Halpin v. Riverstone National, Inc., C.A. No. 9796-VCG (Del. Ch. Feb. 26, 2015).
This Court of Chancery opinion addressed an issue of first impression in Delaware: whether common stockholders can by contract ex ante, waive the right to seek statutory appraisal in the case of a squeeze out merger of the corporation. This issue must be distinguished from the issue of whether the holders of preferred stock can waive appraisal rights ex ante, by contract, which this court has found that they may do.
This case involved an agreement signed by stockholders involved in this case that provided for “drag-along” rights in the case of a change of control, including the right to compel the minority stockholders to vote in favor of certain change in control transactions. The agreement provided that a favorable vote would make the minority stockholders ineligible for appraisal rights.
The court determined that it did not need to address the issue of whether common stockholders, ex ante, may contractually waive their appraisal rights that are otherwise provided by statute. The court did not need to reach that question because it reasoned that the unambiguous language of the stockholders agreement at issue only provides for drag-along rights to be exercised prospectively, and not after a merger has been accomplished. The court found that the corporation did not properly invoke the required vote that would have allowed it to enforce the rights at issue even if a waiver were theoretically enforceable. Therefore, the court determined that there was no waiver.
Postscript: Legislation that will be proposed shortly by the Delaware State Bar Association will publicly support appraisal arbitrage, a cutting edge development in corporate litigation.