Law School Case Brief
Kellogg v. Ga.-Pacific Paper Corp. - 227 F. Supp. 719 (W.D. Ark. 1964)
Arkansas statutes prescribe the method by which the affairs and assets of dissolved domestic corporations are to be liquidated. Ark. Stat. Ann. §§ 64-806, 64-807, 64-811. Without stopping to abstract those statutory provisions in detail, they contemplate that the trustees in liquidation shall collect the corporate assets, pay or provide for the payment of corporate debts and liabilities, and distribute remaining assets in cash or in kind to the former stockholders in proportion to their stock ownership. Those statutes do not contemplate that the trustees in the absence of an agreement among the stockholders shall turn the corporate business and physical assets over to one stockholder or group of stockholders while requiring some other stockholder or stockholders to accept cash as his or their distributive share in liquidation.
This is an equitable action brought by minority stockholders of the Crossett Company (Crossett), a dissolved Arkansas corporation, against that corporation, its former directors and present trustees in dissolution, fourteen in number and hereinafter called the Trustees, and against Georgia-Pacific Paper Corporation (Georgia-Pacific), a Delaware Corporation authorized to do business and doing business in Arkansas. Federal jurisdiction based upon diversity of citizenship and the requisite amount in controversy is not questioned and is present.
The plan of liquidation and distribution contemplated that Georgia-Pacific was to take over all the assets and business of Crossett as its distributive share in liquidation. The minority stockholders were paid a set amount per share, based on the book value of Crossett. The minority stockholders refused to accept the cash payments.
Was Georgia-Pacific’s method of liquidation in accordance with the law?
The court held that the method of liquidation was against the law and that the minority stockholders were entitled to be paid the fair value of their stock, determined impartially, and were not required to accept a value fixed by the majority stockholders. The court reasoned that the value of the property transferred to the acquiring corporation was an arbitrary estimate and the minority stockholders had no power to take part in the estimate. The majority stockholders did not have a superior right to acquire an absolute control of the whole of the corporation and dictate the liquidation plan. The court did not find any fraud on the part of the trustees or the acquiring corporation. It found that the parties should propose and submit a new plan for the distribution of the dissolved corporation's assets.
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