Smith v. First Alamogordo Bancorp, Inc.

• Decision Date: 24 August 1992
• Docket Number: No. 13303,13303
• Citation: 1992 NMCA 95,838 P.2d 494,114 N.M. 340
• Parties: , 61 USLW 2267 T.C. SMITH, Jr., Bow Cauthen Smith, Donna Janene Smith, Charles A. Pharris, Karen A. Pharris, Rolla Buck, Pearl Buck, and John Denney, Plaintiffs-Appellees, v. FIRST ALAMOGORDO BANCORP, INC., a New Mexico Corporation, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

Page 494

838 P.2d 494

114 N.M. 340, 61 USLW 2267

T.C. SMITH, Jr., Bow Cauthen Smith, Donna Janene Smith Charles A. Pharris, Karen A. Pharris, Rolla Buck Pearl Buck, and John Denney Plaintiffs-Appellees, v. FIRST ALAMOGORDO BANCORP, INC., a New Mexico Corporation Defendant-Appellant.

No. 13303.

Court of Appeals of New Mexico.

Aug. 24, 1992.

Certiorari Denied Sept. 30, 1992.

[114 N.M. 341] John P. Eastham, Bill Panagakos, Kemp, Smith, Duncan & Hammond, P.C., Albuquerque, for defendant-appellant.

Edgar L. Buck, Alamogordo, Charles A. Pharris, Margaret E. Davidson, Keleher & McLeod, P.A., Albuquerque, for plaintiffs-appellees.

OPINION

DONNELLY, Judge.

In this interlocutory appeal we address the issue of whether Plaintiffs (Shareholders), who oppose a corporate merger and file a statutory proceeding pursuant to NMSA 1978, Section 53-15-4 (Repl.Pamp.1983) of the New Mexico Business Corporation Act to obtain a judicial determination of the fair value of their corporate shares, are entitled to a jury trial in such action. We hold that there is no right to a jury trial in such proceeding and reverse.

Shareholders are owners of stock in First Alamogordo Bancorp, Inc. (Bancorp). Bancorp sought to merge with another bank. Shareholders disagreed with the planned merger and exercised their rights under Section 53-15-4 to obtain a valuation of their stock in the corporation. Under the Business Corporation Act, NMSA 1978, Section 53-15-3(A)(1) (Repl.Pamp.1983), dissenting shareholders who object to a merger have a statutory right to be paid the fair market value of their stock upon demand. Although the parties agree that Shareholders are entitled to receive the fair value of their stock, they have been unable to agree upon the value of such stock.

Shareholders filed a petition with the district court pursuant to Section 53-15-4(E), and filed a demand for a six-person jury. Bancorp filed a motion to strike the jury demand. This motion was denied by the district court, and the issue was certified to this court for interlocutory appeal.

CLAIM OF RIGHT TO JURY TRIAL

Bancorp contends that the district court erred in denying its motion to strike Shareholders' jury demand because the action for valuation of Shareholders' stock is a special statutory proceeding which does not permit trial by jury. Bancorp also contends that the constitution does not require a jury trial.

Section 53-15-4(E) of the Business Corporation Act provides in applicable part that if, within the time prescribed by law, a dissenting shareholder and the corporation are unable to agree upon the fair market value of such shares, then the dissenting shareholder

may, file a petition in any court of competent jurisdiction in the county in this state where the registered office of the corporation is located praying that the fair value of the shares be found and determined.... The jurisdiction of the court shall be plenary and exclusive. All shareholders who are parties to the proceeding shall be entitled to judgment against the corporation for the amount of the fair value of their shares. The court may, if it so elects, appoint one or more persons as appraisers to receive evidence, and recommend a decision on the question of fair value.

Nothing in Section 53-15-4(E) explicitly authorizes a right to a jury in proceedings filed under the statute. Bancorp argues that the statutory language specifically precludes a jury trial in such proceedings, because it states that the jurisdiction of the court "shall be plenary and exclusive." Sec. 53-15-4(E). We interpret this phrase, however, to mean that the district court in which the petition is first filed has jurisdiction over the proceedings to the exclusion of any other court in which the petition might have been filed. We do not read such language as referring to the right to trial by jury. The statute itself is silent as to the right to trial by jury.

Whether a dissenting shareholder is entitled to a jury in a proceeding to determine the fair valuation of his or her stock has not previously been addressed in New Mexico. Courts in Ohio and New Jersey, however, based upon the language of their particular statutes have held that dissenting shareholders were not entitled to a jury trial to determine the value of their stock. See Armstrong v. Marathon Oil Co., 32 Ohio St.3d 397, 513 N.E.2d 776 (1987); New Jersey Sports & Exposition Auth. v. Del Tufo, 210 N.J.Super. 664, 510 A.2d 329, 331 (Law Div.1986). But see Multitex Corp. of Am. v. Dickinson, 683 F.2d 1325, 1328 n. 3 (11th Cir.1982) (observing that 1969 amendment to Georgia statute expressly removed requirement for nonjury proceeding); General Grain, Inc. v. Goodrich, 140 Ind.App. 100, 221 N.E.2d 696, 699 (1966) (en banc) (recognizing right of jury trial where statute to determine rights of dissenting shareholders in cases involving corporate mergers and consolidations expressly provided that " 'practice, procedure and judgment' " in such cases " 'shall be the same ... as that under the eminent domain laws' " (quoting Ind.Stat.Ann. Sec. 25-236 (Repl.1960))). Comparison of the cases referred to above indicates that where jury trials have been permitted in such proceedings the statute has expressly so provided or contains other provisions confirming such right.

