Standards of Value: Theory and Applications, 2nd Edition

CHAPTER 3

Fair Value in Shareholder Dissent and Oppression

Gilbert E. Matthews and Michelle Patterson

FAIR VALUE AS THE STANDARD OF VALUE IN DISSENT, OPPRESSION, AND ENTIRE FAIRNESS CASES

State courts employ fair value as the predominant standard to determine the value of minority shares in both appraisal (also known as dissent)1 and oppression cases. When the courts determine the minority's share price in an appraisal or order the buy out of an oppressed minority shareholder, the price of the award or buyout is critical for both parties and sets the “fair value” of the minority's shares.2 Although appraisal and oppression statutes in most states expressly or effectively stipulate that the minority's shares are to be valued at “fair value,” there remains considerable confusion about what “fair value” means. To understand fair value as a standard of measurement, it must be considered in contrast to the standards of value called fair market value and third-party sale value, as will be discussed in this Chapter.

Both appraisal and oppression cases are governed by state law. That state law includes corporate law statutes, the judicial interpretations of those statutes, and the courts' holdings under their equitable authority, even when the state lacks corresponding statutes.3 Although fair value is now the state-mandated or accepted standard for judicial appraisal and oppression valuations in almost all states, there are differing interpretations of its meaning and measurement that ...