What we have here is not so much a corporate “freeze out” case as a “squeeze down” case. Emil Bazzy complains that the end product of a triangular corporate merger was a dilution of his common stock holdings in Horizon House-Microwave, Inc. (Microwave), a close corporation in which his brother, William, was the controlling officer and stockholder. The claim in substance, is that William used his dominant position in a fashion which violated the fiduciary duty of a majority stockholder to Emil, a minority stockholder in a close corporation.
See Donahue
v.
Rodd Electrotype Co., 361
Mass. 578, 585-586 (1975);
Wilkes
v.
Springside Nursing Home, Inc.,
Although the litigation was initiated by Microwave against Emil, so much of it as survives on appeal arises out of a counterclaim by Emil against Microwave, William, and two related corporations. A judge of the Superior Court, sitting without jury, determined that the merger was lawful and judgment entered for the defendants on Emil’s counterclaim. Emil appealed. Many of the salient facts were stipulated. As to others, we rely on the facts found by the trial judge. Mass.R.A.P. 52 (a),
Fraternity had obviously given way to contention between the Bazzy brothers. In 1958, happier days for them, they had *192 organized a corporation, Horizon House, Inc. (Horizon), to pursue a magazine publishing venture. Horizon issued 420 shares to William and 410 shares to Emil. Horizon’s immediate purpose was to publish a trade magazine about microwave technology, an area of knowledge with which Theodore S. Saad, an acquaintance of William, was conversant. Should the microwave magazine be successful, the Bazzy brothers agreed with Saad to “place” it in a separate corporation in which Saad would receive stock. Success did smile on the microwave magazine enterprise and in 1962 the Bazzy brothers organized Microwave. Voting stock in Microwave was issued as follows: William, 3,000 shares; Emil, 1,000 shares; Saad, 1,000 shares. 2
After the organization of Microwave, Horizon’s functions were reduced to providing space (i.e., as a landlord) and bookkeeping and administrative services to Microwave and two other affiliated corporations. 3 The operating companies paid rent and service fees to Horizon.
By 1974, Emil and William were entangled in multiple law suits. Saad, although not in the line of fire between Emil and William, was stimulated to agitate for the termination of the services rendered by Horizon to Microwave, since that arrangement drained cash from Microwave, in which Saad had an interest, to Horizon, in which he did not. Horizon would then have little, if any, reason for continued existence. In June, 1974, the parties struck a deal: Microwave would buy Emil’s shares in Horizon for book value plus $10,000, to be paid for in cash and a note. 4 William’s shares would be acquired for *193 book value, without a premium, in exchange, solely, for stock of Microwave, the exchange ratio of Microwave stock for Horizon stock to be computed on the basis of the book value of Microwave stock. Microwave would then own Horizon as a wholly-owned subsidiary, thus putting at rest Saad’s concern about cash flowing away from Microwave. 5
Whatever merit Emil saw in the settlement agreement which the parties had signed in June, 1974, he no longer recognized, at least as to details of execution, when he came to the closing table on November 14, 1974. He declined a tender of cash and a note for his Horizon stock and the players were locked in their corporate vessels. As the statutory scheme then stood, “The vote of two thirds of each class of stock of each constituent corporation outstanding and entitled to vote on the question” was necessary to approve a merger agreement. G. L. c. 156B, § 78 (c) (1) (iii), as appearing in St. 1969, c. 392, § 19. William owned only a simple majority in Horizon, and, thus, could not effect the end of Horizon’s independent status through a merger agreement.
6
A way out of the uneasy deadlock developed in 1976 when the Legislature amended G. L. c. 156B, § 78 (c) (1) (iii)), to permit authorization of merger agreements by vote of a majority, rather than two thirds, of each class of stock entitled to vote on the question. St. 1976, c. 327. A decisive vote was now possible in Horizon.
7
So far as the record discloses, Microwave was similarly able to act. William owned a majority of Microwave’s voting stock at all times and, moreover, by 1977, Saad had more or less thrown in his lot
*194
with William. Saad and Emil each owned 1,000 shares of nonvoting stock and a James Hughes owned 75 shares of nonvoting stock. By reason of an amendment to § 78
(c)
(1) enacted in 1975,
8
there is reason to think that the affirmative vote of a nonvoting class would have been required if the consequence of the merger were a dilution of equity of the nonvoting stock, i.e., this would be an adverse effect. Cf.
DuVall
v.
Moore,
During the period following the breakdown of the 1974 agreement, Saad’s grievance about money flowing, to his detriment, from Microwave to Horizon, continued to fester, and he threatened to initiate a stockholder’s derivative suit against Microwave. There existed, therefore, a good business reason for Microwave in some fashion to close down Horizon’s operations.
