Court of Chancery Awards Both Appraisal And Equitable Relief
In re PNB Holding Co. Shareholders Litigation, C.A. No. 28-N (Del. Ch. August 18, 2006).
As it has several times in recent years, the Court of Chancery has decided a case combining appraisal rights and a class claim for inequitable treatment in a merger. The Court held that when directors get together to freeze out the other stockholders the entire fairness test applies even when they do not own a majority of the stock. This follows because the interests of those directors in remaining shareholders differs from the other shareholders who will be frozen out. Absent some insulating procedure such a majority of the minority vote, the directors then have the burden of proving the merger was entirely fair.
Other aspects of this decision are also worthy of note. The Court held that those shareholders who voted for the merger could not assert a claim when the proxy disclosures were fair, but those who just accepted the merger consideration could recover damages when the merger was unfair.