Section 53-15-4(E), as it is presently constituted, is derived from the ABA Model Business Corporation Act, Section 81 (2d ed. 1971). See Compiler's notes to Sec. 53-15-4; see also 15 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations Sec. 7165 (perm. ed. rev. vol. 1990). Under Section 53-15-4(E), the "court" may either decide the issue or appoint one or more appraisers to determine the value of the stock. Examination of the statute in its entirety, including the right of the court in its discretion to appoint one or more appraisers "to receive evidence" and to recommend a decision on the fair value of the dissenters' stock, we think evidences a legislative intent to establish a mechanism for determination of the stock valuation by the court, not a jury. See Southard v. Fox, 113 N.M. 774, 775, 779, 833 P.2d 251, 252, 256 (Ct.App.1992) (no right to a jury trial when statute provided that the "court in its discretion may allow interest").

We now turn to a discussion of whether the constitution requires a jury trial. Article II, Section 12 of the New Mexico Constitution has been interpreted so as to preserve the right to a jury trial as it existed at the time the constitution was adopted. Evans Fin. Corp. v. Strasser, 99 N.M. 788, 664 P.2d 986 (1983); State ex rel. Human Servs. Dep't v. Aguirre, 110 N.M. 528, 797 P.2d 317 (Ct.App.1990). At the time our state constitution took effect, there was no civil action providing a right to a jury by dissenting shareholders in stock valuation proceedings.

At common law, the unanimous consent of shareholders was required to effect a corporate merger. See Steinberg v. Amplica, Inc., 42 Cal.3d 1198, 233 Cal.Rptr. 249, 252, 729 P.2d 683, 687 (1986) (en banc); see also Note, Valuation of Dissenters' Stock Under Appraisal Statutes, 79 Harv.L.Rev. 1453 (1966). This requirement was thought to restrict corporate flexibility, and all states have passed statutes allowing shareholders to approve mergers by a less than unanimous vote. Id. To compensate minority dissenting shareholders for the loss of their common-law veto power, most of these statutes provide that the dissenting shareholders may force the corporation to buy their corporate stock by paying the fair value of their stock holdings. See Ferdinand S. Tinio, Annotation, Valuation of Stock of Dissenting Stockholders in Case of Consolidation or Merger of Corporation, Sale of Its Assets, or the Like, 48 A.L.R.3d 430 (1973).

New Mexico enacted its first statute governing the rights of dissenting shareholders in 1905, prior to the adoption of our state constitution. See 1905 N.M.Laws, ch. 79, Secs. 110-115. This statute provided that dissenting shareholders could petition the district court for the appointment of three disinterested appraisers to value the stock and that the appraisers' award, "when confirmed by the said court," was conclusive as to all parties. Id., Sec. 113; see also Sec. 114. We discern from this language that no jury trial was authorized in such proceeding for the determination of the value of the stock of dissenting shareholders. Cf. Armstrong v. Marathon Oil Co. (where statute indicates that the "court" shall make a finding as to fair value, the provision dispenses with the jury trial requirement). As observed in Kneisley v. Lattimer-Stevens Co., 40 Ohio St.3d 354, 533 N.E.2d 743, 746 (1988), "[t]he right to a jury trial ... is substantive, not procedural. There is no right to a jury trial ... unless that right is extended by statute or existed at common law prior to the adoption of our state Constitution." (Citation omitted.)

We note, in addition, that the right to an appraisal of the value of a dissenting shareholder's stock is purely statutory. See Wichers v. Solomon Valley Feed Lot, 10 Kan.App.2d 486, 704 P.2d 383 (1985); Willcox v. Stern, 18 N.Y.2d 195, 273 N.Y.S.2d 38, 219 N.E.2d 401 (1966). The right to dissent from a merger or consolidation and be paid fair value is a new right that did not exist at common law, and the proceeding created by the appraisal statute is a special statutory remedy. See City of Tucumcari v. Magnolia Petroleum Co., 57 N.M. 392, 259 P.2d 351 (1953) (a "special proceeding," as distinguished from an ordinary civil action, is one in which the law confers a right and authorizes a special application to a court to enforce that right); see also New Jersey Sports & Exposition Auth. v. Del Tufo (statute creating dissenters' rights action creates new rights and constitutes a special statutory proceeding); cf. El Paso Elec. v. Real Estate Mart, Inc., 98 N.M. 490, 650 P.2d 12 (Ct.App.1982) (eminent domain proceedings, which provide for the...