Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Gabhart v. Gabhart

decided: March 8, 1977.

WYNDHAM H. GABHART, PLAINTIFF-APPELLANT,
v.
HOWARD GABHART, JEROME B. WALKER, CHARLES R. GABHART, WASHINGTON NURSING CENTER, INC. AND WASHINGTON HEALTH SERVICES, INC., DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 72-C-339 - William E. Steckler, Judge.

Swygert, Tone and Wood, Circuit Judges.

Author: Tone

TONE, Circuit Judge.

The appeal in this diversity action raises a number of questions concerning squeeze-out mergers accomplished through the merger provisions of the Indiana Corporation Act, Ind. Stat. Ann. § 23-1-5-1, et seq. The District Court entered a summary judgment against plaintiff, a squeezed-out minority shareholder. In reaching this decision, the District Court held that a minority shareholder who does not object and demand his appraisal rights under Ind. Stat. Ann. § 23-1-5-7 cannot attack an allegedly invalid merger and that a derivative action by such a shareholder does not survive a merger. As these are important questions of first impression under Indiana corporation law, we have determined that they are appropriate for certification to the Supreme Court of Indiana pursuant to Indiana Appellate Rule 15(N) and our Circuit Rule 13.

In 1968 plaintiff and the individual defendants, who are his father, his two brothers and one Jerome B. Walker, joined in organizing corporate defendant Washington Nursing Center, Inc. to operate a nursing home in Washington, Indiana. Plaintiff received 100 of the 500 shares of outstanding stock.

All five shareholders were directors until 1970, when plaintiff resigned, stating that he was doing so because, "[Among] other reasons, I will find it most difficult to attend directors' meetings," and "I am not in position to help manage the corporation under existing circumstances." Plaintiff lived in the South and was engaged in a business which required him to travel with carnivals in places distant from Indiana.

Extended efforts to negotiate a purchase of plaintiff's shares by the other shareholders proved unsuccessful. In 1972 the other shareholders conceived and carried out a corporate restructuring under the Indiana Corporation Act which would have the effect of transferring the assets of the corporation to a new corporation in which plaintiff would not be a stockholder and compensating plaintiff for his interest in the old corporation by giving him a debenture.

The agreement of merger was entered into between the old company (the "Merging Company") and a newly formed corporation (the "Surviving Company"), the stock of which was owned by the individual defendants. First executed by the boards of directors of the two companies and then approved by their stockholders, all in conformity with the Act, the agreement provided that on the effective date of the merger the following would occur:

(1) The Merging Company will merge into and become a part of the Surviving Company, leaving the Surviving Company with all the property of both companies and all the rights and liabilities of both companies.

(2) "Any claim existing or action or proceeding pending by or against the Merging Company or the Surviving Company may be prosecuted to judgment as if the merger had not taken place or the Surviving Company may be substituted in the place of the Merging Company."

(3) Each shareholder of the Merging Company shall surrender his shares and receive in exchange therefor a debenture equal in amount to the number of his shares times $300, the debenture to bear interest at 7 1/2% and to mature in 5 years.

(4) Each stockholder of the Merging Company "shall cease to be such and shall have no interest in or claim against the Surviving Company by reason of having been such a shareholder, except the right to receive the above described debenture."

On June 23, 1972, a copy of the merger agreement and a notice of the special meeting of shareholders of the Merging Company called for July 3, 1972 to vote on the merger were sent to plaintiff by registered mail at the three addresses shown for him on the corporation's books. He did not receive the mailing, however, until July 10, one week after the shareholders' meeting and 23 days before the expiration of the time allowed him by §§ 32 and 37 of the Act, Ind. Stat. Ann. §§ 23-1-5-2(e) and 23-1-5-7, to object to the merger and demand payment of the value of his shares. On July 6, notice of the approval of the merger by the shareholders of the Merging Company was sent to plaintiff, who received it on July 17, 16 days before expiration of the time to object and demand. Plaintiff did not pursue the object-and-demand procedure.

Before the effective date of the merger, the individual defendants, who were the only shareholders of the Surviving Company, exchanged their stock in the Merging Company for additional stock in the Surviving Company in proportion to their existing interests in the Surviving Company. Thus plaintiff and the Surviving Company were left as the only shareholders of the Merging Company, ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.