LAVERNE BUSSE et al., Plaintiffs and Appellants, v. UNITED PANAM FINANCIAL CORP. et al., Defendants and Respondents.
No. G046805
Fourth Dist., Div. Three.
Jan. 8, 2014
1028
Faruqi & Faruqi, David E. Bower and Barbara Rohr for Plaintiff and Appellant Laverne Busse.
Robbins Geller Rudman & Dowd, Randall J. Baron, Kevin K. Green and David T. Wissbroecker for Plaintiff and Appellant Sydne & Allan Bortel Living Trust U/A/D 9/14/1998.
Gibson Dunn & Crutcher, Joel A. Feuer and Jeremy Stamelman for Defendant and Respondent Guillermo Bron.
Skadden, Arps, Slate, Meagher & Flom, Garrett J. Waltzer, Richard Horvath, Jr., and Eric Waxman for Defendants and Respondents Pine Brook Capital Partners, L.P., Pine Brook Capital Partners (SSP Offshore) II, L.P., Pine Brook Capital Partners (Cayman), L.P., and Pine Brook Road Associates, L.P.
OPINION
BEDSWORTH, J.—
I. INTRODUCTION
Occasionally we are faced with a difficult question of statutory interpretation that qualifies as a “Halbert‘s Lumber issue.” (E.g., Halbert‘s Lumber, Inc. v. Lucky Stores, Inc. (1992) 6 Cal.App.4th 1233, 1235 [8 Cal.Rptr.2d 298] (Halbert‘s Lumber) [“a real doozy of a puzzle“].) This is such a case, involving
Here, the trial judge was faced with two radically different views of
The trial judge chose the more modest reading of subdivision (b), and, accordingly, sustained defendants’ demurrer to the minority‘s suit for “rescissionary damages” based on breach of fiduciary duty. She was correct to do so and we affirm that part of the judgment. We are convinced that when section 1312 is read in light of its history and its judicial construction, no other result is tenable.
However, since the minority shareholders have never withdrawn their alternative request to set aside the merger, we cannot affirm the judgment entirely. The minority shareholders did sufficiently allege common control of the corporation, and subdivision (b) does, plainly, allow for suits to set aside or rescind mergers in common control situations. Therefore, we must reverse and remand for resolution of that question.
II. FACTS
A. Standard of Review
This case comes to us after a demurrer to the minority‘s second amended complaint was sustained without leave to amend.3 Thus the minority receives the benefit of having its version of the facts accepted. What should be stressed here, however, is that the minority‘s second amended complaint also
The standard of review is particularly important in this case because the second amended complaint alleges that defendant Guillermo Bron has always controlled about 40 percent of PanAm Financial‘s stock throughout its history, and “no director whom Bron has supported for election has ever failed to receive the requisite number of votes for election or reelection.” The pleading also alleges that in public filings in 2007 and 2008, the company actually admitted Bron would “have substantial influence” over the “management and affairs” of the company, “including the ability to control substantially all matters submitted to our shareholders for approval.”
Against these allegations is set the text of
While no case law has yet interpreted subdivision (b)‘s indirect common control language, we do have the holding in Hellum v. Breyer (2011) 194 Cal.App.4th 1300 [123 Cal.Rptr.3d 803] (Hellum) to help us. There, three “outside“—meaning nonemployee—directors of a five-director company were sued under a
Secondarily, Hellum emphasized that control is often a factual question not readily susceptible to disposal on the pleadings. The court reasoned
Applying Hellum to the case at hand, we think the allegations of Bron‘s common control sufficient. While Bron personally only controlled about 40 percent of PanAm Financial‘s stock, he still had “significant voting power” over the company. In Hellum, more than 50 percent was split three ways; here 40 percent is in the hands of one person and Bron‘s 40 percent “voting power” is further augmented by the absence of any indication anyone else was even close to his 40 percent at the time of the buyout. Additionally, there is his position as chairman of the board, his acknowledged power over the general affairs of the corporation, and the filings acknowledging his power to formulate key corporate policy. Together, as in Hellum, this congeries of facts readily supports an inference of at least indirect control, though such a conclusion seems no more than common sense anyway. A person who owns 40 percent of a company with the rest of the ownership not concentrated in any rival can easily put his allies on the board.5
Moreover, the complaint alleges all of Bron‘s fellow directors owe their jobs to him, so they are dependent on his good graces. And of course in other contexts dealing with questions of indirect control, courts have recognized that economic dependence means indirect control. (E.g., S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 355 [256 Cal.Rptr. 543, 769 P.2d 399] [cucumber harvesters not independent contractors but really controlled by growers because economically dependent on them]; Yellow Cab Cooperative, Inc. v. Workers’ Comp. Appeals Bd. (1991) 226 Cal.App.3d 1288, 1297-1298 [277 Cal.Rptr. 434] [indicia of indirect control by taxi company over taxi drivers who were dependent on the company for business].)
