Wyoming Supreme Court on minority discount in determining “fair value”

The Wyoming Supreme Court has held that a minority discount is impermissible in calculating the fair value of a dissenting shareholder’s shares. In Brown v. Arp and Hammond Hardware Co., four cousins owned a corporation. The four agreed to sell a large portion of the corporation’s assets to an entity owned by one of the cousins. They then decided to sell their stock instead of the assets, but one cousin, Brown, disapproved. She desired to sell the assets but was unwilling to sell her entire ownership interest. The other three cousins sold their shares and the purchasing entity then effected a reverse stock split to cash out Brown. Brown perfected her right to appraisal and the primary issue was whether a minority discount should be applied.

Justice Burke held that a minority discount should not be applied. The Wyoming statute is substantially equivalent to § 13.01(4) of the MBCA before the 1999 amendments and does not speak to whether a minority discount is appropriate. After a decent discussion of the background of appraisal rights, Justice Burke noted that states were split on the issue of minority discount at the time Wyoming adopted the MBCA. Later, however, the Delaware Supreme Court decided Cavalier Oil Corp. v. Harnett, which held that minority discounts are inappropriate and most other states have since followed that decision. Justice Burke cited Matthew G. Norton v. Smyth, casebook pate 664, for the proposition that rejecting minority discounts is consonant with the pre-1999 MBCA.

One of the corporation’s arguments in favor of applying a minority discount was that ascertaining fair value is fact-intensive and that the facts here suggest that the objecting shareholder’s mother (who gave her shares to Brown shortly before the reverse stock split) was “troublesome, meddling, [and] difficult”. Justice Burke held that these facts are not “extraordinary circumstances” warranting a discount and noting that the “extraordinary circumstances” exception permits a marketability discount, not a minority discount.