Microwave adopted a triangular merger as the means to that end. First, it effected the formation of a wholly owned subsidiary, Horizon House Dedham, Inc. (Dedham). Second, Dedham, by the vote of its sole stockholder, and Horizon, by a vote of a majority of shares issued and outstanding, entered into a merger agreement dated June 27, 1977, pursuant to *195 which Horizon would be merged into Dedham. For Emil’s stock in Horizon, the surviving corporation, Dedham, would exchange $29,901.26 in cash and $76,888.97 in a note of Dedham (payable in five equal annual installments with a floating rate of interest on the unpaid balance of two percent above the prime rate). For William’s Horizon stock, Dedham would exchange 5,475 shares of voting common stock of Microwave. 9 Third, Dedham would change its name to Horizon House, Inc. Articles of merger to this effect were filed June 27, 1977. A fourth step, outside the merger agreement between Horizon and Dedham, occurred on November 25, 1977. The directors of Microwave, acting under G. L. c. 156B, § 82, voted to merge into itself this new wholly owned subsidiary, which had acquired the stock of Horizon. 10 Thus, only Microwave survived.
1.
The nature of Emil’s complaint.
As the trial judge read them, the claims expressed by Emil in his counterclaim related to Horizon, not Microwave. The judge ruled that “any claim of Emil of mistreatment by Microwave in diluting his shareholder’s position is not in the counterclaim and not before the court at this time.” We read Emil’s pleading more expansively. Cf.
Charbonnier
v.
Amico,
Moreover, Emil’s counterclaim is not without shots aimed at Microwave. It complains that distributing 5,475 shares of
*196
Microwave “and not to extend to Emil [the] same or similar offer was to discriminate against Emil.” The counterclaim further charged that Microwave had acted in violation of G. L. c. 156B, § 78 (c) (2) (ii) and § 78 (c) (1) (iii). What Emil hoped to achieve by the latter assertions is unclear. In closing argument Emil’s counsel conceded he did not wish to unravel the merger; what he wanted was parity with William in what was exchanged for his Horizon stock, viz., shares of Microwave. Procedurally, we conclude, Microwave is in the case. To the degree that the gravamen of Emil’s action was abuse of fiduciary duty by a majority stockholder, he was not required to bring a minority stockholder’s derivative suit against Microwave but could move against that corporation and William directly.
See Donahue
v.
Rodd Electrotype Co., 367
Mass. at 579 & n.4;
Wilkes
v.
Springside Nursing Home, Inc.,
2. Technical legality of the merger. Count HI of the counterclaim alleged failure to comply with certain statutory requirements in effecting the merger and requested that the merger be set aside. Although evidence was adduced at trial bearing on the technical compliance issue, a strong case can be made that Emil’s trial counsel ceased pressing for that relief in closing argument and asked only for parity in the manner of payment. In the absence of an express waiver of the point, however, we think it necessary to treat the statutory compliance question.
All the allegations of deviation from statutory requirements which Emil makes he directs at Microwave. They are these: (a) in violation of G. L. c. 156B, § 78
(c)
(1) (ii), Microwave failed to give each stockholder of record thirty days’ notice of a meeting to approve the merger agreement; (b) in violation of § 78 (c) (1) (iii), the merger agreement was not approved by the stockholders of Microwave; and (c) in violation of § 78 (c) (2) (ii), the merger agreement was not approved by the stockholders of Microwave. The fallacy in each case of asserted noncompliance is that the subject matter of § 78 concerns merger agreements and the only parties to the merger agreement were Horizon and Dedham. Microwave was not a party to a
*197
§ 78 merger agreement. Neither the issuance of stock by Microwave nor the ultimate absorption by Microwave of Horizon involved § 78. The latter step, as we have noted, proceeded under § 82, a section which established independent procedures for the merger of subsidiary corporations into a parent. See
Joseph
v.
Wallace-Murray Corp.,
There is no ignoring that the triangular merger device permits an acquiring corporation to outflank the requirement of stockholder approval which attends a straight merger under § 78. Business and income tax reasons exist, however, which make the triangle technique not merely expeditious but in the interest of all parties to a merger. Relief from expensive proxy solicitations (not, of course, applicable to the close corporation), insulation from business risks taken by the acquired corporation, and the ability to achieve a tax free reorganization under Federal income tax law are among those benefits. See Freling, Current Problems in Subsidiary Mergers and Other Triangular Reorganizations, 29 N.Y.U. Ann. Inst.l on Fed. Taxn. 347 (1971); McGaffey, Buying, Selling, and Merging Businesses 103-104 (1979); Raskin, Triangular Mergers: A Useful Technique, 12 Colo. Law. 1630 (1983). A certain tolerance and recognition of corporate form threads through our decisional
*198
law. See
M. McDonough Corp.
v.
Connolly,
3.
Fiduciary duty of the majority to the minority.
That which the majority may do as matter of statutory law, because the majority has the votes and the statutory scheme allows it, is nonetheless subject to the condition, particularly in a close corporation, that majority stockholders “may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.”
Donahue
v.
Rodd Electrotype Co.,
Oppression is what Emil complains about, but it is oppression of a very limited sort. He does not appear to dispute that good
*199
business reasons existed to fold up Horizon, but objects that he received cash while William received Microwave stock. Emil’s protest represents an inversion of the facts in the
Donahue
case. There the majority arranged the sale of its shares in a close corporation on favorable cash terms and left the minority holding shares for which there was a doubtful market. One readily imagines business circumstances (e.g., an earnings record, an impending buy out, or the incipient marketing of an exceptionally promising product) in which the shares of a close corporation are more valuable than their book value. For discussions of approaches to establishing the value of corporate stock,
see Piemonte
v.
