Minnesota Court of Appeals Clarifies When Dissenters are Entitled to an Award of Expert Witness Fees
By: JAMES E. DORSEY & S. JAMAL FALEEL
May 2010
In a recent case, the Minnesota Court of Appeals clarified that a prevailing corporation in a dissenters’ rights case will not be required to pay the dissenter’s expert witness fees.
In PeopleNet Communications Corporation v. Baillon Ventures, LLC, No. 27-CV-08-1328, 2009 WL 3815382 (Minn. Ct. App. May 4, 2010), a shareholder had dissented from the corporate action to sell itself to the corporation’s largest shareholder. The dissenter thought that the shares would be undervalued in the sale and demanded more money. When the dissenter and the corporation were unable to settle, the corporation brought a dissenter’s rights action pursuant to Minn. Stat. § 302A.473, under which the district court would determine the fair value of the dissenter’s shares. Neither party requested a court-appointed appraiser, and the district court did not appoint an appraiser to assist it in its valuation of the corporation.
Following the hearing, the district court apparently determined that the dissenter was not entitled to more money. While the district court determined that the dissenter’s case was “misguided,” it held that it was not “arbitrary, vexatious, or in bad faith”(a finding that saved the dissenter from having costs assessed against it). The dissenter then submitted the fees for its privately retained expert witness along with some incidental costs and asked that those fees and costs be reimbursed by the corporation pursuant to Minn. Stat. § 302A.473, subd. 8(a). When the trial court declined to award the dissenter its expert witness fees, the dissenter appealed.
On appeal, the Minnesota Court of Appeals took the opportunity to discuss in some detail various aspects of Minnesota’s dissenters’ rights statute, Minn. Stat, 302A.473, that protect the shareholders. For example, the court highlighted that, if the dissenter and the corporation cannot agree on the fair value of the shares, it is incumbent on the corporation either to pay what the dissenter requests or to commence a court proceeding under the statute. The court also noted that, if after the hearing the trial court determines the fair value was greater than the offer by the corporation, the corporation must pay the dissenter the difference, whereas, if the trial court determines that the value is less than what the corporation had paid, the dissenter nevertheless gets to keep what it was paid.1
After providing this general framework, the PeopleNet court then turned to the scheme for allocating fees, costs, and expenses under the dissenter’s rights statute. The court observed that subdivision 8 creates two standards for assessing expenses to a corporation in a dissenter’s rights case — one under subdivision 8(a) and one under subdivision 8(b). The court noted that under Minn. Stat. § 302A.473, subd. 8(a), the costs and expenses of the proceeding, as well as the reasonable expenses of any court-appointed appraiser, are generally borne by the corporation even if it is the prevailing party. On the other hand, the court recognized that, if the trial court finds that the dissenter’s “demand for payment was ‘arbitrary, vexatious, or not in good faith,’ then the district court may ‘assess part or all of those costs and expenses against [the] dissenter’” under subdivision 8(a).
The PeopleNet court then turned to the text of Minn. Stat. § 302A.473, subd. 8(b). The court interpreted that provision to mean that, if the trial court finds that the corporation “failed to comply substantially” with Section 302A.473, then the trial court may award the dissenter “all fees and expenses of any experts or attorneys as the court deems equitable.” See Minn. Stat. § 302A.473, subd. 8(b) (emphasis added).
Having reviewed the two statutory bases for assessing fees and costs under the dissenters’ rights statute, the Court of Appeals then analyzed when a dissenter is entitled to an award of its expert witness fees under the statute. The court reasoned that “[i]f a dissenting shareholder chooses to retain an appraisal expert without requesting the expert’s appointment by the district court or despite the district court’s decision not to appoint an appraiser, the dissenting shareholder takes itself outside of the court-directed process contemplated by subd. 7 [which allows the district court to appoint an appraisal witness] and, therefore, outside of subd. 8(a).”
The court found that, because the expert witness fees which are provided for under subd. 8(b) can be awarded to a dissenter upon a finding of noncompliance on the part of the corporation, “the costs which are presumed to be paid by the corporation [under subdivision 8(a)] do not include” the fees and expenses of any experts or attorneys assessable only under subdivision. 8(b). The court cited MT Properties v. CMC Real Estate Corp., 481 N.W.2d 383, 388 (Minn. Ct. App. 1992), for that proposition.
Because the trial court had found that the corporation’s determination of the fair value was accurate and that the dissenter was not entitled to any further payment, the Court of Appeals in PeopleNet affirmed the trial court’s further finding that the dissenter was not entitled to an award of attorneys’ fees under subdivision 8(b). The broader holding of this case is that Minnesota’s dissenters’ rights statute, Minn. Stat. § 302A.473, simply does not provide for the assessment of the dissenter’s expert witness costs “against a prevailing corporation.”
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1. Though the PeopleNet court did not mention it, another pro-shareholder characteristic of Minnesota’s dissenters’ right’s statute that is not replicated in, for instance, Delaware’s appraisal rights statute (which is what Delaware calls its dissenters’ rights statute) is that, in Minnesota, the corporation must pay the shareholder what the corporation thinks is fair value before the proceeding is commenced. Minn. Stat. §302A.473, subd. 5. In Delaware, no payment is made until after the court rules on the value issue. Del. Code § 262 (i).