In re Appraisal of Aristotle Corp.: Court of Chancery Finds No Standing for Fiduciary Duty of Disclosure Claims Brought Belatedly by Appraisal Petitioners
March 2, 2012
In In re Appraisal of Aristotle Corp., C.A. No. 5137-CS (Del. Ch. Jan. 10, 2012), the Court of Chancery granted a motion to dismiss, for lack of standing, a complaint for breach of the fiduciary duty of disclosure brought by certain stockholders who had dissented from a short-form merger under 8 Del. C. § 253 and perfected their appraisal rights. The complaint, which was filed 18 months after petitioners commenced appraisal proceedings, alleged that directors of Aristotle Corporation (“Aristotle”) failed to disclose all material facts in connection with the merger, including that the merger allegedly had been consummated without a majority of the minority stockholder vote in contravention of Aristotle’s certificate of incorporation. As a remedy, petitioners sought the fair value of their shares, the same remedy they were already seeking under the appraisal statute. Notably, petitioners sought only to represent themselves and not a class of other stockholders.
The Court noted similarities between this case and Andra v. Blount, 772 A.2d 183 (Del. Ch. 2000). In Andra, a stockholder who declined to tender into a tender offer, and instead preserved her appraisal rights, was denied standing to file a disclosure claim after the consummation of the merger. The Court in Andra reasoned that because the stockholder had withdrawn her preliminary injunction motion and advanced a disclosure claim only after the merger closed, she could not meet the standing requirement and show that she was individually injured by the allegedly misleading disclosures because she had not tendered her shares and had timely sought appraisal.
The Court noted that at least two lines of Delaware precedent have recognized a dissenting stockholder’s standing to bring a fiduciary duty of disclosure claim in conjunction with an appraisal action. First, in the context of a tender offer designed to gain control of the corporation’s voting power, a non-tendering stockholder may plead and prove harm, despite not tendering in response to allegedly faulty disclosures, where the tendering decisions of others may result in the non-tendering stockholder becoming a minority stockholder, subject to the control of a majority stockholder. Second, stockholder-plaintiffs who seek injunctive relief on a class-wide basis and subsequently perfect appraisal claims as additional grounds for relief may be permitted to proceed with disclosure claims after completion of the merger, although such plaintiffs’ standing to do so is rarely contested.
But the petitioners in Aristotle were not reduced to minority status, did not seek injunctive relief, and did not purport to seek relief on a class-wide basis. The Court concluded that the appraisal petitioners lacked standing to pursue individual claims for alleged breaches of the fiduciary duty of disclosure because, even if they prevailed on the merits of those claims, they would be entitled to no relief different than the relief to which they had already demonstrated their entitlement as appraisal petitioners, i.e., an award of the fair value of their shares. The Court concluded, “To require the defendants and this Court to go through a moot court determination in order to award the petitioners the right to a quasi version of something that they already have would be inequitable to the defendants and to the taxpayers and litigants who depend on this Court.”