Alabama By-Products Corp. v. Cede & Co. on Behalf of Shearson Lehman Bros., Inc., BY-PRODUCTS
| Decision Date | 14 February 1995 |
| Docket Number | No. 45,1994,BY-PRODUCTS,45,1994 |
| Court | United States State Supreme Court of Delaware |
| Parties | ALABAMACORPORATION and Drummond Company, Inc., as successor-in-interest, Respondents Below, Appellants, v. CEDE & CO. acting on Behalf of SHEARSON LEHMAN BROTHERS, INC. and Amy N. Ager and Merrill Lynch, Pierce, Fenner & Smith, acting on behalf of Cede & Co., Petitioners Below, Appellees. . Submitted: |
Appeal from Court of Chancery. Affirmed.
Richard L. Sutton (argued), and David G. Thunhorst, Morris, Nichols, Arsht & Tunnell, Wilmington, for appellants Alabama By-Products Corp. and Drummond Co., Inc.
Bruce M. Stargatt and Bruce L. Silverstein (argued), Young, Conaway, Stargatt & Taylor, Wilmington, for appellee Cede & Co. on behalf of Shearson Lehman Brothers, Inc.
Thomas J. Allingham, II, R. Michael Lindsey (argued), and Joseph M. Asher, Skadden, Arps, Slate, Meagher & Flom, Wilmington, for appellee Merrill Lynch, Pierce, Fenner & Smith, Inc.
Before WALSH, HOLLAND and HARTNETT, JJ., and RIDGELY, President Judge * and DUFFY, J., ** Retired.
In this appeal from the Court of Chancery, we address the question of whether a corporation, subsequent to a cash-out merger, may be required to pay the difference between the merger price and the appraisal value for shares mistakenly tendered prior to the appraisal determination. The Court of Chancery, in granting summary judgment in favor of the shareholders' agents, ruled that, under the circumstances of the inadvertent tender, shareholders who had perfected their appraisal rights were entitled to the benefit of the appraisal award plus interest on the difference.
We conclude that, under the Delaware statutory framework which governs appraisal proceedings, a perfected claim for appraisal of stock is not lost through an inadvertent tender which would have the effect of dismissing the shareholder from the appraisal action without court approval. We further conclude that the Court of Chancery properly exercised its discretion in the award of interest. Accordingly, we affirm.
This appeal arises out of the August 13, 1985 short-form merger between Drummond Company, Inc. ("Drummond") and Alabama By-Products Corporation ("ABC") under which Drummond became the surviving entity. Under the terms of the merger, the minority shareholders of ABC were cashed out at $75.60 per share. On the date of the merger, Cede & Co. ("Cede") was the shareholder of record, in the aggregate, of approximately 8,443 shares of ABC Class B common stock. Cede held 2,440 shares on behalf of Shearson Lehman Brothers, Inc. ("Shearson") which, in turn, held the stock for the beneficial owner, Amy N. Ager ("Ager"). Cede was also the record holder of 700 shares of ABC Class B common stock for appellee Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") which held the shares on behalf of the beneficial owners, Harald L. Smyer and Sidney W. Smyer ("Smyers").
On August 25, 1985, ABC sent a Notice of Merger to all ABC shareholders pursuant to 8 Del.C. § 262(d)(2). Cede thereafter perfected appraisal rights for approximately 7,168 Class B shares, including the Merrill Lynch and Shearson shares in its name, thereby rejecting the merger price. 1 On December 3, 1985, an appraisal petition was filed by several shareholders in the Court of Chancery against ABC. 2 On January 29, 1986, as required by 8 Del.C. § 262(f), ABC submitted to the Court of Chancery a verified list of the names and addresses of those shareholders who had purported to demand the appraisal of their shares. Cede was one of approximately two hundred shareholders identified on the verified list.
