Cawley v. SCM Corp.

In 1986 Hanson Trust PLLC (Hanson) purchased over 50 percent of the outstanding shares of SCM Corporation (defendant) at $75 per share, gaining control of SCM. A merger between SCM and HSCM Merger Company (HSCM), a subsidiary of Hanson, was approved by over 75 percent of SCM’s shareholders. William V. Cawley (plaintiff), an SCM shareholder, opposed the merger. Cawley was offered $75 for each of his shares of SCM stock. Cawley rejected the offer, believing the stock was worth more. Under relevant tax laws, SCM would receive a substantial tax benefit from Cawley selling his shares. Cawley believed that the tax benefit that SCM would receive from the sale of his shares should be factored into the fair value of his shares, increasing their price. Cawley initiated an appraisal action pursuant to the New York Business Corporation Law, which allows a shareholder dissenting from a merger to receive fair value for his shares after a valuation by a court. The New York Supreme Court, the state’s trial court, found that $75 per share was a fair price for the stock. In coming to its conclusion, the supreme court considered the price at which Hanson had purchased its SCM stock and the trading history of the stock prior to the merger. The supreme court did not consider the tax benefits that SCM would receive as a result of the merger. The New York Supreme Court, Appellate Division affirmed the supreme court. Cawley appealed.