Court of Chancery Outlines Quasi-Appraisal Remedy for Minority Shareholders Cashed Out in a Short-Form Merger
Gilliland v. Motorola, Inc., 873 A.2d 305 (Del. Ch. 2005).
Plaintiff sought a class-wide "quasi-appraisal" remedy for minority stockholders eliminated in a short-form merger. Statutory appraisal was impractical for two reasons. First, formalistically, the minority stockholders no longer owned shares in the merged subsidiary and without the shares, they could not make the demand required by the appraisal statute. Second, from a practical standpoint, the two-year delay made it impossible to recreate the factual context necessary to have statutory appraisal. Therefore, Vice Chancellor Lamb granted the quasi-appraisal remedy and outlined its procedure.
The specific contours of a quasi-appraisal action are not clearly defined in Delaware law. The most that can be said of quasi-appraisal is that it is a remedy for those minority stockholders who are wrongfully deprived of the full right to a statutory appraisal. Thus, the Court of Chancery can use its broad discretion to tailor a remedy to suit the situation as it exists. In tailoring this remedy, there are three considerations: (1) opt-in procedures; (2) risk; and (3) valuation.
Opt-in procedures require minority stockholders to make a choice to participate in the action, in order to replicate the situation they would have faced if they had received proper notice. They only need to prove beneficial ownership of their shares on the merger date. The quasi-appraisal action should be structured to replicate the risk that would inhere in an actual appraisal action, i.e., the risk that the court might appraise the shares at a price less than the dissenting stockholders would have received in the merger consideration. Finally, the quasi-appraisal valuation is the fair value of the shares as of the merger date determined in accordance with the appraisal statute.