Enstar Corp., Matter of

• Decision Date: 05 July 1990
• Docket Number: No. 7802,7802
• Citation: 593 A.2d 543
• Parties: In the Matter of the Appraisal of ENSTAR CORPORATION. Civ. A. . Submitted:
• Court: Court of Chancery of Delaware

Page 543

593 A.2d 543

In the Matter of the Appraisal of ENSTAR CORPORATION.

Civ. A. No. 7802.

Court of Chancery of Delaware,

New Castle County.

Submitted: July 5, 1990.

Decided: March 18, 1991.

Decision after Trial in favor of plaintiffs.

Grover C. Brown, Morris, James, Hitchens & Williams, Wilmington (Jay Cohen, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel), for First City Financial Corp., Ltd., First City Trust Co., Marc Belzberg and Abraham Farbstein.

Edmund N. Carpenter, II and Nathan B. Ploener, Richards, Layton & Finger, Wilmington, for Enstar Corp. HARTNETT, Vice-Chancellor.

After a trial on the issue of whether a January 17, 1986 settlement of this lawsuit was void or voidable, the Court finds that Enstar Corporation, the defendant, has not established the existence of unclean hands or fraud, nor has it made a sufficient showing to justify voiding the settlement because of mistake and therefore the plaintiffs are entitled to a judgment enforcing it.

I

The backgrounds facts, which for the most part are not disputed, have been fully set out in earlier opinions in this case. This action arose as a result of a merger in 1984 between Unimar Subsidiary, Inc. and defendant Enstar Corporation ("Enstar") after which Marc Belzberg, Abraham Farbstein, First City Financial Corp., Ltd., and First City Trust Company (collectively "the Belzbergs"), sought an appraisal of their Enstar shares.

On January 17, 1986, the attorneys for Enstar and the Belzbergs orally agreed to a settlement of this appraisal suit. Shortly thereafter Enstar attempted to void the settlement. In response to a motion for summary judgment by the Belzbergs, this Court in 1989 ruled that a valid and enforceable settlement came into being on January 17, 1986 unless it was void or voidable because of the existence of unclean hands, fraud or, possibly, mistake. In the Matter of the Appraisal of Enstar Corporation, Del.Ch., C.A. No. 7802-NC, Hartnett, V.C. (Jan. 31, 1989), 1989 WL 11139. See also Matter of Enstar Corp., Del.Ch., 513 A.2d 206 (1986) and In the Matter of the Appraisal of Enstar Corporation, Del.Ch., C.A. No. 7802-NC, Hartnett, V.C. (July 17, 1986), 1986 WL 8062, rev. sub non., Enstar Corp. v. Senouf, Del.Supr., 535 A.2d 1351 (1987).

II

As stated, for the most part the facts are not disputed. Where they are disputed, they are found to be as set forth.

On September 24, 1984, Unimar Subsidiary, Inc. was merged with and into Enstar Corporation ("Enstar"). The Enstar shareholders who accepted the merger consideration received $2.00 in cash and one newly issued Indonesian Participating Unit ("IPU") for each Enstar share held on the merger date. The IPU's traded at a high of $11 on the date they were issued and dropped to about $5 as of May 1990. The Belzbergs were among the more than 100 shareholders that rejected the merger consideration and sought an appraisal of their Enstar shares pursuant to 8 Del.C. § 262.

On June 11, 1985, in accordance with the pretrial procedures approved by the Court, Enstar filed a Stockholder Information Form in the Office of the Register in Chancery in which it conceded the right of several dissenting shareholders to an appraisal but disputed the right to an appraisal by other dissenting shareholders and set forth the reasons for its objections.

The Belzbergs' 156,828 shares were among those which Enstar denied were entitled to an appraisal. Enstar in its Stockholder Informational Form as filed with the Register, stated that the reason that it contested the Belzbergs' claim was that the Belzbergs' shares were held of record by Cede & Co. and that Cede, as the record owner, had not made a demand for an appraisal. No other claim of ineligibility for an appraisal of the Belzberg shares was stated. The question of whether a demand for an appraisal could be made by a beneficial owner rather than the nominee who appeared as the stockholder of record was still an open question at that time. Cf., In the Matter of the Appraisal of Enstar Corporation, Del.Ch., C.A. No. 7802-NC, Hartnett, V.C. (July 17, 1986), 1986 WL 8062, rev. sub nom., Enstar Corp. v. Senouf, Del.Supr., 535 A.2d 1351 (1987).

