## Facts

- 79 Realty Corporation’s sole substantial asset was a 17-story office building at 79 Madison Avenue in Manhattan.
- Two family groups held about two-thirds of 79 Realty’s shares and served as its only directors and officers; the plaintiffs collectively held about 26% as minority shareholders.
- Outside investors formed Madison 28 Associates to acquire the building and negotiated to buy the controlling block at a price tied to the building’s value.
- The investors agreed to offer the minority the same price terms within a stated period after the control purchase closed.
- The investors created 28 Williams Street Corp. to acquire the controlling shares; after the sale, the prior controllers resigned and were replaced by investor-affiliated directors.
- The new controllers approved a two-step transaction: acquisition of control followed by a merger that cashed out minority shareholders and resulted in the property ultimately vesting in the investor partnership.
- Minority shareholders objected to the merger, alleging the transaction’s purpose was to eliminate them for cash and that the price and process were unfair given the property’s prospects and claimed tax and financing benefits to the controllers.
- After the merger was consummated, the minority sued for equitable relief, including rescission, based on alleged breach of fiduciary duty and lack of a valid business purpose.
- The trial court upheld the merger; the Appellate Division affirmed; the minority appealed.

## Issues

1. Whether controlling shareholders and their installed directors breached fiduciary duties to minority shareholders by effecting a two-step cash-out (freeze-out) merger.
2. Whether New York law requires an independent “business purpose” for a freeze-out merger beyond achieving full ownership.
3. Whether dissenting shareholders may obtain equitable relief (e.g., rescission) or are generally limited to the statutory appraisal remedy absent serious misconduct.

## Decision

- The Court of Appeals affirmed the judgment for defendants and upheld the merger.
- The court held that a two-step freeze-out merger is not invalid per se; it is permissible if fiduciary obligations are met and the transaction is fair.
- The court rejected a separate, stand-alone “business purpose” requirement as a condition of validity under New York law.
- The court concluded the record did not show fraud, illegality, looting, waste, overreaching, or bad faith that would justify rescission or other equitable relief.
- In these circumstances, appraisal was treated as the appropriate (and generally exclusive) remedy for dissenting shareholders disputing value.

## Legal Principles

- Majority shareholders and directors controlling a cash-out merger owe fiduciary duties to minority shareholders, and courts examine the fairness of the transaction, including process and price.
- New York does not impose an independent “business purpose” test to invalidate freeze-out mergers; the inquiry centers on fiduciary compliance and overall fairness.
- Statutory appraisal is ordinarily the remedy for dissenting shareholders challenging merger consideration; equitable relief is reserved for fraud, illegality, waste, overreaching, or bad faith.

## Conclusion

The court sustained a two-step cash-out merger where the minority failed to prove misconduct warranting equity, declined to require a separate business-purpose showing, and treated appraisal as the standard remedy for valuation disputes in mergers.


Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 473 N.E.2d 19 (N.Y. 1984)