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Sarrouf v. New England Patriots Football Club, Inc., 397 Mass. 542, 492 N.E.2d 1122, 55 USLW 2011

Facts

The New England Patriots Football Club, Inc. (Old Patriots) merged with the New Patriots Football Club, Inc. (New Patriots) on January 31, 1977. Stockholders who disagreed with the merger sought an appraisal remedy under G.L. c. 156B, §§ 86-98, instead of accepting the merger price of $15 per share. The trial judge valued the stock based on net asset value, considering the unique nature of NFL franchises and the market for such assets.

The defendant, New England Patriots Football Club, Inc. (Old Patriots), was merged with the New Patriots Football Club, Inc. (New Patriots), in a transaction culminating on January 31, 1977. The plaintiffs in this case sought the statutory remedy of appraisal, G.L. c. 156B, §§ 86 – 98, rather than accept the offering price of $15 a share. The merger also spawned litigation by dissenting stockholders seeking to overturn the merger.

Issue

The main legal issues were whether the trial judge's method of determining the value of the plaintiffs' stock was permissible under the statute, whether the judge erred in awarding compound interest, and whether certain stockholders were correctly denied appraisal.

The issues in this case are three claims of error in the decision of the trial judge. Those claims are demonstrated by the following questions: (1) Was the method employed by the judge to determine the value of the plaintiffs' stock permissible under the statute? (2) Did the judge err in awarding the plaintiffs 9% interest compounded annually? (3) Did the judge correctly deny appraisal to certain stockholders who allegedly did not meet the statutory requirements?

Rule

The court applied the principle that the value of shares should be determined as of the day preceding the vote approving the proposed corporate action, exclusive of any value arising from the expectation of the proposed action. The judge considered market, earnings, and net asset values in his valuation.

The statute specifies that the 'value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action.'

Analysis

The court found that the trial judge's method of valuation was appropriate given the unique circumstances of the NFL franchise. The judge determined that net asset value was the most relevant measure, as earnings were of little consequence in this context. The judge's findings were supported by evidence, including the prices paid for new franchises, and he did not err in declining to rely on market value as a reliable indicator.

The trial judge here considered each factor (market, earnings, and net assets) in reaching the value of the Old Patriots stock. Because of the unusual nature of a corporation whose business is the ownership and operation of an NFL team, the judge found that the appropriate measure of value was net asset value. He then considered the evidence indicating a net asset value as high as $28,776,000 and determined that the net asset value of the Old Patriots was between $19,000,000 and $22,000,000. He then chose the more conservative figure of $19,000,000 as the basis of his valuation.

Conclusion

The court affirmed the trial judge's valuation of the Old Patriots stock at $80 per share and upheld the award of 9% compound interest. However, it reversed the denial of appraisal to certain stockholders based on an overly strict interpretation of statutory requirements.

Summary. The judge's method of valuation was not in error. His valuation of the Old Patriots stock at $80 a share was warranted by the evidence. We affirm. The award of 9% interest compounded annually was within the authority of the judge in this equitable proceeding. We affirm.

Who won?

The plaintiffs prevailed in part, as the court upheld the trial judge's valuation and interest award while reversing the denial of appraisal to certain stockholders.

The plaintiffs urge us to uphold the trial judge's decision, except for his denial of recovery to certain plaintiffs. The plaintiffs claim that we should overturn that denial because the proper requirement to qualify for the appraisal remedy should be a good faith effort to comply with the statutory procedure and the receipt by the corporation of sufficient notice of possible dissenters.

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