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The full case caption appears at the end of this opinion. The issues presented by this case arise out of a multi-yeardispute between Lawrence E. Lerner, appellant (Lawrence), andTheodore N. Lerner, appellee (Theodore), no strangers to thelitigation process. Lawrence and Theodore are brothers who, formany years, were jointly engaged in the business of buying,selling, developing, and managing real estate. LernerCorporation, another appellee (Lerner Corporation or theCorporation), a subchapter S corporation incorporated under thelaws of the State of Maryland, was the primary business entitythrough which the brothers operated. Lerner Corporation, a closely held corporation but not a”close corporation” within the meaning of Maryland corporationlaw, was organized in 1965. It was authorized to issue ninety-fiveshares of no-par common stock. Theodore acquired seventyshares, and Lawrence acquired twenty-five shares. Theodore waspresident and one of three directors. Prior to September 1983,Lawrence was secretary and a director. The brothers’ relationship deteriorated, and in September1983, Theodore caused Lawrence to be removed as an officer anddirector. Lawrence sued Theodore, Theodore undertook to “freeze-out”Lawrence as a stockholder, and Lawrence brought an action toenjoin the freeze-out. The Court of Appeals affirmed the trialcourt’s entry of a preliminary injunction. See Lerner v. Lerner,306 Md. 771 (1986). Prior to trial of that case, however, thebrothers entered into a settlement agreement dated October 16,.-2-1987 (Settlement Agreement or the Agreement). The SettlementAgreement provided that (1) Theodore would remain the chiefoperating officer of Lerner Corporation, (2) Lawrence would nolonger be involved actively in Lerner Corporation but wouldcontinue to receive shareholder distributions, and (3) Theodorewould have permission to use the resources of Lerner Corporationto benefit his other financial projects. Disputes arose with respect to implementation of theSettlement Agreement. See, e.g., Lerner v. Lerner, No. 1914,September Term 1993 (Maryland Court of Special Appeals filedSeptember 30, 1994)(unreported), and Lerner v. Lerner Corp., 122Md. App. 1 (1998). We see no need to repeat in this opinion thematters decided in the prior appeals. This case once againraises issues concerning the meaning and application of theSettlement Agreement, as well as questions of corporate law. Facts Appellant directs us to two paragraphs in the SettlementAgreement as relevant to the issues presented. Paragraph 5provides: “LEL [Lawrence] shall continue as a shareholder ofLerner Corp. which itself shall continue with TNL [Theodore] as ashareholder.” Paragraph 10, in pertinent part, grants Lawrencethe right to receive a proportionate annual distributive share ofincome plus a preemptive right to purchase a proportionate shareof any subsequent offering of Lerner Corporation’s common stock.Lerner Corporation sold stock in late 1995, but Lawrenceelected not to purchase additional shares. All the shares werepurchased by Theodore, increasing Theodore’s interest to 89.9%and decreasing Lawrence’s interest to 10.1%. In May 1998, LernerCorporation again sold stock, at which time Lawrence purchasedfourteen shares to maintain his proportionate interest. Subsequent to that sale, Lerner Corporation gave Lawrencenotice of a special shareholders meeting to be held on August 24,1998. The purpose of the meeting was to consider a proposedamendment to the Corporation’s charter. The effect of theamendment was to reclassify and convert each of the Corporation’scommon shares into 1/68th of a share, a “reverse stock split,”which would have the effect of reducing Lawrence’s interest toless than one share. The amendment provided that, in lieu of theissuance of fractional shares, Lawrence would be paid the fairvalue of his stock. This would eliminate Lawrence as ashareholder and convert his interest to cash. The notice wasissued pursuant to authorization by the board of directors at ameeting held on August 11, 1998. On August 21, 1998, Lawrence filed suit in the Circuit Courtfor Montgomery County, seeking a declaratory judgment, aninjunction to prevent the reverse stock split, or, if notenjoined, rescission. The court issued a temporary restrainingorder to prevent adoption of the amendment, conditioned onposting a $100,000 bond. Lawrence failed to post adequatesecurity, and the amendment was adopted on August 26, 1998. OnJanuary 4 through 6, 1999, the case proceeded to a non-jury trialon appellant’s claim for rescission and declaratory relief. OnJune 11, 1999, the circuit court rendered a decision, ruling infavor of appellees. At trial, Lawrence argued that the reverse stock split wasnot permissible because Lerner Corporation failed to demonstratea legitimate business reason and because it violated the terms ofthe Settlement Agreement. Appellees responded that there was alegitimate business reason for the reverse stock split, there wasno fraud or unfairness, and it was not precluded by theSettlement Agreement. The circuit court ruled that the Settlement Agreement didnot address the issue of duration. The court thus implied areasonable time for its duration, finding that the approximateten years, ten months time that had elapsed from the inception ofthe Settlement Agreement to the reverse stock split was areasonable time. Second, the circuit court stated that theSettlement Agreement did not contemplate the “continuedinterference” by Lawrence that was found to exist. Third, thecircuit court discussed the legal standard to be applied tojudicial review of the reverse stock split and stated that, whilethe exact standard was unclear, it was either fraud, fairness, orbusiness purpose. The court, after concluding there was noevidence to show fraud or unfairness, found there was a businesspurpose based on (1) the history of contentious litigation, (2)the likelihood that it would continue, (3) the need to maintainthe subchapter S status of the Corporation that had beenthreatened by Lawrence’s efforts, and (4) the need to maintainadequate cash reserves. Consequently, the court deniedrescission and held that the charter amendment was not inviolation of the Settlement Agreement and that appellees had notbreached their legal duties. Issues Presented Appellant frames the issues as follows: 1. Did the Circuit Court err in terminating the 1987Settlement Agreement among appellant Lawrence andappellees Theodore and the Corporation by creatingand imposing a term of eleven years upon all ofLawrence’s contractual rights arising thereunder,including, in particular, Lawrence’s right tocontinue as a stockholder and to receive an annualdistributive share of income? 