In Re: Appraisal of Dell Inc.
143 A.3d 20
| Del. Ch. | 2016Background
- Dell completed a cash-out merger; appraisal rights under 8 Del. C. § 262 were triggered for non‑affiliated stockholders. Record date for the controlling meeting was August 13, 2013.
- Fourteen petitioners (T. Rowe funds/clients) were beneficial owners holding through State Street (custodian), which in turn held through DTC’s nominee Cede & Co.; Cede was the record holder under Delaware law.
- Voting authority flowed: Cede → DTC omnibus proxy → DTC participants (State Street) → power of attorney to Broadridge → proxies submitted to Dell; T. Rowe routed voting instructions to Broadridge via ISS. T. Rowe’s internal system defaulted management‑supported mergers to “FOR.”
- Due to a voting‑record mix‑up, T. Rowe’s systems ended up transmitting “FOR” instructions for the September meeting; Broadridge executed client proxies and the shares were voted “FOR.” Mutual‑fund N‑PX filings and internal audit trails corroborated Broadridge’s votes.
- Legal dispute: whether the T. Rowe petitioners satisfied the appraisal statute’s Dissenter Requirement (they must not have "voted in favor" of the merger) given that Cede, the record holder, actually voted the shares in favor.
Issues
| Issue | Plaintiff's Argument (T. Rowe Petitioners) | Defendant's Argument (Dell) | Held |
|---|---|---|---|
| 1) Whether petitioners satisfied §262(a)’s Dissenter Requirement | Petitioners argued they made a prima facie showing (Cede had sufficient aggregate non‑FOR votes) and, as beneficial owners, should not be barred because of intermediaries’ errors | Dell argued evidence shows Cede (through Broadridge) actually voted the specific shares FOR the merger, so the Dissenter Requirement is not met | Court held petitioners failed §262(a) because the record holder (Cede) voted the shares FOR; petitioners have no appraisal rights for those shares |
| 2) Whether inquiry is limited to Cede’s aggregate vote totals (per Transkaryotic/BMC/Ancestry line) | Petitioners relied on Appraisal‑Arbitrage decisions that treated Cede’s aggregate voting totals as dispositive when no trace evidence exists | Dell argued those cases are distinguishable where evidence (Broadridge/ISS audit trail, Form N‑PX, control numbers) shows how Cede voted particular blocks | Court distinguished Appraisal‑Arbitrage cases: where evidence exists showing how Cede voted particular shares, the court may consider it; here such evidence showed shares were voted FOR |
| 3) Whether statutory limits on inspectors (§231) or corporate‑records rules bar admission of Broadridge/ISS evidence | Petitioners argued inspectors could not consider voting instructions and the corporation should be limited to the meeting proxies/aggregate totals | Dell argued §231 limits inspector conduct but does not constrain the court in an appraisal proceeding; other statutes and UCC Article 8 duties make beneficial‑holder instructions relevant | Court held §231 does not bar judicial consideration of voting authentication evidence in appraisal; independent statutes and evidence may be examined to determine how the record holder voted |
| 4) Whether mistakes by intermediaries (ISS/Broadridge) excuse petitioners | Petitioners claimed the vote was submitted by mistake via ISS and they should not lose appraisal rights for an intermediary error | Dell pointed to settled law: beneficial owners who elect intermediaries bear the risk of intermediaries’ errors; record‑holder actions control under §262 | Court held intermediary mistake does not preserve appraisal rights; petitioners assumed the risk of using intermediaries and the record‑holder vote controls |
Key Cases Cited
- Reynolds Metals Co. v. Colonial Realty Corp., 190 A.2d 752 (Del. 1963) (establishes that a record holder can split votes and that what matters is how the record holder voted the particular shares for which appraisal is sought)
- Olivetti Underwood Corp. v. Jacques Coe & Co., 217 A.2d 683 (Del. 1966) (refuses to require brokers to prove authority from beneficial owners and endorses treating registered holders as the proper parties for appraisal inquiries)
- Salt Dome Oil Corp. v. Schenck, 41 A.2d 583 (Del. 1945) (articulates the policy favoring certainty by treating corporate books as the primary evidence of membership/voting rights)
- Union Ill. 1995 Inv. Ltd. P’ship v. Union Fin. Grp. Ltd., 847 A.2d 340 (Del. Ch. 2004) (discusses the practical reality of vote‑splitting and street‑name holdings in appraisal contexts)
- Preston v. Allison, 650 A.2d 646 (Del. 1994) (affirms that beneficial owners who choose intermediaries bear the risk of intermediaries’ failures or mistakes)