Pueblo Bancorporation v. Lindoe, Inc.

Thus, prison inability but rather have re- was the to make bail. proposition, from this guiding principle deny presentenee of statuto- to ferred to it as a Norton confinement “[Statutory ry interpretation: terms should credit to his new is to treat offense him that in a manner avoids consti- differently be construed counterparts, from his wealthier Suthers, v. tutional infirmities.” Fields enjoyed the who would have freedom of serv- (Colo.1999); P.2d see also John- ing mandatory parole community in the while son, 1298; Massey People, v. 797 P.2d at 736 awaiting sentencing. legislature The intend- (Colo.1987). Majority The P.2d now remedy inequity by ed very to this the enact- jurisprudence, casually repudiates find- our ment of section Its 18-1.3-405. intent must Maj. op. dispositive. not at 348. Schubert denying by not be eviscerated credit erro- Majority’s unconvincing. I find the discussion neously applying exception an that does not in light felony sentencing fit First, the new has not ad- scheme. in Schubert in the con- dressed our rationale presentence credit and

text confinement III. Conclusion Therefore, mandatory parole. we should not usurp legislative function and amend sec- Majority impermissibly amends sec- mandatory parole tion to add 18-1.3-405 mandatory parole, tion 18-1.3-405 to add al- discretionary meant clearly when the statute though only is clear that Second, parole. Majority that states discretionary parole. interpreta- meant Its previously of section worded version 18—1.3— tion of the statute leads results that could at and that was issue Schubert Schu- legislature— not have been intended authority proposi- bert failed cite for the presentence the denial of confinement credit presentence that a tion denial of confinement mandatory parolee parole to a whose was equal protection credit concerns. Id. raises not unrevoked and who could afford to make inap- Therefore it concludes Schubert is judgment I bail. would affirm the plicable. 1988 amendments do Id. Since the Accordingly, appeals. respectfully court of I mandatory parolee, dissent. wording applica- old 18-1.3-405 is of section precisely ble is what we ad- here —which say I am authorized to Justice Moreover, dressed in our ratio- Schubert. joins in BENDER this dissent. firmly nale in Schubert is now embedded jurisprudence, our such that a citation to an concurring opinion

almost two-decade-old concerns, weight. protection Equal

holds no

therefore, remain compelling. BANCORPORATION, PUEBLO penal system, particularly

Our section 18- corporation, 1.3-405, Colorado inequities specifically addresses the Petitioner, indigent post that result an is unable to when simultaneously presen- bail and is denied Majority tence confinement credit. LINDOE, INC., corporation, a Colorado concern, cognizant Maj. op. of that at same Respondent. indigent 348: defendants unable make bail No. 01SC645. presen- are and who the same time denied are dealt a tenee confinement credit harsher Colorado, Supreme Court such, penalty. Majority’s argument As En Banc. equal protection that the concerns announced 21, 2003. Jan. longer compelling rings in Schubert are no Rehearing Feb. 2003.* Denied hollow. mandatory It undisputed that Norton’s unrevoked,

parole he was offered

bail, that he and that the remained reason

* KOURLIS, grant Justice MARTINEZ tice COATS would the Petition. Justice and Jus

I. FACTS AND PROCEDURAL HISTORY (“Hold- Petitioner, Bancorporation Pueblo corporation, ing Company”), is a Colorado holding principal company bank whose asset Trust, The Pueblo Bank commercial throughout with several branches bank In November of southeastern Colorado. 114,217 1997, Holding Company had out- thirty-eight standing owned share- individuals, including twenty-nine holders — corporations, seven two and retirement trusts. Company’s Holding corporate

One of Lindoe, Respondent, was shareholders Inc. LLP, Greg- Rothgerber Lyons, Johnson & Lindoe, holding compa- which is a also bank Oliver, Denver, ory Kanan, Cindy C. Colo- B. ny, purchased first in 1988 has and Altman, Keilbach, rado, Parlapiano Lytle, & acquired they as since additional shares be- Pueblo, Ware, P.C., Lytle, David Colo- Wm. By Lin- came available. November rado, Attorneys for Petitioner. 6,525 (5.71%) Holding Compa- doe owned outstanding ny’s was its shares and sixth- Woods, P.C., Peter F. Breit- Fairfield largest shareholder. Denver, Gradisar, enstein, Colorado, Tre- dispute in motion a This was set chter, Croshal, Ripperger, Roth & Nicholas 1997, Holding tax in federal law. Prior to Gradisar, Pueblo, Colorado, Attorneys A. Company corporation was as a under taxed Respondent. subchapter C of Internal Revenue Code. 1361(a)(2). § earnings I.R.C. The of a C Opinion RICE of the Justice delivered subject taxation; corporation are to double Court. earnings corporate are taxed once then level and taxed a second time at the Petitioner, action, In this dissenter’s level to individual when distributed share- Bancorporation, appeals Pueblo the court of contrast, corporations holders. which appeals’ reversal of the trial determi- court’s qualify subchapter under S Internal the fair value owned nation of of the shares subject generally Revenue Code are not to Lindoe, Inc., a shareholder in taxation; earnings double are not Bancorporation. parties The do not Pueblo pass through at the taxed level but Bancorpo- disagree over the value of Pueblo pay to the who tax on cor- shareholders ration; only issue is whether trial proportion- porate according income to their court, assigning specific a “fair value” to ownership entity. ate in the interest I.R.C. to apply Lindoe’s should a discount § 1363. There are narrow restrictions on marketability. lack reflect the shares’ corporations may types qualify as discount, applied such but the trial court a corporations, prior Holding S held, appeals a court of as reversed However, Company qualify. could not matter of no changes because of certain rules applied. granted to resolve We certiorari corporations, Holding governing Company S appeals regarding a in the court conflict eligible corporation became to elect S status. meaning of “fair We hold that value.” opportunity “fair value” under the Because of the to eliminate the Colorado tax, pro- means Holding Company’s the shareholder’s double board of di- portionate sought ownership company in the value of into interest rectors convert However, Therefore, marketability they corporation. corporation. no an two S faced Code, ap- First, applied. potential under the The court obstacles. corporation peals an have a decision is affirmed. S cannot 1361(b)(1)(B). Disputing estimate, a I.R.C. as shareholder. Lindoe’s Holding Com- shareholders, Holding Company’s pany Several initiated this action order to obtain Lindoe, including qualify would not to hold the court’s determination of the fan- value of Holding Company if it were an stock S Lindoe’s shares. 7-113-301, 2 C.R.S. Second, corporation. an election to become corporation requires