2. Did the Circuit Court err in holding thatLawrence’s actions lawfully justified andsupported the entry of a judicial decreeeffectively terminating the 1987 SettlementAgreement? 3. Did the Circuit Court err in concluding that theCorporation lawfully had adopted and couldimplement a 1998 reverse stock split designed towholly eliminate Lawrence’s position as a minoritystockholder? Motion to Take Judicial Notice Appellant filed in this Court a motion to take judicialnotice, which we shall address prior to addressing the issues setforth above. First, appellant asks this Court to take judicialnotice of (1) an order awarding supplemental judgment datedOctober 19, 1998, and (2) a notice of judgment, entered October27, 1998, both by the Circuit Court for Montgomery County inLerner, et al. v. Lerner Corporation, et al., No. 77954 Civil.The orders relate to proceedings on remand as the result of thisCourt’s unreported opinion in Lerner v. Lerner Corporation, No.1914, September Term 1994 (filed September 30, 1994). Appellantsuggests that notice is required to provide this Court with afull chronology of the dispute among the parties. Second,appellant asks us to take judicial notice of Lerner Corporation’soffer to sell stock dated May 18, 1998. This document was notadmitted into evidence. Maryland Rule 5-201 provides that a court may take judicialnotice of adjudicative facts. The rule further provides that”[j]udicial notice may be taken at any stage of the proceedings.”Md. Rule 5-201(f). As such, an appellate court may take judicialnotice. See generally Joseph F. Murphy, Maryland EvidenceHandbook � 1000, at 409 (3rd ed. 1999) (“an appellate court maytake judicial notice of a fact not judicially noted by the trialjudge”); 5 Lynn McLain, Maryland Evidence � 201.1 n.6, at 90(1987 & Supp. 1995) (citing cases in which Maryland appellatecourts have taken judicial notice). The doctrine of judicial notice substitutes for formal proofof a fact “when formal proof is clearly unnecessary to enhancethe accuracy of the fact-finding process.” Smith v. HearstCorp., 48 Md. App. 135, 136 (1981). A court may judicially notefacts that readily can be determined by examination of a sourcewhose accuracy cannot be reasonably questioned. Md. Rule 5-201(b). Included among the categories of things of whichjudicial notice may be taken are “facts relating to the …records of the court.” Smith, 48 Md. App. at 136 n. 1. InMcCormick’s treatise on evidence, it is said to be “settled, ofcourse, that the courts, trial and appellate, take notice oftheir own respective records in the present litigation, both asto the matters occurring in the immediate trial, and in previoustrials or hearings.” McCormick on Evidence � 330, at 766 (2d ed.1972), quoted with approval in Irby v. State, 66 Md. App. 580,586 (1986), cert. denied, 308 Md. 270 (1987). Consequently, we take judicial notice of the order andnotice of judgment entered by the Circuit Court for MontgomeryCounty in Lerner, et al. v. Lerner Corp., No. 77954 Civil. Wedecline, however, to take judicial notice of Lerner Corporation’soffer to sell stock in that it is not a part of the record, andits accuracy is subject to reasonable dispute and cannot be asreadily and accurately ascertained. Discussion 1. Interpretation of Settlement Agreement Appellant contends that the circuit court erred when itimposed an “eleven-year term” on the Settlement Agreement.Appellant argues that the Settlement Agreement was lawful andthat, pursuant to paragraphs 5 and 10, appellant was entitled toa distributive share for his lifetime or as long as LernerCorporation exists. Appellees argue that the Agreement is silent as to durationand such a contract not otherwise terminable at will isenforceable for a reasonable time, and what constitutes areasonable time is a fact question. Additionally, appelleesassert that the restriction in the Settlement Agreementconstitutes an unreasonable restraint on alienation, and becauseappellant is seeking rescission, equity can deny enforcement of acontract when it is unreasonable and enforcement would work ahardship. Appellant responds that a court’s ability to impose areasonable term when a contract is silent is limited to thequestion of when a party is to render performance. The question,in that situation, is whether the other party is excused fromperformance or entitled to relief for nonperformance. Appellantargues that the doctrine does not apply because appellant hasperformed his obligations. We agree with appellees. Our discussion in Kiley v. FirstNational Bank of Maryland, 102 Md. App. 317 (1994), cert. denied,338 Md. 116, cert. denied, 516 U.S. 866 (1995), is instructivehere: Depending upon the intention of the parties,a contract, silent as to duration, maycontemplate perpetual performance,performance for a reasonable time, orperformance until the parties decideotherwise. But Williston and the Restatement(Second) of Contracts agree that, unlessexpressly provided, promises ordinarily arenot interpreted to require perpetualperformance. [1 Richard A. Lord, Willistonon Contracts], � 4:19, at 431 [(4th ed.1990)]; Restatement (Second) Contracts, � 33,Comment d, at 94 [(1981)]. When courts arerequired to interpret such imprecisecontracts, “some period short of infinity” isusually enforced. Williston, � 4:19, at 434.”[A]bsent a contrary intention being shown bythe circumstances, [courts will] interpret apromise which does not in terms state thetime of performance as intending performancein or for a reasonable time.” Id.Similarly, if a continuing performance wasanticipated, but no specific time provisionwas stipulated in the contract, “the contractcontemplates performance for a reasonabletime,” and is usually terminable at any timeby either party. Id., � 4:19 at 442;Restatement (2d) Contracts, � 33. 