Fleming v. International Pizza Supply Corp.

676 N.E.2d 1051, 1997 Ind. LEXIS 17, 1997 WL 86329
CourtIndiana Supreme Court
DecidedMarch 3, 1997
Docket49S02-9703-CV-166
StatusPublished
Cited by28 cases

This text of 676 N.E.2d 1051 (Fleming v. International Pizza Supply Corp.) is published on Counsel Stack Legal Research, covering Indiana Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fleming v. International Pizza Supply Corp., 676 N.E.2d 1051, 1997 Ind. LEXIS 17, 1997 WL 86329 (Ind. 1997).

Opinion

SULLIVAN, Judge.

We address whether the legislature’s response to our decision in Gabhart v. Gabhart, 267 Ind. 370, 370 N.E.2d 345 (1977), precludes a dissenting shareholder from bringing separate actions for breach of fiduciary duty and fraud when statutory appraisal remedies are available.

Background

Kenneth W. Fleming and Peter Jensen formed International Pizza Supply Corporation under the Indiana Business Corporation Law, Ind.Code § 23-1-17-1 et seq. (the “BCL”), in 1988. Jensen was issued a majority of the shares. In 1991, Jensen voted his shares in favor of a transaction in which the corporation sold all or substantially all of its assets pursuant to the asset sale chapter of the BCL, Ind.Code § 23-1-41. 1 Fleming advised the corporation that he dissented from the sale and demanded payment for the fair value of his shares pursuant to the dissenters’ rights chapter of the BCL, Ind.Code § 23-1-44. Litigation ensued and Fleming also sought, in addition to payment for his shares under the appraisal provisions of the statute, compensatory and punitive damages from Jensen, the corporation, and other defendants 2 for breach of fiduciary duty with regard to the asset sale (Count IV); for breach of fiduciary duties and duties to protect reasonable expectations in the operation of the business (Count V); and for fraud in the operation of the business (Count VI). 3 Defendants sought summary judgment on these three counts, arguing that under the dissenters’ rights chapter of the BCL, specifically Ind.Code § 23-l-8(c), appraisal was Fleming’s exclusive remedy. The trial court agreed and this interlocutory appeal followed.

The Court of Appeals reversed the trial court. In its thoughtful opinion, the appellate court examined the legislature’s reaction to Gabhart v. Gabhart, an important decision of this court construing the remedies of a shareholder dissenting from a merger under the terms of the Indiana General Corporation Act, Ind.Code § 23-1-1-1 et seq. (repealed) (the “GCA”). The legislature replaced the GCA with the BCL in 1986 and part of what is at issue in the case before us is the effect the adoption of the BCL had on the remedies of a dissenting shareholder enunciated in Gabhart.

Discussion

I

This court’s decision in Gabhart and the legislature’s response to it represent two important chapters in the history of Indiana corporate law, chapters worth reviewing with some care prior to deciding the question presented by this case.

The Gabhart litigation was the result of a dispute arising from the apparent effort of four shareholders who collectively owned a majority of a corporation to acquire all of the shares of the fifth shareholder. When extended efforts to purchase the fifth shareholder’s interest proved unsuccessful, the majority shareholders invoked the merger provisions of the GCA. A new corporation owned by the majority shareholders was formed and the previously existing corporation was merged into it. Under the terms of the merger, the new corporation was to assume all of the property, rights, and liabili *1053 ties of the previously existing corporation, and the five shareholders of the previously existing corporation were to surrender their shares in return for payment. Under the GCA, a shareholder in a merging corporation was provided the right for thirty days after the approval of the merger to object to the merger and demand payment of the value of the shares. But a shareholder who did not invoke this appraisal remedy was “conclusively presumed to have assented to” the merger. The fifth shareholder in Gabhart did not exercise these appraisal rights. Instead, the shareholder filed suit in federal court alleging that the merger agreement was intentionally misleading, that the four majority shareholders knew the notices of the merger sent to the plaintiff were not likely to reach the plaintiff in time, and that the sole purpose of the merger was to eliminate the plaintiff as a shareholder. Gabhart, 267 Ind. at 374-376, 370 N.E.2d at 348-350.

