The Exit Theory of Judicial Appraisal

30 Pages Posted: 23 May 2021 Last revised: 1 Mar 2022

See all articles by William J. Carney

William J. Carney

Emory University School of Law

Keith Sharfman

St. John's University School of Law

Date Written: March 19, 2021

Abstract


For many years, we and other commentators have observed the problem with allowing judges wide discretion to fashion appraisal awards to dissenting shareholders on the basis of widely divergent, expert valuation evidence submitted by the litigating parties. The results of this discretionary approach to valuation have been to make appraisal litigation less predictable and therefore more costly and likely. While this has been beneficial to professionals who profit from corporate valuation litigation, it has been harmful to shareholders, making deals costlier and less likely to complete.

In this Article, we propose to end the problem of discretionary judicial valuation by tracing the origins of the appraisal remedy and demonstrating that its true purpose has always been to protect the exit rights of minority shareholders when a cash exit is otherwise unavailable, and not to judge the value of the deal. So understood, judicial appraisal should not be a remedy for dissenting shareholders when a market exit or equivalent protection is otherwise available.

While such reform would be costly to valuation litigation professionals, their loss would be more than offset by the benefit of such reforms to shareholders involved in future corporate transactions. Shareholders presently have adequate protections, both from private arrangements and legal doctrines involving fiduciary duties.

Suggested Citation

Carney, William J. and Sharfman, Keith, The Exit Theory of Judicial Appraisal (March 19, 2021). St. John's Legal Studies Research Paper No. 21-0013 , Available at SSRN: https://ssrn.com/abstract=3849525 or http://dx.doi.org/10.2139/ssrn.3849525

William J. Carney (Contact Author)

Emory University School of Law ( email )

1221 Fairview Road, N.E.
Atlanta, GA 30322
United States
404-373-7198 (Phone)
n/a (Fax)

Keith Sharfman

St. John's University School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
United States
718-990-6616 (Phone)

HOME PAGE: http://www.stjohns.edu/academics/graduate/law/faculty/Profiles/sharfman

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