HMO-W Incorporated v. SSM Health Care System

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2000 WI 46 SUPREME COURT OF WISCONSIN Case No.: 98-2834 Complete Title of Case: HMO-W Incorporated,, a Wisconsin corporation, Plaintiff-Respondent-Petitioner, v. SSM Health Care System, a foreign corporation, Defendant-Appellant-Cross Petitioner, Neillsville Clinic, S.C., a Wisconsin corporation, Defendant. REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at: 228 Wis. 2d 815, 598 N.W.2d 577 (Ct. App. 1999-Published) Opinion Filed: Submitted on Briefs: Oral Argument: June 7, 2000 April 11, 2000 Source of APPEAL COURT: COUNTY: JUDGE: Circuit Sauk James Evenson JUSTICES: Concurred: Dissented: Not Participating: BABLITCH, J. did not participate ATTORNEYS: For the plaintiff-respondent-petitioner there were briefs by Thomas M. Pyper, Theresa M. Hottenroth and Whyte Hirschboeck Dudek, S.C., Madison, and Elizabeth Bartlett and Blue Cross & Blue Shield United of Wisconsin, Milwaukee, and oral argument by Thomas M. Pyper. For the defendant-appellant-cross petitioner there were briefs by Earl H. Munson and La Follette Sinykin, LLP, Madison, and Peter B. Ritz and Ritz & Caflisch, S.C., Madison, and oral argument by Earl H. Munson. 2000 WI 46 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 98-2834 STATE OF WISCONSIN : IN SUPREME COURT HMO-W Incorporated, a Wisconsin corporation, FILED JUN 7, 2000 Plaintiff-Respondent-Petitioner, Cornelia G. Clark Clerk of Supreme Court Madison, WI v. SSM Health Care System, a foreign corporation, Defendant-AppellantCross Petitioner, Neillsville Clinic, S.C., a Wisconsin corporation, Defendant. REVIEW of a decision of the Court of Appeals. ¶1 ANN WALSH BRADLEY, J. HMO-Wisconsin Affirmed. (HMO-W) seeks review of that part of a published court of appeals decision that reversed a circuit minority 1 discount in court this judgment dissenters' and rights order applying action.1 a HMO-W HMO-W Inc. v. SSM Health Care Sys., 228 Wis. 2d 815, 598 N.W.2d 577 (Ct. App. 1999)(affirming in part, reversing in part the judgment and order of the Circuit Court for Sauk County, James Evenson, J., and remanding the cause with directions). No. 98-2834 contends that the court of appeals erred when it precluded the application of minority discounts in determining the fair value of dissenters' shares. We agree with the court of appeals and conclude that minority discounts may not be applied to determine the fair value of dissenters' shares in an appraisal proceeding. ¶2 SSM Health Care System (SSM) seeks cross-review of that part of the court of appeals decision affirming the circuit court's determination of the value of HMO-W's net assets. SSM asserts that HMO-W's unfair dealing should be considered when determining the fair value of SSM's shares and that the circuit court should have bound HMO-W to its initial represented value of the corporation's net assets. We determine that a court may consider evidence of unfair dealing as it affects the value of a dissenter's shares and that the circuit court properly addressed unfair dealing in rendering its determination of HMO-W's net value. ¶3 Accordingly, we affirm the court of appeals. The appraisal action at the center of this review represents the culmination of a relationship between HMO-W and SSM that spanned more than a decade. In 1983, SSM and a number of other health care providers formed HMO-W as a provider-owned health care system. All shareholders assumed minority status in this closely held corporation. SSM and the Neillsville Clinic, another shareholder, together owned approximately twenty percent of HMO-W's shares. ¶4 By the early 1990's, competitive pressures from within the health care business led HMO-W to explore the possibility of merging with another health care 2 system. SSM recommended No. 98-2834 DeanCare Health Plan (DeanCare), a company with which SSM had close connections, as a potential merger partner. eliminated DeanCare from consideration after HMO-W later having met with company representatives numerous times to discuss a partnership deal. HMO-W instead proposed a joint venture with United Wisconsin Services (United). ¶5 Before shareholder approval of the merger, HMO-W retained Valuation Research Corporation (VR) to value HMO-W's net assets both prior to and upon the merger. VR prepared a final valuation report that HMO-W accepted and which estimated the company's net value to fall within the range of $16.5 to $18 million. ¶6 Subsequently, HMO-W's board of directors voted to approve the proposed merger with United and to submit the merger to a shareholder vote. materials sent to the In addition to the VR report, the proxy shareholders informed statutory right to dissent to the merger. them of their At the shareholder meeting, both SSM and the Neillsville Clinic voted against the proposed merger. ¶7 The merger was nevertheless approved. Both SSM and the Neillsville Clinic then perfected a demand for the payment of their dissenting shares. § 180.1323 (1997-98).2 Wis. Stat. Abandoning the VR report, HMO-W hired a new appraiser to value its assets. The appraiser arrived at a valuation of approximately $7.4 million, and based upon this 2 All subsequent references to the Wisconsin Statutes are to the 1997-98 volumes unless otherwise indicated. 