Peters v. New Mexico Banquest Investors
| Decision Date | 24 June 2008 |
| Docket Number | No. 30,292.,30,292. |
| Parties | The PETERS CORP., Milo L. McGonagle, Jr., and E.W. Sargent, Respondents-Counterclaimants-Third-Party Plaintiffs and Petitioners-Cross-Respondents, v. NEW MEXICO BANQUEST INVESTORS CORPORATION, Petitioner-Counterdefendant and Respondent-Cross-Petitioner, v. Edward B. Bennett, Third-Party Defendant-Respondent. |
| Court | New Mexico Supreme Court |
Brennan & Sullivan, P.A., Michael W. Brennan, Santa Fe, NM, for Third-Party Defendant-Respondent.
{1} In McMinn v. MBF Operating Acquisition Corp. (McMinn II), 2007-NMSC-040, 142 N.M. 160, 164 P.3d 41, we recently interpreted New Mexico's dissent and appraisal statute, which gives shareholders who dissent from certain corporate transactions the right to receive fair value for their shares from the corporation. See NMSA 1978, § 53-15-3 (1983); McMinn II, 2007-NMSC-040, ¶ 2. We held that Section 53-15-3(D), which purports to make appraisal the exclusive remedy for shareholders who possess such statutory rights, does not apply to conflict-of-interest merger transactions designed by controlling shareholders to eliminate the interests of non-controlling shareholders in the corporation. McMinn II, 2007-NMSC-040, ¶ 51. Thus, when a non-controlling shareholder's interest in a company is eliminated by such a transaction, known as a "freeze-out" merger, that shareholder will not be limited to an appraisal, and may file suit against the controlling shareholders for breach of fiduciary duty.
{2} This appeal raises questions about the reach of McMinn II beyond the context of freeze-out mergers, as well as the impact of that opinion on a judge's discretion not to award punitive damages or equitable remedies in addition to the appraisal remedy. Specifically, we decide whether our holding in McMinn II, that the exclusivity provision of the New Mexico dissent and appraisal statute does not apply to freeze-out merger transactions, extends to other types of appraisal-triggering events. We also decide whether a district court, having awarded the appraisal remedy to the dissenting shareholders, must award additional remedies such as disgorgement of profits or punitive damages if the court finds that a controlling shareholder has breached his fiduciary duty.
{3} We hold that McMinn II does not apply to the stock redemption transaction in this case, and thus the exclusivity provision applies. Though the exclusivity provision contains an exception for unlawful or fraudulent conduct, the dissenting shareholders did not prove a breach of fiduciary duty rising to that level. We therefore affirm the decision of the district court and the Court of Appeals that the dissenting shareholders were not entitled to punitive damages or equitable remedies beyond the appraisal remedy of fair value for their shares.
{4} A full exposition of the facts is contained in the Court of Appeals opinion. We therefore relate only those facts that are relevant to our decision here. See N.M. Banquest Investors Corp. v. Peters Corp., 2007-NMCA-065, ¶¶ 3-10, 141 N.M. 632, 159 P.3d 1117.
{5} In 1982, New Mexico Banquest Investors Corporation (NMBIC) was formed as a second-tier holding company owning 100% of the stock of New Mexico Banquest Corporation (Banquest), which in turn owned 100% of the stock of First National Bank of Santa Fe (First National). At that time, the Peters Corporation, Milo L. McGonagle, Jr., and E.W. Sargent (collectively the Peters Group), owned a minority interest in Banquest, and Edward B. Bennett (Bennett) owned a controlling interest in Banquest. See id. ¶ 2. NMBIC is a close corporation formed in part to facilitate a $10 million investment by Banco Bilbao de Vizcaya (BBV), as successor to Banco de Vizcaya, a Spanish bank. Id.
{6} In 1983, Bennett and certain other shareholders, including the Peters Group, executed a Shareholder Agreement which placed management and control of NMBIC in Bennett, entrusted Bennett with board-selection powers, and gave the shareholders the right to purchase shares offered for sale by other shareholders, except BBV. The possible future purchase or sale of NMBIC shares by BBV was governed by a separate agreement (the BBV Agreement), also executed in 1983. The BBV Agreement has several critical features relevant to this dispute: (1) the signatory shareholders, collectively, had the option to buy, on a pro rata basis, "all (but not less than all)" of BBV's offered shares; (2) each shareholder's option was transferrable to other shareholders; (3) each shareholder had no obligation either to buy shares or to transfer the option to buy; (4) BBV was not obligated to sell any of its offered shares unless the shareholders exercised their options to buy all of those shares; and (5) unless the shareholders bought all of the offered shares, BBV was free to sell all of those shares to a third party. See id. ¶ 4. Thus, the evident purpose of the BBV Agreement was to ensure that BBV could sell its entire block of offered shares in a single transaction and thereby avoid getting embroiled in shareholder disputes over such a sale.
