Shawnee Telecom Resources, Inc. v. Brown
354 S.W.3d 542
Ky.2011Background
- Kentucky Business Corporation Act Subtitle 13 (KRS 271B.13) governs dissenters’ rights and fair value for cash-out mergers.
- The court overruled Ford v. Courier-Journal and Brooks v. Brooks Furniture on the meaning of fair value and market discounts.
- Brown demanded fair value for her shares in Shawnee Tech after Shawnee Tech merged into Shawnee Tel via a cash-out merger under KRS 271B.11-010.
- The trial court and Commissioner used net assets and capitalization of earnings methods, applying a marketability discount per Ford.
- The Court of Appeals reversed, holding marketability discounts inappropriate; the Supreme Court remanded for reconsideration under the proper standard.
- The Court adopts a going-concern, pro rata share approach to fair value, allowing entity-level adjustments but prohibiting shareholder-level discounts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the proper fair value standard under KRS 271B.13? | Brown: fair value is dissenting pro rata share of the going-concern value. | Shawnee: Ford method and marketability discounts should apply. | Fair value is the dissenting shareholder’s pro rata share of the going-concern value, without shareholder-level discounts. |
| May entity-level discounts be used, and in what scope? | Brown: any discounts are improper. | Shawnee: entity-level discounts justified by evidence may apply. | Entity-level adjustments are permissible if justified; not auto-discounting entire value. |
| Are marketability and minority discounts at shareholder level proper? | Brown urged rejection of such discounts. | Shawnee urged continuing use under Ford. | Shareholder-level discounts (marketability/minority) are inappropriate under the fair-value standard. |
| Is net asset value an appropriate basis for fair value? | Brown contends net asset approach misstates going-concern value. | Shawnee defends mixed use including net asset value. | Net asset value can be appropriate as one method among others for going-concern valuation. |
Key Cases Cited
- Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553 (Ky.App.1982) (prior Kentucky leading view; marketability discounts criticized)
- Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del.1989) (going-concern value first; shareholder-level discounts rejected)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del.1983) (rejected Delaware block method; value as proportionate interest in going concern)
- Brown v. Arp and Hammond Hardware Co., 141 P.3d 673 (Wyo.2006) (post-Cavalier adoption of going-concern, pro rata standard)
- In re Valuation of Common Stock of Libby, 406 A.2d 54 (Me.1979) (Delaware-style fairness concepts influencing going-concern valuation)
- Ex parte Baron Services, Inc., 874 So.2d 545 (Ala.2003) (entity-level discounting considerations in micro-capitalization context)