Appraisal litigation has been a topic at the forefront of the minds of many legal practitioners over the past few years. Recently, amendments to Section 262 of Delaware's General Corporation Law went into effect that were effectuated to eliminate de minimis appraisal claims while also allowing companies to make a pre-judgment payment to dissenting stockholders to reduce interest costs in connection with appraisal litigation. The Delaware Court of Chancery authored several opinions concerning appraisal arbitrage and the technical requirements of Section 262. There have even been unique appraisal cases where the court discussed the circumstances surrounding the proposed settlement of only factions of the appraisal class.
The In re Appraisal of Dell litigation presented an atypical circumstance where settlement terms agreed to between the company and a group of appraisal petitioners were not offered to the other stockholders in the appraisal class. The appraisal petitioners settling their action were comprised of a variety of financial institutions, including certain funds affiliated with T. Rowe Price & Associates Inc. (the settling petitioners). The settling petitioners' appraisal actions had previously been dismissed for separate technical reasons. In its July 13, 2015, decision, the Court of Chancery held that a portion of the settling petitioners did not satisfy the continuous holder requirement of Section 262. Instead, the court found that the record holder of the shares did change between the time of the appraisal petition and the effective date of the merger. The court, noting that the change in record holder status was not knowingly perpetrated by the beneficial holders, reluctantly granted summary judgment in favor of the defendant and dismissed the appraisal claims of nearly one million shares of Dell common stock. Subsequently, on May 11, 2016, the Court of Chancery held that the record demonstrated that the remaining settling petitioners' shares were voted in favor of the Dell merger, in contravention of the express requirement under Section 262 that an appraisal petitioner has not consented to the merger. As a result, the court granted the defendant's motion for summary judgment and dismissed the remaining settling petitioners' appraisal claims.
Nevertheless, on June 24, 2016, the company and the settling petitioners entered into a settlement agreement whereby the settling petitioners would receive the merger consideration plus a modicum of interest in exchange for releasing their appellate rights. On June 27, the court held a teleconference with counsel for Dell and counsel for the settling petitioners to discuss how this unique settlement would work. During the conference, the settlement consideration was described as the merger consideration and "between 2 and 3 percent interest, but the grand total is 88 cents per share, and its $28 million in the aggregate." For point of reference, the surviving appraisal petitioners in Dell were awarded $17.62 per share, which represented a $3.87 per share increase over the merger consideration of $13.75 per share. The discussion turned to who should receive notice of the settlement. The court explained that appraisal actions, while not class actions, are in the nature of a class action. "And so what that means is someone like me has to watch out for surreptitious buy-offs or taking out the big holder or sweetheart deals, or things like that. And the main way we police against that is just by making sure that other folks have notice and the opportunity to take the same deal."
However, the parties and the court discussed the economics of the offer the settling petitioners accepted in contrast to what the remaining appraisal petitioners could receive. For instance, the settling petitioners' counsel explained that even if the Supreme Court reversed the Court of Chancery's decision and held that the merger consideration was the fair value on the date of the merger, the remaining appraisal petitioners would still have accrued interest accruing at the statutory rate that would exceed the level of consideration represented in this offer. Because of that, the parties and the court discussed whether notifying the other appraisal petitioners of the offer would create undue confusion without providing value over what those appraisal petitioners are already entitled to. Ultimately, the court was concluded that on the facts presented that Dell did not need to extend the offer accepted by the settling petitioners to the other appraisal claimants. The court held that by its calculations, which were consistent with Dell and the settling petitioners, under no set of circumstances would the consideration being provided to the settling petitioners be more favorable to other appraisal claimants than an adverse outcome on appeal, in which the nonsettling petitioners would receive the amount advocated by Dell at trial plus an award of interest at the statutory rate. In order to avoid potential confusion relating to the offer, the court only required that the parties to the settlement agreement promptly inform counsel to the nonsettling appraisal claimants about the conference with the court and the settlement agreement.
This decision lays out a rather unique, and unlikely to be common, set of circumstances most appraisal practitioners will not face. Still, this decision highlights the lack of a bright-line rule regarding appraisal settlements with the court's 2015 decision in Mannix v. PlasmaNet, providing another unique set of circumstances. In Mannix, the court approved, over objection, the settlement of appraisal claims which was conditioned upon the claimants being accredited investors despite the fact that even if the offer was made to all claimants some could not satisfy the accredited investor standard. This most recent decision in Dell and last year's decision in Mannix highlight the nuanced nature of appraisal settlements and should be kept in mind as the amount of appraisal litigation grows.