B. The Facts Under the Standard of Review
Having taken eight paragraphs to explain how the standard of review controls the facts of the case before us, it will take us but one to set them forth: Bron founded PanAm Financial in 1994. Basically, the corporation makes subprime loans on used cars, i.e., auto loans to the less-than-100-percent creditworthy. The company went public in the late 1990‘s. By 2006 the corporation‘s shares were selling at $26 per share, but the recession hit the company hard, and share prices dove to $5 per share at the beginning of 2008. By the end of 2008 share prices were as low as $1.59. However, PanAm Financial management instituted a number of cost-cutting measures (some draconian—including laying off 310 of its 469 employees), and reduced its portfolio of shaky auto loans, so that by May 2010, the Bron group thought the company a good opportunity to take private to benefit themselves. Accordingly, they developed a buyout scheme in which Bron and his partner, the Pine Brook Financial Group, would acquire the corporation‘s stock in the company on the cheap.6 At the time, Bron owned 38 percent of the company‘s stock and controlled the board of directors. So the Bron group had the directors set up a supposedly independent special committee to value the stock for a buyout. The independent committee, however, didn‘t fight very hard for a good price, and in mid-November 2010 the committee agreed to a price of $7.05 a share. The $7.05 per share price was clearly a bargain for the Bron group, because the book value of the company was no less than $8.54 at the time. On December 27, 2010, the special committee and the board recommended the shareholders approve the buyout of PanAm Financial by the Bron group. The buyout was announced the next day, December 28, 2010.
On January 11, Busse filed a class action for breach of fiduciary duty. The original complaint sought an injunction against the proposed buyout, but added that if the buyout was consummated prior to the judgment in the action, plaintiffs would accept either rescinding the “transaction” (presumably meaning setting aside the buyout) or an award of what they called “rescissionary damages.” Nine days later, the Bortels followed suit, also alleging breach of fiduciary duty, and also seeking an injunction to prevent the reorganization, and alternatively asking for “compensatory damages” if the buyout was consummated.
No injunction was obtained. On February 24, 2011, the buyout was approved by a vote of the outstanding shares, though the vote was relatively close, about 4.8 million shares for to 4 million shares against. As far as our record shows, the buyout was consummated sometime after February 24, 2011.
Busse‘s and the Bortels’ cases were consolidated in May 2011. By July, Busse and the Bortels had filed an amended complaint, seeking rescission, but again asking for rescissionary damages in the alternative. After several rounds of demurrers, the minority shareholders filed a second amended complaint (the operative one for purposes of this appeal), alleging two causes of action based on the facts above, namely breach of fiduciary duty under
The trial court sustained the Bron group‘s demurrer to the second amended complaint, reasoning along two lines: First,
III. DISCUSSION
A. Damages, by Any Other Name
1. Preliminary Considerations
The minority shareholders’ claim for “rescissionary damages” centers on a single phrase in subdivision (b), which states that in common control
“In construing a statute, our fundamental task is to ascertain the Legislature‘s intent so as to effectuate the purpose of the statute.” (Smith v. Superior Court (2006) 39 Cal.4th 77, 83 [45 Cal.Rptr.3d 394, 137 P.3d 218].) There is a classic sequence in discussing problems of statutory construction, as solid in its approach to the issue of ascertaining textual meaning as the queen‘s gambit is to safe openings in a game of chess. (See Halbert‘s Lumber, supra, 6 Cal.App.4th at p. 1238 [“There is order in the most fundamental rules of statutory interpretation if we want to find it. The key is applying
There is, however, another principle of statutory interpretation that fits especially well the situation where the statute is less than clear, yet the Legislature has amended it at a time when there was some case law interpreting it. The principle is that the Legislature is “presumed to know about existing case law when it enacts or amends a statute.” (In re W.B. (2012) 55 Cal.4th 30, 57 [144 Cal.Rptr.3d 843, 281 P.3d 906] (W.B.) [noting Legislature “did not signal an intent to supersede” a prior appellate decision involving how dependency courts should inquire into possible Native American ancestry when it enacted statute governing such inquiries]; People v. Overstreet (1986) 42 Cal.3d 891, 897 [231 Cal.Rptr. 213, 726 P.2d 1288] [“the Legislature is deemed to be aware of existing laws and judicial decisions in effect at the time legislation is enacted and to have enacted and amended statutes ‘in the light of such decisions as have a direct bearing upon them’ “].)
