In December 2024, the Washington Court of Appeals addressed the scope of remedies available to shareholders who dissent to a merger. The case of Pipe Fitters Local Union 120 Pension Plan v. McFarlane, No. 85541-7-I, 2024 Wash. App. LEXIS 2365 (Wash. Ct. App. 2024),interprets what claims dissenting shareholders can make under the Washington Business Corporation Act (the “Act”).
Background
The case revolves around Avalara, Inc., a Seattle-based tax software company, and its merger with Vista Equity Partners Management, LLC. The plaintiffs, Pipe Fitters Local Union 120 Pension Plan and Suzanne Flannery, representing Avalara shareholders, filed a class action lawsuit against Avalara’s officers and board members. They alleged breaches of fiduciary duties during the merger process.
Key Legal Issues
The central legal question was whether the statutory appraisal process under the Act is the exclusive remedy for dissenting shareholders or if they can pursue individual claims for damages in cases of fraud. Avalara argued that the appraisal process was the shareholders’ sole remedy, while the shareholders contended that fraudulent conduct warranted additional legal recourse.
Court’s Analysis
The Court of Appeals examined the plain language of RCW 23B.13.020(2) and the Washington Supreme Court’s interpretation in Sound Infiniti, Inc. v. Snyder, 169 Wn.2d 199 (2010). The court, consistent with Sound Infinity, concluded that the statutory appraisal process is not the exclusive remedy when there is evidence of fraudulent conduct.
Implications
The court affirmed the trial court’s decision denying the defendants’ motion to dismiss. This ruling underscores the importance of transparency, avoiding conflicts of interest, and complying with fiduciary duties in corporate mergers. It also highlights that shareholders have the right to seek remedies beyond the statutory appraisal process when there is evidence of fraudulent corporate action.
For any questions regarding business, mergers and acquisitions, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.