3 No. 98-2834 valuation, HMO-W sent SSM a check for almost $1.5 million as the value of shares, SSM's SSM shares. Disputing informed the company HMO-W's that valuation SSM's of fair the value calculation of its shares yielded a figure of approximately $4.7 million. ¶8 a Pursuant to Wis. Stat. § 180.1330(1), HMO-W instituted special proceeding dissenting shares. to determine the fair value of the In response, SSM asserted that HMO-W was estopped from claiming a company value that was lower than the $16.5 to $18 million value it had represented to the the net shareholders prior to the merger vote. ¶9 At trial, value of HMO-W. several experts testified as to HMO-W's expert testified that the company's value immediately prior to the merger was $10,544,000. expert submitted the value as $19,250,000. SSM's The circuit court accepted the valuation offered by HMO-W's expert, noting various flaws in the earlier VR report that called into question the accuracy of that report. ¶10 Upon dissenters' accepting minority HMO-W's status, valuation the circuit and observing court applied the a minority discount of 30% to the value of the dissenting shares 4 No. 98-2834 but refrained from applying a lack of marketability discount.3 The circuit court concluded that it was required to apply the minority discount as a matter of law. The court then ordered SSM and the Neillsville Clinic to repay with interest the amount by which HMO-W's initial payment exceeded the court's fair value determination. ¶11 SSM filed a post-decision motion requesting the court to clarify whether it had considered SSM's argument that HMO-W be estopped from asserting at the appraisal proceeding a substantially lower value of its assets than the value set forth in the initial VR report. In response, the court issued an order stating that it had considered SSM's arguments and that it was affirming its prior decision in HMO-W's favor. SSM appealed. ¶12 The court of appeals affirmed in part and reversed in part, remanding the case for a fair value determination without the application of a minority discount. It held as a matter of law that the Wisconsin statutes governing dissenters' rights do not allow minority discounts to be applied in determining the 3 A minority discount addresses the lack of control over a business entity on the theory that non-controlling shares of stock are not worth their proportionate share of the firm s value because they lack voting power to control corporate actions. Lawson Mardon Wheaton, Inc. v. Smith, 734 A.2d 738, 747 (N.J. 1999). A lack of marketability discount adjusts for a lack of liquidity in one s interests in a firm, on the theory that there is a limited supply of potential buyers in closely held corporations. Id. The type of discount at issue in this case is the minority discount, and thus we do not address the applicability of a lack of marketability discount under the statute. 5 No. fair value of a dissenter's shares. 98-2834 HMO-W Inc. v. SSM Health Care Sys., 228 Wis. 2d 815, 827, 598 N.W.2d 577 (Ct. App. 1999). ¶13 The court reasoned that minority discounts frustrate the purpose of dissenters' rights statutes, which protect the rights of shareholders to voice objection to corporate actions and to receive an equitable value for their minority shares. Id. However, the court of appeals affirmed the circuit court's determination as to HMO-W's net asset value. It concluded that SSM had failed to prove harm in reliance on the VR report that initially valued HMO-W's net assets at $16.5-$18 million. Id. at 828-29. ¶14 Two issues are currently presented for review, both are issues of first impression for this court. and Initially we address the issue of whether a minority discount may apply in determining inquiry the fair involves question of law. value of statutory a dissenter's interpretation shares. and This presents a Jefferson County v. Renz, 231 Wis. 2d 293, 301, 603 N.W.2d 541 (1999). Second, we address whether a court in making its fair value determination may consider evidence of unfair dealing relating to the value of the dissenter's shares. This also presents a question of law. We review questions of law independently of the legal conclusions of the circuit court and the court of appeals. Deutsches Land, Inc. v. City of Glendale, 225 Wis. 2d 70, 79-80, 