Piemonte v. New Boston Garden Corp.
377 Mass. 719, 387 N.E.2d 1145 (1979)
Rule of Law:
The 'fair value' of dissenting shareholders' stock in a merger appraisal proceeding is determined by weighing market value, earnings value, and net asset value, allowing judicial discretion in determining and weighting these factors, but requiring the judge to exercise independent judgment rather than feeling 'constrained' by expert testimony.
Facts:
- The plaintiffs were stockholders in Boston Garden Arena Corporation (Garden Arena).
- On July 19, 1973, Garden Arena's stockholders voted to merge with the defendant corporation, entitling dissenting shareholders to appraisal rights.
- On July 18, 1973 (the day preceding the merger vote), Garden Arena owned all stock in a subsidiary that held an NHL franchise (Boston Bruins) and an AHL franchise (Boston Braves).
- Garden Arena also owned and operated Boston Garden Sports Arena, an indoor auditorium for sporting and entertainment events.
- Garden Arena owned a corporation that operated the food and beverage concession at the Boston Garden.
- Garden Arena purchased the Boston Garden on May 25, 1973, for $4,000,000, after previously holding a long-term lease for the property that was unfavorable to the owner.
- The public announcement of the proposed merger was made on December 7, 1972.
- The last sale of Garden Arena stock prior to the merger announcement occurred on December 4, 1972, at $26.50 per share.
Procedural Posture:
- Plaintiffs, as stockholders entitled to appraisal, commenced an action in a trial court under G. L. c. 156B, § 90, seeking a judicial determination of the 'fair value' of their shares following a corporate merger.
- The trial judge determined the fair value of the plaintiffs' stock.
- Both the plaintiffs and the defendant appealed from the trial judge's judgment.
- The Supreme Judicial Court of Massachusetts granted the defendant's application for direct appellate review.
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Issue:
Does the 'Delaware block approach,' which considers and weights market value, earnings value, and net asset value, constitute an acceptable procedure for determining the 'fair value' of dissenting shareholders' stock under Massachusetts appraisal statutes, and did the trial court properly apply this approach?
Opinions:
Majority - Wilkins, J.
Yes, the judge's application of the Delaware block approach was essentially correct as a method for valuing dissenting shares, but the case must be remanded for further consideration of the valuation of the Boston Garden, the Bruins franchise, and the concession operation. The court affirmed that Massachusetts appraisal statutes, while based on Delaware law, do not compel adherence to all Delaware judicial interpretations and upheld the general approach of considering market value, earnings value, and net asset value. The court approved the judge's discretion in determining market value, the earnings multiplier, and the weighting of the three valuation components (10% market value, 40% earnings value, 50% net asset value), especially given the thin trading of the stock. However, the judge erred by indicating he felt 'constrained' to accept the defendant's expert valuation of the Bruins franchise and by accepting the plaintiffs' expert valuation of the concession operation merely because no other evidence was offered, which demonstrated a possible misconstruction of his judicial authority to make an independent factual determination. The court also found no abuse of discretion in including expansion income in earnings or in awarding 8% per annum compounded interest.
Analysis:
This case solidified the 'Delaware block approach' as the appropriate framework for stock appraisal in Massachusetts, emphasizing the court's discretion in valuing and weighting the components. However, it also clarified a critical limit on that discretion: a judge must exercise independent judgment and not feel bound or 'constrained' by expert testimony simply due to a lack of competing evidence. This ruling provides important guidance for trial courts in conducting fair value appraisals, ensuring that while expert testimony is crucial, the ultimate determination remains a judicial one, preventing the judge from merely rubber-stamping an expert's opinion.
