Rauch v. RCA Corporation case brief

RAUCH V. RCA CORPORATION
861 F.2d 29 (2nd Cir. 1988)

SYNOPSIS: Plaintiff shareholder sought review of a judgment from the United States District Court for the Southern District of New York, which dismissed plaintiff's class action complaint that challenged the propriety of a merger.

FACTS:
-RCA (D) agreed to merge with GE. The stock at issue in this particular case was cumulative preferred stock and under the merger agreement each share of that stock would be converted to $40.00 cash.
-Rauch (P) held 250 such shares and as per the redemption procedures in D's certificate of incorporation P was entitled to $100 per share.
-P claimed that the merger constituted a liquidation or dissolution or winding up of D and that the agreement with GE was a violation of the rights of the preferred shareholders of D.
-P sued under diversity in a class action. D moved to dismiss under 12(b)(6) and P moved for summary judgment.
-The district court concluded that the merger was bona fide and under the doctrine of independent legal significance, dismissed the complaint. P appealed.

ISSUE:
-Under Delaware law is a conversion of shares to cash that is carried out in order to accomplish a merger legally distinct from a redemption of shares by a corporation?

RULE:
-Under Delaware law a conversion of shares to cash that is carried out in order to accomplish a merger legally is distinct from a redemption of shares by a corporation.

PROCEDURAL HISTORY:
-Plaintiff shareholder filed a class action that challenged the propriety of a merger. The district court dismissed plaintiff's complaint pursuant to Fed. R. Civ. P. 12(b)(6).
-The district court had held that plaintiff's action was barred by Delaware's doctrine of independent legal significance.

ANALYSIS:
-On appeal, the court found the merger agreement complied fully with Delaware General Corporation Law under Del. Code Ann. tit. viii, § 251(c) (1983).
-The court rejected plaintiff's contention that the transaction between defendant corporations was essentially a redemption rather than a merger.
-The court held that defendants were entitled to choose the most effective means to achieve the desired reorganization subject only to their duty to deal fairly with the minority interest.
-The court held that the district court properly dismissed plaintiff's complaint because it was barred by Delaware's doctrine of independent legal significance.



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