591 N.W.2d 583 (1999). ¶15 provides presently Tracing the evolution of dissenters' appraisal rights a context before for this the discussion court. At 6 of common the law, two issues unanimous No. shareholder consent corporate changes. was required to achieve 98-2834 fundamental Voeller v. Neilston Warehouse Co., 311 U.S. 531, 536 n.6 (1941); Fontaine v. Brown County Motors Co., 251 Wis. 433, 437, 29 N.W. 744 (1947). Courts and legislatures questioned the wisdom of allowing one shareholder to frustrate changes deemed desirable and profitable by the majority and thus modified tradition by authorizing majority consent. Mary Siegel, Back to the Future: Appraisal Rights in the Twenty-First Century, 32 Harv. J. on Legis. 79, 87 (1995). ¶16 Although permitting the majority to approve fundamental changes was viewed as a solution to the potential stalemate attendant to a requirement of corporate unanimity, majority consent nevertheless opened the door to victimization of the minority. 24 (Neb. 1994). statutes to Rigel Corp. v. Cutchall, 511 N.W.2d 519, 523In address response, legislatures minority victimization dissenters appraisal rights for their shares. widely by adopted affording Voeller, 311 U.S. at 536 n.6. ¶17 The appraisal remedy has its roots in equity and serves as a quid pro quo: minority shareholders may dissent and receive a fair value for their relinquishing their veto power. shares in exchange for In re Valuation of Common Stock of McLoon Oil Co., 565 A.2d 997, 1004 (Me. 1989); Barry M. Wertheimer, The Shareholders' Appraisal Remedy and How Courts Determine Fair Value, 47 Duke L.J. 613, 619 (1998) (hereinafter Wertheimer). Appraisal thus grants protection to the minority 7 No. 98-2834 from forced participation in corporate actions approved by the majority. ¶18 to Wisconsin law currently allows a minority shareholder dissent from a fundamental corporate action, such as a merger, and to receive the fair value of those minority shares. Wisconsin Stat. § 180.1302(1) states that except in certain statutorily defined circumstances, "a shareholder or beneficial shareholder may dissent from, and obtain payment of the fair value of his or her shares in the event of [a merger or other enumerated corporate actions]." dissatisfaction with the payment If the shareholder expresses of shares offered by the corporate entity and complies with the appropriate procedures, a corporation may institute a special proceeding and petition the court to make a binding determination as to the fair value of the shares. See Wis. Stat. §§ 180.1328, 180.1330, and 180.1302(1). ¶19 We turn now to address the first issue: whether a minority discount may apply in determining the fair value of a dissenter's shares. This issue presents a question of statutory interpretation, and we examine first the statutory language to discern legislative intent. State v. Setagord, 211 Wis. 2d 397, 406, 565 N.W.2d 506 (1997). If the language is clear, we need not look beyond the statutory language to determine that intent. Id. If the statute is ambiguous, however, we resort to such extrinsic aids as legislative history and statutory purpose for guidance. McDonough v. State Dept. of Workforce Dev., 227 Wis. 2d 271, 277, 595 N.W.2d 686 (1999). 8 No. ¶20 98-2834 The definition of fair value set forth in Wis. Stat. § 180.1301(4) provides: "Fair value", with respect to a dissenter's shares other than in a business combination, means 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. "Fair value", with respect to a dissenter's shares in a business combination, means market value, as defined in s. 180.1130(9)(a)1. to 4.4 ¶21 HMO-W maintains that under the clear language of Wis. Stat. § 180.1301(4), the circuit court retains the discretion to apply a minority discount in appropriate circumstances by valuing the dissenter's shares as a minority block of shares. Because the language is silent as to the applicability of a minority discount, there is no indication that the legislature aimed to curtail the court's discretion. HMO-W claims that the legislature would have so stated had it intended to impose a blanket prohibition against such a discount. ¶22 Although HMO-W advances a statutory interpretation permitting circuit court discretion, it fails, however, to offer a standard by which this discretion should be exercised. HMO-W does not definitively set forth any guidelines to contour the discretion it contends is inherent in the statute, including 4 A business combination is a sale, merger, or share exchange between a public corporation and a significant shareholder or an affiliate of the significant shareholder. Wis. Stat. § 180.1130(3). It is undisputed by both parties that the transaction at issue in this case does not qualify as a business combination. 