an ap- S unanimous The trial to determine fair value shareholders; proval single of its dissent- experts. a classic Holding battle of Compa can vote block the conversion. I.R.C. ny’s expert 1362(a)(2). Holding concluded that Compa ny, entity, million, as an was worth or $72.9 potential pitfalls, To avoid both these per provided share. Lindoe $638 two valua Holding Company plan devised accom- experts tion whose regarding estimates plish through merger. the conversion Hold- Holding Company value of ranged from $82.8 ing Company corporation, created a second million, million to per $88.5 share value of Bancorp Merger Corporation (Merg- Pueblo primary $725 $775.1 source of dis Corp.), organized er which was an S cor- agreement throughout the proceeding was poration. Holding Company’s Three of di- whether the court should Merger Corp. rectors served as directors of marketability discount to determine the fair and the officers the two entities were the value of Holding Lindoe’s shares.2 Compa companies same. The two entered into a ny’s expert, arguing that the ap court must merger agreement, subsequently approved ply minority both a marketability and dis companies. shareholders both accurately count order to reflect the value resulting entity corporation was an S which shares, applied Lindoe’s both discounts to operating continued under the name Pueblo at opinion arrive his final that the shares had however, Bancorporation; only those share- a per fair value of share. $344 Lindoe’s legally holders who could own shares in an S experts argued application of discounts eligible were to remain share- inappropriate; was the fair value of the surviving corporation. holders of the Share- opinion their was between and $725 holders, Lindoe, ineligible such as that were per share. $775 surviving entity to receive shares of the re- payout exchange a ceived cash for their The trial court first determined the value Holding Company stock. Holding Company entity by as an combin- appraisal After an of the value of opinions experts. its two It shares, Holding Company per offered enterprise concluded that the $341 value of Hold- $76,087,723, share to the cashed out ing Company shareholders. Sever- per or $666.16 accepted al discounts, shareholders the amount and ten- share. On the issue of the court Lindoe, however, dered them stock. persuaded by Holding chose to was Company ap- and higher a plied dissent seek amount. minority Pursuant both a a discount and market- procedure set out in ability Colorado’s dissen- discount to arrive at its value ters’ Lindoe sent a notice to determination of Because Lindoe $362.03. Holding Company rejecting Holding Compa- already had received for its $341 ny’s fair value providing judgment determination and court entered in favor of Lindoe in $137,220.75 ($21.03 its own estimate of fair per value: the amount of $775 times 7-113-209, (2002). § 6,525, Lindoe). share. C.R.S. the number of shares held experts placed entity 1. One of policies. marketability Lindoe's value decisions and A discount million, $82.8 per at between and 88.5 a share adjusts specific the value of shares to reflect the expert placed $725 $775. value of The other ready trading fact that there is no market for the million, entity $82.8 per $725 value or shares. Because there are a small number of share. stock, potential buyers closely-held corporate willing a shareholder be unable to secure a minority 2. The distinction between a discount buyer if he decides to cash out of his investment. marketability a important. discount is A Closely See Edwin T. Hood et. al. Valuation of adjusts specific the value of Interests, Held Business 65 UMKC L.Rev. minority shares to reflect the fact that the shares voting power lack sufficient to control issue, stat- appeal, primary it was Under Colorado’s dissenters’ On ute, court, cer- appropri- dissenting it a shareholder must follow the trial was whether was procedures tain in order the fair apply minority dis- to receive ate to First, upon majority Lin- value of his shares. appeals sided with count. court court, corporate ac- holding approval shareholder of certain the trial doe reversed (listed 7-113-102, 2 applying the tions in section C.R.S. the court discounts. erred (2002)), Lindoe, Inc., dissenting shareholder must noti- Bancorporation v. Pueblo fy company of his to demand intention (Colo.App.2001). P.3d 492 Upon rights. 7-113-204. re- granted certiorari to resolve a conflict We notice, ceiving company pay the must regarding ques- appeals in the court of dissenting which the shareholder amount tion of whether company estimates to the fair value of determining value” under shares. 7-113-206. If the dis- dissenter’s rights statute.3 the Colorado dissenters’ senting with the dissatisfied value, company’s must estimate of fair he II. ANALYSIS provide pay- his own estimate and demand company. § 7- ment in that amount from the unanimous At common consent receiving Upon a demand 113-209. such required for funda- shareholders was most shareholder, dissenting compa- from the corporate changes. rule mental While this ny pay the must either amount of the dissen- by giving protected shareholders proceeding ter’s estimate or commence a power corpo- them veto over all fundamental judicial 7- determination of fair value. changes, frequently in dead- rate resulted 113-301. time, corporate governance lock. Over Throughout process, the entire the statuto- system into evolved in which democratic ry standard of value to which a require typically only the actions entitled is “fair shareholder is value”: approval majority of a of shareholders. See Wertheimer, Value”, respect Barry Purpose M. the “Fair with to a dissenter’s of im- Remedy, Tenn. means the value of the shares Appraisal Shareholders’ 65 see, 7-111-103(5), (1998); e.g., mediately 661 2 before the date of the L.Rev. effective (2002) approval (requiring the a action to which the dissenter C.R.S. of objects, majority excluding any de- appreciation of votes of each class of shares or the carry preciation anticipation in merg- entitled to in order to out a of the vote (2002) er); 7-110-103(5), (requir- except action to the C.R.S. extent that exclusion approval inequitable. a quorum of a of would be in each class shares entitled vote order 7-113-101(4), (2002). 2 C.R.S. incorporation). to amend articles of requires case This us to determine compensate minority In what “fair order to share- the General meant power, every primary construing holders for loss of veto value.” task a Our give form of state has enacted some dissenters’ is to determine effect to statute, ap- Assembly. referred to intent Kern v. also See A.L.I., 1340,1344 (Colo.1987). Gebhardt, praisal remedy. Principles 746 P.2d To intent, Analysis Corporate legislative Rec- discern to the Governance: we first look ommendations, introductory language give note the statute and effect to its Ch. statutes, minority according commonly accepted Under these terms to their disagree meaning. language shareholders who with certain fun- Id. If the of the statute may changes ambiguous, pursue damental can force we alternate construction, buy judicially including their shares at a determined modes of consider price. legislative purpose, ation circum- determining granted applied 3. We be Pueblo certiorari review on the issue fair value. See (citing marketability ap- Bancorporation, a of whether discount be 37 P.3d M Ins. Life Inc., plied. appeals' Sapers Agency, We tire court Co. v. Wallack Ins. 40 P.3d do not review & (Colo.App.2001)). conclusion a not that should adopted, App.1992). stances under which was and the The court construed “fair value” consequences particular synonymous construction. value,” to be with “fair market Meadows, Inc., Engineer v. State Castle 856 an directly conflicted with (Colo.1993). P.2d interpretation provided in Cheesman. Id. at 497. Because the trial court’s determi meaning conclude that We of “fair nation of fair value was not in dispute, the ambiguous. value” is .It ais term that does appeals court of did not question address the commonly accepted meaning have of discounts. ordinary usage, much less the business decided, such, After Breniman community.4 legisla- As we are unable to re ture twice amended the solely by solve the issue before us reference again once 1993 and plain language in 1996. to the of the statute. However, neither of these amendments sub- addition, In as a review of the court of stantively changed the definition of fair val- appeals’ prior illustrates, decisions ue. phrase subject “fair value” has been to incon- judicial interpretations. sistent Subsequent legislative amendments, to the appeals the court of issued three additional addressing In meaning its first case opinions addressing meaning of “fair val value,” concluded, “fair appeals the court of ue.” explicit division of the court contrary argument to the aof ly adopted case-by-case approach shareholder, value” does not neces- meaning explained value and that a sarily par Bancorpora- mean value. Pioneer trial court must consider “all relevant fac Waters, (Colo.App.1988). tion 765 P.2d 597 ascertaining tors” in fair value. In WCM appeals encouraged The court of the trial dus., Inc. v. Trustees the Harold G. Wil court to consider “all relevant factors” in Trust, (Colo. son 1985 Revocable 948 P.2d 36 value, determining fair but did not address App.1997). specific On the issue of marketa specific issue of whether a discounts, bility the court concluded that applied. discount should be ap Id. at 599. propriate circumstances. Id. at 39. year, That same another division of the later, years Four appeals the court of appeals court of concluded “fair value” requirement seemed to relax WCM’s that the may properly calculating determined decision of whether to discounts be corporation’s “net asset value.” Walter by looking determined at “all relevant fac- Moore, Realty S. Cheesman v.Co. 770 P.2d case-by-case tors” on a basis. M Ins. (Colo.App.1988). opinion That court’s is Life Inc., Sapers Co. v. Agency, & Wallack Ins. particular of relevance for two reasons. (Colo.App.2001). Although P.3d 6 the court First, the court noted that “fair value” and stated that a trial court must consider all synonymous. “fair market value” are not Id. factors, relevant it limited the trial court’s Second, at 1311. the Cheesman court was by law, holding, discretion aas matter of specifically the first to the consider issue of minority may applied a not be discounts. It concluded that because the appraising going the a shares of concern. corporation being liquidated, discounts marketability Id. at 13. On the issue should not in ascertaining be fan- discounts, agreed the court with and WCM value. Id. at 1313. case-by-case approach. a embraced Id. at later, years appeals Several the court of 13-14. dissenting held that a shareholder is entitled year, to receive the fair value for his shares even That same a division of the court of though corporation right the had a to appeals redeem decided Bancorpo- this case. Pueblo ration, the specific price. shares at a agreed Breniman v. 37 P.3d 492. The court with Consultants, Inc., (Colo. Agric. concluding 829 P.2d 493 minority M that no dis- Life view, testimony Holding Company’s expert, 4. The “judicially ambiguous,” his the term is a Patten, value, supports legal "recognized Leslie our conclusion that the standard of not a busi- meaning. term “fair value” has no common In ness standard of value.” willing pay buyer Id. at the a would to applied. be 496-97. amount count should effect, contrary acquire interpre- However, the shares. In this position it took a to WCM marketability synonymous fair with holding that a tation reads value as Mand Life An who wants may applied as a matter of fair market value. investor to not be buy minority a in a close- allotment of shares Id. at 499. law. ly-held corporation price the would discount provided appeals has not a The court willing pay he for the was otherwise value,” interpretation espe- of “fair consistent are a shares because shares cially applicability when confronted with company relatively a interest in the and are example, one division of of discounts. For Likewise, illiquid under this in- investment. “fair value” the court concluded that does terpretation, usually the trial court should being corporation a allow discounts where apply minority and discounts. Cheesman, 1308; P.2d liquidated, anoth- possible interpretation The third of fan- held that “fair value” include er division case-by-case approach value which is a allows in- a discount but never adapt meaning discount, 6; the trial court to of fair Life, M P.3d clude specific value facts of the case. yet another construed the term division circumstances, some of a dissen- law, value prohibit all discounts as matter of proportionate mean in- ter’s shares will his Bancorporation, Pueblo 37 P.3d 492. corporation; terest in the in other cases it we are unable resolve Because specific will mean the fair market value by “fair meaning of reference to the value” commodity. shares as a valued language of plain because below, For reasons set we first forth conflicting interpretations of the term meaning hold value” is of “fair law, prior it is the this found case role of question not an fact to issue of meaning of court to determine the this statu opined by appraisers by on and decided course, tory if phrase. legislature Of ease-by-case trial court on basis. interpretation, disapproves of our it has the Next, we conclude that fair value must power to amend the statute to make its meaning; have a definitive either it is the clear. intention proportionate ownership inter- shareholder’s view, In our the term “fair value” could est in it is the value reasonably subject to one of inter- three specific shareholder’s allotment of shares. pretations. possible interpretation, One We conclude that the chose the Lindoe, urged by requires that fair value term “fair value” for a reason therefore the court to value the something than must mean different “fan- looking they represent: at what the owner- precise market value.” To determine the ship percentage corpora- of a certain value,” meaning pur- we consider case, In this trial court tion. found that pose underlying the dissenters’ entity, Holding Company, an was worth provid- and the of “fair value” percent million. Lindoe owned 6.71 $76.1 ed courts and commentators from around therefore, Holding Company and under this country. the view, percent Lindoe is 5.71 entitled to value, just Holding Company’s over $4.3 Finally, proper we hold that the inter proper million. Because the measure of val- pretation fair value is the shareholder’s proportionate ue shareholder’s interest proportionate interest the value entity, in the value of at the discounts Therefore, marketability corporation. dis inapplicable. level shareholder are applied count should sharehold er determine the “fair value” of level to interpretation Another of fair value is dissenter’s shares. specific value the dissenters’ allotment shares, just as one would value owner- A. The Error of a Case- view, ship commodity. Under this al- by-Case Approach though represent ownership Lindoe’s shares percent Holding Company, Holding Company urges court of 5.71 this approach ownership only adopt case-by-case “fail*value” of to the mean- its interest is approach all; “fair value.” would This another is no definition at this could not legislature be the apply a scheme the leave the decision of whether intended. marketability discount in the discretion of case-by-case We conclude that a approach the trial court. to the definition of “fair value” is untenable. “Fair value” must have a definitive meaning; interpretation statutory lan either it is the value of the shareholder’s guage question ais of law which we consider proportionate interest the value of the People Terry, v. de novo. See 791 P.2d 374 corporation entity, anas or it is the value of (Colo.1990). meaning We conclude that the specific par- the hands of that question of “fair value” is a not a ticular shareholder. To the extent M Life question by opined appraisers of fact to be on case-by-case and WCM embraced a determi- by value,” meaning and decided the trial court. See Balsam nation of the they “fair Inc., Chemicals, v. are overruled. ides Protameen 160 N.J. 734 A.2d language We now turn to the purpose and of the statute to determine which of these case-by-case interpretation A of “fair val- interpretations legislature two intended. impre-

