Farnsworth v. Massey
365 S.W.2d 1 (1963)
Rule of Law:
The appointment of an appraiser under the Business Corporation Act to determine the fair value of dissenting shares is a procedural aid to the court, not a jurisdictional prerequisite. Furthermore, while special damages may be recovered in addition to statutory fair value, they require proper pleading and proof and cannot be based on corporate actions expressly authorized by law.
Facts:
- Petitioner owned corporate stock in the 'Old Companies'.
- Respondent Massey and others allegedly engaged in a conspiracy to defraud Petitioner of the value of his corporate stocks.
- The 'Old Companies' sold their assets.
- More than four-fifths of the outstanding shares of the 'Old Companies' authorized the disposal of the corporation's assets.
- Petitioner was the only dissenting shareholder regarding the sale of assets.
- Petitioner was prevented from obtaining a stock interest in the 'New Companies' that would correspond to his interest in the 'Old Companies'.
- Petitioner did not secure the appointment of an appraiser to fix the value of his shares as outlined in the Business Corporation Act.
- Petitioner's complaints of fraud were based on the actions of the majority stockholders in selling the assets to the 'New Companies' and preventing his corresponding interest.
Procedural Posture:
- Petitioner filed a suit in a District Court of Harris County, Texas (trial court), seeking damages for conspiracy to defraud and, alternatively, the fair value of his corporate shares under the Business Corporation Act.
- After a trial before a jury, the trial court rendered judgment for Petitioner for $312,000 (the fair value of his stock as found by the jury).
- The trial court refused to render judgment for Petitioner for $54,000 in fraud and conspiracy damages, despite the jury having found such damages.
- Defendants appealed to the Court of Civil Appeals (intermediate appellate court).
- The Court of Civil Appeals held that the trial court lacked jurisdiction to determine the fair value of Petitioner’s stock and found Petitioner was bound to accept the value of $151,529.27 as set by the 'Old Companies'.
- The Court of Civil Appeals also held that Petitioner was entitled to recover on his fraud and conspiracy claim and rendered judgment for $54,000 in damages, resulting in a total recovery awarded to Petitioner of $205,529.27.
- All parties (Petitioner and Defendants) filed applications for writ of error to the Supreme Court of Texas.
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Issue:
1. Does the failure to secure the appointment of an appraiser, as outlined in the Business Corporation Act, divest a trial court of jurisdiction to determine the fair value of a dissenting shareholder's stock? 2. Can a dissenting shareholder recover special damages in addition to the statutory fair value of their shares if the corporate action forming the basis of the claim was expressly authorized by law?
Opinions:
Majority - Griffin, Justice
No, the failure to appoint an appraiser does not divest a trial court of jurisdiction to determine the fair value of a dissenting shareholder's stock. Furthermore, while special damages may be recovered in a proper case in addition to statutory fair value, they were not recoverable in this instance due to a lack of proper pleading and proof, and because the complained-of corporate action was authorized by law. The Court reasoned that the Business Corporation Act's provisions, specifically Paragraphs A and B, outline preliminary steps which, if taken, establish the district court's jurisdiction to determine fair value. The appointment of an appraiser under Paragraph C is merely an aid to the court, not a jurisdictional requirement, as the court retains ultimate responsibility for determining fair value and hearing exceptions to an appraiser's report. The statute lists specific shareholder derelictions that bind them to corporate action, and failure to appoint an appraiser is not one. Additionally, the defendants waived the right to insist on an appraiser's appointment by failing to file a plea in abatement before trial. Regarding special damages, the Court acknowledged that the Act does not forbid their recovery where the 'fair value' would not fully compensate a dissenting shareholder for actual loss (e.g., if fraud depressed share value prior to sale). However, Petitioner's claim for special damages failed due to a lack of pleading and proof. The corporate actions central to Petitioner's fraud claims, such as the sale of assets by a four-fifths majority, are expressly permitted by law and thus cannot form the basis for a claim for damages.
Analysis:
This case clarifies the procedural, rather than jurisdictional, nature of an appraiser's appointment in dissenting shareholder valuation disputes, emphasizing that courts retain inherent authority to determine fair value once preliminary statutory steps are met. It also delineates the circumstances under which special damages may be recovered alongside statutory fair value, establishing that such claims must be properly pleaded and proven, and cannot rely on corporate actions that are expressly authorized by statute. This ruling ensures that minor procedural deviations do not undermine a court's ability to provide a statutory remedy, while also limiting common law claims for damages when corporate conduct aligns with legislative mandates, thus impacting future cases involving corporate reorganizations and shareholder rights.