9 No. 98-2834 when a circuit court may apply a minority discount and how much of a discount the court should apply. ¶23 SSM also argues that Wis. Stat. § 180.1301(4) is unambiguous, yet maintains that the clear words of the statute reflect an opposite intent. It asserts that the legislature intended to prohibit the application of a minority discount by its chosen words. The juxtaposition of the term "fair value" in the first statutory sentence with "market value" as it relates to business combinations in the second sentence leads SSM to conclude that the legislature envisioned two distinct valuation approaches. Each approach is based on the type of shareholder asserting dissenters' rights in any particular corporate action. ¶24 value to According mean combinations to SSM, market reflects the value the separate in the legislative definition context intent to of of fair business define fair value for shares of non-business combinations without equating the term with fair market value.5 Because a minority discount 5 "Fair market value" represents the amount for which property will sell upon negotiations in the open market between an owner willing but not obliged to sell and a buyer willing but not obliged to buy. Rosen v. City of Milwaukee, 72 Wis. 2d 653, 661, 242 N.W.2d 681 (1976). As commentators have noted: "Fair value" is not the same as, or short-hand for, "fair market value." "Fair value" carries with it the statutory purpose that shareholders be fairly compensated, which may or may not equate with the market s judgment about the stock s value. This is particularly appropriate in the close corporation setting where there is no ready market for the shares and consequently no fair market value. 10 No. 98-2834 represents a market concept and is premised on the theory that controlling shares are worth more on the market than non- controlling shares, SSM contends that the legislature prohibited the application of a minority discount. ¶25 not We agree with SSM that the legislature clearly did intend value when to render fair appraising combination. value synonymous dissenters' shares with in a fair market non-business However, this conclusion does not lift the cloak of ambiguity. The words of the statute do not directly answer whether the application of a minority discount is permitted in determining the fair value of a dissenter's shares. statute is ambiguous with respect to the Because the applicability of a minority discount, we turn to extrinsic aids for interpretive guidance. ¶26 The parties have not advanced, nor does there appear to be, any legislative history that is instructive in resolving this issue. We therefore proceed to examine the underlying purpose of statutes governing dissenters' appraisal rights, the evident aim of which is to protect minority shareholders. ¶27 the Appraisal rights represent a legislative response to minority's consequential lack of vulnerability corporate to veto majority power and oppression. the To compensate for nominal control, the legislature granted minority Joseph W. Anthony & Karlyn V. Boraas, Betrayed, Belittled . . . But Triumphant: Claims of Shareholders in Closely Held Corporations, 22 Wm. Mitchell L. Rev. 1173, 1186 (1996). 11 No. 98-2834 shareholders the right to receive fair value for their shares if they objected to a particular corporate action. ¶28 Consistent with the statutory purpose in granting dissenters' rights, an involuntary corporate change approved by the majority requires as a matter of fairness that a dissenting shareholder be compensated for the loss of the shareholder's proportionate interest in the business as an entity. Oil, 565 A.2d at 1004. out" minority McLoon Otherwise, the majority may "squeeze shareholders to the economic advantage of the majority. ¶29 As the Delaware Supreme Court observed in the seminal case of Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1145 (Del. 1989): Where there is no objective market data available, the appraisal process is not intended to reconstruct a pro forma sale but to assume that the shareholder was willing to maintain his investment position, however slight, had the merger not occurred. . . . [T]o 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 who may reap a windfall from the appraisal process by cashing out a dissenting shareholder, a clearly undesirable result. ¶30 A minority discount based on valuing only the minority block of shares injects into the appraisal process speculation as to the myriad factors that may affect the market price of the block of shares. Id. Examining the purpose of dissenters' rights statutes, we conclude that the application of a minority discount in determining the fair value of a dissenter's shares 12 No. frustrates the equitable purpose to protect 98-2834 minority shareholders. ¶31 A dissenting stockholder