This principle is important because it focuses our attention on what one might expect to be there if a given interpretation were correct, but isn‘t. For example, in W.B., our Supreme Court noted that if the Legislature had intended, in enacting a certain statute, to expand the reach of a certain federal law, one would have expected evidence of such “intent to feature prominently in the legislative history.” (W.B., supra, 55 Cal.4th at p. 56.) The W.B. court thus found it significant that there was no evidence of any such intent. (Ibid.)
The case before us is perfectly suited to application of this variation on the classic approach to laying out the problem of ascertaining legislative intent.
2. A Not So Brief History of Section 1312
It all started in 1931 with the enactment of (now former)
The statute was given its first judicial consideration some eight years after its enactment. In Beechwood Securities Corp. v. Associated Oil Co. (9th Cir. 1939) 104 F.2d 537 (Beechwood), minority shareholders wanted to set aside a merger they considered disadvantageous to their own interests, so they attacked the statute as an unconstitutional deprivation of private property. The Ninth Circuit turned back the constitutional challenge (id. at pp. 540-541) in an opinion stressing the complexity of trying to unwind a merger. (See id. at p. 541 [noting the “injustice of disturbing the vast and complicated interests of the consolidated companies because of a contention which the dissentient shareholder had not raised“].) The Beechwood court then summarized the law, as if speaking to a disappointed minority shareholder, in vibrant language that would be quoted 47 years later in Steinberg: “In effect, these code sections, as construed by both parties, say to a shareholder, ‘When you buy stock in a California corporation you are advised that your associate shareholders holding two-thirds of the shares may consolidate your corporation with another into a third corporation, offer you what they please of its shares in exchange for those you hold, and, if you do not like the offer, may buy out your shares at their fair market value at the time they vote the consolidation.’ ” (Id. at p. 540, italics added; see Steinberg, supra, 42 Cal.3d at p. 1206, fn. 11 [quoting same passage].)
When Beechwood was decided in 1939, there was no equivalent to what is today
prompted a law review article strongly defending the decision written by one of the drafters of the 1931 legislation, Professor Henry Winthrop Ballantine of Boalt Hall (see Gallois, supra, 185 Cal.App.2d at p. 772), along with his colleague, Graham L. Sterling. (See Ballantine & Sterling, Upsetting Mergers and Consolidations: Alternative Remedies of Dissenting Shareholders in California (1939) 27 Cal. L.Rev. 644, 652 (hereinafter Ballantine & Sterling 1939 article).) The clear import of the article is that when it comes to corporate reorganizations, the needs of the many—at least measured by the shares they own—outweigh the needs of the few. (See Steinberg, supra, 42 Cal.3d at p. 1205 [explaining the origins of appraisal statutes generally].)9 Hence the authors minced no words about what they considered the lamentable tendency of some minority shareholders to try to “extort” (a word indicative of the authors’ tone in the article) by holding up economically beneficial reorganizations.10
Ballantine and Sterling emphasized an interesting fact about the Beechwood decision—it clearly arose out of a common control situation. There, a parent owned more than 98 percent of two companies which were then merged into the parent. The minority stockholders of one of the companies basically thought they were getting a much worse exchange rate than the stockholders of the other company. (See Ballantine & Sterling 1939 article, supra, 27 Cal. L.Rev. at pp. 652-655.)
