1. Why were dissenters’ rights statutes enacted?

2. What does “fair value” mean, and how is it determined?

3. Do you believe that TFL’s expert attempted to fairly value the stock, or did he simply draft figures to support what the corporation asserted was fair value, $33.84? Is this ethical? How does it square with his oath as a witness to “tell the whole truth”?

The Trapp Family Lodge, Inc. (TFL), was incorporated in 1962 as a holding company for certain assets of the Von Trapp family, including the Trapp Family Lodge, a resort hotel complex located in Stowe, Vermont, and other assets including certain royalty rights related to the family’s story as portrayed in a Broadway musical and movie. A majority of TFL shareholders approved a merger with a new corporation in 1994, and the merger took place on January 28, 1995. The dissenting shareholders, holding 75,629 of the corporation’s 198,000 outstanding shares, were paid $33.84 per share as fair value by the TFL board of directors. The dissenting shareholders brought suit seeking a higher price as fair value. After the trial court set the fair value of $63.44, TFL appealed.

JUDICIAL OPINION

JOHNSON, J.… Under the statute, a shareholder of a Vermont corporation who dissents from certain enumerated corporate actions, including consummation of a plan of merger, is entitled to obtain from the corporation payment of the “fair value” of his or her shares. Section 13.01(3) defines “fair value” to mean “the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.” This definition mirrors the definition of “fair value” in the Model Business Corporation Act. See Model Bus. Corp. Act § 13.01 (1978). The official comment to the Model Act indicates that this broad definition “leaves untouched the accumulated case law” on the various methods of determining fair value.

Dissenters’ rights statutes were enacted in response to the common-law rule that required unanimous consent from shareholders to make fundamental changes in a corporation. See Hansen v. 75 Ranch Co., 957 P.2d 32, 37 (Mont.1998). Under this rule, minority shareholders could block corporate change by refusing to cooperate in hopes of establishing a nuisance value for their shares. In response, legislatures enacted statutes authorizing corporate changes by majority vote. See Hansen, 957 P.2d at 37. To protect the interests of minority shareholders, the statutes generally permitted a dissenting minority to recover the appraised value of its shares. Most recent statutes allow dissenting shareholders to demand that the corporation buy back shares at fair value.

The basic concept of fair value under a dissenters’ rights statute is that the stockholder is entitled to be paid for his or her “proportionate interest in a going concern.” Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del.1983); accord In re Valuation of Common Stock of McLoon Oil Co., 565 A.2d 997, 1004 (Me.1989); Friedman v. Beway Realty Corp., 87 N.Y.2d 161, 638 N.Y.S.2d 399, 661 N.E.2d 972, 976 (1995). The focus of the valuation “is not the stock as a commodity, but rather the stock only as it represents a proportionate part of the enterprise as a whole.” McLoon Oil, 565 A.2d at 1004. Thus, to find fair value, the trial court must determine the best price a single buyer could reasonably be expected to pay for the corporation as an entirety and prorate this value equally among all shares of its common stock. See id. Under this method, all shares of the corporation have the same fair value. See id.  …………