ue” results in a definition that is too community. cise to be useful to the business B. Fair Value Does Mean Not case-by-case approach, parties Under Fair Market Value proceed knowing to trial without what inter- interpretation of “fair value” ad cases, valuing. the trial est court is some by Holding Company vocated reads the term the trial court determine that is “fair” synonymous with “fair market value.” pro to award the shareholder his rata owner- a fair Under market value standard a mar ship corporation; interest in other ketability discount should be because cases, the court conclude that it is “fair” is, definition, the court determining the to award the fair market value of the price specific at which a allotment of shares specific shareholder’s allotment of shares. would willing buyer hands between a Although the difference between the two willing However, and seller. in a dissen single largest measures is the variable rights action, dissenting ters’ appraisal process, the court’s choice of which position willing is not the same aas seller adopt largely determined open unwilling on the market —he is an seller expert whichever the court finds more bargaining power. with little or no See persuasive.5 Inc., Swope Siegel-Robert, 243 F.3d (8th Cir.2001). We are convinced that corporation Both the and the “fair value” does not mean “fair market val disadvantaged shareholder are because of ue.” subjective unpredictable nature of case-by-case approach. case-by-case A sixty year history In the of Colorado’s interpretation encourages unnecessary litiga- the measure of tion; costly it is a and inefficient means to compensation changed has from “value” to disputes settle between a and a value,” “fair but the has never dissenting shareholder. A definition of “fan- required paid that dissenters market value” that varies from one courtroom to value” for their shares.6 case, sions, recodifications, 5. In this the court’s determination the standard has re- $4.3 fair value of Lindoe’s shares varied between mained "fair value.” 31-5-13 and 31— solely $2.4 million based on 7-8, this issue of law. (1963) (renumbered 1973); § 2 C.R.S. 7-5- 7-7-108, (1973) (repealed 113 and 3 C.R.S. original 6. The dissenters' enacted 1977); 7-7-108, § § and recodified 7-4-123 and 1941, required paid in dissenters be the “value" (1973 Supp.) (repealed 3A C.R.S. & 1977 and 41, 57(5), § of their shares. Ch. Colo. Stat. Ann. 1981); -124, § recodified 7-4-123 to 3A C.R.S. (1941) 1958). (repealed That remained the stan- (1973 1993); Supp.) (repealed § & 1981 7-113- adopted dard until 1958 when Colorado -302, (2002). 101 to 2 C.R.S. Corporation Model Business Act standard of 32, 76, § "fair value." See Ch. sec. 31-31-13 31-33-8, 119, § 1958 Colo. Sess. Laws 170- amendments, Through subsequent 172. revi- 362 Value”, respect as to a dissenter’s typically value defined “Fair with

