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Bryan v. Brock & Blevins Co. - 490 F.2d 563 (5th Cir. 1974)

Rule:

Any equitable cause of action that would lie under the same proof and the same findings of the trial court can properly be adjudicated under the district court's pendent jurisdiction over a state cause of action.

Facts:

Robert J. Bryan resigned as an employee of Brock & Blevins Co., Inc., (Brock & Blevins). The other stockholders insisted that only employees were allowed to own company stock and attempted to coerce Bryan into selling his stock. Bryan disagreed about the value of the stock and refused to sell. Instead, the remaining stockholders formed a new corporation that owned 85 percent of Brock & Blevins’ stock and then voted to merge Brock & Blevins into the new corporation while buying Bryan out. Bryan sought redress from the courts, asserting that Brock & Blevins’ use of the Georgia Merger Statute, Ga. Code Ann. § 22-1001 et seq., violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j, and Rule 10(b)(5) of the Securities and Exchange Commission, 17 C.F.R. 240.10b-5 (1964), because the merger was a device, scheme, and artifice used to defraud him of his status as a stockholder in an existing corporation. The district court agreed.

Issue:

Can the Georgia Merger Statute, Section 22-1001 et seq., including the right of the merged corporation to eliminate a dissenting stockholder upon an appraisal and acquisition of his stock, be used solely for the purpose of "freezing out" a minority dissenting stockholder?

Answer:

No.

Conclusion:

The court held that it was immaterial whether appellant's actions violated the federal securities laws because the scheme violated general state corporation laws and principles of equity, and there was no business purpose served by the events.

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