As of June 30, 1996, there were 502,589 NMBIC shares outstanding with a total of 68 shareholders in twelve states and two foreign countries. Regarding the stock interests of the NMBIC shareholders relevant to this dispute, BBV owned 198,913 shares or a 39.6% interest; the Peters Corporation owned 19,526 shares or a 3.88% interest; Milo McGonagle owned 2,506 shares or a 0.5% interest; E.W. Sargent owned 2,000 shares or a 0.4% interest; Bennett owned 88,897 shares or a 17.7% interest; and Bennett's family members owned 22,026 shares or a 4.4% interest in NMBIC at the time. Bennett was president of NMBIC, chairman of the board of directors, and controlling shareholder in NMBIC. He was also president of [First National] and chairman of the board of directors of [First National]. The Peters Group were minority shareholders in NMBIC, and at the time they exercised their dissenters' rights in August 1996, they had been NMBIC shareholders for about thirteen years.
{7} In 1995, BBV decided to sell its interest in NMBIC as anticipated in the BBV Agreement. Under the BBV Agreement, Bennett was appointed by the other shareholders to receive notice from BBV of BBV's intent to sell its shares, and thus, BBV informed Bennett of its intent. Id. ¶ 5. Bennett determined that the best way to structure the transaction was for BBV to sell its shares to NMBIC as a "third party," within the meaning of the BBV Agreement, in a stock-redemption transaction, and not to individual shareholders of the corporation. Thus, Bennett decided that he and his family would not purchase the BBV shares and would not assign their options to purchase. Id. ¶ 5. "Several other NMBIC Board members also determined that they would not individually purchase or assign their rights to purchase their pro rata portion of the BBV shares, leaving the door open for an NMBIC redemption of the shares as a third party." Id. ¶ 6. The district court found that Bennett structured the redemption transaction for legitimate business purposes, which were: "(1) the establishment of an employee stock option plan; (2) the tax benefits of a redemption over purchase by [individual shareholders]; (3) the financial efficiency of a redemption; (4) the elimination of the possibility that the shares would fall into the hands of an unfriendly third party; (5) the broadening of the shareholder base; and (6) to provide stability and continuity of management." Id. ¶ 5.
{8} Although Bennett had discussed the sale with counsel, the Board of Directors, and some NMBIC shareholders, Bennett did not initially disclose anything to many other shareholders, including the Peters Group. Id. ¶ 7. Bennett decided not to disclose to these shareholders BBV's desire to sell its shares based on advice from an attorney that such notification would be futile. The attorney reasoned that because the BBV agreement required unanimity among the shareholders in electing to purchase the BBV's shares, the decision on the part of any shareholder not to exercise or assign his option to buy would render the remaining shareholders unable to do so as well. Thus, because Bennett and other NMBIC Board members had already decided not to buy their pro rata share of BBV's stock or assign their options to buy, the Peters Group would be unable to do so, and any notice given to the Peters Group would not make a difference to the transaction. The district court found that Bennett intentionally delayed notifying the Peters Group of the BBV transaction, and that he did so "because he feared litigation from Gerald Peters, who was at all times the president and principal shareholder of The Peters Corp."
{9} On May 9, 1996, BBV and NMBIC executed a written letter of intent, whereby BBV would sell all of its NMBIC shares to NMBIC for twice book value. Id. "The Peters Group was first notified in proxy materials noticing a special shareholders' meeting sent to the NMBIC shareholders on July 10, 1996." Id. ¶ 7. At the NMBIC shareholders' meeting on July 23, 1996, all NMBIC shareholders except the Peters Group and one other shareholder holding a 1.2% interest in NMBIC declined to exercise their individual rights of first refusal or assign such rights, and instead ratified NMBIC's redemption of the BBV shares. Id.
{10} "NMBIC purchased BBV's interest in NMBIC for twice book value as of December 31, 1995, or $82.13 per share, for a total of $16,336,000." Id. ¶ 8. To finance the...
To continue reading
Request your trial
- Daye v. Cmty. Fin. Loan Serv. Ctrs., LLC
- Sunnyland Farms Inc. v. Cent. N.M. Electric Coop. Inc.
-
Cobb v. Gammon
...give up the benefits obtained as a result of his wrongdoing. See Peters Corp. v. N.M. Banquest Inv'rs Corp. , 2008–NMSC–039, ¶ 32, 144 N.M. 434, 188 P.3d 1185. "The decision whether to order a defendant to disgorge profits and the amount of profits to be disgorged rests within the sound dis......
-
Miller v. Bank of Am., N.A.
...within the sound discretion of the [district] court.” Peters Corp. v. N.M. Banquest Investors Corp., 2008–NMSC–039, ¶ 32, 144 N.M. 434, 188 P.3d 1185. A discretionary decision based on a misapprehension of the law is reviewed de novo. N.M. Right to Choose/NARAL v. Johnson, 1999–NMSC–028, ¶ ......