proportionate interest of his or is her thus entitled minority to shares the in the going concern of the entire company. Weinberger v. UOP, Inc., 457 Although A.2d 701, 713 (Del. 1983). Wis. Stat. § 180.1301(4) defines "fair value" as "the value of the shares" immediately before the corporate action, the focus of fair 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. In re Shares of Common Stock of Trapp Family Lodge, Inc., 725 A.2d 927, 931 (Vt. 1999); MT Properties, Inc. v. CMC Real Estate Corp., 481 N.W.2d 383, 387 n.3 (Minn. Ct. App. interpretation and 1992). ¶32 HMO-W disputes our statutory contends that as a consequence of our interpretation, different classes of shareholders will be subject to disparate treatment. Drawing our attention to the stock market exception under Wis. Stat. § 180.1302(4), HMO-W asserts that shareholders in publicly traded companies, except those involved in business combinations, do not have the right of appraisal but rather must accept market price for their shares and an implicit discount based on minority status. ¶33 Furthermore, shareholders dissenting from a business combination for their shares notwithstanding their statutory appraisal rights. Wis. Stat. are also § 180.1301(4). subject HMO-W to the contends 13 market that value it is therefore No. inequitable to afford greater protection to 98-2834 shareholders of closely held corporations, as would be the unforeseen result of our interpretation of Wis. Stat. § 180.1301(4). ¶34 We address HMO-W's argument by noting that the language of the various statutes has created the disparity among certain classes of shareholders, in likely recognition of the difference between shareholders in public corporations shareholders like SSM in closely held corporations. Shishido, The Corporations, Fair of Minority Fordham 62 Value L. Rev. 65, Stock in 76-77 and See Zenichi Closely (1993). Held The legislature has also crafted a unique remedy for shareholders of a business combination, providing for a fair market value of their shares that is the highest sale price during the valuation period of 30 days prior to the combination. Wis. Stat. §§ 180.1130(9)(a), 180.1130(15). ¶35 The price of publicly traded shares generally rises upon the announcement of a proposed merger. See Michael C. Jensen & Richard S. Ruback, The Market for Corporate Control, 11 J. Fin. Econ. 5, 9-14 (1983). This inflated price often serves to offset the implicit discount based on market value. Indeed, at oral argument HMO-W acknowledged that dissenting shareholders of business combinations essentially receive a fair market value for their shares that is higher than market value. This is the statutory effect notwithstanding the use of the term "market value." Thus, we are not persuaded by HMO-W's argument that our interpretation of Wis. Stat. legislative intent. 14 § 180.1301(4) contravenes No. ¶36 98-2834 In rejecting the application of a minority discount, we join a significant number of jurisdictions that have likewise disavowed the minority discount.6 See Wertheimer, 47 Duke L.J. at 641-42 (noting that majority of courts have rejected minority discount). These courts have also concluded that a minority discount thwarts the purpose of dissenters' rights statutes to protect shareholders subjected to an involuntary corporate change. ¶37 Reasoning recognized that to against a minority apply such a discount, discount courts inflicts a have double penalty upon the minority shareholder and upsets the quid pro quo underlying dissenters' appraisal rights. The shareholder not only lacks control over corporate decision making, but also upon the application of a minority discount receives less than proportional value for loss of that control. ¶38 Although we note that other courts have applied a minority discount to value dissenters' shares in an appraisal proceeding, nearly all of the cases have preceded the Cavalier 6 See, e.g., Cavalier Oil Corp., 564 A.2d 1137 (Del. 1989); Rigel Corp. v. Cutchall, 511 N.W.2d 519 (Neb. 1994); In re Valuation of Stock of McLoon Oil Co., 565 A.2d 997 (Me. 1989); MT Properties, Inc. v. CMC Real Estate Corp., 481 N.W.2d 383 (Minn. Ct. App. 1992); Woolf v. Universal Fidelity Life Ins. Co., 849 P.2d 1093 (Okla. Ct. App. 1992); Friedman v. Beway Realty Corp., 661 N.E.2d 972 (N.Y. 1995); Richardson v. Palmer Broadcast Co., 353 N.W.2d 374 (Iowa 1984); In re Stock of Trapp Family Lodge, Inc., 725 A.2d 927 (Vt. 1999). See also Arnaud v. Stockgrowers State Bank, 992 P.2d 216 (Kan. 1999)(refusing to apply minority discount when minority shares acquired by corporation, and citing with approval jurisdictions disallowing minority discounts); accord Hansen v. 75 Ranch Co., 957 P.2d 32 (Mont. 1998). 