Fair market is shares, change shares im- property would means the value of the price at which willing buyer a willing mediately a before effective date of the hands between party neither under an obli- when the dissenter corporate seller action to which v. Public City act. See Thornton gation objects, excluding any appreciation to or de- Comm’n, 196, 188, P.2d 157 402 Colo. Util. anticipation in of the preciation (1965); 59-60,1959-1 194, Rev. C.B. 198 Rui. except to that exclusion action the extent Reed, 237; Jay & L. W. Eisenhofer John inequitable. would be 37, Corp. Litigation, 22 L. Del. J. Valuation (2002) 7-113-101(4), (emphasis 2 § C.R.S. (1997). Assembly intend- If 108 added). for create a fair market value measure ed to Holding Company argues the General that shares, it how price of a knew dissenter’s respect Assembly phrase added the “with to it; many phrase provide has been used to its to indicate intent a dissenter’s shares” variety in a wide of other statutes. times fair value is the market value of the that fair (re- (2002) 7-106-202(5), See, § e.g., 2 C.R.S. shares, specific the value dissenter’s promissory supported quiring that a note be proportionate ownership interest his having at a fair market value collateral corporation. disagree. We of the equal principal to the amount least qualify for note order the note was value definition derived Colorado’s shares); for the issuance consideration Corporation the Model Act from Business (re- (2002) 15-ll-202(l)(a)(XII), § 5 C.R.S. (MBCA) provided which first a definition of estate, that the a quiring assets of decedent’s “fair See the term value” 1978. Model indicated, measured unless otherwise (1978 81(a)(3) Supp.); § Corp. Act 2d Bus. 33 24-18-104(2), value); § 7B fair market their (1978). 2597 The definition Bus. Law. (2002) officer, leg- (forbidding public a C.R.S. nearly adopted verbatim in 1981. Colorado islator, government employee from receiv- 21, -124, 75, § sec. 7-4-123 to Colo. Ch. ing compensation private services which 402, Laws 411-414. Sess. the fair value of those ser- exceeds market The MBCA was revised in 1984 vices). “fair definition of value” was amended conclude the General We if Holding Compa- adding phrase on which mar- a dissenter the fair intended to receive ny respect now relies: “with dissenter’s value for his it would have said ket 13.01(3) § Corp. shares.” Model Bus. Act 3d Olsen, See First Western Bank Wall so. (1984). The official comment Model (S.D.2001); Matthew G. 621 N.W.2d Act does not the amendment or mention Smyth, Wash.App. Norton Co. v. any change suggest was in- substantive (2002) (“It clear, however, 159, 163 P.3d annotation to the tended. authors of the ‘fair Legislature’s our the term use of only indicate that the “[t]he definition[ ] Act Legisla- slip pen not a value’ was —the ’ ... fair value’... from the 1978 revi- [is] value,’ say ture did not intend to ‘fair market stylistic changes.” Model sion with Bus. instead.”). (1984). Corp. Act Ann.3d annotation 13.01 Nonetheless, Holding Company, in repealed its Colorado application arguing for the code and enacted new code based on the is, effect, urging an 191, § Act. 7-101-101 1984 Model Ch. synonymous “fair value” that is with 7-117-105, Laws 732-853. Colo. Sess. market value.” The new definition of fair value included the Company Holding support for this finds unchanged phrase and has remained since position legislative from recent 7-113-101(4), that date. C.R.S. of “fair the definition value.” definition adopted by “fair value” As- the General presume sembly previous in 1993 We the General Assem differs from way, single phrase bly language idly not use and that a definition one does statutory legislative amendment reflects a was added: change meaning. voluntarily the intent to statute’s See altered Barry investment. See Gebhardt, (Colo.1987). Wertheimer, Kern v. 746 P.2d 1340 M. Purpose The the Share- However, presumption may holders’ Appraisal Remedy, overcome 66 Tenn. L.Rev. (1998); Mary Siegel, where the amendment was intended Back to the Future: Appraisal clarify existing Rights law. Id. at in Twenty-First 1346. this Cen- situation, tury, Legis. we conclude that the addition of the 32 Harv. J. on 93-97 phrase, respect “with to a dissenter’s years, In recent purpose of mod shares,” change was not intended to rights ern vig dissenters’ statutes has been likely meaning of the statute. The more orously debated commentators.7 The phrase reason for the addition of the developed consensus that among has courts clarify simply to that the “fair value” defini- and commentators is that the modern dissen in provided rights tion the dissenters’ rights ters’ protect minority statute exists to only applies particular to that and section oppressive shareholders from conduct does not to other state statutes which majority. Wertheimer, supra, at 689 use the same term. If the General (“The suggests appraisal case law [the reme intended the substantive which Hold- dy] functions, does serve several although ing Company did, contends that it we would each overriding goal involves an minority expect to see evidence of that intention protection.”); Thompson, 84 history legislative statute’s or the comments (“Now remedy Geo. L.J. at 4 serves as a Act. to Model We do not. against opportunism by check majority plain Although language of the statute mergers shareholder in and other transac ambiguous, we conclude that “fair value” is tions which the forces synonymous with “fair market value.” requires shareholders out of the business and precise meaning To determine the accept shares.”); them to cash for their M term, purpose we next consider the of the Life, (citing 40 P.3d at 13 Agrie. Breniman v. statute and the of “fair value” Consultants, Inc., (Colo. 829 P.2d provided by courts and commentators around (the App.1992)) purpose of the dissenters’ country. rights protect statute is property “to rights dissenting shareholders from ac C. “Fair Value” Means the Sharehold- by majority tions shareholders which alter Proportionate Ownership er’s In- investment.”). the character of their Corporation terest necessity rights The of a dissenters’ stat- proper interpreta We hold that the protection minority ute for shareholders is tion propor of fair value is the shareholder’s by examining illustrated situations ownership tionate interest the value of the remedy typically today. which the used corporation, discounting without for lack of original appraisal remedy The concern of the marketability. This view is consistent with trapped was for shareholders who were in a underlying purpose of the dissenters’ post-merger investment that did not resem- strong statute and the national trend original Wertheimer, ble their investment. against applying discounts. supra, Today, practice at 667. financial legal changed environments have such that Purpose 1. Dissenters’ mergers solely are often used to cash-out Rights Statute Thompson, shareholders. See su- Historically, pra, (conducting survey ap- statutes 25-28 compensate minority praisal were intended to prior share- cases over the course of the power holders noting eighty percent for the loss of their veto decade and that over provide liquidity those sharehold- cases involved some form of cash-out ers trapped merger). who found themselves in an in- See, Fischel, Law, (1985); e.g., Appraisal Corporate

7. Daniel R. Reme- 32 UCLA L.Rev. Rob- Law, Exit, dy Corporate Thompson, Liquidity, Majority 1983 Am. B. Found. Res. J. B. ert (1983); Law, Appraisal’s Corporate 877-84 Hideki Kanda & Saul Lev- Rule: Role in 84 Geo. more, Wertheimer, (1995); Appraisal Remedy supra. and the Goals LJ. 1 under-compen- be dissenting shareholder will merger, corporation typical

In a cash-out An inter- by ownership interest. for his company which is owned sated a shell creates minority majority gives value” that pretation shareholders. of “fair corporation’s compa- proportionate the shell original corporation and than them The “less shareholders shareholders ny merge and firm’s fair value would the whole share of surviving of as shareholders the minori- continue wealth from produce a transfer of in- minority are shareholders company; the in con- ty to the shareholders shareholders voluntarily of their investment.8 cashed out encourage inevitably would a rule trol. Such squeeze-outs.” In re Valuation serves as the of rights statute The dissenters’ Co., 565 A.2d McLoon Oil Stock Common minority sharehold- primary assurance (Me.1989). compensated for the properly will be ers The involuntary of their investment. loss minority remedy protects the shareholders Trend 2. The National ante, deterring majority by shareholders ex which we interpretation of fair value The transactions, wrongful engaging in from majority view. It today the clear adopt is compensation by providing adequate post, ex that have adopted by most courts has been Wertheimer, su- minority shareholders. issue, authors of the Mod- considered

