261 A.3d 1199
Del.2021Background
- Authentix (Delaware corp.) and its stockholders (including majority Carlyle and minority Petitioners) entered a 2008 Stockholders Agreement that required, among other things, that "Other Holders" consent and "refrain from the exercise of appraisal rights" in certain Company Sales.
- In 2017 Authentix merged with a third party by written consent; preferred stock (held by Carlyle) received priority under a waterfall, leaving common stockholders (the Petitioners) little or no consideration.
- The Petitioners timely served appraisal demands under 8 Del. C. § 262 and filed an appraisal petition in Court of Chancery; Authentix moved for summary judgment claiming the Stockholders Agreement waived appraisal rights.
- The Court of Chancery granted summary judgment for Authentix, holding the petitioners agreed to a clear post-transaction obligation to "refrain" from appraisal, that the obligation was enforceable (not a stock restriction under § 151(a)), and that the corporation could enforce the agreement.
- The Chancery Court awarded the Petitioners equitable interest on the withheld merger consideration but denied Authentix pre-judgment interest on attorneys’ fees under the agreement’s fee‑shifting clause.
- The Delaware Supreme Court affirmed: waiver enforceable as to these sophisticated, counseled stockholders; § 262 does not bar such waivers in these circumstances; equitable interest award and denial of contractual pre-judgment interest were affirmed.
Issues
| Issue | Petitioners' Argument | Authentix's Argument | Held |
|---|---|---|---|
| Whether petitioners waived appraisal rights under the Stockholders Agreement | The "refrain" clause did not clearly survive the Agreement's termination on closing and thus did not waive appraisal rights for the 2017 merger | The Refrain Obligation plainly required petitioners to refrain from exercising appraisal rights when the Board and Carlyle approved a Company Sale | Held: Waiver was clear and applied to the 2017 merger; "refrain" functioned as contingent waiver that survived for the transaction at issue |
| Whether § 262 prohibits enforcing an ex ante waiver of appraisal rights against stockholders | § 262’s mandatory "shall" makes appraisal a non‑waivable statutory right that cannot be eliminated ex ante by contract | DGCL favors private ordering; § 262’s text contains no prohibition on contractual waivers by informed, sophisticated stockholders | Held: § 262 does not categorically prohibit informed, counseled stockholders from waiving appraisal rights by agreement; enforcement permitted here |
| Whether the Refrain Obligation is a stock restriction requiring disclosure in the certificate under § 151(a) | Because it binds all outstanding stock, it is a limitation on stock and must be stated in the charter; absence of disclosure makes it unenforceable | The clause imposes personal contractual obligations on signatory stockholders (not an encumbrance running with the shares) and therefore is not a § 151 stock restriction | Held: Not a stock restriction under § 151(a); it imposed personal obligations and was enforceable against signatories |
| Remedies: equitable interest to petitioners and pre-judgment interest to Authentix on fees under fee‑shifting clause | Petitioners argued equitable interest appropriate given delay and withholding of merger consideration; contested Authentix’s claim to pre‑judgment interest | Authentix sought contractual pre-judgment interest on attorneys’ fees under the fee‑shifting provision | Held: Court of Chancery did not abuse discretion in awarding equitable interest to petitioners; Authentix not entitled to pre‑judgment interest under the plain fee‑shifting term |
Key Cases Cited
- In re Appraisal of Ford Hldgs., Inc. Preferred Stock, 698 A.2d 973 (Del. Ch. 1997) (preferred‑stock valuation can be governed by contract but waivers of statutory appraisal rights must be clearly and explicitly stated)
- Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020) (DGCL is broadly enabling and favors private ordering subject to statutory and public policy limits)
- Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010) (contract interpretation principles: read contract as whole; give plain meaning to clear language)
- Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908 (Del. 1989) (constitutional or statutory procedural rights like jury trial may be waived by parties when knowingly and intentionally done)
- Baio v. Commercial Union Ins. Co., 410 A.2d 502 (Del. 1979) (statutory rights can be waived; parties may contractually relinquish statutory entitlements in appropriate circumstances)
- Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017) (historical purpose of appraisal: a statutory remedy compensating minority shareholders when unanimity veto was removed)