another State, the judicial construction already placed thereon by the highest court of jurisdiction from which it was taken accompanies it, and is treated as incorporated therein." Seaboard Air Line Railroad Co. v. Fountain, 173 Ga. 593, 599, 160 S.E. 789 (1931); Tamiami Trail Tours, Inc. v. Georgia Public Service Commission, 213 Ga. 418, 99 S.E.2d 225 (1957). Assuming the applicability of the doctrine in the instant case, ³ we look to any pre-1968 New York court decisions discussing "fair value" standards in appraisal proceedings.

In the 1931 decision In Re Clark's Will (Matter of Fulton), 257 N.Y. 487, 178 N.E. 766 (1931), the court held that an appointed appraiser could not consider market quotations as controlling of "fair value" without consideration of other factors affecting the stock's worth, such as net asset value and investment value. Subsequent decisions of New York courts have interpreted the holding in Matter of Fulton to require an appraiser's examination of net asset value, investment value and market value in determining a stock's worth. Application of Behrens, 61 N.Y.S.2d 179 (App.Div.1946), aff'd, 271 A.D. 1007, 69 N.Y.S.2d 910 (1947); In Matter of Endicott Johnson Corporation v. Bade, 37 N.Y.2d 585, 376 N.Y.S.2d 103, 338 N.E.2d 614 (1975). Other states have followed New York's lead and have also required consideration of these three factors by stock appraisers. See, e.g., In Re Valuation of Common Stock of Libby McNeill & Libby, 406 A.2d 54 (Me.1979); E. F. Gibbons v. Schenley Industries, Inc., 339 A.2d 460 (Del.Ch.1975); Piemonte v. New Boston Garden Corporation, 377 Mass. 719, 387 N.E.2d 1145 (1979); Tome Land & Improvement Co., Inc. v. Silva, 83 N.M. 549, 494 P.2d 962 (1972); Brown v. Heydahl's-OB&R, Inc., 185 N.W.2d 249 (N.D.1971); Foglesong v. Thurston National Life Insurance Co., 555 P.2d 606 (Okla.1976); Santee Oil Company, Inc. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975).

Multitex's citation of these decisions as establishing standards for jury instructions on "fair value" fails to acknowledge a critical distinction between the fact finding function of a jury and the independent fact gathering ability of a court appointed appraiser. As a careful reading of the New York case authority reveals, the rule requiring appraisers to separately consider investment value, net asset value and market value was intended to assure that an appraiser's investigation and recommendation, upon which the appointing court might heavily rely, did not ignore any indicia of fair value. The purpose of the three element rule was noted by the New York Court of Appeals in Endicott Johnson: "(A)ll three elements do not have to influence the result in every valuation proceeding. It suffices if they are all considered. Compelling the consideration of all of them, including those which may turn out to be unreliable in a particular case, has the salutary effect of assuring more complete justification by the appraiser of the conclusion he reaches. It also provides a more concrete basis for court review." 37 N.Y.2d at 588, 376 N.Y.S.2d at 106, 338 N.E.2d at 616.

A jury valuing stock pursuant to section 22-1202 has no independent investigatory powers, and therefore is not functioning as a court appointed appraiser. Its responsibility is limited to weighing the evidence of a stock's worth that is presented before it and making the "ultimate valuation." The New York cases cited by Multitex do not set forth standards for making this final determination. Indeed, as the New York Court of Appeals has recognized, the ultimate valuation

rests largely within the discretion of the lower courts.... "No rule can be laid down for determining the actual or true value of stock of a given class except one of a very general nature, and which may, in a particular case be inapplicable ... because of the existence of a state of facts peculiar to the situation involved in the particular case."

Id.

Turning to the jury instructions actually given by the court below, we find them to be a proper statement of Georgia law. The district court instructed the jury that fair value represented

the price at which a willing seller and a willing buyer will be tried, both having original knowledge of the facts. Now a willing seller is one who desires, but is not obligated to sell, and a willing buyer is one who wishes to buy, but is under no obligation, compulsion or necessity to buy. Determination of the fair value of stock owned by Mr. Dickinson in Colormasters, Inc., as of the close of business on April 10, 1978, is necessarily based somewhat on assumption rather than absolute fact.

The jury was also...