Bryan v. Brock & Blevins Company

United States Court of Appeals for the Fifth Circuit · 1974 · Corporations

490 F.2d 563 (5th Cir. 1974)

Updated August 22, 2026

CorporationsMergerMinority shareholder freeze-outDissenters' rightsPendent jurisdictionfreeze-outsham mergerminority shareholder

Facts

Bryan owned 15% of Brock & Blevins after resigning from active management, while the remaining active shareholders sought to acquire his stock. After Bryan rejected ultimatum offers to sell, the other shareholders formed Power Erectors, transferred their Brock & Blevins shares into it, and made Power Erectors the 85% owner of Brock & Blevins. The new corporation had no independent business purpose and was created solely so that Brock & Blevins could be merged into it, thereby forcing Bryan to accept cash for his shares as a dissenter under the Georgia merger statute. The district court found that the sole purpose and intent of organizing Power Erectors and proposing the merger was the elimination of Bryan.

Issue

May majority shareholders use the Georgia merger statute by creating a new corporation solely for the purpose of merging out and cashing out a minority dissenting shareholder? If not, may a federal court enjoin that transaction on state-law equitable grounds under pendent jurisdiction?

Rule

Majority shareholders cannot do indirectly through a sham merger what they could not do directly: they may not create a corporation with no pre-existing business purpose solely to invoke a merger statute and force a minority shareholder to surrender his shares for cash. Even where statutory merger procedures are followed, equity will prevent use of that power for the majority's personal advantage and to the minority's detriment when the transaction is merely a device to accomplish an otherwise improper freeze-out.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Prairie Forge, Inc., a closely held manufacturer in Tulsa, Oklahoma, has four active shareholders owning 88% and one inactive shareholder, Elena Cruz, owning 12%. After Cruz refuses repeated offers to sell, the four active shareholders form Red Mesa Holdings, Inc., contribute only their Prairie Forge shares to it, and one week later approve a merger of Prairie Forge into Red Mesa that will cash out Cruz at appraised value; Red Mesa has no operations, employees, or plans apart from the merger.

If Cruz seeks to enjoin the merger in equity, what is the strongest argument for relief?

Explanation. The majority opinion allows equitable relief when controlling shareholders create a new corporation with no business purpose or pre-existing viability solely to use the merger statute to eliminate a minority holder. Technical statutory compliance does not save a transaction that accomplishes indirectly what the majority could not do directly.