A shareholder has the right to receive fair value for his or her shares in the event of certain corporate transactions, such as a merger or sale of assets, by exercising dissenter's rights. But in order to exercise your right to dissent and obtain that fair value, you must follow the specific requirements of Michigan law. And as with many areas of law, the devil is often in the details. For example, we've previously discussed the key considerations for option contracts, including strict compliance with the option terms. One missed detail in the process, and the option contract expires. The same is true when it comes to dissenter's rights, as highlighted by a recent Court of Appeals decision.
In Harkins v Sun Pharmaceutical Industries, Inc.,1 the plaintiffs were beneficial owners, and Cede & Company ("Cede & Co.") the record owners, of shares in Caraco Pharmaceutical Laboratories, Ltd. ("Caraco"). Caraco proposed a merger with its controlling shareholder, Sun Pharmaceutical Industries ("Sun Pharmaceutical"), under which the plaintiffs' shares would be canceled for $5.25 per share. The plaintiffs sent a notice to Caraco that they were asserting dissenter's rights and demanded payment of $47.03 per share. Later, Cede & Co. also sent a notice, asserting dissenter's rights on behalf of the plaintiffs. The merger was later finalized, and the plaintiffs thereafter sued, seeking to recover the $47.03 per-share value. With both the beneficial owners (the plaintiffs) and record owner (Cede & Co.) sending written notices to Sun Pharmaceutical expressing their dissenter's rights, surely the plaintiffs were entitled to a ruling on the proper per-share value of their shares, right? Wrong.
Instead, on appeal, the court held that Sun Pharmaceutical was entitled to summary disposition because the plaintiffs failed to follow the strict requirements of the dissenter's rights statute. What did the plaintiffs do wrong? As noted by the court, Michigan's dissenter's rights statute states that a beneficial shareholder (like the plaintiffs) may assert dissenter's rights "only if" they "submit to the corporation the record shareholder's [Cede & Co.'s] written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights." Looking at the plaintiffs' initial notice, the court noted that the plaintiffs did not submit Cede & Co.'s written consent to their dissent before or at the same time the plaintiffs asserted dissenter's rights. And, even though Cede & Co. did later send written notice of dissent on behalf of the plaintiffs, because that notice was not sent before or simultaneous with the time the plaintiffs asserted dissenter's rights, the plaintiffs failed to follow the statute. So, enforcing the plain language of Michigan's dissenter's rights statute, the court affirmed dismissal of the plaintiffs' claim.
Take the harsh lesson learned by the plaintiffs in the Harkins case to heart. If you, as a shareholder, want to exercise dissenter's rights and dispute the fair value of your shares, you must follow the detailed steps laid out in Michigan's dissenter's rights statute, and hiring a lawyer to help you through the process is wise. One false move, and you may find yourself with no ability to dissent.
1. No. 344505, 2019 WL 6977838 (December 19, 2019).
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