pra, at 680. Act, Corporation and the Ameri- el Business case, merg- purpose of the the sole In this Institute. can Law Merger Holding Company and between er shareholders, minority Corp. cash out was to a. Other Jurisdictions Lindoe, qualify to hold did not as who such corporation.9 The time and in an S stock interpretation of “fair value” is consis- Our was cashed out was price at which Lindoe adopted by interpretation most tent with the Company. entirely by Holding determined The have considered the issue. courts that especially of other states is interpretation rights purpose of the dissenters’ First, the lan- persuasive for two reasons. through an fulfilled would best be statute it was guage because Colorado “fair value” which ensures Act, nearly identical to the Model based on compensated are for shareholders rights language statutes of dissenters’ is, lost, they proportion them have what country.10 Forty-five states around the going in a A ownership interest concern. ate currently have dis- the District of Columbia with discount is .inconsistent Colorado, which, like unnecessary statutes injects interpretation; senters’ this paid be require that a appraisal process and speculation into the forty- these for his shares.11 Of substantially possibility that a value” increases the Subchapter corporation S under appeals opinion Indus- small business in WCM 8. The court (an Proxy tries, Corporation”).” State- provides example of the Code “S an of a cash-out Inc. case, pursued plan at 5. merger. ment In that WCM ownership consolidate of its stock in the hands code, actively people who involved in its Colorado's while those were 10. We note that MBCA, de- operations. board of directors is not a verbatim business based on the 1984 price at which sharehold- Act. Colorado's dissen- termined enactment of the Model largely exception; out their investment. while would be cashed is no ers ters' Defendants, Act, collectively percent owned 30 two are not identi- who on the Model based section, WCM, However, involuntarily their the most were cashed out of the definition cal. case, they primary purpose important which of this investment means section for challenge price nearly their shares offered Act and other states could identical to the Model by exercising adopted their dis- Act. the Model that have rights. senters' 948 P.2d 36. term are: that use a different 11. The five states (West California, (1) Corp.Code § flatly Cal. proxy statement sent to shareholders 9. The Kansas, value"); (2) ("fair Merger Supp.2003) Merger <& market "purpose stated that the (1995 Supp.2001) & Holding Company Corp. is to Kan. Stat. Ann. ("value”); 17-6712 and into the with Louisiana, (3) La.Rev.Stat. Ann. qualify do not eliminate Shareholders who (“fair 12:131(C)(2) (West Supp.2002) & Holding Subchapter that the S shareholders so Ohio, value”); (4) Ann. Ohio Rev.Code Company eligible as a cash to elect to taxed will jurisdictions, adopted case, five have the defini- shares. In that majority six sharehold- closely-held tion of “fair value” found in the 1999 amend- corporation, ers of Delaware twenty- and another ments to MBCA ownership order to consolidate compa- of the seven, Colorado, including have a definition ny, approved merger.13 a short-form nearly is identical or identical shareholder, dissenting just who owned 1.5 in the 1984 found MBCA.12 percent company’s shares, outstanding rights. exercised his dissenters’ In deter- Second, we believe that one of the mining the fair value of his the Dela- purposes was to facilitate a MBCA Chancery ware Court of refused degree uniformity among of national state discount at the shareholder level. The su- corporate law. Because the General Assem preme court affirmed: bly enacted Colorado’s code based Act, largely presume on the Model we that it appraisal process [T]he is not intended to intended, degree, place to some Colorado’s pro reconstruct a forma sale but to assume step law in with law of other willing shareholder was to main- Holding Company’s interpretation states. tain position, his investment however “fair value” conflicts with the slight, merger had the not occurred. Dis- adopted by already most courts that have counting holdings injects individual share the issue. considered appraisal process speculation into the on discounts, leading regarding In the case the various factors which dictate the Harnett, Corp. Cavalier Oil v. minority A.2d 1137 shareholdings. (Del.1989), Supreme important, the Delaware Court More to fail to accord to a held that discounts should not proportionate be used full shareholder the determining the “fair value” of a imposes penalty value of his shares 1701.85(C) (Anderson 2001) ("fair (16) § ue”); § cash val- Nevada—Nev.Rev.Stat. Ann. 92A.320 (5) Wisconsin, (Michie 1999); Wis. Stat. Ann. 180.1301, 180.1130(9)(a) ("market §§ value" for (17) Hampshire New Ann. —N.H.Rev.Stat. business combinations and "fair value” for other 293-A:13.01(3) (1999); § changes). fundamental (18) § North Carolina—N.C. Gen.Stat. 55—13— 01(3)(2001); twenty-seven jurisdictions 12. Those are: (19) 60.551(4) (2001); Oregon § —Or.Rev.Stat. (1) 10-2B-13.01(4) § Alabama—Ala.Code (20) § South Carolina —S.C.Code Ann. 33-13- (1999); 101(3) (Law.Co-op.1990); (2) 10-1301(4) § Arizona'—Ariz.Rev.Stat. (21) § South Dakota—S.D. Codified Laws 47- (1996); 6-40(3) (Michie 2000); (3) § Arkansas—Ark.Code. Ann. 4-27- (22) § Tennessee—Tenn.Code Ann. 48-23- 1301(3)(Michie 1991); 101(4) (2002); (4) 7-113-101(4), § Colorado— 2 C.R.S. (23) 16-10a-1301(4) § Code Ann. Utah—Utah (2002); (2001); (5) 607.1301(2) (2001); Florida—Fla. Stat. ch. (24) 11A, Vermont—Vt. Stat. Ann. tit. (6) Georgia 14-2-1301(5) § Ann. —Ga.Code 13.01(3) (1997); § (1993); (25) (Mi- Virginia §Ann. 13.1-729 —Va.Code (7) (1993 § Hawaii—Haw.Rev.Stat. 414-341 1999); chie Supp.2001); & (26) Washington Rev.Code —Wash. (8) 30-1-1301(3) (Mi- § Idaho—Idaho Code 23B.13.010(3) (2002); § 1999); chie (27) Wyoming Wyo. § Stat. Ann. 17-16- (9) (Mi- — § Indiana —Ind.Code Ann. 23-1-44-3 1301(a)(iv) (Michie 2001). 1999); chie (10) Kentucky Ky.Rev.Stat. §Ann. 271B.13- — 13. Under Del.Code Ann. title section 253 (Michie 010(3) Supp.2002); 1989 & (2002), which is similar to Colorado's short-form (11) Michigan Comp. Laws —Mich. 7-111-104, merger section C.R.S. 450.1761(d) (2001); § (2002), parent corporation (12) which least owns 302A.473(l)(c) Minnesota—Minn.Stat. ninety percent subsidiary’s outstanding (2002); stock, may merge subsidiary, leaving (13) with the 351.870(4) Missouri—Mo.Rev.Stat. parent corporation effectively as the survivor and (2001); (14) liquidating 35-1-826(4) subsidiary’s the investment of the mi- §Ann. Montana —Mont.Code nority merger, shareholders. In a short-form (2001); (15) 21-20,- voting rights; do not have Nebraska —Neb.Rev.Stat. shareholders 137(4)(1997); remedy appraisal. their sole control, 2000); Nov.27, unfairly enriches the Norton

lack of Matthew G. Co. reap a Smyth, Wash.App. who 51 P.3d shareholders process the appraisal windfall from shareholder, a cashing out a addition, legislatures five state have clearly undesirable result. already adopted amendments to the the 1999 Cavalier, A.2d at 1145. explicitly fair value MBCA’s definition which Cavalier, country across the Since courts minority marketability prohibit dis- marketability have considered issue of (Reg. counts. See 2001 Acts 01-199 Conn. generally and have Dela discounts followed Sess.) (amending § Gen.Stat. 33-855 Conn. jurisdictions with “fair

