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Halpin v. Riverstone Nat'l, Inc.

Court of Chancery of Delaware

November 5, 2014, Submitted; February 26, 2015, Decided

C.A. No. 9796-VCG

Opinion

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

] The right to statutory appraisal is the right to have this Court determine the fair value of shares of corporate stock subject to conversion, without the stockholder's consent, into other property by merger. A stockholder in such a situation may opt to forego the consideration offered in the merger, in favor of fair value as it is determined in an appraisal action in this Court, ] The rights of holders [*2]  of preferred stock are largely contractual, and this Court has found that such stockholders may waive appraisal rights ex ante by contract. However, the relationships between the common stockholders (the residual owners of the corporation), the directors (the fiduciaries managing the corporation on those owners' behalf), and the majority stockholder—if any—having voting control over the corporation (who also stands as a fiduciary to the minority stockholders in certain situations) are in the main governed by the Delaware General Corporation Law and the common law of fiduciary relationships. ] The question of whether common stockholders can, ex ante and by contract, waive the right to seek statutory appraisal in the case of a squeeze-out merger of the corporation is therefore more nuanced than is the case with preferred stockholders. That question has not yet been answered by a court of this jurisdiction.

In this action, minority common stockholders of a corporation seek appraisal of their shares after a June 2014 acquisition of the corporation by a third party, which was approved by the written consent of the corporation's 91% controlling stockholder in May 2014. For the purposes of this [*3]  Memorandum Opinion, I presume that the Petitioners have perfected their right to appraisal under Section 262 of the DGCL. The corporation has counterclaimed, however, and seeks summary judgment in its favor on the appraisal claims based on a stockholders agreement between the corporation and certain minority stockholders, including the Petitioners, entered into in 2009. That agreement provided the corporation with "drag-along" rights in case of a change in control, including the right to compel the minority stockholders to vote in favor of certain change-in-control transactions. Such a favorable vote would make the minority stockholders ineligible for appraisal rights, and indeed the corporation considers the stockholders agreement as embodying a right to force a waiver of appraisal on the minority common stockholders, which the corporation seeks to enforce specifically here. This would appear to raise the question limned above: may common stockholders, ex ante, contractually commit to a waiver of the appraisal rights provided by statute? 1 need not reach that question, however, because the unambiguous language of the stockholders agreement at issue only provides for the drag-along rights to be exercised prospectively—not [*4]  after a merger has been accomplished. Since the corporation did not demand a vote in favor of a change in control in the manner explicitly required by the stockholders agreement, it may not specifically enforce the drag-along rights here, even if I assume that the waiver of appraisal was otherwise enforceable. The stockholders agreement, accordingly, does not prevent the Petitioners from proceeding to appraisal.

I. BACKGROUND FACTS

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2015 Del. Ch. LEXIS 49 *; 2015 WL 854724

MICHAEL C. HALPIN and MICHAEL A. CHRISTIAN, Petitioners, v. RIVERSTONE NATIONAL, INC. a Delaware corporation, Respondent.RIVERSTONE NATIONAL, INC., Counterclaim Plaintiff/Third-Party Plaintiff, v. MICHAEL C. HALPIN and MICHAEL A. CHRISTIAN, Counterclaim Defendants, - and - WALTER SMITH, STEPHEN DAVIS, and PÅL H. OTTESEN, Third-Party Defendants.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

CORE TERMS

Merger, Drag-Along, notice, covenant, waive, invoke, contractual, compliance, Change-in-Control, counterclaims, fiduciary, Third-Party, literal, gap

Business & Corporate Law, Appraisal Actions & Dissent Rights, Right to Dissent, Mergers & Acquisitions, Procedural Matters, Civil Procedure, Summary Judgment, Motions for Summary Judgment, Notice Requirement, Cross Motions, Entitlement as Matter of Law, General Overview, Contracts Law, Remedies, Specific Performance, Evidence, Burdens of Proof, Clear & Convincing Proof, Shareholders, Meetings & Voting, Contract Conditions & Provisions, Waivers, Breach, Breach of Contract Actions, Contract Interpretation, Good Faith & Fair Dealing