## Facts

- The former Cleveland-Cliffs Iron Company issued preferred shares under an agreement providing a liquidation preference if the corporation “dissolved, liquidated, or wound up.”
- The boards of directors and majority shareholders of the former iron company and Cliffs Corporation approved a statutory consolidation of the two companies’ assets and liabilities, forming a new corporation (also named Cleveland-Cliffs Iron Company).
- The consolidation was submitted to shareholders and approved by the required supermajority vote (more than two-thirds of the voting power of each corporation) as permitted by Ohio’s consolidation statute (Ohio General Code § 8623-67).
- After the consolidation became effective and the agreement was filed with the Ohio Secretary of State, a group of preferred shareholders of the former iron company filed suit in the Ohio Court of Common Pleas (Cuyahoga County).
- The preferred shareholders sought equitable relief to invalidate or set aside the consolidation and requested specific performance of the preferred-share agreement, claiming entitlement to the contractual liquidation preference.
- The preferred shareholders argued that, in substance, the consolidation operated as a dissolution or liquidation (triggering their preference) or was an improper corporate action used to defeat their contractual rights.
- The corporate defendants maintained that the consolidation was expressly authorized by statute, was fairly submitted to shareholders, and did not constitute a dissolution or liquidation; they also contended that dissenting shareholders had a statutory method to obtain the fair cash value of their shares.

## Issues

1. Whether the consolidation was lawful under Ohio General Code § 8623-67, or instead an improper use of the consolidation statute that should be set aside in equity.
2. Whether the consolidation constituted a “dissolution, liquidation, or winding up” that triggered the preferred shareholders’ contractual liquidation preference.
3. Whether equitable relief (injunction, invalidation, or specific performance of the liquidation preference) was available when the consolidation was properly approved and a legal remedy existed to determine the fair cash value of the dissenters’ shares.

## Decision

- The court upheld the consolidation as legal and within the authority granted by Ohio General Code § 8623-67.
- The court rejected the claim that the consolidation was a dissolution or liquidation that triggered the preferred shareholders’ liquidation preference.
- The court found no basis to set aside the transaction on grounds of unfair presentation or deceptive conduct toward shareholders.
- The court denied the requested equitable relief, reasoning that dissenting shareholders had an adequate remedy at law to pursue determination of the fair cash value of their shares.

## Legal Principles

- Statutory consolidation authority existing at the time shares are issued forms part of the shareholder’s contract with the corporation, along with the express terms of the stock agreement.
- A consolidation that transfers assets and liabilities into a successor corporation and continues the enterprise is not, by itself, a “dissolution, liquidation, or winding up” that triggers a preferred stock liquidation preference.
- Courts will not set aside a consolidation approved in compliance with statutory voting and filing requirements absent proof that the transaction was illegally structured, or unfairly or deceptively submitted to shareholders.
- When a statutory appraisal-type remedy is available to dissenting shareholders (to obtain the fair cash value of their shares), equity ordinarily will not grant extraordinary relief such as invalidating the consolidation or compelling payment of a contractual liquidation preference.

## Conclusion

Anderson held that a consolidation authorized by Ohio statute and approved by the required shareholder vote was valid and did not trigger preferred shareholders’ liquidation preference, because the consolidation continued the business in a new corporate entity rather than distributing assets in liquidation; absent unfair dealing, and given an adequate legal remedy to determine fair cash value, the court refused to grant equitable relief or order specific performance of the liquidation-preference provision.


Anderson v. Cleveland-Cliffs Iron Co., 87 N.E.2d 384 (1948)