ware’s lead. Of (2001)); Legis. 2002 Iowa Serv. 1154 statutes, courts in have value” fifteen states 2003) (West)(effective 1, (amending Jan. Iowa marketability a not held that discount should (1999)); Legis. Me. Code 490.1301 2001 applied determining fair value.14 See be (effective 2003) (add- (West) 1, July 640 Serv. Serv., Inc., v. No. Baron Offenbecher 1301(4) 13-C, § ing Me.Rev.Stat. Ann. tit. - 2000025, -, So.2d 2002 WL 959833 (West 1981)); 469, § 2000 Laws ch. Miss. 28 10, 2002); (Ala.Civ.App. May Devi Devivo v. 79-4-13.01(4) (amending Ann. Miss.Code vo, CV980581020, No. 2001 WL 577072 (1999)); (adding 2002 W. Ya. Acts ch. 25 W. 2001) 8,May (interpreting (Conn.Super.Ct. (2002)). Va.Code 31D-13-1301 authorizing of a “fair value” standard statute pe buy-out who has of shareholder states, Finally, not spe- several other while corpo for titioned the court dissolution of the cifically addressing marketability the issue of Bank, ration); Peoples Ga.App. Blitch v. 246 discounts, expressed have the view that the 453, (2000); 667 540 S.E.2d In re Valuation proper of “fair value” is the Co., 565 Common Stock McLoon Oil of proportionate shareholder’s interest (Me.1989); A.2d 997 Advanced Communica concern, going a the spe- as Follett, Design, Inc. v. 615 N.W.2d 285 tion commodity. valued cific stock as a See Han- (Minn.2000) (interpreting “fair value” Co., 310, v. Ranch 957 sen 75 288 Mont. P.2d buy-out authorizing statute a of a standard of (1998) (holding, marketability 32 where dis- petitioned minority shareholder who has for issue, precise count was not the that a minor- dissolution); Swope Siegel-Rob- v. ity not be because the Cir.2001) (inter ert, (8th Inc., 486 243 F.3d proper measure of value is shareholder’s law); preting Rigel Corp. Missouri v. Cutc- “proportionate corporation’s share of the fair (1994); hall, 118, 245 Neb. 511 N.W.2d 519 value”); 75,629 In re Shares Common Smith, Wheaton, Mardon Inc. v. 160 Lawson Inc., Trapp Lodge, 169 Family Stock Vt. 383, (1999); A.2d 738 v. N.J. 734 Uni Woolf 927, (1999) 82, (holding, A.2d 725 931 where (Okla. Co., versal Fid. Ins. 849 P.2d 1093 Life issue, specifically were not discounts that a Ct.App.1992) (expressing approval of the De paid shareholder is entitled position prohibiting laware all discounts “proportionate going his interest in a level); con- Country the shareholder v. Charland HMO-W, cern”); Health (R.I.1991) Inc. v. SSM Club, Inc., Care View 588 A.2d 609 Golf 250, 707, System, 234 Wis.2d 611 N.W.2d 256 the “fair (interpreting value” standard (2000) (prohibiting minority discounts authorizing buy-out a noting that the “focus of valuation is not petitioned who has for commodity dissolution); Martschink, the stock as but rather Motrow 922 v. (D.S.C.1995) only proportionate (same); represents stock First F.Supp. 1093 whole.”); Olsen, enterprise part of the as a see Bank v. 621 N.W.2d 611 also Western Wall Bank, Medical, Inc., (S.D.2001); Stockgrowers v. Bogle v. Arnaud State Zinetics 268 (1999) 163, (interpreting 2002 63 P.3d 80 Kan. 992 P.2d 216 No. UT (2002); Inspect McGreevy, the “fair value” of the statute U.S. Inc. v. standard deal- (Va. No160966, ing payment 2000 WL Cir. Ct. with fractional shares 33232337 states, Maine, prohibit 14. Two of these Connecticut and MBCAwhich the use of discounts. adopted have since amendments to the marketability Although corporate no should We decline to do so. holding that law Corp. states, v. Re- applied); widely among McKesson Islamic varies we believe (D.D.C. Iran, F.Supp.2d 13 public interpre- there is some benefit to a consistent 2000) (citing approval by the “overwhelm- statutory language tation of the same from majority” refusing state courts in jurisdiction one to the next. See In Interest determine apply a discount to R.L.H., 942 P.2d (Colo.App.1997) minority ownership interest which value of (holding that Colorado which was nation). expropriated foreign adopted from a uniform should be con- conformity contrast, strued with other “fair val- state’s inter- six states with pretations). clearly have that fair ue” statutes concluded include

value discounts.15 Kolbenheyer, See Munshower So.2d b. The 1999 Amendments to the Model (interpreting- (Fla.Dist.Ct.App.1999) Corporation Business Act buy-out in the of a fair value context of a petitioned who corporate shareholder for dis- We find the recent also to the amendments Smith, solution); Weigel v. Broadcasting Co. Corporation per- Model Business Act to be 602, 1, IU.App.3d 289 225 Ill.Dec. 682 N.E.2d 1999, suasive. In the MBCA amended its (1996) (holding 745 the decision of definition value to of reflect the national apply marketability whether to discount is against trend in apprais- discounts fair value discretion); within the trial court’s Ford v. value,” als. according “Fair to the amended Co., 639 Printing Courier-Journal Job definition: McDonough (Ky.Ct.App.1982); v. S.W.2d 553 corporation’s value of the means the 12757, Eng’g Corp., Alpha No. 1994 Const. determined: (Va. (trial 19,1994) May WL 1031191 Cir. Ct. court, interpreting Maryland applied buy-out proceed- (iii) discounting mar- without for lack of Pax, Inc., re ing); In Dissolution 123 of Gift ketability minority ap- if except, status 830, (N.Y.Sup.Ct. 475 324 Misc.2d N.Y.S.2d propriate, for amendments to the articles 1984) (interpreting “fair value” in context of 13.02(a)(5). pursuant section authorizing buy-out statute of shareholder dissolution); corporate petitioned