102 Md. App. at 335-36; see also Goldman, Skeen & Walder v.Cooper, Beckman & Tuerk, L.L.P., 122 Md. App. 29, 46-47(1998)(“In absence of a specific provision, a reasonable durationwill be implied.”)(citing Evergreen Amusement Corp. v. Milstead,206 Md. 610, 617 (1955)). The Settlement Agreement at issue did not address duration.Consequently, as a matter of law, it was effective for a.-10-reasonable time. See Kiley, 102 Md. App. at 336; see also 1Richard A. Lord, Williston on Contracts � 4:19, at 429-48 (4thed. 1990) (hereinafter “Williston”). Appellant has referred us to cases in other jurisdictionsthat are either factually inapposite or of little import here.We briefly distinguish those cases. In Galler v. Galler, 203N.E.2d 577, 586 (Ill. 1964), a shareholder agreement between twobrothers having equal interest in a close corporation did notprovide for a specific termination date. The express purpose ofthe agreement was to provide financial support to thestockholders’ immediate families upon their death. Id. at 580. One of the shareholders died. Id. Thereafter, the agreementwas challenged and held to be enforceable. Id. at 585-86.Despite a clause in the agreement stating that its terms “‘shallbe binding upon and shall inure to the benefits of’ the legalrepresentative, heirs and assigns of the parties,” the courtreasoned that the purpose of the agreement was accomplished atthe death of the survivor of the parties. Id. at 586. No suchexpress purpose exists in the Settlement Agreement in this case.In Glazer v. Glazer, 374 F.2d 390, 404 (5th Cir. 1967),cert. denied, 389 U.S. 831 (1967), the court recognized that, instockholder agreements, the parties’ intention with respect toduration, if not expressly stated, must be construed in light ofthe whole agreement and should be given a practical construction,looking at it from a point in time prior to existence of thedispute (quoting Hornstein, Corporation Law and Practice � 175,at 209-10 (1959)). The court recognized that such agreements maybe construed as revocable at will or as effective so long as theparties live provided “they remain faithful, etc.” Id. There,the court held that the determination with respect to theagreement’s duration was one for the jury, and the agreementcould properly be construed by the jury to continue for areasonable time, “possibly until the death or complete retirementof one of the brothers.” Id. The court’s holding, that thequestion of whether an agreement is enforceable for a reasonabletime is a question of fact, does not advance appellant’sargument. In Wasserman v. Rosengarden, 406 N.E.2d 131 (Ill. App.1980), a minority shareholder, who had been ousted as a corporateofficer, sued two fellow shareholders and the corporation,seeking an accounting, corporate dissolution, and remunerationfor a period subsequent to his termination. Id. at 714. Theshareholders’ agreement provided that the shareholders wouldreceive equal salaries and share equally in distributed profitsfor so long as the parties remained shareholders or thecorporation remained in existence. Id. at 717. In Wasserman,the shareholders’ agreement provided a term limiting itsduration, whereas the Settlement Agreement in this case omits adurational term. Moreover, the court in Wasserman did not giveconsideration to the interpretation or construction of the.-12-agreement’s duration. Similarly, Compton v. Paul K. Harding Realty Co., 285 N.E.2d574 (Ill. App. 1972), did not involve the issue of duration.Rather, the case stands for the proposition that an agreementwithout a termination date is not void on the ground ofvagueness. Id. at 579. Maimon v. Telman, 240 N.E.2d 652, 655(Ill. 1968), held that a joint-venture agreement without aspecified duration was terminable at will where the court couldnot determine when the purpose of the agreement would beaccomplished. Marcy v. Markiewicz, 599 N.E.2d 1051 (Ill. App.1992), regarded a reciprocal right of first refusal with respectto the sale of an apartment building contained in a partnershipdissolution agreement. There, the court held the right did notviolate the rule against perpetuities, inasmuch as it waspersonal to the holder of the right and his sons. Id. at 1058.Appellant further contends that the term limit was imposedin error because the trial court made no finding of ambiguity andconsidered no evidence regarding the duration of the agreement.First, we note that appellant did testify regarding hisunderstanding of the duration of the agreement. Contrary toappellant’s implicit assertion, the trial court was not requiredto accept appellant’s testimony regarding his subjectiveunderstanding of the agreement’s duration. Second, and more important, in the absence of an expressterm limit, a court must first interpret the agreement todetermine if the agreement unambiguously omitted the term or if aterm was present but ambiguous. We have already determined thecourt was correct in determining the Settlement Agreement fellinto the first category. The process for supplying a missingterm is not the same as the process for making a factualdetermination to clear up an ambiguous term. The Restatement (Second) of Contracts provides that, whenthe parties to a contract have not agreed with respect to a termthat is essential to a determination of their rights and duties,a term that is reasonable under the circumstances may be suppliedby the court. See Restatement (Second) of Contracts � 204(1981). The commentary to this provision notes that, whileinterpretation may be necessary to determine that the partieshave not agreed with respect to a particular term, the supplyingof an omitted term is not technically within the Restatement’sdefinition of interpretation, which consists only of ascertainingthe meaning of a promise or agreement, and not whether omittedterms exist or whether terms should be supplied. See Restatement(Second) of Contracts � 204 comment c (1981)(referring to thedefinition of interpretation in Restatement (Second) of Contracts� 200 (1981)). The treatise Corbin on Contracts similarlyprovides that “a situation in which construction, rather thaninterpretation, occurs is a court’s action in filling a gap inthe terms of a contract.” Margaret N. Kniffin, 5 Corbin onContracts � 24.3, at 9 (Rev. ed. 1998) (hereinafter “Corbin”).When an agreement is silent as to duration, a reasonableduration will be implied by the court. In determining whatconstitutes a reasonable duration, reference should be made tothe subject matter of the agreement. See Goldman, Skeen, 122 Md.App. at 47 (citing Pumphrey v. Pelton, 250 Md. 662, 665 (1968));1 Williston,� 4:19, at 429; Restatement (Second) of Contracts �204 comment d (1981). The treatises are in accord with respectto this premise. For example, Corbin on Contracts provides that”If a court attempts to determine what meaning a reasonableperson would have given to promissory words at the time offormation of the contract, this is largely an effort to produce aresult reasonable under the circumstances both at the moment ofagreement and subsequently when enforcement is sought.” Corbin, � 24.29, at 320 (emphasis added). In Williston onContracts, it states that “courts frequently interpret promisesrequiring continued performance for a reasonable time or untilterminated by reasonable notice. In every case of this sort, allthe circumstances surrounding the transaction must be consideredin reaching an appropriate conclusion.” 1 Williston, � 4:19, at446-47 (footnotes omitted) (emphasis added). We conclude from the above discussion that there is aconceptual difference – more than one of semantics – between theprocess for construing an ambiguous agreement to determine theintention of the parties and determining a reasonable durationfor an agreement when the parties failed to provide for itsduration. In the latter case, attempting to determine theintention of the parties and to give such intention efficacy isrelevant, but the court may consider all relevant circumstances -including circumstances as of the time of entering into theagreement, events thereafter, and considerations of policy andfairness. In the instant case, the circuit court considered thetotality of the circumstances and concluded as a matter of factthat the period of time that had elapsed before the reverse stocksplit, just short of eleven years, was a reasonable period oftime. We hold that the court’s determination was not clearlyerroneous. 2. Breach of Settlement Agreement Appellant reads the circuit court opinion as holding in thealternative that the Settlement Agreement was properly terminatedbecause Lawrence committed a material breach of the Agreement byvirtue of his “continued interference.” Appellant argues thatpursuit of litigation by Lawrence was not a breach of theSettlement Agreement and that Lawrence in fact prevailed onvarious issues in the prior litigation. Even with respect toissues on which Lawrence did not prevail, according to appellant,the litigation was not meritless. In light of our disposition ofthe first issue, we see no need to address this issue. 3. Reverse Stock Split Appellant contends that, even if not barred by theSettlement Agreement, the reverse stock split was unlawful.Appellant assumes that the appropriate test to be applied iswhether there was a proper business purpose for the reverse stocksplit. Appellant argues that there was no valid business purposebecause the purpose was to end any further efforts by Lawrence toenforce his contractual rights and to eliminate him as ashareholder. The reasons for the reverse stock split were set forth inthe minutes of the board of directors. The minutes recited thatthe Settlement Agreement limited Lerner Corporation’s ability toretain profits for working capital needs because profits had tobe distributed on a current basis. The result was that stock hadto be sold to repay loans or finance new purchases and to provideworking capital. The minutes also indicated that Lawrence actedto frustrate stock sales and that eliminating him as astockholder would remove a major obstacle to raising additionalcapital. Appellant argues that after the stock offering in May 1998,Lerner Corporation was flush with cash, and the facts did notsupport the board resolution. Appellant recognizes that thecircuit court found that the freeze-out was justified (1) toenable Lerner Corporation to maintain cash reserves, (2) to avoid.-17-litigation costs, (3) because dissension was impairing theCorporation’s ability to conduct business, and (4) to enableLerner Corporation to avoid the loss of subchapter S status.Appellant asserts that there is nothing in the record to supportthose findings. a. Exclusivity of Appraisal Remedy In response, appellees first assert that the Marylandappraisal statute, Md. Code, Corps. & Ass’ns �� 3-202 to 3-211(1999), provides the exclusive remedy for a minority shareholderand that traditional forms of equitable relief are not availableas a matter of law. We disagree that the Maryland appraisal statute is theexclusive remedy for a minority shareholder. Nothing in eitherthe existing statute or its predecessors indicates that theremedy of an appraisal proceeding was intended to be exclusive.See Twenty Seven Trust v. Realty Growth Investors, 533 F. Supp.1028, 1036 (D. Md. 1982); Walter J. Schloss Assocs. v. Chesapeake& Ohio Ry. Co., 73 Md. App. 727, 738 (1988); see also James J.Hanks, Jr., Maryland Corporation Law, � 10.8, at 342-43 (1990 &Supp. 1999). It is clear that a court may grant injunctive relief underappropriate circumstances. Lerner v. Lerner, 306 Md. 771, 778-82(1986); Homer v. Crown, Cork & Seal Co., 155 Md. 66 (1928) (aninjunction can lie when there is fraud); Walter J. Schloss.