In 1947,
From 1931 to 1947 the statute grew longer, but the key language precluding attacks on reorganizations “at law or in equity” except for appraisal remained.11 In 1966,
The appellate court reversed, reasoning that under the law the commissioner had no choice. (See Giannini, supra, 240 Cal.App.2d at pp. 154-156.) The important point of the opinion for our purposes is that the Giannini court issued a strong assertion of the exclusivity of the holdout stockholder‘s appraisal remedy. In fact, it quoted Ballantine and Sterling‘s general corporate law treatise in echoing its concern that the point of the statutory scheme was to prevent extortion of the many by the few: “The statutory procedures whereby the dissenting shareholder may demand and receive cash for his shares in an amount equal to their fair market value, is exclusive of other legal and equitable remedies by which minority shareholders might seek to enjoin or attack changes such as a merger or consolidation, except on the question of an insufficient vote to authorize a merger or consolidation. (Corp. Code, § 4123.) It has been said in this connection that ‘It was deemed advisable to protect the majority against strike suits by abrogating equitable remedies by way of injunction or rescission to litigate charges of fraud or unfairness, which may be used to extort a settlement by obstruction of a transaction duly authorized.’ (Ballantine on Corporations (1946), p. 703.) Professor Ballantine was speaking with reference to the provisions of
The final case in the journey to 1975‘s enactment of section 1312 was Jackson v. Maguire (1969) 269 Cal.App.2d 120 [75 Cal.Rptr. 16] (Jackson). Jackson arose out of litigation in which cashed-out minority shareholders in one of the divisions of the conglomerate sought additional consideration for their shares. The trial court disagreed, and substantial evidence supported the trial court‘s finding so the judgment was affirmed. (See id. at p. 128 [“We,
Beechwood, Gallois, Giannini and Jackson thus formed the existing case law construing former section 4123, as it stood going into 1975, when the Legislature recodified the statute into what is now
It fell to the court in Sturgeon Petroleums, Ltd. v. Merchants Petroleum Co. (1983) 147 Cal.App.3d 134 [195 Cal.Rptr. 29] (Sturgeon) to first explore the statutory scheme enacted in 1975, its current form. Sturgeon involved this scenario: Oil company M was to be merged into Oil company D. The merger was approved by an “overwhelming” majority of the shares of the M company. (id. at p. 136.) The shareholders of M company who voted against the merger were offered a price of $2.94 for their shares, but they demanded to be cashed out at $12 per share. The D company then took the initiative and it filed an appraisal action under
The Sturgeon court had this insight: The language of
Then came the California Supreme Court opinion in Steinberg. The Sturgeon decision survived Steinberg scrutiny quite nicely; the two decisions are on the same wavelength. Steinberg put its imprimatur on Sturgeon‘s basic conclusion that in
But there was a lot more to the Steinberg decision than just its holding there are no damages in subdivision (a) situations. For one thing, Steinberg followed Sturgeon in spotting a certain ambiguity in the language of
But perhaps the most remarkable aspect of Steinberg is its endorsement of appraisal as a truly adequate remedy. Steinberg pointed out that even breaches of fiduciary duty could be redressed in appraisal proceedings, because any difference between the true value of the minority stockholders’ shares and the value offered minority shareholders could readily be accounted for in the appraisal.17 (See Steinberg, supra, 42 Cal.3d at pp. 1209-1210.)
And finally, to validate our understanding of Steinberg, we consider the dissent. Steinberg was a four-three decision, and Chief Justice Bird made no effort to hide her displeasure with the majority‘s result. But she accepted the implication of the historical origins of section 1312—40 years previously the Legislature had seen dissenting shareholders as ” ‘piratical obstructionists.’ ” (See Steinberg, supra, 42 Cal.3d at p. 1216, quoting Ballantine & Sterling 1939 article (dis. opn. of Bird, C. J.).) However, she decried the original view as ” ‘anachronistic’ ” as shown by unidentified “current events.” (Steinberg, supra, 42 Cal.3d at pp. 1216-1217.) For Chief Justice Bird, and her colleagues Justices Reynoso and Grodin, the majority result was a “license to commit fraud” (id. at p. 1220), and appraisal was not a remedy which could “adequately compensate those individuals who have been damaged in a corporate merger or reorganization” (id. at p. 1214). Clearly, the dissent read Steinberg as we do.18
Only one published opinion, Singhania v. Uttarwar (2006) 136 Cal.App.4th 416 [38 Cal.Rptr.3d 861] (Singhania), has addressed section 1312 since Steinberg. Singhania was an attempt by disappointed shareholders to find some room to maneuver around
As to the first assertion, the Singhania court‘s analysis was that the omission of the fair market value in the information materials sent to the shareholders didn‘t prejudice the plaintiffs: They knew their corporation had a legal duty to state a fair market value (per
