291 A.3d 1091
Del. Ch.2023Background:
- Riviera Resources, an upstream oil & gas company, sold substantially all operating assets in 2018–2020 and elected court-supervised dissolution under DGCL §§ 280–281.
- The company mailed notices to ~78,600 potential claimants; it identified ~ $72 million in assets and ~$45 million in known liabilities (net assets ≈ $27 million) and received ~295 claim letters.
- Riviera petitioned the Court of Chancery to fix (i) security for known claims (which the court approved, totaling $1 million for known claimants) and (ii) a $10 million reserve for unknown claims for the statutory five-year period under § 280(c)(3).
- At the evidentiary hearing (Feb. 15, 2023) CEO David Rottino testified credibly about the wind-up but provided no meaningful analysis of potential environmental liabilities or methods to quantify unknown claims.
- The court found the record undeveloped on unknown (especially environmental) claims, held the Company’s $10 million request in abeyance, and determined a guardian ad litem should be appointed to investigate and advise.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether $10M is reasonably likely to be sufficient security for unknown claims over 5 years | Riviera: $10M reserve is adequate to cover unknown claims for the statutory 5-year period | Claimants / Court concern: Record lacks analysis of likely unknown claims (notably environmental risks) and methods to quantify them | Court: Riviera failed to meet its burden; reserve determination held in abeyance pending further inquiry |
| Whether to appoint a guardian ad litem under §280(c)(3) | Riviera: did not meaningfully contest appointment and provided no substantive record on unknown claims | Prosser/claimants and court: appointment warranted to protect unknown claimants and supplement the record | Court: exercise discretion freely in favor of appointment; guardian to be appointed and paid by petitioner |
| Scope and duties of guardian ad litem | Riviera implicitly favored judicial resolution without further expense | Claimants / court: guardian should probe environmental risks and valuation methods to inform sufficiency and period | Court: guardian to contact scientists and valuation experts, assess whether cost-effective methods exist, report in ~4 weeks; not a license for unlimited expense |
| Whether the claims period should be extended beyond default 5 years (up to 10) | Riviera: implicit position that 5 years is sufficient | Claimants/court: open question given potential latent environmental claims | Court: left issue open; guardian to consider whether extension is warranted and advise the court |
Key Cases Cited
- In re RegO Co., 623 A.2d 92 (Del. Ch. 1992) (describing elective §280 procedure and court’s role in determining security)
- In re Altaba, Inc., 264 A.3d 1138 (Del. Ch. 2021) (explaining the "reasonably likely to be sufficient" standard and burdens in §280 proceedings)
- In re Altaba, Inc., 241 A.3d 768 (Del. Ch. 2020) (noting that §280 proceedings may be grounded on a full evidentiary record and assisted by a guardian ad litem)
- In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013) (discussing directors’ duties and residual stockholder interests)
- Giammalvo v. Sunshine Mining Co., 644 A.2d 407 (Del. 1994) (permitting amicus participation to help the court avoid error and address matters of public importance)
- Case v. L.A. Lumber Prods. Co., 308 U.S. 106 (1939) (articulating the priority of creditors over stockholders in insolvency)
- Kan. City Terminal Ry. Co. v. Cent. Union Tr. Co. of N.Y., 271 U.S. 445 (1926) (background on creditor priority doctrine)