Alpert v. 28 Williams Street Corp.

The office building located at 79 Madison Avenue (the building) in New York City was owned by 79 Realty Corporation. Two families, the Kimmelmans and the Zauderers, owned two-thirds of 79 Realty’s outstanding stock, and the plaintiff shareholders (plaintiffs) owned 26 percent of the outstanding stock. A group of investors formed a partnership, Madison 28 Associates (Madison Associates) (defendants), to purchase the building. Madison Associates formed 28 Williams Street Corporation (Williams Street) to purchase the Kimmelmans’ and Zauderers’ shares of 79 Realty, making the partners in Madison Associates the majority shareholders of 79 Realty. The new majority shareholders of 79 Realty approved a merger between Williams Street and 79 Realty and eventually dissolved 79 Realty, leaving Madison Associates as the owner of the building. Through the two-step merger conducted by Madison Associates, the plaintiff shareholders were excluded from 79 Realty with a cash buyout of their interests in 79 Realty at a price above the market value. Because of the merger, Madison Associates would be able to secure outside funding to make repairs to the building and would receive tax benefits. The plaintiff shareholders unsuccessfully opposed the merger. After the merger was finalized, the plaintiff shareholders filed a lawsuit in New York state court against Madison Associates, seeking a rescission of the merger. The plaintiff shareholders argued that there was no business purpose for the merger and that Madison Associates breached its fiduciary duty by unfairly freezing the plaintiff shareholders out of ownership of 79 Realty. The trial court upheld the merger, holding that there were legitimate business purposes for the merger and that the merger had been fair to 79 Realty’s minority shareholders. The appellate division affirmed the trial court. The plaintiff shareholders appealed.