In sum, then, the meaning of
3. The Meaning of Section 1312, Subdivision (b).
a. What Subdivision (b) Doesn‘t Say
With this background, we may now examine the minority shareholders’ core argument in this case. The minority read subdivision (b) to provide that in the absence of subdivision (a) application, shareholders retain common law rights, including the right to sue a controlling majority for monetary damages for breach of fiduciary duty.
We reject the argument for two reasons. The first we have alluded to already: The historical context in which subdivision (b) was first enacted. As we have seen, by 1975, a string of California cases had already held that appraisal was the exclusive remedy of dissenting shareholders. The Legislature must be presumed to have been aware of these cases in 1975 when it enacted subdivision (b). Going into 1975, then, there was no residuum of common law remedies in the reorganization context which would exist but for the interposition of subdivision (a).19 The enactment of subdivision (b) did not involve a situation in which the Legislature was restoring a remedy that subdivision (a) otherwise took away. Rather, when subdivision (b) was enacted in 1975, the question was whether the Legislature would create something that clearly wasn‘t there.
Here, similarly, we have no indication the Legislature, in enacting subdivision (b), wanted to give subdivision (b) plaintiffs a right to monetary damages which, under Beechwood, Gallois, and Giannini, they clearly did not have at the time. The silence is particularly loud given that those three cases had arisen out of common control situations, so the 1975 amendments presented the perfect opportunity to say that monetary damages could be sought if a reorganization did involve common control.
The second reason we reject the minority shareholders’ reach for damages is our perception of how
Reading chapter 13 as a whole, a unified theory of how the Legislature elected to treat dissenting minority shareholders in corporate reorganizations emerges: In non-common-control situations, dissenting minority shareholders have the remedy of appraisal but do not have the remedy of stopping or rescinding the reorganization. In common control situations, dissenting minority shareholders still have the remedy of appraisal unless they elect the remedy of stopping or rescinding the reorganization. But they never have the remedy of seeking monetary damages.
In that regard we are particularly struck by
Moreover, a monetary remedy in
b. And What Subdivision (b) Does Say
Of course, resolving what subdivision (b) doesn‘t say does not tell us what subdivision (b) does say. Recall that the overarching theme of both Beechwood and Ballantine and Sterling‘s 1939 article was the intolerability of the uncertainty created by a suit to set aside or rescind a merger. However, by 1975 the potential for abuse in common control situations was known, and something more than just appraisal as a remedy was perceived to be needed by the Legislature. (See Dunn‘s Steinberg Article, supra, 22 U.S.F. L.Rev. at p. 314 [“The scope of exclusivity of the appraisal remedy has been narrowed by the legislature to exclude those cases in which abuses might be expected. Most notably, the appraisal remedy is not exclusive if there is common control of the acquiring and acquired corporations.“].)
That something more was what Beechwood and Ballantine and Sterling in 1939 would have seen as the horror of the uncertainty of litigation which might, or might not, result in unwinding a merger—or, to use the metaphor employed at oral argument at the trial court in this case—the unscrambling of an egg. The Legislature faced that eventuality. It recognized, at least on an intuitive level, that unlike most buyer and seller scenarios where the seller knows more about what‘s being sold than the buyer, the natural order is
Common control under subdivision (b), then, is one of those times when the Legislature is willing to allow a little dice to be played over the survivability of a corporate reorganization. Subdivision (b) is like physicist Schrödinger‘s famous cat in a box, which might, or might not, have been exposed to a puff of deadly gas. If a management buyout were analogized to that cat, one would never know if the box contains a live cat or a dead cat until the outcome of the set-aside litigation becomes final and the box, so to speak, is opened. Given the history of subdivision (a) with its antipathy to litigation seeking to set aside corporate reorganizations, it is evident that the Legislature had a different attitude for subdivision (b) common control situations: It was willing to tolerate some dead cats to keep management honest.
