## Facts

- Ziebarth Corporation was formed in 1946 to produce and sell a powdered household bleach marketed as “Snowy.”
- The corporation was capitalized at $50,000 (50,000 common shares at $1 par value).
- Matteson and Ziebarth transferred property (including formula, trademarks, machinery, equipment, and supplies) valued at $11,200 for 11,200 shares; Matteson received 3,600 shares (one-third interest) and Ziebarth received 7,600 shares (two-thirds interest).
- Ziebarth later acquired additional shares and, by May 1950, held 27,200 shares, giving him majority control.
- The corporation operated at a loss for years; by May 31, 1950, it had lost $15,235.34 of the $20,000 capital Ziebarth had supplied.
- Ziebarth formed Snowy, Inc., which he controlled, and proposed a statutory merger between Ziebarth Corporation and Snowy, Inc.
- The merger agreement contemplated exchanging Ziebarth Corporation shares for redeemable shares in Snowy, Inc.; Ziebarth also offered certain minority shareholders an option to purchase Snowy, Inc. common stock.
- The shareholders approved the merger; Matteson was the only shareholder who voted against it and did not make a statutory demand for appraisal of his shares.
- After the merger, Snowy, Inc. granted Gold Seal an option to acquire Snowy, Inc.’s outstanding stock, effectively positioning the business for acquisition.
- Matteson sued to set aside the merger as “illegal, unfair, and fraudulent,” alleging the transaction sequence functioned as a freeze-out and a disguised sale on unfair terms.

## Issues

1. Whether the merger and related transactions were so fraudulent, illegal, or unfair that equity could set aside the merger despite the statutory appraisal remedy for dissenting shareholders.
2. Whether a dissenting shareholder who voted against a merger but did not invoke statutory appraisal rights may nonetheless challenge the merger’s validity in an action for rescission.

## Decision

- The Washington Supreme Court affirmed dismissal of Matteson’s action.
- The court held the merger was carried out under the statutory framework and was not shown to be fraudulent, illegal, or an abuse of corporate power.
- Because Matteson failed to pursue the statutory appraisal procedure, he was bound by the merger and could not obtain equitable rescission.

## Legal Principles

- When a merger is completed in compliance with the governing merger statute, a dissenting shareholder’s remedy is ordinarily limited to the statutory appraisal procedure.
- Equity will not set aside a consummated statutory merger absent a sufficient showing of fraud, illegality, or abuse of corporate power causing unfair prejudice to the dissenting shareholder.
- A dissenting shareholder who does not timely demand appraisal cannot later attack the merger on grounds that amount to disagreement with valuation or business judgment.
- Majority control and participation in structuring a merger do not, without proof of overreaching or self-dealing, establish fraud or illegality.

## Conclusion

The court upheld a statutorily approved merger and barred the minority shareholder’s rescission claim because he did not use dissenters’ appraisal rights and failed to prove fraud, illegality, or abusive conduct sufficient to take the dispute outside the statutory remedy.


Matteson v. Ziebarth, 40 Wash. 2d 286, 242 P.2d 1025 (Wash. 1952)