who (1984) 13.01(4)(iii) Corp. Act Model Bus. 3d Mgmt. Or.App. Wyss, Columbia Co. v. 94 (amended 1999). commentary The the 195, 207 765 P.2d makes the 1999 amendments clear adoption of modern was an the “more majority interpret The clear trend is to appraisal generally should award a view proportionate fair value as the shareholder’s proportional his or her ownership going of a shareholder interest concern and not to corpora- corporation valuing the level. the after the discounts shareholder whole, of interpretation urged by Holding Compa- tion as a rather than the value the ny position among would Colorado shrink- shareholder’s shares when valued alone.” jurisdictions country. official cmt. 2. MBCA 13.01 arguably professional corpora- two 15. This list could include federal out of a tion, decisions: held that no discounts should be "where a stockholder or First, Indiana, the district court for the purchases [dissenter's] stock.” v. Wenzel interpreted District of Indiana an earli- Northern Galliher, P.C., (Ind.Ct. Hopper 779 N.E.2d & 30 er statute and Indiana held that a App.2002). proper determining was "fair value.” Second, district court for the District Co., Mfg. F.Supp. See Perlman v. Permonite 568 Nevada, accepted the fair market value (7th (N.D.Ind.1983), 222 1283 734 F.2d affd stock, marketability, discounted for 1984). However, dissenter’s prior Cir. this case decided determining one consider in the “fair factor to corporate code Indiana’s revision of their Corp. dissenter’s value” of a shares. Steiner based on 1984 Model Act and the extent to (D.Nev.1998). F.Supp.2d Benninghoff, 5 represents which the case the law Indiana has However, ultimately weight appeals the court allotted no in doubt been cast recent court appeals, interpreting and it did not affect The court of "fair to that factor its determina- decision. authorizing buy- a state Id. value” under tion of fair value. (in cases, although P.3d each of long been the at 164 these The MBCA has source law, including rights the dis- based statute was on Colorado’s dis- statute. Colorado’s first and the had senters’ MBCA state enacted in 1941 statute was yet adopted senters’ the 1999 to the amendments undergone since numerous revisions MBCA, and has considered the the court nonetheless 5, 57(5), 41, § Ch. sec. Ch. that time. on persuasive MBCA amendments 347. Since Sess. Laws 1941 Colo. issue discounts deter of whether allow adopted the first Busi- Model when Colorado value); Copper see Moun mining fair also Act, code of Corporation ness America, Inc., 890 tain Inc. v. Poma P.2d largely modeled has been after this state (Colo.1995)(noting that the intent Act. amendments revisions Model of a model act which has been authors al., An Nancy A. et. Clodfelter Overview adopted presumed to in Colorado will Corporation the New Colorado Business Assem as the intent of the General same (1993) Act, (noting that Law. 2337 Colo. bly). Act has been a “Model state” since Colorado enactment the first Model act c. The American Law Institute 1958).16 Assembly in General Finally, persuaded by the recom- we are 1984, the Model Revised Business Cor- the American Law Institute mendations of As- poration published. Act was regarding the of “fair value.” by repealing sembly followed suit in 1993 trend The ALI has endorsed the national enacting, large Corporate and in entire Code interpreting proportionate fair value as the 191, § 1984 Ch. 7-101-101 part, the Act. See any going concern share of a “without dis- 7-117-105, § 1993 Colo. Sess. Laws 732- to or, count extraor- for status absent dis- The current version Colorado’s 853. circumstances, marketability.” dinary lack of statute, although rights amended senters’ A.L.I., Principles Corporate Governance: substantially the remains same as the 7.22(a) Analysis § and Recommendations important part Act. The most 1984 Model value, the To determine fair trial case, this purpose for the the statute aggregate court must determine the value value,” nearly of “fair is identical to definition entity, simply for an then the firm as and in the 1984 Model Act. the definition found pro allocate that value rata accordance Holding argues Company that be percentage ownership. with the shareholders’ Assembly adopted the General has not cause § A.L.I. 7.22 cmt. d. we infer the 1999 MBCA amendments should appeals explicitly The court rejected per are that it has them. We value,” adopted the ALI’s definition of “fair years It has than four been less' suaded. including exception “extraordinary amended, the MBCA too short a since was extraordinary circum circumstances.” legislative of time to intent from period infer exception “very is and stances limited” con inaction.17 Because the has apply to the trial court intended when sistently when relied on the MBCA fashion “finds shareholder has this find laws of state we exploit held in order to the transaction out views of the on this issue to be MBCA - giving appraisal divert at rise to so as to value persuasive. Ojfenbecher, So.2d *4; Blitch, -, to that could not made WL at 540 itself available 2002 959833 670; Co., proportionately shareholders.” Matthew G. Norton other S.E.2d MBCA, (1971 Supp.); §§ example, & 16. For edition and 81 7-4-123 the second (re- -124, (1973 published provided Supp.) the basis for the 3A C.R.S. & 1981 to Colorado's dissenters’ 1993). 1977 amendments pealed rights Corp. Bus. Act 2d statute. See Model 7-7-108, (1971); § §§ 7-4-123 80 and way comparison, Assembly By 17. General (1973 Supp.) (repealed and 3A C.R.S. & 1977 adopted original Act of the Model version 1981). Likewise, change a 1978 recodified 1958, eight years publication, after and it its rights adopted MBCA dissenters' adopted the Revised Model Act in nine using Assembly substantially General years originally published. after it was language. Corp. Bus. 2d the same Model Act effect, exception In sembly is, A.L.I. 7.22 cmt. e. must make. Our statute as the notes, to leave ambiguous. is intended room for trial courts to courts, Colorado equitable powers their in certain exception exercise with the appeals’ of the court of extraordinary case, circumstances to ensure that a decision in this interpreted have never just result language is reached. The court of of the statute precluding concluded, appeals as a matter of trial courts from considering marketability valuing the facts of this case did not constitute an discount in dissenters’ shares. We extraordinary presume circumstance. must that the Assembly aware of those cases. appeals

We believe the court of erred in explicitly adopting interpretation ALI Despite the national trend to eliminate the precise fair value. The issue for our review marketability discount and the 1999 amend- marketability is whether a be ments to Corporations the Model Business ascertaining fair value. We hold (“MBCA”), Act eliminating marketability also value,” purpose that “fair for the of the dis- discounts, Colorado General senters’ means the sharehold- has made no movement to the Colo- proportionate ownership er’s interest in the view, my rado statute. we cannot infer therefore, value of the it is any legislative history from surrounding the inappropriate apply marketability dis- statute that the General count at the shareholder level. Because the Assembly has or mandatorily would exclude us, squarely issue is not before we do not use of arriving discounts in question decide the of whether there at valuation. rale, equitable exception an to this such as Hence, legislative absent a clear declara- “extraordinary ALI excep- circumstance” tion, an of the term “fair val- tion, which would allow a trial court essentially gives ue” that a shareholder more discount under certain cir- because, money for its merger cumstances.18 than the shareholder would have received immediately prior corporate action

III. CONCLUSION not, view, my comport does with the lan- guage of the value,” prior statute or with this We hold that the term “fair state’s for the case law. purpose of rights Colorado’s dissenters’ stat-

ute, dissenting pro- means the shareholder’s

portionate interest in valued A. Colorado Case Law going as a concern. The trial court must decade, For over a Colorado courts have corporate entity determine the value of the interpreted permit “fair value” to consider- dissenting and allocate the shareholder his marketability ation of the lack of of the stock. proportionate ownership interest of that val- 1988, In appeals the court of evaluated “fan- ue, applying marketability without discount value” rights as used the 1986 dissenters’ at the shareholder ap- level. The court of statute. Realty Walter S. Cheesman v.Co. peals decision is affirmed. Moore, 1308, (Colo.App.1988). 770 P.2d The statute then “fair defined value” as: Justice KOURLIS dissents and Justice immediately [T]he value of shares before join MARTINEZ and Justice COATS the effectuation of the action to dissent. objects, any which excluding the dissenter dissenting: Justice KOURLIS appreciation depreciation in anticipation or action, of such unless such exclu- view, my defining In “fair value” so to inequitable. sion would be extinguish possibility marketability of (1986). rights 7-4-124(l)(c), discounts in repre- dissenters’ actions 3A C.R.S. The 1986 policy sents a decision that substantially the General As- statute is identical to the eur- argument, Holding Company's Holding 18. At oral Company argued any stage counsel never exception very proceeding present conceded that the ALI is limited this that facts these "extraor- probably dinary and would not to these facts. circumstances.” that, question up no until the except for the There can be rent addition case, no appeals’ court decision in this phrase respect “with dissenter’s 7-113-101(4), interpreted existing court had See C.R.S. Colorado shares.”19 application a market- Realty, precluding the court statute as In Cheesman found ability encompassed something even that the term discount. value.” than “fair market 770 P.2d

broader Legislative Response B. No The envisioned that a deter- at 1311. court require mination of “fair would a con- value” course, Assembly pre- Of General factors, of “all value sideration relevant authority. sumed to know this value, important which are market McMinn, 404, most Vaughan P.2d v. value, earnings asset (Colo.1997) investment net pre- (noting added). (emphasis Id. Because the value.” judicial in an precedent sumed know of suscepti- area). found fair value was court legislates area of in that law when formula, precise ble to a mathematical the However, no the General has taken have to court found that trial courts would step application interfere with courts’ place the value to on each factor determine marketability in dissenters’ discounts case-by-case Id. on basis. Indeed, rights actions. Assem- bly the statute substan- 1992, considered and made Again appeals the court of evaluat- changes again tive in 1993 and in 1996 with- “fair value” the 1986 definition in ed under addressing marketability out discount. redemption deciding price whether the fixed corporation’s incorporation in a articles of set C. The National Trend precluded shareholder from ob- taining preferred scholarly fair The value for his stock. national and trend toward Consultants, Inc., Agrie. marketability Breniman v. 829 the elimination of (Colo.App.1992). evolving P.2d court has been over a decade. “ leading value’ is akin case to determined ‘fair Delaware which the value, supporting value a market which is the sharehold- cites in elimination of country receive if he er would for his stock were able discount across the arms-length prior it in an Id. to sell transaction.” to Colora- decided even 1989— do’s 1993 amendments to the dissenters’ appeals again court ad- Maj. at-(discussing op. statute. applicability dressed the Harnett, Corp. Cavalier 564 A.2d 1137 Oil in a action. WCM (Del.1989)). The American Law Institute Indus., Inc. v. Trustees Harold G. value,” published its Trust, 1985 Revocable 948 P.2d Wilson 1994, marketability eliminating in discounts 38-40, (Colo.App.1997). The court followed again, Assembly con- when General in precedent finding that a its determination 1996, sidered in no move the statute it made requires fair value courts consider “all comport the Colorado with statute marketability “a relevant factors” and that A.L.I., Principles A.L.I. modification. circumstances, may, appropriate in Corporate Analysis and Rec- Governance: applied, but that such determination is a 7.22(a) (1994). § ommendations hoc, factual one that made on an must be ad case-by-case fact, though corpora- at 39 in In (emphasis basis.” Id. even Colorado’s Industries, MBCA, original). Citing largely the court tions code is on the WCM based appeals again Assembly explicitly rejected held that trial should General some courts applicability marketability changes during time frame. evaluate MBCA this same Assembly adopt in each case. M Ins. v. The General did not Co. Life Inc., changes illiquidity of Sapers & Wallack Ins. 40 P.3d that abolished Agency, 6,13 (Colo.App.2001). process.20 valuation stocks from the adopt agrees years Model 19. The that Act nine the Revised addition of 368, phrase Maj. op. had no effect. suggest only substantive at Maj. op. Act. n. 17. I would 363. majority opinion 20. The notes that the General Assembly years adopt eight waited the Model majority, I ought take from the Gen- conclusion that