15 No. Oil decision.7 98-2834 The rationale underlying the application of the minority discount set forth by these courts is that minority shares reflect impaired control in corporate decision making and therefore should be reduced in value. We find this rationale neither Rather, compelling underlying nor Cavalier discounts comports appraisal remedy equitable. Oil and more and the cases faithfully the purpose the rationale disallowing with the minority equity of an of protecting dissenting also consistent with shareholders. ¶39 approach Our interpretation adopted by The is American Law Institute (ALI) in the its Principles of Corporate Governance: Analysis and Recommendations (1994) (hereinafter ALI Principles). Section 7.22(a) provides that the fair value of shares should reflect the value of the shareholder's "proportionate without discount any extraordinary for circumstances, interest minority lack of in the status corporation, or, marketability." absent Id. at 314-15. ¶40 ALI Comment e to Section 7.22 further observes that the follows those jurisdictions 7 that require "the appraisal See, e.g., Armstrong v. Marathon Oil Co., 513 N.E.2d 776 (Ohio 1987); Atlantic States Constr., Inc. v. Beavers, 314 S.E.2d 245 (Ga. Ct. App. 1984); Perlman v. Permonite Mfg. Co., 568 F.Supp 222 (N.D. Ind. 1983); McCauley v. McCauley & Son, Inc., 724 P.2d 232 (N.M. Ct. App. 1986); King v. F.T.J., Inc., 765 S.W.2d 301 (Mo. Ct. App. 1988); Hernando Bank v. Huff, 609 F. Supp. 1124 (N.D. Miss. 1985), aff'd, 796 F.2d 803 (5th Cir. 1986); Stanton v. Republic Bank of S. Chicago, 581 N.E.2d 678 (Ill. 1991). 16 No. 98-2834 court to value the firm as a whole, not specific shares, and to allocate that value circumstances." proportionately, Id. at 324. absent extraordinary These extraordinary circumstances require more than an absence of a trading market in the shares. Rather, a determines court that should the apply dissenter the has exception held out only to when exploit it the transaction giving rise to appraisal so as to divert value to the dissenter that is not available to other shareholders. Id. at 325. ¶41 HMO-W introduces several cases in which a minority discount has been applied to determine the value of a minority See Arneson v. Arneson, 120 Wis. 2d shareholder's interest. 236, 355 N.W.2d 16 (Ct. App. 1984) (valuation in divorce context); Copland v. Wisconsin Dep't of Taxation, 16 Wis. 2d 543, 114 N.W.2d 858 (1962) (tax valuation); In re Estate of Gooding, 269 Wis. 496, 69 N.W.2d 586 (1955) (inheritance tax valuation). this By analogy, HMO-W asserts that the rejection of discount in appraising a dissenter's shares is thus improper. ¶42 However, the principles governing valuation of stock for tax or property division purposes may not be imported into the appraisal process. That is because the standard of valuation in any given context should reflect the purpose served by the law in that context. ALI Principles, Comment e to § 7.22 at 325. ¶43 valuation Certain and settings render may minority 17 require discounts more conservative wholly appropriate. No. Woodward v. Quigley, 133 N.W.2d 38, 44 (Iowa 1965). rights statutes serve a distinct purpose, 98-2834 Dissenters' however, and are designed specifically to protect minority shareholders who are involuntarily subjected to significant corporate changes. This underlying purpose has its roots in equity and therefore renders improper any extrapolation rooted purposes. from other contexts with varying Charles W. Murdock, The Evolution of Effective Remedies for Minority Shareholders and Its Impact Upon Valuation of Minority Shares, 65 Notre Dame L. Rev. 425, 471-72 (1990).8 ¶44 In sum, we conclude that Wis. Stat. § 180.1301(4) does not permit the application of a minority discount in determining the fair value of a dissenter's shares. A minority discount runs of contrary to the protective purpose the dissenters' rights statute by discounting a minority interest solely because it is the minority. ¶45 Having concluded that a minority discount may not apply in determining the fair value of a dissenter's shares, we turn next to the second issue: whether a fair value determination of a dissenter's shares may include consideration of unfair dealing in the valuation of those shares. SSM contends that in this appraisal proceeding, the circuit court 8 HMO-W also contends that the prohibition against a minority discount is intended to protect shareholders in a "squeeze out" situation, not when there is a voluntary exit as in the present case. We find no support for this contention in the language of the statute. Appraisal rights are not limited to dissenters who have been forced out of the corporation by the majority. See Rutheford B. Campbell, Jr., Fair Value and Fair Price in Corporate Acquisitions, 78 N.C.L. Rev. 101, 108-09 (1999). See also MT Properties, Inc., 481 N.W.2d at 388 n.5. 