The Delaware Court of Chancery recently dismissed corporate mismanagement and breach of fiduciary duty claims filed by a dissenting stockholder, but ordered that the surviving corporation in a merger was required to pay the merger consideration to the dissenting stockholder when the statutory appraisal period expired.
Plaintiffs Ram and Neena Mehta (“Plaintiffs”) owned shares of Smurfit-Stone Container Corporation, which had declared bankruptcy in 2009 and, post-bankruptcy, merged with Rock-Tenn Company in 2011. Plaintiffs made a timely demand for appraisal after the merger announcement but never perfected their statutory rights. In fact, Plaintiffs withdrew their appraisal demand roughly a year after making it, and no other stockholder filed an appraisal petition. Rock-Tenn, however, refused to pay the merger consideration to Plaintiffs unless Plaintiffs agreed to broad settlement terms.
Plaintiffs, appearing pro se, alleged breaches of fiduciary duty against the past and present directors of Smurfit and Rock-Tenn. Defendants moved to dismiss for failure to state a claim. The court found that Plaintiffs’ claims concerning Smurfit’s management and bankruptcy were barred by the broad releases set forth in the confirmation order approving Smurfit’s plan of reorganization. The court further found that Plaintiffs’ claims concerning the Smurfit/Rock-Tenn merger were barred by releases contained in the settlement agreement entered into in the customary “merger objection” litigation that followed the transaction.
The court, however, found that Plaintiffs had stated a claim against Rock-Tenn for failure to timely pay the merger consideration. Characterizing the denial of merger consideration as either breach of contract or unjust enrichment, the court held that the lapse or expiration of statutory appraisal rights creates an obligation to pay putatively dissenting shareholders their shares. Here, Rock-Tenn’s refusal to pay Plaintiffs’ merger compensation after their appraisal rights expired supported a claim for damages.
The court then provided three possible ways to measure damages based on the stock portion of the merger consideration. The shares could be valued on the date payment was due, the date of judgment, or, in recognition of Plaintiffs’ power to sell at any time after the date the shares should have been issued and the judgment date, the date at which the value was greatest. The court refrained from adopting any particular method and indicated that such considerations would be more appropriate at a later stage in the case.
Mehta v. Smurfit-Stone Container Corp. et al., C.A. No. 6891-VCL (Del. Ch. Oct. 20, 2014).