The parties engaged in extensive discovery during the following year. On May 5, 1987, while the appraisal action was pending in the Court of Chancery, Merrill Lynch, inadvertently and without the knowledge of the beneficial owner, notified ABC's transfer agent, AmSouth Bank, N.A. ("AmSouth"), that Cede wished to redeem 400 of its 700 shares for the $75.60 per share merger consideration. 3 The redemption was accomplished and payment was received by Merrill Lynch. 4
On July 30, 1987, the Court of Chancery entered an order ("July Order") which, inter alia, established certain procedures for verifying the status of the stockholders in the pending appraisal action. The terms of the July Order required ABC to file a Stockholder Information Form ("SIF") for each stockholder who had demanded appraisal. The order directed ABC to specify the share ownership for each shareholder on the verified list and, in the event "ABC object[ed] to the right of appraisal of any stockholder on the Verified List," to "state specifically the grounds for the objection(s)." Among the grounds for objection that could be asserted by ABC was either (i) an acceptance of the merger consideration, or (ii) a withdraw of demand for appraisal and receipt of payment for shares in the amount of the merger consideration. The July Order also established a date for an Entitlement Hearing at which the court would determine the appraisal rights of any shareholder to whom ABC objected in the SIF.
ABC originally sent Cede five SIFs, each of which stated that Cede demanded appraisal for 700 shares of ABC common stock. 5 By letter dated October 1, 1987, Edward M. Selfe, Esquire, counsel for the appraisal petitioners, informed the Register in Chancery that the SIFs were incorrect in that they did not properly identify the beneficial owners on whose behalf Cede demanded appraisal. ABC thereafter revised and sent the SIFs to Cede. Two of these SIFs separately reflected Cede as the record owner of 700 shares for Merrill Lynch and 2,440 shares for Shearson. ABC stated no objection to either designation, despite Merrill Lynch's surrender of 400 shares five months earlier. Cede later returned the respective SIFs to the Register in Chancery with the following corrections regarding the beneficial owners:
2,440 shares were held by Shearson-Lehman Brothers, Inc. for its customer, Amy N. Ager.
CEDE & Co. for Merrill Lynch, Pierce, Fenner & Smith, Inc. who in turn is holding shares for the beneficial owners of Alabama By-Products Corp. Class B stock.
Harald L. Smyer account number 435-23539 300 shares.
Sidney W. Smyer account number 435-21306 400 shares.
Thus, Cede also failed to correct the SIF regarding the shares held for Merrill Lynch to reflect the recent tender of 400 shares.
Although ABC did not contest Cede's appraisal rights regarding the shares it held for Merrill Lynch and Shearson, it did object to the appraisal demands of several other claimants, including 3,910 total shares held of record by Cede as a nominee for PaineWebber Incorporated ("PaineWebber") on behalf of several beneficial owners. An entitlement hearing was later held to determine the validity of the demand for appraisal for the PaineWebber shares. 6 On October 11, 1988, the Chancery Court issued a memorandum opinion denying PaineWebber's demand for appraisal with respect to the 3,910 shares on the basis that the demand was not in compliance with Section 262 since it was not submitted in the name of the shareholder of record, Cede. Neal v. Alabama By-Products, Del.Ch., C.A. No. 8282, slip op. at 8, 1988 WL 105754, Berger, V.C. (Oct. 11, 1988) (citing ENSTAR Corp. v. Senouf, Del.Supr., 535 A.2d 1351, 1356 (1987)).
The July Order also directed the Register in Chancery to notify each shareholder determined to be entitled to an appraisal of their shares (whether by ABC's failure to object in the SIF or following the Entitlement Hearing) within thirty days of such a determination of the number of shares that were entitled to appraisal. The Notice of Entitlement sent to such shareholders advised them to deliver their certificates to the Register in Chancery within sixty days of the mailing of the notice for a notation (stamp) thereon of the pendency of the appraisal action. For whatever reasons, this procedure was never implemented, apparently with the acquiescence of ABC.