18 No. should have setting the considered company's HMO-W's net unfair value at dealing in $16.5-$18 initially million subsequently representing significantly lower values. to SSM, the court should have bound HMO-W 98-2834 to and According its initial represented value. ¶46 fiduciary We note at the outset that SSM has not pled breach of duty or sought damages based on such a breach. Rather, it states that the issue of unfair dealing is raised as an affirmative defense. SSM has relied on general principles of fiduciary duty to support its contention that HMO-W's unfair dealing should be considered in the valuation of SSM's shares. SSM has also maintained from the initial stage of this action that HMO-W should be estopped from claiming a lower value in this appraisal proceeding than the value established in the initial VR report that was submitted to the shareholders. ¶47 their Both parties rely primarily on Delaware law to support respective positions. HMO-W contends that SSM's allegation of unfair dealing may not be raised in a statutory appraisal proceeding but rather must be instituted in a separate action. Alabama By-Products Corp. v. Neal, 588 A.2d 255, 257 (Del. 1991). SSM counters that evidence of unfair dealing as it affects the value of SSM's shares may indeed be presented in an appraisal proceeding. ¶48 fraud or See Cavalier Oil, 564 A.2d at 1143-44. Wisconsin law has established that in the absence of breach of fiduciary duty, appraisal represents the exclusive remedy for a shareholder objecting to the valuation of shares under a plan of corporate merger. 19 Pritchard v. Mead, 155 No. 98-2834 Wis. 2d 431, 455 N.W.2d 263 (Ct. App. 1990) (examining statutory predecessor to current appraisal statute); Kademian v. Ladish Co., 792 F.2d 614 (7th Cir. 1986) (analyzing former Wisconsin appraisal statute). Appraisal is a limited remedy, and the dissenter in an appraisal proceeding may assert only a right to the fair value of the dissenter's shares. See Kademian, 792 F.2d at 630. ¶49 However, Wisconsin law has not shed light on whether evidence of unfair dealing and other misconduct in the valuation of a dissenter's proceeding. shares may be presented in an appraisal Furthermore, cases in this state have not addressed whether actions for fraud or breach of fiduciary duty must be brought as separate actions or may be consolidated with an appraisal proceeding. ¶50 Delaware appears to represent the jurisdiction that has most frequently addressed whether claims of misconduct and wrongdoing may be submitted in an appraisal action. Recognizing the limited scope of an appraisal proceeding, in which the only issue to be litigated remains the valuation of a dissenter's shares, Delaware has established that claims for fraud breach of fiduciary duty must be instituted separately. and Alabama By-Products, 588 A.2d at 257; Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1187-88 (Del. 1988). ¶51 The ALI, however, observes that no apparent reason exists as to why such actions may not be consolidated with an appraisal proceeding in the discretion Principles, Comment e to § 7.22 at 326. 20 of the court. ALI Endorsing the position No. 98-2834 that courts should not foster a separate and unnecessary damages forum, the ALI suggests that courts entertain claims of fraud or breach of fiduciary duty in the appraisal proceeding. 333-34 (Reporter's Note No. 5). Id. at Because we determine that the allegation of unfair dealing in this case directly relates to the issue of fair value, we need not answer the unresolved issue of consolidation. ¶52 When assertions of misconduct such as unfair dealing are intertwined with the value of shares subject to appraisal, a shareholder may make these assertions within the context of an appraisal action. Cavalier Oil, 564 A.2d at 1143. In Cavalier Oil, the court addressed a shareholder's allegation of corporate misconduct because, among other reasons, the allegation directly related to the fair value of his shares. ¶53 Id. A court determining the fair value of shares subject to appraisal must consider "all relevant factors." 