-18-Assocs., 73 Md. App. at 737-44. In our view, the reliefavailable also includes rescission and monetary relief outside ofthe appraisal remedy. In Walter J. Schloss Assocs., a case-involvinga cash out merger, we stated that a remedy other thanan appraisal proceeding is only available, however, “under verylimited circumstances,” involving allegations, and ultimatelyproof, of “‘specific acts of fraud, misrepresentation, or otheritems of misconduct [demonstrating] the unfairness of the mergerterms to the minority.’” Id. at 743-47, (quoting Weinberger v.UOP, Inc., 457 A.2d 701, 703 (Del. 1983)); see also Hanks, supra,� 10.8. b. Propriety of Reverse Stock Split We turn then to the propriety of the reverse stock split.As previously mentioned, appellant contends that the reversestock split was unlawful. Appellees argue that, even if theappraisal remedy is not exclusive, the circuit court’s holdingwas not erroneous, regardless of whether the test for improprietyis fraud, the existence of a valid business purpose, or fairness.Appellees assert that appellant never pursued nor offeredevidence of fraud or unfairness. Appellees assert that the Courtof Appeals in Lerner v. Lerner, 306 Md. 771 (1986), expressly didnot decide, absent fraud, if the test should be whether there wasa proper business purpose or fairness. Appellees argue that thebusiness purpose test is not in accord with the modern trend. Even if the test is business purpose, appellees assert that thecircuit court’s finding was not clearly erroneous. Specifically, appellees point to the following evidence: (1) The board minutes recited that the action was to eliminatedissension among shareholders that had embroiled the corporationin litigation for more than twelve years at a cost of more than$2,000,000 and had diverted executive officers from managing thecorporation; (2) The Corporation’s counsel concluded that therewas a pattern of irreconcilable family conflict; (3) Lawrence hadtestified at a deposition that he hated Theodore; (4) TheCorporation spent over $2,000,000 in legal fees in litigationwith Lawrence; (5) The litigation took the time and effort ofthe employees of the Corporation; (6) Evidence that Lawrence madefalse statements about the Corporation; (7) Testimony by theformer chief financial officer of the Corporation that, duringhis ten years as such, he spent a substantial portion of hisdaily time devoted to litigation with Lawrence and his testimonythat document discovery during 1999 consumed over 500 hours.Again, we agree with appellees. A reverse stock split, orsplit-down, occurs when a number of shares are combined to formone share. [FOOTNOTE 1] As in this case, a reverse stock split may result in fractional shares. All fifty states and the District of Columbiahave adopted statutes addressing fractional shares of acorporation. [FOOTNOTE 2] Maryland is one of only four jurisdictions thatdoes not expressly designate the rights of holders of fractionalshares. [FOOTNOTE 3] Nonetheless, the Maryland General Assembly hasauthorized fractional shares and addressed their handling. [FOOTNOTE 4] See Md. Code, Corp. & Ass’ns, � 2-214(a)(1999). Specifically,section 2-214 of the Corporations and Associations Article of theMaryland Code permits a corporation to eliminate a fractionalinterest “by rounding off to a full share of stock,” or by paying”cash for the fair value of a fractional share of stockdetermined as of the time when the person entitled to receive itis determined.” Id. at (a)(2) & (4). Thus, pursuant to Marylandstatute, a corporation has the absolute right to eliminatefractional shares. See id. Furthermore, the use of a reverse stock split andelimination of fractional shares for the purpose of eliminatingminority stockholders, if not within one of the “limitedcircumstances” discussed above, see Walter J. Schloss Assoc., 73Md. App. at 743, is permissible under Maryland law. See Lerner v.Lerner, 306 Md. 771 (1986). Indeed, as noted by the Court ofAppeals in its earlier decision regarding these brothers, Lernerv. Lerner, 306 Md. 771 (1986), “the statues give Theodore thepower to freeze out Lawrence.” Id. at 775. Maryland is not alonein this respect; other jurisdictions specifically permit reversestock splits. See Laird v. I.C.C., 691 F.2d 147, 151 (3d Cir.1982), cert. denied, 461 U.S. 927 (1983) (finding that a reversestock split is legal under Missouri law); Goldman v. Union Bank &Trust, 765 P.2d 638 (Colo. App. 1998)(deciding that the Colorado.-23-Corporation Code authorized reverse stock split that ‘froze out’minority stockholders); FGS Enters., Inc. v. Shimala, 625 N.E.2d1226 (Ind. 1993) (ruling that the Indiana General Corporation Actpermits stock splits in which corporation acquired fractionalshares). Notwithstanding, at least one state limits this statutoryright. The California Corporations Code permits a corporation topay cash for fractional shares but adds a proviso that acorporation may not do so if such action would result in thecancellation of more than ten percent of the outstanding sharesof any class of stock. See Cal. Corp. Code � 407 (West 1988). Atreatise addressing the rights of minority shareholders, F. HodgeO’Neal & Robert B. Thompson, O’Neal’s Oppression of MinorityShareholders � 5:11 (2d ed. 1997), after describing the typicalreverse split and the cashing out of fractional shares, states:The California Corporation Code is unusualamong state statutes in that it limits thiskind of squeeze-out. The Code permits acorporation to pay cash for fractional sharesbut adds a proviso that a corporation may notdo so if such action would result in thecancellation of more than 10 percent of theoutstanding shares of any class. Theprovision is designed to prevent the use of areverse stock split unless the majority ownsat least 90 percent of the shares.(endnotes omitted). Notwithstanding the permissibility of a reverse stock splitin Maryland as well as elsewhere, we must consider the duties ofa majority stockholder to a minority stockholder in a closely.-24-held corporation and the appropriate standard applicable to sucha transaction that results in the elimination of a minoritystockholder. In the earlier Lerner case, the Maryland Court ofAppeals expressly declined to answer that question.It is well settled in Maryland that minority shareholdersare entitled to protection against the fraudulent or illegalaction of the majority. See Mottu v. Primrose. 23 Md. 482, 501(1865). When a majority stockholder abuses its power, a minoritystockholder is entitled to appropriate relief. See Twenty SevenTrust, 533 F. Supp. at 1034; Baker v. Standard Lime & Stone Co.,203 Md. 270, 283 (1953). A majority stockholder in a closecorporation owes a fiduciary obligation not to exercise thatcontrol to the disadvantage of minority stockholders. Seegenerally O’Neal & Thompson, supra, � 3:10, at 103 (“In view ofthe intimacy among participants in a close corporation (whousually think of themselves as partners), courts should be, andare, more inclined to impose a fiduciary duty on shareholder-director-officers of a close corporation in their dealings with afellow shareholder than they are to impose a fiduciary duty ondirectors, officers, or shareholders of a publicly heldcorporation.”)