New Boston Garden Corp.,
In determining that the price paid Emil for his Horizon shares was fair, the trial judge could — and did — take into account that three years earlier Emil had agreed to almost identical terms for the disposition of his Horizon stock. In a sense, the 1977 triangular merger carried out the economic objective of the 1974 agreement.
There is no dispute that the book value of Microwave stock paid to William closely equalled the cash and note paid to Emil. If Emil contends that the market value of the Microwave shares issued in 1977 was higher, he failed to go beyond speculating that this was a possibility. He introduced no evidence as to what the market value of the Microwave stock was. In terms of the investment potential of the cash Emil received and was to receive, it is as likely, on the record, that his pay-out was as valuable as William’s.
Adhering to the economic terms of the 1974 agreement for collapsing Horizon was not without benefit or business purpose". It appeared to be an arrangement in which Saad, the outside stockholder, acquiesced. The relationship of Emil and William
*200
had been characterized by hostility and deadlock. There was reason to avoid establishing holdings in Microwave which would make more likely that the brothers could thwart one another in the future, to the detriment of the corporate enterprise. Microwave and William, therefore, had a legitimate business purpose for structuring the merger as they did to enable Microwave to operate effectively in the best interests of all concerned.
Leader
v.
Hycor, Inc.,
As Emil’s complaint is that he did not receive a fair compensation package for his stock, it is singular that he failed to avail himself of the appraisal remedy afforded by G. L. c. 156B, §§ 86 through 98. Indeed, the last of those sections, § 98, provides that a demand for appraisal is the exclusive remedy for a stockholder who dissents from a merger, except that the stockholder may “bring or maintain an appropriate proceeding to obtain relief on the ground that [the] corporate action will be or is illegal or fraudulent as to him.” G. L. c. 156B, § 98, inserted by St. 1965, c. 685, § 43. A demand for appraisal would have focused attention on the core of Emil’s grievance, without the higher burden (which Emil, on his theory of the case, assumed) of proving illegal or fraudulent conduct.
Pupecki v. James Madison Corp.,
4.
Other matters.
Prior to trial the judge ruled that Emil was not entitled to a jury trial on any of the issues raised in his counterclaim and that he could not maintain a count alleged under G. L. c. 93A. Emil opted to pitch his case on the illegality of the merger and breach of fiduciary duty by William. Either claim necessarily required equitable relief. The judge’s ruling that there was no jury issue was, therefore, correct. The dismissal of the c. 93A count finds support in
Riseman
v.
Orion Research, Inc.,
Judgment affirmed.
Notes
In addition, Emil and Saad each received 2,000 shares of nonvoting stock. A James Hughes was issued 75 shares of nonvoting stock.
Horizon’s other customers were (a) Horizon House Solid-State, Inc., which Emil, William, and Saad had organized and capitalized along the lines of Microwave, and (b) Warrene Presse, Inc., a printing company which Emil controlled. Solid-State’s purpose was to publish a trade journal having to do with solid state technology. That magazine was not a success and disappeared from the scene in 1964.
Seventy-two percent of the amount due Emil was to be paid in the form of a note.
One could ask why Microwave could not have met Saad’s objection simply by ending the service arrangement with Horizon. Such a step, however, was likely to engender protest from Emil, who would find his interest in Horizon converted to a dry asset. Moreover, for so long as Microwave occupied real estate in a tenant relationship with Horizon, it was bound to pay Horizon something.
Nor, for that matter, did any of Emil, William, or Saad alone have two thirds of the voting stock in Microwave.
In 1981, the requirement was raised back to a two thirds vote, unless a lesser proportion, but not less than a majority, is provided for in the articles of organization. See St. 1981, c. 298, § 4.
See St. 1975, c. 70, § 2, which added to § 78 (c) (1) (iii) two sentences: “If any such agreement would adversely affect the rights of any class of stock of either constituent corporation, the vote of two thirds of such class, voting separately, shall also be necessary to authorize such agreement. For this purpose any series of a class which is adversely affected in a manner different from other series of the same class shall, together with any other series of the same class adversely affected in the same manner, be treated as a separate class.” The 1976 amendment which lowered the required vote from two-thirds to a majority applied to these “other” classes.
Microwave had earlier prepared for this exchange by issuing 5,475 shares of its stock to Dedham.
Under G. L. c. 156B, § 82 (a), inserted by St. 1964, c. 723, § 1, “[a] corporation owning at least ninety percent of the outstanding shares of each class of stock of another corporation . . . may merge into itself a corporation . . . the stock of which it owns by vote of its directors. . . .”
A requirement of fair dealing has not been limited to the close corporation setting. In a celebrated case involving publicly held corporations and a “take out merger,” i.e., the elimination of the stockholders of the acquired corporation, the Delaware Supreme Court announced an “entire fairness” rule which was to apply to the disclosures and negotiations leading to the merger as well as to the price paid to the stockholders taken out. See,
Weinberger
v.
UOP, Inc.,