457 A.2d at 713. dealing Weinberger, These factors may include evidence of unfair affecting the value of a dissenter's shares. Additionally, courts may examine wrongful actions in gauging or impeaching the credibility of majority shareholders with respect to their valuation contentions. Alabama By-Products, 588 A.2d at 257. ¶54 In this case, SSM's assertion of unfair dealing concerns the value of its shares. SSM neither disputes the legitimacy to merger of with invalidated. the United business nor purpose contends that be the served merger by HMO-W's should be Rather, SSM contends that HMO-W's unfair dealing 21 No. 98-2834 directly reduced the fair value of shares owned by SSM and that the appropriate remedy for HMO-W's unfair dealing should involve valuing the entity at the original net value advanced by HMO-W: $16.5-$18 million. Because the assertion of unfair dealing relates to the value of SSM's shares, we determine that it is a proper subject for consideration in this appraisal proceeding. ¶55 Having determined that SSM's allegation of unfair dealing may be raised in this appraisal action, we now conclude that the circuit court adequately considered the evidence of unfair dealing in rendering its fair value determination. A fair value determination is necessarily a fact-specific process. In re Trapp Family Lodge, 725 A.2d at 931 (quoting McLoon Oil, 565 A.2d at 1003). of fact unless We will not upset a circuit court's findings they are against preponderance of the evidence. the great weight and clear Cogswell v. Robertshaw Controls Co., 87 Wis. 2d 243, 250, 274 N.W.2d 647 (1979). ¶56 to SSM invokes principles of fiduciary duty and estoppel assert that HMO-W should be representation of its net asset value. bound to the initial Because HMO-W endorsed the VR report that it submitted as part of its proxy materials to shareholders, and as a result secured shareholder approval for the United merger, SSM contends that HMO-W cannot now subvert the appraisal process by disavowing the VR report. If HMO-W had reservations about the validity of the report, SSM claims that HMO-W was under a duty to inform its shareholders of potential flaws, particularly in light of the significance of the report in influencing shareholder approval. 22 No. ¶57 98-2834 According to SSM, HMO-W's actions in asserting lower values in the subsequent appraisal proceedings are evidence of unfair dealing because these actions reduced the fair value of SSM's shares. reflected in SSM its claims decision that to HMO-W's hire a unfair new dealing appraiser for was the purposes of maligning the VR report and consequently offering to SSM a significantly depressed value for its dissenting shares. In remedying HMO-W's unfair dealing, SSM urges this court to bind HMO-W to the initial representation of the company's value, thereby altering the fair value of SSM's dissenting shares. ¶58 We note that the circuit court addressed SSM's arguments of unfair dealing in the valuation of HMO-W. record reflects that the court examined all of the The relevant evidence, including the allegations of corporate misconduct. The court determined that HMO-W had not made a material misrepresentation to its shareholders and that the initial VR report contained several flaws. ¶59 Upon hearing testimony from three experts and the corporate officers of HMO-W, SSM, and United, the court rendered a decision accepting the valuation of HMO-W's second appraiser. We perceive no reason for the court to have relied solely on the value and methodology of the first appraiser or to have accepted a valuation it deemed inaccurate. The circuit court is in the best position to gauge the credibility of witnesses and the relative weight to be given to their testimony. 87 Wis. 2d at 250. Cogswell, Furthermore, the court decides fair value 23 No. and is not required valuation. ¶60 failed accept any one party's represented See Wis. Stat. §§ 180.1301(4), 180.1330(1). As to initial to 98-2834 the circuit establish VR report shareholders would court that it relied that or not apparently but have SSM to its detriment for the report, approved forced SSM to sell its shares. concluded, the United has on the HMO-W's merger that See Fritsch v. St. Croix Cent. Sch. Dist., 183 Wis. 2d 336, 344, 515 N.W.2d 328 (Ct. App. 1994) (detrimental reliance an essential element of estoppel claim). In this appraisal proceeding, the circuit court properly considered SSM's assertion of unfair dealing as it affected the fair value of the shares owned by SSM. The court then made a determination of HMO-W's net value that is not against the great weight and clear preponderance of the evidence. ¶61 In sum, we conclude that a minority discount may not be applied to determine the fair value of a dissenter's shares in an appraisal dissenting dissent shareholders and majority. action. does not for This discount exercising protect them unfairly their from penalizes legal oppression right to by the We further conclude that in an appraisal proceeding, the court may entertain assertions of misconduct that relate to the value of a dissenter's shares. In this case, the circuit court properly considered SSM's evidence of unfair dealing and rendered a determination of HMO-W's net value that is supported by the record. By the Accordingly, we affirm the court of appeals. Court.-The decision affirmed. 24 of the court of appeals is No. ¶62 WILLIAM A. BABLITCH, J., did not participate. 25 98-2834 No. 1 98-2834

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