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Dissolving What’s Been Merged: Judicial Dissolution Claim Survives Merger

Appellate Litigation Alert E. King Poor

Last month, in a case of first impression, the Wisconsin Supreme Court held that a former minority shareholder could still seek a judicial dissolution - even after he ceased to be a shareholder when the corporation had been merged. In Notz v. Everett Smith Group, Ltd., 2009 WI 30 (April 29, 2009), the Court considered the claim of Edward Notz, a minority shareholder of one of Milwaukee's longstanding companies, Albert Trostel & Sons. Notz sued the majority shareholder, the Everett Smith Group, alleging breach of fiduciary duty and also sought a judicial dissolution of the corporation because of oppressive conduct by the Smith Group. While the case was pending, the Smith Group arranged a "cash-out merger" and, as a result, Notz ceased to be an owner of the company. At issue was Wisconsin's version of the Model Business Corporation Act, dealing with the continuation of actions against a corporation after a merger. The Court of Appeals reasoned that the statute merely states that a cause of action survives a merger but "does not address who is entitled to maintain a previously commenced action." In turn, the Court of Appeals determined that because Notz was no longer a shareholder, he no longer had standing to pursue a judicial dissolution.

The Supreme Court reversed. The Court first noted that it had not addressed the question of whether the statute allowed "a merger to strip shareholder status and thus standing from a plaintiff" with a premerger claim. It began its analysis by noting that a claim for judicial dissolution based on oppressive conduct is a direct and not a derivative claim. Under Wisconsin law, a corporation created by a merger remains responsible for the liabilities of its predecessor. The Court then looked to decisions from other states that recognize a merger cannot be "used fraudulently to attempt to strip plaintiffs of the opportunity, based on the lack of standing or on mootness, to pursue previously filed claims."

Finally, the Court returned to focus on the words of the Wisconsin statute and found, "[T]he language of the statute is remarkably clear and is cast in the broadest of terms" and "could hardly be written more explicitly to preserve such a claim: 'as if the merger did not occur.'" Thus, the Court concluded that if the merger had not occurred, then Notz would still have been a shareholder who had standing to bring a dissolution action. As a result, the Court reinstated Notz's claim.

Thus, the essence of the Notz opinion: The urge to merge will not wash out a minority shareholder's claim for judicial dissolution.

If you have any questions about this decision or any of the legal issues that surround it, contact King Poor at 312-715-5143 / (Chicago), Freya Bowen at 608-283-2465 / (Madison) or your Quarles & Brady attorney.