Chancery Addresses Interest on Statutory Appraisals

Huff Fund Investment Partnership v. CKx, Inc., C.A. No. 6844-VCG (Del. Ch. Feb. 12, 2014).dollar_sign.jpg 

Why this case is noteworthy: The Court of Chancery addresses the issue of potential “rent-seekers” who may seek to benefit from the application of statutory interest on the amount the Court determines to be the value of stock in a statutory appraisal, and the limited ability of the respondent company (or the Court), to “toll” the accrual of that interest–even if the respondent company were to offer payment pending post-trial motions and prior to a final settlement.

This pithy Court of Chancery letter ruling addresses the public policy behind the legal rate of interest that applies in statutory appraisal proceedings, to the value of stock determined by the Court, based on DGCL Section 262(h). The Court explained that Section 262(h) expresses the General Assembly’s determination that the:

… appropriate way to compensate appraisal petitioners for their lost investment opportunity, and to prevent the respondent corporation from being unjustly enriched by the use of petitioner’s capital … is to award them interest in the amount of five percent over the Federal Reserve discount rate through the payment of a final judgment.

The statute gives the Court very limited discretion to deviate from the application of that rate, absent unusual circumstances not present in this case. Prior Chancery decisions that provide background facts in this case (involving the popular American Idol TV show), were highlighted on these pages.

The Court’s discussion arose in the context of its rejection of the equivalent of an “offer of judgment” to pay the petitioner pursuant to the court’s prior appraisal ruling (which is the subject of pending motions) in order to “stay” the accrual of interest while pending motions are being considered by the court. The statute did not give the Court that type of discretion based on the facts of this case–in addition to the reality that the Court of Chancery does not have the equivalent of Rule 68 of the Superior Court which allows a party to limit the adverse effects of a final judgment. That option is not available, as a matter of right, in the Court of Chancery.