Friday, September 30, 2011

Upcoming from the Kentucky Supreme Court - Valuation in Dissenter Rights Actions

Upcoming from the Kentucky Supreme Court -
Valuation in Dissenter Rights Actions

Shawnee Telecom, Inc. v Kathy Brown, 2009-SC-000574-DG, was argued to the Supreme Court on April 13, 2011.  This case will provide guidance on whether or not a marketability discount may be applied in valuing the shares of a dissenting shareholder.
In Ford v. Courier-Journal Job Printing Co., Inc., 639 S.W.2d 553 (Ky. App. 1982), the Court permitted a 25% discount on the shares held by a dissenter from a sale of substantial (but not all) corporate assets.  No published decision again reviewed the point until 2009.
That case was Shawnee Telecom, Inc. v. Kathy Brown, 2009 WL 2475269 (Ky. App. 2009).  In this opinion, designated “Not to be Published,” the Court of Appeals reversed the trial court for permitting a 25% discount of Brown’s shares, she having dissented from the terms of a squeeze out merger.  Quoting a decision of the Delaware Supreme Count, the Court of Appeals wrote:
To fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders.
After the Court of Appeals’ ruling in Shawnee Telecom, an en banc decision of the Court of Appeals expressly overruled the Ford decision.  Brooks v. Brooks Furniture Mfgrs., Inc., 325 S.W.3d 904 (2010).
The Brooks case, like Shawnee Telecom, involved a squeeze merger.  Curiously, it was Shawnee Telecom, an unpublished and unanimous decision of the Court of Appeals, and not the published en banc ruling in Brooks from which there was a dissent, that was appealed to the Kentucky Supreme Court.  Likewise it is curious that it is the rather more cursory Shawnee Telecom decision, as contrasted with the significantly more in-depth analysis in the Brooks opinion, that comes before the high court.

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