(endnote omitted). In Lerner v. Lerner, 306 Md. 771 (1986), the Court ofAppeals recognized that a majority of courts that had consideredchallenges to freeze-outs, at that time at least, seemed to agree”at least at the conceptual level of legal principle, that themajority may freeze out the minority if there is a businesspurpose for the action.” 306 Md. at 781. Regardless of thetest, the Court of Appeals also recognized that discord within aclose corporation could reach a point of impairing its ability toconduct business and eliminating a minority interest would notviolate a duty to the minority. Id. at 782. The weight of authority indicates that the use of a reversesplit and elimination of fractional shares for the purpose ofeliminating minority stockholders may raise fairness, businesspurpose, or other similar issues justifying judicialintervention. See, e.g., Teschner v. Chicago Title & Trust Co.,322 N.W.2d 54 (Ill. 1974), appeal dismissed, 422 U.S. 1002 (1975)(holding that a 1-for-600 reverse stock split was valid whenthere was no claim of fraud or deception, no showing of anyimproper purpose, and no charge that the price paid for afractional share was inadequate); Leader v. Hycor, Inc., 479N.E.2d 173, 174-75, 177-79 (Mass. 1985) (holding, when a1-for-4000 reverse stock split was effected in 1980 following agoing public transaction in 1969, that the evidence supported thetrial court’s rejection of the plaintiff’s claim that therecapitalization was not designed to achieve a legitimatebusiness purpose, and remanding on the question of fairness ofthe price at which fractional shares were to be paid out); Clarkv. Pattern Analysis & Recognition Corp., 384 N.Y.S.2d 660, 662,665 (Sup. Ct. 1976) (granting a temporary injunction when no.-26-legitimate business purpose was shown for eliminating theminority through a 1-for-4000 reverse stock split). The article Kaplan & Young, Corporate “Eminent Domain”:Stock Redemption and Reverse Stock Splits, 57 UMKC L. Rev. 67(1988), discusses the reverse stock split procedure in detail,and notes that: “No jurisdiction has any per se rule againstsqueeze-outs by means of reverse stock splits or otherwise, butmajority shareholders must meet certain standards of fairness intheir treatment of the minority.” 57 UMKC L. Rev. at 74 (citingLerner v. Lerner, 306 Md. 771 (1986)). Notwithstanding, courtsare not in accord as to the appropriate test to apply in makingsuch a determination. As mentioned previously, Maryland hasdeclined to articulate an approach. Some jurisdictions incorporate business purpose into theanalysis. In particular, New York and Massachusetts appear tohave adopted this approach. See, e.g., Schwartz v. Marien, 335N.E.2d 334, 338-39 (N.Y. 1975) (requiring a showing of businesspurpose to justify the sale of treasury stock). In Wilkes v.Springside Nursing Home, Inc., 353 N.E.2d 657 (Mass. 1976), theMassachusetts Supreme Judicial Court affirmed that majorityshareholders in a close corporation owe a fiduciary duty to theminority, but asserted that the majority had “certain rights towhat has been termed ‘self ownership.’” 353 N.E. at 663(citations omitted). The court applied a strict fiduciarystandard to the majority’s actions, but observed that such a.-27-strict standard might discourage controlling shareholders fromtaking legitimate actions in fear of being held in violation of afiduciary duty. Id. In light of this observation, the courtadopted a balancing test. Id. This test weighed the majority’sright of self-interest against the fiduciary duty owed to theminority considering the following factors: (1) whether themajority could demonstrate a legitimate business purpose for itsaction, (2) whether the minority had been denied its justifiableexpectations by the majority’s actions, and (3) whether analternative course of action was less harmful to the minority’sinterests. Id. at 663-64. Using this approach, the Wilkes courtfound that the proper method would be to place the initial burdenon the majority shareholder to demonstrate a legitimate businesspurpose for the actions taken. Id. After such a showing theburden would shift to the minority to show that the samelegitimate objective could have been achieved through analternative course of action less harmful to the minority’sinterests. Id. At least one jurisdiction has followed what could be termedthe “reasonable expectations” approach. See generally RobertSavage McLean, Minority Shareholders’ Rights in the CloseCorporation under the New North Carolina Business CorporationsAct, 68 N.C. L. Rev. 1109, 1113-16 (1990) (discussing thereasonable expectation approach utilized by North Carolinacourts). In Meiselman v. Meiselman, 307 S.E.2d 551 (N.C. 1983),.-28-the North Carolina Supreme Court explained the approach, stating:”Privately held expectations which are not made known to theother participants are not ‘reasonable.’ Only expectationsembodied in understandings, express or implied, among theparticipants should be recognized by the court.” Id. at 563(citation omitted). Under Meiselman, a court would determine theshareholder’s reasonable expectations through a case-by-caseexamination of the entire history of the shareholder’srelationship with the corporation. Id. at 562-63. Additionally, Professor O’Neal has called for legislationordering courts to protect the reasonable expectations of a closecorporation shareholder. See F. Hodge O’Neal, CloseCorporations: Existing Legislation and Recommended Reform, 33Bus. Law. 873, 885 (1978). But see Ralph A. Peeples, The Use andMisuse of the Business Judgement Rule in the Close Corporation,60 Notre Dame L. Rev. 456, 505 (1985) (noting that no court hasadopted the reasonable expectations test without the assistanceof a statute, even though the test does not require such arestriction). Professor O’Neal would place the primary emphasison the reasonable expectations as they existed at the inceptionof the participants’ original business bargain, but would allowfallback in some cases where all shareholders concur in changedexpectations developed through subsequent dealings. See F. HodgeO’Neal & Robert B. Thompson, O’Neal’s Close Corporations � 9.30,at 141 (3d ed. 1992). This approach, however, ignores the.