The appraisal action proceeded to trial in June, 1989, and, following extensive briefing, the Court of Chancery entered its opinion on August 1, 1990, rejecting the merger price and fixing the fair value of shares seeking appraisal at $180.67 per share. Neal v. Alabama By-Products Corporation, et al. Del.Ch., C.A. 8282, 1990 WL 109243, Chandler, V.C. (Aug. 1, 1990). That ruling was affirmed on appeal. Alabama By-Products Corp. v. Neal, Del.Supr., 588 A.2d 255 (1991).
The second tender that is the focus of this appeal occurred while the appraisal action was under advisement in the Court of Chancery. On March 14, 1990, Shearson caused Cede to tender the 2,385 shares held in its name to AmSouth. AmSouth transmitted payment based on the $75.60 merger price. Shearson claims that its actions that caused this tender of Cede's shares were inadvertent and without the consent of the beneficial owners.
In April, 1991, following the affirmance by this Court, the Court of Chancery entered its final judgment and direction for surrender of the certificates entitled to the appraisal price. Drummond thereafter discovered the 1987 surrender by Cede of the 400 Merrill Lynch shares and the 1990 surrender by Cede of the shares it held for Shearson. Drummond, contending that a post-appraisal surrender of shares was a prerequisite to final payment of the appraisal price, refused to pay Cede the difference between appraisal value and merger price for the shares that had been tendered. Asserting inadvertent tenders, Merrill Lynch and Shearson filed motions on behalf of Cede in the Court of Chancery to compel Drummond to pay them the difference between the merger price and the appraisal figure, plus interest on the amount withheld. 7
In a memorandum opinion, the Court of Chancery granted the motions of Shearson and Merrill Lynch to compel Drummond's payment of the appraisal consideration to Cede on behalf of ...
To continue reading
Request your trial
-
Manti Holdings, LLC v. Authentix Acquisition Co.
..."the value of the dissenting stockholder's stock." ’ " (second alteration in original) (first quoting Ala. By–Prods. Corp. v. Cede & Co. , 657 A.2d 254, 258 (Del. 1995) ; and then quoting Dell , 177 A.3d at 19 ) (citing Applebaum v. Avaya , 812 A.2d 880, 893 (Del. 2002) )); Cede & Co. v. Te......
-
Cohen v. Mirage Resorts, Inc.
...120(5) (majority necessary unless statute or corporate documents require otherwise). 6. NRS 92A.250(1)(f). 7. See Alabama By-Products v. Cede & Co., 657 A.2d 254 (Del. 1995). 8. Some of the provisions of Chapter 92A were previously part of Chapter 78. In 1995, the Legislature shifted dissen......
-
Grosset v. Wenaas
...a derivative action to attack transactions" that occurred before the stock purchase. (Alabama By-Products Corp. v. Cede & Co. (Del.1995) 657 A.2d 254, 264, fn. 12 (Alabama By-Products); see Agostino v. Hicks (Del.Ch.2004) 845 A.2d 1110,1117, fn. The Delaware courts have construed the forego......
-
Pike v. Tex. EMC Mgmt., LLC
...Schoon v. Smith , 953 A.2d 196, 200 (Del. 2008) )); see also Ante at 776 n.16.67 Id. at 1256 (first quoting Ala. By–Prods. Corp. v. Cede & Co. , 657 A.2d 254, 264 (Del. 1995) ; and then quoting Dover Historical Soc'y v. City of Dover Planning Comm'n , 838 A.2d 1103, 1110 (Del. 2003) ); see ......
-
The Flawed Corporate Finance of Dell and Dfc Global
...§ 262(b) (2018) (citing most recent electronic version).40. See Ala. By-Products Corp. v. Cede & Co. ex rel. Shearson Lehman Bros., Inc., 657 A.2d 254, 260 n.10 (Del. 1995) ('In an appraisal proceeding, however, shareholders enter the appraisal class by complying with the statutory formalit......