## Facts

- Amplica, Inc. was privately held until it offered shares to the public on July 22, 1981.
- David J. Steinberg, a minority public shareholder, bought Amplica stock in the offering and held shares through a later merger.
- Amplica agreed to merge with Communications Satellite Corporation (Comsat), making Amplica a wholly owned subsidiary, and minority shareholders were to receive cash for their shares.
- Steinberg alleged the merger consideration undervalued his shares due to fraud and breach of fiduciary duty by majority shareholders, directors, officers, and related parties.
- Steinberg did not seek to enjoin or challenge the merger before it closed; after consummation, he filed a putative class action seeking compensatory and punitive damages based on alleged undervaluation.
- Defendants argued that California’s dissenters’ rights provisions required Steinberg to pursue appraisal (a judicial determination of fair market value) rather than a damages action.
- The trial court agreed and limited Steinberg to the statutory appraisal remedy; Steinberg appealed.

## Issues

1. Whether California Corporations Code § 1312(a) makes appraisal the exclusive remedy for a dissenting shareholder who claims merger consideration was unfair due to fraud and breach of fiduciary duty affecting valuation.
2. Whether a dissenting shareholder may maintain a post-merger action for compensatory and punitive damages when the claimed misconduct is directed at the price paid for the shares rather than the merger’s legality.

## Decision

- The California Supreme Court affirmed the judgment for defendants.
- The Court held that appraisal is the exclusive remedy under § 1312(a) when the shareholder’s claim is, in substance, that the shares were undervalued in the merger.
- Allegations of fraud or breach of fiduciary duty do not permit a separate damages action if the relief sought is to correct the merger price through compensation outside the appraisal process.
- A non-appraisal remedy may be available only where the claim involves illegality or a fraudulent scheme of the type that would justify enjoining or setting aside the merger, rather than disputing fair value.

## Legal Principles

- California’s dissenters’ rights statutes provide a mechanism for dissenting shareholders to obtain “fair market value” for their shares, with judicial valuation available if the parties cannot agree.
- Under Corporations Code § 1312(a), a shareholder entitled to demand cash for shares generally has no right “at law or in equity” to attack the merger’s validity; valuation disputes must be channeled into appraisal.
- Courts distinguish (a) valuation-based claims, which belong in appraisal, from (b) claims asserting illegality or a fraudulent scheme directed at the merger transaction itself, which may support other relief.
- Post-merger damages actions that reframe valuation disputes as tort or fiduciary-duty claims are barred when they would effectively circumvent the finality and exclusivity of the appraisal remedy.

## Conclusion

The court held that a dissenting shareholder alleging that merger consideration was depressed by fraud or fiduciary misconduct is limited to the statutory appraisal process when the claim targets the fairness of the price paid, and may not pursue separate compensatory or punitive damages absent allegations of illegality or a fraudulent scheme warranting relief against the merger itself.


Steinberg v. Amplica, Inc., 42 Cal. 3d 1198, 729 P.2d 683 (Cal. 1986)