-29-expectations of the parties other than the dissatisfiedshareholder. See generally Robert W. Hillman, The DissatisfiedParticipant in the Solvent Business Venture: A Consideration ofthe Relevant Permanence of Partnerships and Close Corporations,67 Minn. L. Rev. 1, 75-78 (1982). While Massachusetts and New York consider business purposein their analysis of fiduciary duties in the close corporationcontext, and North Carolina considers “reasonable expectations”of the dissatisfied shareholder, Delaware has adopted an entirefairness test. In Weinburger v. UOP, Inc., 457 A.2d 701, 715(Del. 1983), the Supreme Court of Delaware discarded the businesspurpose requirement, stating that “we do not believe that anyadditional meaningful protection is afforded minorityshareholders by the business purpose requirement.”In Weinberger, the court stated that a suit challenging acash-out merger must allege specific acts of fraud,misrepresentation, or other forms of misconduct to demonstrateunfairness of the merger terms to the minority. Id. at 703. Thecourt explained that the concept had two basic aspects, fairdealing and fair price. Id. at 711. Fair dealing addresses (1)when, (2) how it was initiated, (3) how it was structured, and(4) how it was disclosed whereas fair price stresses (1) economicand (2) financial considerations. Id. “All aspects of the issuemust be examined as a whole since the question is one of entirefairness.” Id. With respect to price, the Court held that the.-30-appraisal remedy applies but recognized that it may not beadequate in the case of fraud, misrepresentation, self-dealing,deliberate waste of corporate assets, or gross over-reaching.Id. at 714. The Court concluded that, given the fairness test,the availability of the appraisal remedy and the ability of acourt to fashion relief from the facts of a given case, it saw noneed for the business purpose rule. Id. at 715. While Weinberger dealt with a public company, the SupremeCourt of Delaware in Nixon v. Blackwell, 626 A.2d 1366, 1380(Del. 1993), in applying the fairness rule to a closely heldcorporation, stated that there were no special rules applicableto a closely held corporation that was not a “close corporation”within the meaning of the applicable statutes. In our view, the fairness rule is the appropriate test underthese circumstances, i.e., a reverse stock split in a closelyheld corporation with the effect of eliminating a minoritystockholder, because it permits intervention on the facts of anygiven case when intervention is justified. As compared tobusiness purpose, courts have a long history of assessingconcepts of fairness. Moreover, in most cases, a plausiblebusiness purpose would not be difficult to demonstrate. SeeRalph A. Peeples, The Use and Misuse of the Business JudgmentRule in the Close Corporation, 60 Notre Dame L. Rev. 456, 499(1985)(citing F. Hodge O’Neal, O’Neal’s Oppression of MinoirtyShareholders � 3.05 (1975)). As a result, the fairness rule, in.-31-many if not most instances, will provide courts with greaterability to fashion appropriate relief. Hank’s discussion in histreatise on Maryland Corporation law cogently addresses theappropriateness of the fairness test with respect to the freeze-outof a minority stockholder: There is no requirement of a businesspurpose for a freeze-out merger for the samereasons that a business purpose is notnecessary for a freeze-out by means of areverse stock split or a short-form merger.First, one of the known risks of holding aminority stock position is that there is orsome day may be a holder or group of holderswho control a majority of the voting power.Second, superficially plausible businesspurposes are not difficult to articulate andcourts should not be required (and are notwell equipped) to probe the validity andweight of these alleged purposes. Third, theexistence of a business purpose is notnecessarily connected to a more importantconcern–the entire fairness of thetransaction–that is always present when themajority uses its voting power to eliminate(or at least alter) the minority’s ownershipposition. The concern for fairness arises out of aconcern that in a freeze-out transaction(whether in form of a merger, short-formmerger or reverse stock split), the majoritywill not treat the minority as favorably asit would if the assent of at least some ofthe minority were necessary to consummationof the transaction. In both conventional andshort-form mergers, appraisal is theexclusive remedy unless the plaintiff is ableto plead and prove acts or omissionsresulting in unfairness to the minority. Inorder to pursue a non-appraisal remedy (e.g.,injunction or rescission), the plaintiff mustspecifically plead (a) fraud,misrepresentation or other misconduct in theimplementation of the transaction or (b) thereasons why the transaction is unfair to theminority. Once the plaintiff has met thispleading requirement, the defendant mustprove by a preponderance of the evidence thatthe transaction is fair to the minoritystockholders. However, if the transactionhas been approved by a majority of the sharesowned by the minority stockholders, then theplaintiff must prove by a preponderance ofthe evidence that the transaction is unfairto the minority stockholders. So long as the process by which thetransaction was accomplished and theconsideration received by the minoritystockholders are fair, the majoritystockholder has the right to use its power tocause the corporation to engage in anylegally permissible transaction. Hanks, supra, � 7.20, 264-66 (Supp. 1996) (footnotes omitted).We note that in the circumstances before us regardless ofwhether we apply the test of business purpose or fairness, theevidence was sufficient to support the circuit court’s findings.The evidence outlined above leads to a conclusion that there werereasons to effect the reverse stock split other than the desire,in and of itself, to oust a minority shareholder. c. Voting Requirements Appellees argue that the reverse stock split was validwithout Lawrence’s consent because it was approved by theshareholder vote required by law. Section 2-604(e) provides thatan amendment to the charter shall be approved by the affirmativevote of 2/3 of all votes entitled to be cast on the matter..