Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The Court of Chancery recently recommended that the Delaware Supreme Court deny a quick interlocutory appeal of its decision that a Sears Hometown & Outlet Stores investor is entitled to the full share of the $10 billion damages he had awarded in a breach-of-duty suit against the retailer’s controller in the matter of In Re Sears Hometown and Outlet Stores Inc. Stockholders Litigation, C.A. No. 2019-0798-JTL  (Del. Ch. March 21, 2025).

Vice Chancellor Travis Laster denied Sears Hometown controller Edward Lampert’s request for an interlocutory appeal, finding that under the high court’s landmark Technicolor opinion, Cannon Square LLC was entitled to both the payout consideration in a squeeze-out merger and the damages awarded in the shareholder suit that the investment fund had initially passed on to seek appraisal. Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988)

This discretionary appeal decision is the latest ruling in litigation that has spotlighted the power and duty of controllers for actions that allegedly benefit them at the expense of common shareholders. Recent Delaware legislation would make it more difficult to successfully sue controllers. 

Vice Chancellor Laster found that among other reasons for denial of this interlocutory appeal is the likelihood of a comprehensive appeal of his Feb. 13 opinion on breach-of-duty remedy damages that could produce a final ruling in the merger challenge suit. In re Sears Hometown & Outlet Stores, Inc. S’holder Litig., — A.3d —, 2024WL 5403534 (Del. Ch. Feb. 13, 2025).

Background

Former parent company Sears Holding spun off Hometown and Outlet Stores to focus on home appliances, furniture and lawn equipment in 2012 but a new parent effected a 2019  squeeze-out merger which eliminated the minority shareholders for $3.21 a share. Some shareholders filed claims for breach of duty against the controller but, Cannon sought appraisal in an action that was combined with the plenary suit in the Chancery for discovery purposes. 

Vice Chancellor Laster found that the controller had breached his duty to put the shareholders’ interests first and that the shares were worth $4.02 each or the $3.21 consideration plus $.85 in damages.  In re Sears Hometown & Outlet Stores, Inc. S’holder Litig., 309 A.3d 474 (Del.Ch. 2024), modified on reargument, 2024 WL 3555781 (Del. Ch. July 2, 2024). 

Cannon–which got nothing in appraisal because both Hometown and the parent declared bankruptcy–sought to intervene in the shareholder suit to get its share of both merger consideration and damages, but the controller said it should only get damages—not the merger consideration—and asked the high court for an immediate review of that issue.

Reasons for denial of Interlocutory Appeal

The application is untimely.

“Although this court can extend the deadline for good cause shown, Lampert has not established good cause,” the Vice Chancellor said. ”He has provided a reason that could amount to excusable neglect, but excusable neglect is not good cause.”

No substantial issue of material importance.

“[T]he substantial issue requirement is not met where no final determination was made on the merits of plaintiff’s claims,” the court wrote.  The Remedy Opinion only decided “whether the [Cannon] Fund’s recovery warranted being offset by merger consideration it never received.”  And the controller’s argument that the opinion “effectively offloads the credit risk of an appraisal proceeding onto defendants in a fiduciary action, potentially including outside directors” is “a classic attempt at a scary soundbite” because that ruling, “simply recognizes that disloyal fiduciaries owe damages to their beneficiaries.”

Appellate review before final judgment unwarranted.

An interlocutory appeal request will only be granted after an eight-factor review by the trial court and the controller meets none of the five factors on which he relies, the Vice Chancellor ruled.

No first impression issue raised.

The controller argued that the ruling wrongly allowed an appraisal arbitrageur who bought stock after announcement of the transaction to pursue appraisal and then get full damages in a plenary suit, but the vice chancellor labeled the objections “a grab bag of potential distinctions” and said “Under Technicolor, an appraisal claimant can opt for the plenary remedy at any point until final judgment. When or why does not matter.”

No trial court decision conflict.

The vice chancellor said the application of settled law like Technicolor to different facts, as here, does not create a first-impression issue and as long as the former stockholder does not receive a duplicative recovery “it does not matter whether the same former stockholder takes the lead in both actions or either action. Nor does it matter whether the plenary action proceeds as a class action.”

No new statute created requiring immediate review.

“The fiduciary defendants in Technicolor relied on the same statutory language that Lampert cites, and the Delaware Supreme Court held that the former stockholder could pursue both its appraisal claim and the plenary action to judgment,” Vice Chancellor Laster noted.  “Here again, the Technicolor decision already answered the statutory question.”

Review would not terminate the litigation.

 “Approving the Settlement would not resolve “numerous open post-trial issues that the Court would otherwise need to decide”, even if review did settle some issues, the court said.  “A reversal of the Remedy Opinion only would result in a remand to consider the Settlement,” –even if reversal did overturn the plenary suit settlement.

Appeal fails the balancing test.

Even if some of the controller’s appeal arguments were successful, the appeal must pass a balancing test because: “There must be “substantial benefits that will outweigh the certain costs that accompany an interlocutory appeal,” the court said, ruling that: “Because there are not substantial benefits from an interlocutory appeal that outweigh its costs, Rule 42(b)(iii) instructs the trial court to deny certification.”