Dissenters’ Rights And The Saddest Plaintiff

by Allen Matkins

Dissenters’ rights statutes are intended to liberate minority stockholders from the tyranny of the majority.  They accomplish this by allowing stockholders who object to specific transactions the opportunity to require the corporation to purchase their shares pursuant to a statutorily prescribed procedure.  In Nevada, this procedure can be found in Chapter 92A of Nevada Revised Statutes which is modeled after the Model Business Corporation Act.

Of course, a fundamental question for any complaining stockholder is whether she has a right to dissent.  NRS 92A.380 lists the types of transactions in which a stockholder may have a right to dissent.  Like the MBCA (§ 13.02(b)), Nevada has a “market” exception to dissenters’ rights.  Under NRS 92A.390, a stockholder has no right to dissent (unless the articles provide otherwise) with respect to a plan of merger, conversion, or share exchange that is:

  • A covered security under section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. § 77r(b)(1)(A) or (B), as amended;
  • Traded in an organized market and has at least 2,000 stockholders and a market value of at least $20,000,000, exclusive of the value of such shares held by the corporation’s subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares; or
  • Issued by an open end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and which may be redeemed at the option of the holder at net asset value.

The second exception was at issue in a recent Second Circuit Court of Appeals decision.  Tiberius Capital, LLC v. PetroSearch Energy Corp., Case No. 11-1745-cv. (2d Cir. June 2012).  This case involved the merger of PetroSearch into Double Eagle and the failure of PetroSearch to provide dissenters’ rights.  The plaintiff, Tiberius Capital, LLC, argued that “it had no choice but to accept the Double Eagle shares because the Merger Agreement provided that its shares of PetroSearch would be “cancelled and extinguished [and] converted automatically . . . without any action on the part of . . . the holder of [the] shares.”  The court, however, concluded that the plaintiff by affirmatively exercising its right to receive Double Eagle shares acquiesced to the merger as a matter of Nevada law.

On appeal, the plaintiff argued that the doctrine of acquiescence does not apply because it was not fully aware that PetroSearch did not qualify for an exemption from Nevada’s dissenters’ rights statute for corporations with fewer than 2,000 shareholders.  The Court of Appeals rejected this argument finding that it was ”plain from the face of the Amended Complaint that Tiberius did know that PetroSearch had fewer than 2,000 shareholders . . . .”  In support, the Court of Appeals cited Cohen v. Mirage Resorts, Inc., 62 P.3d 720 (Nev. 2003), a case in which the Nevada Supreme Court cited the predecessor to my book, Bishop & Zucker on Nevada Corporations and Limited Liability Companies

Why do I refer to Tiberius as the ”saddest” plaintiff? 

Tiberius Claudius Nero reigned as Rome’s emperor for more than two decades (14 C.E. to 37 C.E.).  The great Roman polymath Gaius Plinius Secundus (aka Pliny the Elder) called Tiberius the “saddest man” (a better translation might be “most unsociable of men”) in this passage from Book 28, Chapt. 6 of his book on natural history, Naturalis Historia:

Cur sternuentes salutamus quod etiam tiberium caesarem, tristissimum, ut constat, hominum? (Why do we salute those sneezing, a practice that even Tiberius Caeser, the most unsociable of men would exact?

Thus, we see the equivalent of the blessing ”gesundheit” is more than 2,000 years old!


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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