-33-Appellees assert that, as part of the settlement, Lawrence couldhave caused the corporation to elect Maryland close corporationstatus or to amend its charter to require unanimity for a reversestock split. Having failed to do so, section 2-604(e) controlsand a 2/3 vote is sufficient. We do not address this issue inlight of our disposition of appellant’s issues. Appellant, at trial, sought to rescind the reverse stocksplit, a form of equitable relief entitling the circuit court toconsider principles of fairness and equity. Appellant did notseek monetary relief in the form of damages or any other monetaryrelief outside of the statutory appraisal process. It appearsthat appellant is now limited to the appraisal process. [FOOTNOTE 5] JUDGMENT AFFIRMED; COSTSTO BE PAID BY APPELLANT. :::FOOTNOTES::: FN1The subject of reverse stock splits is discussed in the following: Paul H. Dykstra, The Reverse Stock Split–That OtherMeans of Going Private, 53 Chi.-Kent L. Rev. 1 (1976); Michael J.Lawson, Comment, Reverse Stock Splits: The Fiduciary’sObligations Under State Law, 63 Cal. L. Rev. 1226 (1975); and Michael R. Rickman, Note, Reverse Stock Splits and Squeeze-outs:A Need for Heightened Scrutiny, 64 Wash. U. L.Q. 1219 (1986). FN2Ala. Code � 10-2B-6.04 (1999); Alaska Stat. � 10.06.355 2(Michie 1999); Ariz. Rev. Stat. Ann. � 10-604 (West 1999); Ark.Code Ann. � 4-27-604 (Michie 1999); Cal. Corp. Code � 407 (West1999); Colo. Rev. Stat. � 7-106-104 (1999); Conn. Gen. Stat. Ann.� 33-668 (West 2000); Del. Code Ann. tit. 8, � 155 (1999); D.C.Code Ann. � 29-321 (1998); Fla. Stat. Ann. � 607.0604 (West1999); Ga. Code Ann. � 14-2-604 (1999); Haw. Rev. Stat. � 415-24(1999); Idaho Code � 30-1-604 (1999); 805 Ill. Comp. Stat. Ann.5/6.15 (West 1999); Ind. Code Ann. � 23-1-25-4 (Michie 1999);Iowa Code Ann. � 490.604 (West 1999); Kan. Stat. Ann. � 17-6045(1999); Ky. Rev. Stat. Ann. � 271B.6-040 (Banks-Baldwin 1998);La. Rev. Stat. Ann. � 12:51 (West 1999); Me. Rev. Stat. Ann. tit.13-A, � 512 (West 1999); Md. Code Ann., Corps. & Ass’ns � 2-214(1999); Mass. Gen. Laws Ann. ch. 156B, � 28 (West 1999); Mich.Comp. Laws Ann. � 450.1338 (West 1999); Minn. Stat. Ann. �302A.423 (West 1999); Miss. Code Ann. � 79-4-6.04 (1999); Mo.Ann. Stat. � 351.300 (West 1999); Mont. Code Ann. � 35-1-621(1999); Neb. Rev. Stat. � 21-2038 (1999); Nev. Rev. Stat. �78.205 (1999); N.H. Rev. Stat. Ann. � 293-A:6.04 (1999); N.J.Stat. Ann. � 14A:7-13 (West 1999); N.M. Stat. Ann. � 53-11-24(Michie 1999); N.Y. Bus. Corp. Law � 509 (McKinney 1999); N.C.Gen. Stat. � 55-6-04 (1999); N.D. Cent. Code � 10-19.1-68 (1999);Ohio Rev. Code Ann. � 1701.24 (Banks-Baldwin 2000); Okla. Stat.Ann. tit. 18, � 1036 (West 1999); Or. Rev. Stat. � 60.141 (1999);15 Pa. Cons. Stat. Ann. � 1527 (West 1999); R.I. Gen. Laws � 7-1.1-22 (1999); S.C. Code Ann. � 33-6-104 (Law. Co-op. 1999); S.D.Codified Laws �� 47-3-15, -16, -17 (Michie 1999); Tenn. Code Ann.� 48-16-104 (1999); Tex. Bus. Corp. Act Ann. art. 2.20 (West1999); Utah Code � 16-10a-604 (1999); Vt. Stat. Ann. tit. 11A, �6.04 (1999); Va. Code Ann. � 13.1-641 (Michie 1999); Wash. Rev.Code Ann. � 23B.06.040 (West 1999); W.Va. Code � 31-1-88 (1999);Wis. Stat. Ann. � 180.0604 (West 1999); Wyo. Stat. Ann. � 17-16-604 (Michie 1999). FN3The other jurisdictions that do not designate the rights of holders of fractional shares are the District of Columbia,Nevada, and Ohio. FN4The Maryland statute provides:� 2-214. Fractional share; scrip(a) A corporation may, but is not obliged to: (1) issue fractional shares of stock; (2) Eliminate a fractional interest by roundingoff to a full share of stock; (3) Arrange for the disposition of a fractionalinterest by the person entitled to it; (4) pay cash for the fair value of a fractionalshare of stock determined as of the time when theperson entitled to receive it is determined; or (5) issue scrip or other evidence of ownershipwhich: (i) Entitles its holder to exchange scrip or otherevidence of ownership aggregating a full share for acertificate which represents the share; and (ii) unless otherwise provided, does not entitleits holder to exercise voting rights, receivedividends, or participate in the assets of thecorporation in the event of liquidation. (b) The board of directors may impose anyreasonable condition on the issuance of the scrip orother evidence of ownership, including a conditionthat: (1) it becomes void if not exchanged for acertificate representing a full share of stock before aspecified date; (2) The corporation may sell the stock for whichthe scrip or other evidence of ownership isexchangeable and distribute the proceeds to theholders; or (3) The proceeds of a sale under paragraph (2) ofthis subsection are forfeited to the corporation if notclaimed within a specified period not less than threeyears from the date the scrip or other evidence ofownership was originally issued.Md. Ann. Code, Corp. & Ass’ns � 2-214 (1999). FN5 In the appraisal process, the Corporation’s stock should be valued by assuming that it will continue as a goingconcern and, on this assumption, all relevant factors should beappraised. See Warren v. Baltimore Transit Co., 220 Md. 478, 483(1959). The court has wide latitude to consider all relevantcircumstances to determine a fair price. See Md. Ann. Code Corp.& Assn’s � 3-211 (1999). We are aware that certain states haveexpanded and liberalized their appraisal remedy from the form inwhich it existed when first enacted. The appraisal remedy inMaryland has been addressed infrequently in appellate opinions.We are aware of no Maryland appellate case that has discussed theextent to which equitable considerations may be considered,including by way of example the conduct of parties, indetermining the fair value of stock in an appraisal proceeding.Consistent with the concept of fairness, however, we see noreason why a court may not consider all factors relevant to thedetermination of fair value, including evidence relevant to theperiod of time that appellant would have remained a shareholderabsent the reverse stock split.
Lerner v. Lerner Corp. Court of Special Appeals of Maryland No. 938 LAWRENCE E. LERNER v. LERNER CORPORATION, et al. Before: Murphy, C.J., Wenner, Eyler, JJ. Filed: May 1, 2000
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