Unlike shareholders to receive Assembly’s inaction an inference that it eral the market value for their shares: either existing being then intended the by or, established the market itself if neces- courts, by place. in interpreted to remain sary, by the court. Similarly, I do not infer that because the Hence, point at the at which the General provisions legislature adopted most has Assembly considering the 1996 amend- Act, adopt position it would also the Act’s ments, against the national trend discounts Indeed, marketability on discounts. Colora- way. was well under The American Law longer do’s definition of value” is no Institute endorsed valuation without dis- definition, verbatim to the MBCA’s so we 1994, Supreme counts and the Delaware legislature cannot infer that the intent of our spawned Court decided the case that and the intent of the Model Act drafters Similarly, ap- debate 1989. our court of Mountain, exactly comport. Copper Inc. peals already opinions had issued three that Inc., Am., 100, v. Poma 890 P.2d supported use of techniques, broad valuation (Colo.1995) (holding accept the court can including marketability. Our General As- intent of the drafters of a uniform act as the sembly, groups and the various that monitor intent of the the General As- changes the need for in the did not use sembly’s verbatim enactment of the uniform the occasion of the 1996 amendments to provisions). act’s join amend the group order to Actually, equally plausible in- there is an opting against of states discounts. Addition- ference that can be derived from our General ally, Assembly, the wake of Assembly’s regal'd actions with to the 1996 appeals’ the more recent court of decisions amendments to the dissenters’ statute. permitting the consideration of 1996, the General excluded valuation, steps, has not taken as other company shareholders with shares have, states to curb the use of publicly is either traded where there are process by adopt- discounts in the valuation 2,000 more than shareholders from the dis- ing the 1999 MBCA amendments. See 2001 248, 30, § senters’ statute. Ch. sec. 7- (Reg.Sess.) (amending Acts 01-199 Conn. 113-102(1.3), 1310, 1996 Colo. Sess. Laws (2001)); § Conn. Gen.Stat. 33-855 2002 Iowa Testimony regarding 1321. the enactment of (West) (effective 1, Legis. Serv. Jan. change supports on the 2003) (amending § Iowa Code 490.1301 grounds existing that there is an market for (1999)); (West) Legis. 2001 Me. Serv. 640 publicly companies shares of traded that de- (effective 2003) July (adding Me.Rev.Stat. termines the value of those 13-C, 1301(4)); § Ann. tit. 2000 Miss. Laws therefore, it makes most sense to let the (amending ch. Ann. Miss.Code market be the mechanism which the 79-4-13.01(4) (1999)); 2002 W. Va. Acts ch. valued, shares are rather than a mechanism (adding W. Va.Code 31D-13-1301 negotiations of dissent or court actions. (2002)). The conundrum is we are as- Hearings on H.B. 96-1285 Before the House suming by excluding shareholders who Comm, Labor, on Bus. Affairs & 60th Gen. have access to a market for their from (Feb. 1996) (statement Assemb. An- rights, Assembly the General si- Westrum, thony Ass’n, Von Colo. Bar Bus. multaneously granted shareholders who do Section). legisla- Law The enactment that something to a not have access market premise tion was based on a that the market view, my only windfall. In the clear infer-

value for the shares is best value. It would ence that we can from the amendments draw not make sense to conclude that the General preference a for market valuation. is Assembly wanted the market value stocks publicly companies for traded or where Statutory Language D. Current 2,000 exist, greater than shareholders but not illiquid. currently provides where the stock that is The General Our statute Assembly’s interpreted “immediately actions could be as a shares are valued before the during presage

that that court hiatus, Colorado continued to did not Acts adoption code then as it stood and case. corporations protect the inter- continues to corporate action date of effective minority even with objects, excluding any of the ests the dissenter which anticipation depreciation application of the discount appreciation or except that corporate action to the extent is able to collect the shareholder because § 7-113- inequitable.” exclusion would be of his shares. value 101(4),2 C.R.S. clarity predictability The notion that marketability dis- imposition of a Without by narrowing the number of well served are count, dissenting shareholder the amount the has obvi- court must consider factors a trial for his shares will exceed will receive only real I add that the ous merit. would received had he sold his which he would have close- struggle arriving at value for the is prior to the unrelated reason stock for some place. The elimina- ly-held entity in the first seeking a mi- corporate An investor action. is cer- discounts from the formulation tion of closely corporation nority in a held interest greater predictability, tainly a toward move willing to the amount he is typically discounts is change the fact that value but does not represent minority pay, because the shares parties’ always disputed, with both almost Maj. op. at relatively investment. illiquid relying myriad other consid- experts on a buy would not 360. An investor sum, calculations. under the erations and without account- shares a close my view language present of the is illiquidity of the stock. for the relative marketability discount can be that a So, might any arms-length transaction court if that would contribute the trial triggering corporate change dissen- precede of a “fair value” assessment. ascertainment rights, receives ters’ the shareholder willing an investor is that amount that illiquidity of the

pay taking into account — E. Conclusion where Consequently, in a situation asset. persuasive this court views the exercising However dissen- that same shareholder away applying marketa- rights, a windfall. national trend from ters’ he will collect discounts, bility and the amendments to the change Immediately corporate before MBCA, legislature A.L.I. treatise and the here, if had tried to sell its Lindoe any that it seeks to given not indication has certainly negoti- have buyer most would above, indicated the discount. As eliminate price for the to account ated Assembly taken no action has the General Lindoe, illiquidity as a minori- of the shares. despite backdrop of over a decade of shareholder, ty expect had to the value of allowing law the discount and Colorado case the lack of a market for shares would reflect eliminating the trends use national them. that our I hesitate to assume Gen- discount. accept- opines that windfall is Assembly the intent of the eral dissenting shareholder able since the drafters, light particularly in MBCA “willing” not a seller. action is legislators that the twice amended fact underlying question whether policy began fit these trends and saw statute since Assembly penalize intends to the General any change “fair value” to make undertaking corporations contrary, language. there is some To than unanimous shareholder with less an that the did make indication by rewarding dissenting approval sharehold- preference recognized its amendment Although that would be ers with a windfall. Excluding valuation. a market- for a market choice, legitimate policy I do not see the process ability from the valuation having it. made a windfall that grants shareholders marketability in Leaving the determination legis- absent clear I am disinclined to bestow parties seems most fair to both —as intent. lative gets expected out of his what he respectfully from Accordingly, I dissent not unnec- investment and the majority opinion would reverse the corporate change. The essarily penalized appeals’ decision. remedy court of appraisal found the dissenters’ I am authorized to state Justice join in this

MARTINEZ and Justice COATS

dissent. PEOPLE of State of

Colorado, Complainant, Joseph FISCHER, Respondent.

Mark

No. 02PDJ058. Judge Presiding Disciplinary of the

Office Supreme Court of Colorado.

Feb. 2003.

Case Details

Case Name: Pueblo Bancorporation v. Lindoe, Inc.

Court Name: Supreme Court of Colorado

Date Published: Jan 21, 2003

Citation: 63 P.3d 353

Docket Number: 01SC645

Court Abbreviation: Colo.