Friedman v. Beway Realty Corp.
New York Court of Appeals
661 N.E.2d 972 (1995)
- Written by Heather Whittemore, JD
Facts
In 1996 the boards of directors and majority of shareholders in nine close corporations (the corporations) (defendants) voted to combine the corporations into a single partnership. A group of minority shareholders (the dissenting shareholders) (plaintiffs) dissented from the transaction and elected to exercise their appraisal rights under the New York Business Corporation Law. The dissenting shareholders proposed a valuation method that calculated their proportionate ownership of the corporations based on the net values of the corporations. The corporations proposed a valuation method that applied a minority discount and a marketability discount to the value of the dissenting shareholders’ stock to account for their lack of control over the corporations and the general lack of a market for close-corporation stock, respectively. The New York Supreme Court found that the method proposed by the dissenting shareholders did not properly account for the unmarketability of their shares. The court also found that the method proposed by the corporations violated state law by imposing an improper minority discount on the value of the dissenting shareholders’ shares. The court adopted the method proposed by the corporations but reduced the discounts they applied to avoid imposing a minority discount. In doing so, the court removed the minority discount and reduced the marketability discount, finding that the discount also accounted for the dissenting shareholders’ minority status. The New York Supreme Court, Appellate Division affirmed the supreme court. The corporations appealed, arguing that a minority discount was appropriate because the minority shares were worth less than controlling interests in the corporations.
Rule of Law
Issue
Holding and Reasoning (Levine, J.)
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