In Walter J. Schloss Assocs. v. Arkwin Indus., 61 N.Y.2d 700, 460 N.E.2d 1090, 472 N.Y.S.2d 605 (1984), the Second Department affirmed the Order of the trial court that 1) denied defendants' motion to dismiss the complaint on the grounds that the appraisal procedures established by BCL § 623 were plaintiff-minority stockholder's exclusive remedy for the injuries alleged in the complaint; and 2) granted plaintiff's cross motion seeking permission to maintain the action as a class action. Id. at 151.
The Second Department expressed its agreement with the trial court's conclusion that the appraisal procedures under BCL § 623 were not the exclusive remedies for the injuries asserted, and plaintiff's failure to avail itself of these procedures did not bar plaintiff's action for an accounting and damages. Id. at 152.
In his dissent, Justice Mangano noted as follows:
BCL § 623 recognizes a shareholder's right to object to corporate action, including merger, and establishes procedures for a dissenting shareholder to elect and demand payment of the fair value of his shares. If the corporation fails to make a written offer to each electing shareholder to pay for his shares at a specified price considered as fair by the corporation, or if any dissenting shareholder or shareholders disagree with the price offered (BCL §§ 623(g), (h)), a special proceeding may be instituted in the Supreme Court...to determine the rights of dissenting shareholders and to fix the fair value of their shares (BCL § 623(h)). Either the corporation (BCL § 623(h)(1)) or the dissenter may institute such a proceeding (BCL § 623(h)(2), but the latter may only act upon the former's failure to do so.
Finally, in BCL § 623(k), the statute declares that the enforcement by a shareholder of his right to receive payment for his shares in the manner provided in section 623 shall exclude the enforcement by such shareholder of any other right to which he might otherwise be entitled by virtue of share ownership. An exception to this general rule, however, is expressly stated in the same subdivision, viz., "that this section shall not exclude the right of such shareholder to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is unlawful or fraudulent as to him". Thus, shareholders objecting to corporate action, such as merger, will have, in the notice of election and demand, and judicial appraisal procedures of section 623, an exclusive remedy for enforcing their shareholder rights. Nevertheless, a dissenting shareholder may, under the exception in subdivision (k), bring an action alleging fraud or illegality, but only if such is an appropriate action. What then is an appropriate action? (Schloss, 90 A.D.2d at 154.)
Justice Mangano outlined relevant case law on the issue, including Breed v. Barton, 54 N.Y.2d 82, 429 N.E.2d 128, 444 N.Y.S.2d 609 (1981), in which the Court of Appeals held that, to be an appropriate action, any monetary recovery, if available at all, can only be ancillary to a grant of some form of equitable relief. (Id. at 87.)
Justice Mangano concluded that "in the face of 'the availability or exercise of the right of appraisal,' the only other remedy authorized by BCL § 623(k) for the enforcement of a dissenting shareholder's rights is an action in equity alleging fraudulent or illegal corporate activity and requesting some form of equitable relief internal citations omitted." (Schloss, 90 A.D.2d at 161.)