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Strasenburgh v. Straubmuller8/8/1995
eir disparate impact theory. Corporate waste affects all stockholders equally and does not constitute a "special injury" to some stockholders but not others. The Judge correctly held that this claim must be brought as a derivative action. Plaintiffs' reliance on Vincel v. White Motor Corp., 521 F.2d 1113 (2d Cir. 1975) is misplaced. Plaintiffs were not forced to sell their stock at a depressed price and, in fact, made no such allegation in their complaint. Rather, they elected to Dissent from a subsequent corporate reorganization, resulting in an appraisal proceeding which will determine the fair value of their shares. The two circumstances are distinguishable on their face. In Traylor v. Marine Corp., 328 F. Supp. 382 (E.D. Wis. 1971), plaintiffs, minority shareholders, were allowed to bring an action individually for fraudulent sale of corporate assets because they claimed that "particular stockholders profited and other stockholders were wronged." Id. at 384. Here, by contrast, plaintiffs' claim for waste of corporate assets does not assert any right individual to them based on a disparate impact theory. Plaintiffs' claim of waste was properly dismissed.
III.
Plaintiffs contend that the Judge erred in determining that their election to Dissent under the appraisal statutes, N.J.S.A. 14A:11-1 to -11, precluded them from bringing their individual claims.
N.J.S.A. 14A:11-5(2) provides:
The enforcement by a Dissenting shareholder of his right to receive payment for his shares shall exclude the enforcement by such Dissenting shareholder of any other right to which he might otherwise be entitled by virtue of share ownership, except as provided in subsection 14A:11-4(2) and except that this subsection shall not exclude the right of such Dissenting shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is ultra vires, unlawful or fraudulent as to such Dissenting shareholder.
This subsection follows closely the language of section 623(k) of the New York Business Corporation Law. See Pachman, Title 14A Corporations, Commissioners' Comment - 1968 on N.J.S.A. 14A:11-5 (1994).
New York has limited the statutory exception permitting a Dissenter to seek judicial relief outside the appraisal proceeding to those seeking equitable relief based on fraud. See Breed v. Barton, 54 N.Y.2d 82, 429 N.E.2d 128, 129, 444 N.Y.S.2d 609 (N.Y. 1981). Accord, Burke v. Jacoby, 981 F.2d 1372, 1374 (2d Cir. 1992), cert. denied, U.S. , 113 S. Ct. 2338, 124 L. Ed. 2d 249 (1993).
Other jurisdictions, interpreting statutes dealing with Dissenting shareholder rights, have allowed stockholders to bring actions for fraud and breach of fiduciary duty, despite an appraisal remedy. See Kademian v. Ladish Co., supra, 792 F.2d at 628-30. See also Dowling v. Narragansett Capitol Corp., supra, 735 F. Supp. at 116.
In Mullen v. Academy Life Ins. Co., 705 F.2d 971, 974 (8th Cir.), cert. denied sub. nom. Beausang v. Mullen, 464 U.S.827, 104 S. Ct. 101, 78 L. Ed. 2d 105 (1983), the court, citing Berkowitz v. Power/Mate Corp., 135 N.J. Super. 36, 43-50, 342 A.2d 566 (Ch. Div. 1975), where our chancery court permitted minority shareholders to sue the majority for breach of fiduciary duty in connection with a merger, noted that New Jersey had not adopted the position of Breed v. Barton, supra. Thus, the Mullen court concluded: "New Jersey would be more likely to follow the lead of courts which have held appraisal not to be exclusive . . . even where the applicable statutes apparently specify appraisal as the exclusive remedy for Dissenters." Mullen, supra, 705 F.2d at 974.
We need no
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