Appraisal Rights

What are appraisal rights?

Appraisal rights refer to the right of a shareholder of a Florida corporation to obtain payment of the fair value of their shares in certain circumstances, including through a judicial determination of fair value if the shareholder and the corporation cannot agree. Florida law limits appraisal rights for many publicly traded shares through a market exception, although that exception does not apply when the corporate action is an interested transaction as defined in the statute.

Generally, when a corporation undergoes a significant corporate event such as a merger or acquisition, shareholders may have the right to dissent from the transaction and demand appraisal of the fair value of their shares. This right allows shareholders dissatisfied with the price offered for their shares to obtain a judicial determination of the fair value of their shares.

The appraisal process typically involves competing estimates of the fair value of the shares, often supported by valuation professionals. If the corporation and the shareholder cannot agree, a court will ultimately decide on the fair value of the shares in question. As a result, shareholders who exercise their appraisal rights may receive a higher price for their shares than what was offered in the transaction, but the fair value the court determines may also be lower than the offer, and the process can be time-consuming and costly.

Appraisal rights are designed to protect shareholder interests by giving eligible shareholders a way to obtain fair value for their shares. However, appraisal rights are not available in every transaction or for every class of shares, and the specifics of appraisal rights can vary depending on the applicable laws and regulations.

Need help with a matter related to appraisal rights? Schedule your consultation today with a shareholder disputes and derivative litigation attorney.

In Florida, which laws and regulations apply to appraisal rights?

Appraisal rights in Florida fall under Chapter 607 of the Florida Statutes, the state’s Business Corporation Act. Under this law, if a corporate action that triggers appraisal rights, such as a merger requiring shareholder approval, is submitted to a vote at a shareholders’ meeting, a shareholder who wishes to assert appraisal rights must deliver to the corporation, before the vote is taken, written notice of the shareholder’s intent to demand payment for all shares of the class or series the shareholder beneficially owned as of the record date. The shareholder also must not vote any of those shares in favor of the proposed action. Different requirements apply when the action is approved by written consent.

If the corporate action becomes effective, the corporation must send an appraisal notice and form that includes its estimate of the fair value of the shares and an offer to pay that amount. A shareholder who is dissatisfied with the offer must return the form by the stated deadline with the shareholder’s own estimate of fair value and a demand for payment. If that demand remains unsettled, the corporation must commence a proceeding in circuit court within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares; if the corporation does not, a shareholder who made a demand may commence the proceeding in the name of the corporation. The court may, if it so elects, appoint one or more appraisers to receive evidence and recommend a decision on fair value, and the court will ultimately determine the fair value owed to the dissenting shareholders. Some specific statutes that address essential aspects of appraisal rights include:

• Fla. Stat. § 607.1301: This statute defines key terms used in Florida’s appraisal rights provisions, including “fair value.”
• Fla. Stat. § 607.1302: This statute outlines when a shareholder has the right to appraisal and when that right is limited.

What are common issues regarding appraisal rights that lead to litigation?

The following issues are among the most common in actions regarding appraisal rights in shareholder disputes and derivative litigation matters:

• Valuation: One of the most common issues is the valuation of the shares subject to appraisal. Shareholders may argue that the value of their shares is higher than what the corporation is offering or what an appraiser recommended, leading to disputes over valuation.
• Eligibility: Another common issue is whether shareholders can exercise their appraisal rights. Shareholders may dispute whether they meet the requirements for appraisal rights, such as the class or series of shares held, or whether they correctly exercised their rights.
• Timing: The timing of the appraisal process can also be a contentious issue. Shareholders may argue that the appraisal process is taking too long or that the corporation is delaying the process to avoid paying fair value.
• Process: Shareholders may dispute the appraisal process itself, such as the qualifications of the appraisers or the methodology used in determining fair value.
• Payment: Upon receiving a fair value estimate, disputes may arise over the payment of the appraisal award. For instance, shareholders may argue that the corporation is not paying the total amount owed or that the payment is being improperly delayed.

When a set of facts is appropriate to meet the requirements giving rise to appraisal rights, there are many paths a claimant may take. Jimerson Birr takes a value-based approach, which means we look at each action with our clients from the point of view of costs, benefits, and potential liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

What evidence does a plaintiff generally need to file a lawsuit regarding appraisal rights, and what are common legal defenses to those claims?

In Florida, the corporation ordinarily commences the appraisal proceeding, but a shareholder who made a payment demand may commence it in the name of the corporation if the corporation does not do so within 60 days, and a shareholder may sue directly if the corporation fails to pay an offer the shareholder accepted. In these proceedings, a shareholder generally needs to provide evidence of the following:

• Eligibility: The shareholder must demonstrate that they meet the requirements for exercising their appraisal rights, such as the class or series of shares held and the proper exercise of their appraisal rights.
• Valuation: The shareholder should be prepared to present evidence supporting their estimate of fair value, which is measured immediately before the corporate action became effective and without discounting for lack of marketability or minority status.
• Process: Where the corporation’s compliance is at issue, the shareholder may present evidence that the corporation did not substantially comply with the statutory notice requirements, which can support an award of attorney fees and expenses.

Common legal defenses to appraisal rights claims in Florida may include:

• Waiver: The shareholder waived their appraisal rights or failed to exercise them properly.
• Fair value: The corporation’s estimate of fair value is accurate, and the shareholder is not entitled to a higher price.
• Procedural defects: The shareholder did not satisfy the statutory requirements, such as delivering written notice of intent before the vote or returning the appraisal form by the stated deadline.
• Timing: Alternatively, the shareholder missed a statutory deadline for asserting or perfecting their appraisal rights.
• Other defenses: Depending on the case’s specific circumstances, other legal defenses may be available to the defendant corporation, such as limitations on the scope of appraisal rights or the applicability of other laws or regulations.

To see what actions or defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Frequently Asked Questions

1. How can shareholders protect their interests in the context of appraisal rights?

Shareholders can protect their interests in the context of appraisal rights by seeking legal advice early, evaluating their options carefully, and making sure that they understand the applicable laws and regulations.

2. What is the process for appraisal rights?

Generally, if the corporate action is submitted to a shareholder vote, a shareholder who wishes to assert appraisal rights must deliver written notice of intent to demand payment before the vote and must not vote in favor of the action. If the action becomes effective, the corporation sends an appraisal notice and form with its estimate of fair value and an offer to pay that amount. A shareholder who rejects the offer must state their own estimate of fair value and demand payment by the deadline in the notice. If the demand remains unsettled, the corporation must commence a court proceeding within 60 days after receiving the demand to determine fair value, and if it does not, the shareholder may commence the proceeding in the name of the corporation.

Have more questions about an appraisal rights-related situation?

Crucially, this overview of appraisal rights does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys advise individuals and companies on the issues described on this page, including the merits of a claim or defense and the potential exposure. To discuss your situation with a Jimerson Birr attorney, call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.