KOHLER v. SOGEN INTERNATIONAL FD., 99-2115 (Wis.Ct.App. 8-9-2000)

¶ 1. PER CURIAM.

Ted and Jane Petrie appeal from an order granting Kohler Company a declaratory judgment. The circuit court concluded that the Petries waived their right to be a party to the proceeding to appraise the fair value of Kohler shares held by minority shareholders because they did not timely dissent from a proposed merger involving Kohler. Because we conclude that the Petries, through their nominee, received timely and appropriate notice of their dissenters' rights but did not timely exercise those rights, we affirm.

¶ 2. The Petries were the beneficial owners of one share of Kohler stock. At the time Kohler gave notice of an April 24, 1998 special meeting of shareholders (the April 4 notice) at which shareholders would vote on a merger which would require Kohler's minority shareholders to tender their shares at a price determined by Kohler, Kohler's records identified CEDE Company, the Petries' nominee, as the recordholder of the Petries' share of Kohler stock. Included with the April 4 notice were copies of the Wisconsin dissenters' rights statutes and proxy materials (hereinafter the "proxy statement"). The proxy statement advised shareholders that those wishing to assert dissenters' rights had to deliver a written objection before the merger vote was taken.

¶ 3. On May 8 (the adjourned date for the meeting of the shareholders), Kohler's shareholders approved the merger. On May 15, the Petries became aware of the merger, gave written notice of their objection and demanded payment for the fair value of their share of stock.

¶ 4. In July 1998, Kohler filed a petition under Wis. Stat. § 180.1330 (1997-98) to determine the fair value of the dissenters' shares of Kohler common stock. Kohler contended that the fair value of each share immediately before the merger was $55,400, and Kohler paid that amount to those dissenters/respondents who had made payment demands. See Wis. Stat. § 180.1325. Kohler's petition asked the court to determine that it had paid the fair value of the common shares to the respondents and to exonerate Kohler from liability to the respondents. Kohler named as respondents those shareholders who had dissented from the merger within the meaning of Wis. Stat. § 180.1301(3) and exercised dissenters' rights as required by Wis. Stat. §§ 180.1320 to 180.1328. The Petries were not named as respondents because they had not timely asserted their dissenters' rights.

¶ 5. In December 1999, the court granted the Petries' motion to intervene in the action to determine their rights, if any. Kohler moved for a declaratory judgment that the Petries had not satisfied the statutory requirements for asserting their rights as dissenters, were not entitled to payment under Wis. Stat. §§ 180.1301 to 180.1331, and could not be parties to a proceeding under § 180.1330 to appraise the fair value of Kohler shares.

¶ 6. The circuit court found that Kohler complied with the Wis. Stat. ch. 180 notice requirements relating to dissenters' rights. The court specifically found that the April 4 notice to CEDE complied with the statutory requirements. Although the Petries did not receive the notice and were not in a position to comply with the statutory requirements for asserting dissenters' rights, the court noted that the deficiency would be visited upon the Petries or their agent, CEDE, not upon Kohler. The Petries appeal.

¶ 7. The Petries do not contest that their nominee, CEDE, received the April 4 notice. They also do not contest that CEDE appeared in Kohler's records as the owner of their share of stock. The circuit court found that the April 4 notice to CEDE complied with the applicable statutes. Therefore, it is undisputed that Kohler complied with the notice requirement for corporate actions to which shareholders may object. See Wis. Stat. § 180.1321(1).

¶ 8. The Petries have offered no explanation for the failure of CEDE to alert them to the April 4 notice and the legal requirements emanating from it. The Petries' failure to assert their dissenters' rights in timely relation to the April 4 notice is the dispositive fact in this appeal. Cf. Wis. Stat. § 180.1323(3) (shareholder who does not demand payment by the date set in the dissenters' notice is not entitled to payment for the shares under Wis. Stat. §§ 180.1301 to 180.1331).

¶ 9. In Enstar Corp. v. Senouf , 535 A.2d 1351, 1354-55 (Del. 1987), the court discussed the type of situation presented by this case:

The use of security depositories by brokerage firms now is a common practice. The decision in that regard, however, is a matter which is strictly between the broker and its clients. . . . In making that choice, the burden must be upon the stockholder to obtain the advantages of record ownership. . . . The legal and practical effects of having one's stock registered in street name cannot be visited upon the issuer. The attendant risks are those of the stockholder, and where appropriate, the broker. . . . If an owner of stock chooses to register his [or her] shares in the name of a nominee, he [or she] takes the risks attendant upon such an arrangement, including the risk that he [or she] may not receive notice of corporate proceedings, or be able to obtain a proxy from his [or her] nominee. . . . Here, the problem is one between the [shareholders] and their brokers. (Citations omitted.)

¶ 10. We agree with the Delaware court and apply the reasoning of Enstar to this appeal. Under Enstar , the failure of CEDE to bring the April 4 notice to the Petries' attention cannot be attributed to Kohler. We agree with Kohler and the circuit court that the April 4 notice to the Petries' nominee was notice to the Petries, regardless of the steps taken or not taken by CEDE to alert the Petries that their dissenters' rights were at stake. We conclude that the circuit court did not misuse its discretion in granting Kohler declaratory judgment. See Wisconsin Educ. Ass'n Council v. State Elections Bd. , 156 Wis.2d 151, 161, 456 N.W.2d 839 (1990).

¶ 11. Because we conclude that the April 4 notice to CEDE was sufficient under the applicable statutes, we do not address any arguments relating to events subsequent to the mailing of the April 4 notice.

By the Court. — Order affirmed.