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The third method of forcing a corporation to purchase a minority shareholder's shares is a statutory appraisal remedy, which may be available under the Alaska Business Corporation Act in two circumstances where there is some fundamental corporate change. The remedy is available upon the merger or consolidation with another corporation, Alaska Stat. § 10.05.417, or upon a sale of substantially all of the corporation's assets. Alaska Stat. § 10.05.447. In some circumstances, however, courts have found that a corporate transaction so fundamentally changes the nature of the business that there is a "de facto" merger which triggers the same statutory appraisal remedy.
In 1961 the three individual appellants, Ralph Stefano, C. Harold Gillam, and Robert Crow formed a corporation known as Alaska Plastics and began to produce foam insulation at a building they bought in Fairbanks. Each of the three incorporators held 300 shares of stock. In 1970 Crow was divorced and, as part of a property settlement, gave his former wife, Patricia Muir, 150 shares or a one-sixth interest in the corporation. From the time of incorporation until this lawsuit, Stefano, Gillam and Crow have been the only directors and officers of Alaska Plastics. Stefano conceded at trial that the corporation forgot to notify Muir of annual shareholders meetings in 1971 and 1974. However, she attended a meeting during which she ratified the actions of the directors in acquiring another company. Muir and Alaska Plastics entered into negotiations to have Alaska Plastics buy back her shares. Muir filed suit after they were unable to agree upon a price for the shares.
Did the trial court err in its order requiring Alaska Plastics to buy back Muir’s stock?
The court noted that involuntary liquidation of a corporation was a severe remedy not favored by the courts. The court held that Muir’s request for liquidation could justify the trial court's judgment as an equitable remedy less drastic than liquidation if supported by certain findings. However, the court held that the trial court failed to make the necessary finding as to whether the acts of the other shareholders were illegal, oppressive, or fraudulent. The court held that the forced buy back could not be justified as a result of a "de facto merger" because Muir approved of the transaction and her interest in the corporation remained unchanged.