Opinion
No. CV-09-4044848-S
August 6, 2010
MEMORANDUM OF DECISION ON MOTION TO STRIKE (#132)
The defendants, Stephen W. Bershad, Anthony J. Fiorelli, Jr., Eliot M. Fried, Richard F. Hamm, Jr., Robert G. Stevens, Axsys Technologies, Inc. ("Axsys"), and General Dynamics Advanced Information Systems, Inc., a wholly owned subsidiary of General Dynamics Corp. (collectively "General Dynamics"), have moved to strike the plaintiffs' Second Consolidated Amended Class Action Complaint (the "Complaint") for failure to state a claim upon which relief can be granted.
The grounds for the motion are: 1) the plaintiffs' exclusive remedy is the exercise of appraisal rights, which the plaintiffs have not exercised; 2) even if the exercise of appraisal rights was not the plaintiffs' exclusive remedy, the Complaint fails to state a cause of action because Delaware law allows corporations to exculpate its directors from personal liability for breaches of fiduciary duty of care, Axys has a certificate of incorporation provision which so exculpates the defendant directors, and the Complaint fails to state a claim for the breach of the duty of loyalty or for failure to act in good faith; and 3) Count III of the Complaint fails to state a claim that General Dynamics aided and abetted any breaches of Delaware fiduciary duties by the Axsys directors because the Complaint fails to state any cause of action against the directors.
Allegations of the Complaint
The Complaint alleges that it is a shareholder class action on behalf of the plaintiffs, Joseph Chalverus, Harvey Baker and Carol Sullivan, and other former public stockholders of the defendant, Axsys, against Axsys, its directors, Stephen W. Bershad, Anthony J. Fiorelli, Jr., Eliot M. Fried, Richard F. Hamm, Jr., and Robert G. Stevens, and General Dynamics and challenges the sale of Axsys to General Dynamics, which was completed on September 3, 2009. It further alleges various breaches of fiduciary duties to the shareholders in connection with the aforementioned sale.
CT Page 15984
Discussion of the Law and Ruling
The function of a motion to strike is to test the legal sufficiency of a pleading. Practice Book § 10-39; Ferryman v. Groton, 212 Conn. 138, 142, 561 A.2d 432 (1989); Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985). In deciding a motion to strike the trial court must consider as true the factual allegations, but not the legal conclusions set forth in the complaint. Liljedahl Bros., Inc. v. Grigsby, 215 Conn. 345, 348, 576 A.2d 149 (1990); Blancato v. Feldspar Corp., 203 Conn. 34, 36, 522 A.2d 1235 (1987).The court should view the facts in a broad fashion, not strictly limited to the allegations, but also including the facts necessarily implied by and fairly provable under them. Dennison v. Klotz, 12 Conn.App. 570, 577, 532 A.2d 1311 (1987). In ruling on a motion to strike, the court must take as admitted all well-pled facts, and those necessarily implied thereby, and construe them in the manner most favorable to the pleader. Norwich v. Silverberg, 200 Conn. 367, 370, 511 A.2d 336 (1986).
The parties agree that the plaintiffs have a remedy under Connecticut General Statutes 33-856(a)(5), which provides that appraisal rights are available where they are provided by "a resolution of the board of directors." The Merger Agreement in this case, adopted by a resolution of the Axsys board, provides for appraisal rights of shareholders.
See Memorandum of Decision on Application for Temporary Injunction date August 31, 2009 in this action [ 48 Conn. L. Rptr. 440].
The General Assembly has prescribed a specific procedure for a dissenting shareholder "To obtain payment of the fair value of that shareholder's shares" in the event of a merger. Connecticut General Statutes § 33-386.
The defendants rely on Yanow v. Teal Industries, Inc., 178 Conn. 262, 422 A.2d 311, (1979), in which the Connecticut Supreme Court construed Connecticut General Statutes § 33-373, the predecessor to Connecticut General Statutes § 33-856(d), which provides:
d) Where the right to be paid the value of shares is made available to a shareholder by this section, such remedy shall be the exclusive remedy as holder of such shares against the corporate transactions described in this section, whether or not the shareholder proceeds as provided in sections 33-855 to 33-872, inclusive.
In Yanow, the Court stated, "an exclusive appraisal remedy [means] exactly what is says: as to the fact of the merger and claims addressed to it, a shareholder is entitled only to payment of the value of his shares in accordance with the [appraisal] procedures." Yanow, supra, at 280. Although Yanow affirmed a decision granting summary judgment, the Connecticut Supreme Court expressly recognized that it would have been appropriate to grant a motion to strike, explaining that the claims relating to the merger "did not, in view of the exclusivity of the appraisal rights statute, state a claim upon which relief could be granted." Yanow v. Teal Industries, Inc., supra, at 280.
This court, Berger, J., followed Yanow in Brandt v. Travelers Corp., 44 Conn.Sup. 12, 16, 665 A.2d 616 [ 13 Conn. L. Rptr. 282] (1995). The plaintiffs in Brandt, as the plaintiffs here, urged the court to follow the rule of the Supreme Court of Delaware in Weinberger v. UOP, Inc., 457 A.2d 701, (Del. 1983), which held that "[t]he appraisal remedy . . . may not be adequate in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved." Id., 714. The court in Brandt found that by enacting the above referenced statute, and failing to change the "exclusive remedy" language even after it substantially revised the Connecticut law on corporations, the Connecticut legislature had clearly rejected the so-called Weinberger rule. 44 Conn.Sup. at 18.
This court agrees with the ruling in Brandt, and is bound by the ruling in Yanow. Therefore, the Motion to Strike the Complaint is granted.