When the Gabhart case reached the United States Court of Appeal for the Seventh Circuit, the court rejected the plaintiffs claim of fraudulent misrepresentation and failure to comply with the formal requirements of the GCA. Gabhart, 267 Ind. at 377, 370 N.E.2d at 350. But the court found several issues on which it felt it needed the guidance of this court. It certified three questions to us which probed the extent to which the plaintiffs sole remedy was to object to the merger and demand payment for the value of the shares within the prescribed time limits. Specifically, the Seventh Circuit asked us whether, notwithstanding the appraisal remedy, the plaintiff could:

1. [Ajttack the merger under Indiana law on the ground that it was not motivated by a valid business purpose?
2. [Pjrosecute a derivative action, filed after the approval but before the effective date of the merger, against the Merging Company or its successor?
3. If the minority shareholder’s derivative action can be maintained as such and damages are recovered for the corporation in that action, ... recover in that proceeding his pro rata share of the damages?

Gabhart, 267 Ind. at 379-380, 370 N.E.2d at 351-352.

In answering question no. 1, we found that the “object and demand” appraisal procedure in the GCA had been designed by the legislature to supersede the old common law appraisal procedure of enjoining the merger. 267 Ind. at 383, 370 N.E.2d at 353. The legislature had not, we decided, either authorized or prohibited the elimination of minority interests in a merger not having a legitimate corporate purpose. 267 Ind. at 387, 370 N.E.2d at 355. We reached the conclusion that a corporate transaction, though structured as a merger, which had no valid purpose (which we defined “to mean a purpose intended to advance a corporate interest”) should be treated as a corporate dissolution, not a merger. And we pointed out that minority shareholders whose equity would be eliminated or reduced “may enjoin a dissolution to be effected by procedures other than those provided by statute for that purpose.” 267 Ind. at 388, 370 N.E.2d at 356.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

William R. Lee Irrevocable Trust v. Lee (In Re Lee)
898 F.3d 768 (Seventh Circuit, 2018)
Fundamental Partners v. Eggemeyer CA4/1
California Court of Appeal, 2014
Lees Inns of America, Inc. v. William R. Lee Irrevocable Trust
924 N.E.2d 143 (Indiana Court of Appeals, 2010)
Long v. Biomet, Inc.
901 N.E.2d 37 (Indiana Court of Appeals, 2009)
Sound Infiniti, Inc. ex rel. Pisheyar v. Snyder
145 Wash. App. 333 (Court of Appeals of Washington, 2008)
Sound Infiniti, Inc. v. Snyder
186 P.3d 1107 (Court of Appeals of Washington, 2008)
Appleton Acquisition v. National Housing Partnership
886 N.E.2d 144 (New York Court of Appeals, 2008)
McMinn v. MBF Operating, Inc.
2006 NMCA 049 (New Mexico Court of Appeals, 2006)
Bingham Consolidation Co. v. Groesbeck
2004 UT App 434 (Court of Appeals of Utah, 2004)
Murray v. Conseco, Inc.
766 N.E.2d 38 (Indiana Court of Appeals, 2002)
Shepard v. Meridian Ins. Group, Inc.
137 F. Supp. 2d 1096 (S.D. Indiana, 2001)
G & N AIRCRAFT, INC. v. Boehm
743 N.E.2d 227 (Indiana Supreme Court, 2001)
Galligan v. Galligan
741 N.E.2d 1217 (Indiana Supreme Court, 2001)
Young v. General Acceptance Corp.
738 N.E.2d 1079 (Indiana Court of Appeals, 2000)

Cite This Page — Counsel Stack

Bluebook (online)
676 N.E.2d 1051, 1997 Ind. LEXIS 17, 1997 WL 86329, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fleming-v-international-pizza-supply-corp-ind-1997.