The availability of set aside is also the way the Rutter Group corporate treatise commentators read the statute. We should add, as the treatise notes, that if dissenting shareholders do choose the big stick of a set aside remedy, they obviously cannot also have the alternative of an appraisal. (See Friedman, Cal. Practice Guide: Corporations (The Rutter Group 2013) ¶¶ 8:358, 8:365 to 8:366, pp. 8-65, 8-66.1 (rev. # 1, 2013).)
B. The Set Aside Remedy
The trial court sustained the demurrer to the second amended complaint without leave to amend, in part because it correctly determined that the minority shareholders of PanAm Financial had no claim for monetary relief. They had their chance with that by way of appraisal. But the second amended complaint also seeks to set aside the buyout of PanAm Financial by Bron et al., and an examination of the record reveals the minority shareholders have never given up that alternative request. To be sure, the trial judge pressed them to give it up. The judge understandably did not want to unscramble any eggs. Even so, counsel for the shareholders managed to bob, weave and duck around the trial judge‘s efforts, so in the end he did not waive the request for the alternative of a set aside.20
There is only so much a court can do on demurrer. As in Kruss v. Booth, supra, 185 Cal.App.4th at page 727, this case may indeed involve valid defenses to the minority‘s effort to set aside the buyout. Questions arise that were not the focus of proceedings below, particularly centered on subdivision (b)‘s requirements of “10 days’ prior notice to the corporation” and the need to show “no other remedy will adequately protect the complaining shareholder.” But those defenses need a much more factual record than we have on a demurrer. Concomitantly, we note subdivision (c) of section 1312 shifts, in common control situations, the burden of showing the buyout was just and reasonable. The burden-shifting situation further suggests the need for a factual record that is not possible on demurrer.21
We therefore decline the Bron group‘s invitation to dispose of the case on issues not considered by the trial court, such as the business judgment rule, or the nature of the proxy statement sent out in the course of the buyout vote. (Cf. State Building & Construction Trades Council of California v. Duncan (2008) 162 Cal.App.4th 289, 318, fn. 17 [76 Cal.Rptr.3d 507] [“We decline to reach these issues because they have not been fully developed in
DISPOSITION
The judgment is affirmed to the extent it precludes plaintiffs from seeking any damage remedy, including “rescissionary damages.” It is reversed to the extent it precludes on demurrer plaintiffs from seeking to unwind the buyout of PanAm Financial by Bron and friends. Beyond determining that the second amended complaint alleges a cause of action for unwinding of the buyout under subdivision (b) of section 1312, we express no opinion. This result is a split decision, so each side will bear its own costs on appeal.
Rylaarsdam, Acting P. J., and Moore, J., concurred.
Notes
“(a) No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions or, if the principal terms of the reorganization are approved pursuant to subdivision (b) of Section 1202, is entitled to payment in accordance with the terms and provisions of the approved reorganization.
“(b) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded payment of cash for such shareholder‘s shares pursuant to this chapter; but if the shareholder institutes any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder‘s shares pursuant to this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded shall not restrain or enjoin the consummation of the transaction except upon 10 days’ prior notice to the corporation and upon a determination by the court that clearly no other remedy will adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member.
“(c) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, in any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled.”
After the passage, the court would quote subdivision (b) in a footnote, and then launch into its basic analysis, including emphasizing that appraisal was an adequate remedy even when there is a breach of fiduciary duty. (See Steinberg, supra, 42 Cal.3d at pp. 1208-1209; see especially id. at p. 1209.) In any event, the passage from Steinberg quoted above, which merely tells us what the defendants were telling the court, cannot be viewed as establishing anything more than that subdivision (b) does not throw much light on subdivision (a).
“The court: . . . Well, let me ask one question for you, Mr. Wissbroeker. In your prayer, my impression from reading the arguments was that nobody is looking to—I think your expression is, ‘unscramble the egg.’ So you‘re not looking to unwind the merger. [][] . . . [][]
“Mr. Wissbroeker: Well, your honor, the response is as follows. And I‘m not trying to be cute, but we believe the appropriate remedy here is rescissory damages, which is obviously a monetary remedy.
“The court: Right.
“Mr. Wissbroeker: If the court‘s conclusion is that there‘s no availability of rescissory damages, unwinding the merger would be the fallback, but I think we all agree it‘s probably difficult to do that at this point.”