## Facts

- One Securities Corporation (OSC) and Benefit Plan Services, Inc. (BPS) were closely held Subchapter S corporations; Barbara and Ronald Balser owned two-thirds and Richard Magner owned one-third.
- At a joint board meeting on March 22, 1999, directors approved plans to merge OSC into Giotto, Inc. and BPS into Giotto Administrative Services, Inc., shell corporations formed for the transactions.
- The directors set March 25, 1999 as the record date for shareholder voting eligibility and contemplated paying Magner the fair value of his minority interest; the stated purpose of the mergers was to cash out Magner’s interest.
- On April 9, 1999, Magner instructed the corporations to cancel his shares and reissue them to The Magner Family, LLC, effective April 14; the transfer was understood to risk the corporations’ Subchapter S status.
- On April 26, 1999, shareholders approved the mergers.
- On May 4, 1999, OSC and BPS sent a dissenters’ notice directing Magner to demand payment and tender his shares by June 7, 1999 to perfect appraisal rights.
- On May 12, 1999, Magner again directed reissuance to the LLC (effective April 14), and the corporations issued stock certificates in the LLC’s name.
- On June 7, 1999, both Magner and the LLC demanded payment and tendered the LLC’s stock certificates.
- The corporations refused payment, asserting Magner forfeited any appraisal rights by canceling/reissuing his shares and the LLC lacked rights because it was not a record shareholder on the record date.
- OSC and BPS filed a declaratory judgment action on appraisal rights and, if applicable, judicial valuation; Magner and the LLC counterclaimed attacking the mergers’ validity and seeking rescission.
- The trial court granted summary judgment to OSC and BPS, finding the mergers valid and that neither Magner nor the LLC had dissenters’ rights.

## Issues

1. Whether Magner retained statutory dissenters’ (appraisal) rights after directing cancellation and reissuance of his shares to an LLC before tender.
2. Whether the LLC, as transferee, had dissenters’ rights despite not being the record shareholder on the corporations’ record date for the merger vote.
3. Whether the cash-out mergers were invalid or rescindable based on alleged unfairness, oppression, or breach of fiduciary duty.

## Decision

- The Court of Appeals of Georgia affirmed summary judgment for OSC and BPS.
- The court held neither Magner nor the LLC preserved statutory dissenters’ rights.
- The court held the mergers were valid and the counterclaims for rescission failed as a matter of law.

## Legal Principles

- Statutory dissenters’ (appraisal) rights are governed by strict compliance with the corporate code’s procedures and are tied to record-shareholder status on required dates.
- A transferee that is not the record shareholder on the applicable record date lacks appraisal rights under the statutory scheme.
- A shareholder who voluntarily causes shares to be canceled and reissued so that he is no longer the record holder at tender may fail statutory requirements for demanding payment and tendering shares.
- A cash-out merger intended to eliminate a minority interest is not, by that purpose alone, unlawful; absent evidence of statutory noncompliance or actionable wrongdoing, summary judgment upholding the merger is proper.

## Conclusion

The court affirmed that appraisal rights depend on strict statutory and record-shareholder requirements; because Magner transferred record ownership to an LLC before tender, neither he nor the LLC could invoke dissenters’ rights, and the cash-out mergers were upheld as valid.


Magner v. One Sec. Corp., 258 Ga. App. 520, 574 S.E.2d 555 (Ga. Ct. App. 2002)