Early in January of 1986, after approximately six months of settlement negotiations, but before any discovery was undertaken, counsel for Enstar, Charles F. Richards, Jr., and Michael D. Goldman, counsel for several dissenting shareholders including the Belzbergs, reached a tentative settlement agreement of the entire appraisal action. That proposed settlement agreement provided that Enstar would pay $20 per share, plus 10% interest and counsel fees, as to those shares which Enstar conceded were entitled to be appraised. Enstar also agreed to pay the same consideration as to those shares which it did not concede were entitled to be appraised upon the Court finding that the shares were entitled to being appraised.

On January 15, 1986, the Belzbergs, asserting that they had not authorized the settlement on their behalf, rejected the proposed settlement. As a result of this conflict, Mr. Goldman withdrew as Delaware counsel for the Belzbergs, leaving their New York attorney, Richard S. Borisoff, to negotiate with Mr. Richards. The remaining dissenting shareholders accepted the compromise terms which later became the basis for a settlement of their claims which was approved by this Court on June 27, 1986.

On Friday, January 17, 1986, Mr. Borisoff and Mr. Richards negotiated a settlement of the Belzbergs' appraisal claim over the telephone. Mr. Borisoff first proposed that the Belzbergs would receive $20 per share, with no interest, for all their shares. Mr. Richards counter-offered, on a "take-it-or-leave-it" basis, that the Belzbergs receive the original merger consideration of $2 and one IPU per share for 50% of their shares and $20 per share, plus interest, for the remaining 50% of their shares.

After conferring with the Belzbergs, Mr. Borisoff counter-proposed that the Belzbergs receive the original merger consideration for 25% of their shares and the $20 settlement price for 75% of their Enstar shares. Mr. Richards re-emphasized that his 50-50 offer was made on a take-it-or-leave-it basis, which required acceptance that day. After again conferring with the Belzbergs, Mr. Borisoff again called Mr. Richards and told him that his clients would accept the 50-50 offer if the payment of the Belzbergs' counsel fees were included. Mr. Richards agreed. Mr. Richards then restated the terms of the agreement and requested that the Belzbergs' shares be delivered to his office in Wilmington by the following Monday, January 20, 1986. At no time during the course of these negotiations did anyone representing the Belzbergs disclose to Enstar, or its counsel, that the Belzbergs' shares had actually been sent to Enstar in October of 1984.

On Monday afternoon, January 20, 1986, Mr. Richards called Mr. Borisoff to inquire why the shares had not arrived. Mr. Borisoff stated that the shares were at Cede and he would need another day to deliver them.

The next morning, January 21, 1986, Mr. Richards again called Mr. Borisoff asking for the shares. It was during this phone call that Mr. Borisoff revealed for the first time to Mr. Richards that the Belzbergs' shares had been delivered to Enstar in 1984.

On January 24, 1986, after discussing the matter with Enstar, Mr. Richards informed Mr. Borisoff that in view of the developments Enstar was not willing to enter into a compromise or settlement with the Belzbergs on the terms previously agreed upon and considered any agreement "rescinded by its terms."

III

On January 29, 1986, Enstar moved to amend the Stockholder Information Forms previously filed with the Court to add a second objection to the Belzbergs' claim--that the Belzbergs had tendered their shares thereby accepting the merger consideration and were therefore not entitled to an appraisal. The Belzbergs opposed the motion and responded that the tender of their shares was inadvertent and did not affect their right to seek an appraisal. It is not disputed that the Belzbergs' shares were not voted in favor of the merger, which is a statutory prerequisite for seeking an appraisal.

On April 29, 1986, this Court granted Enstar's motion to amend its Stockholder Information Forms to plead the new defense, while reserving decision on the enforceability of the January 17, 1986 compromise and settlement agreement until a further hearing. Matter of Enstar Corp., Del.Ch., 513 A.2d 206 (1986).

On September 9, 1988, the Belzbergs moved for summary judgment on the issue of enforceability of the January 17, 1986, settlement agreement. In denying that motion on January 31, 1989, this Court found that the January 17, 1986 negotiations, in the absence of the existence of unclean hands, fraud, or mistake, would constitute a binding settlement agreement. However, the Court also found material issues of fact existed as to Enstar's claim of unclean hands, fraud or mistake, which if proven, could invalidate the settlement agreement. In the Matter of the Appraisal of Enstar Corporation, Del.Ch., C.A. No. 7802-NC, Hartnett, V.C. (Jan. 31, 1989), 1989 WL 11139.

On May 8-10, 1990, a trial was held on the factual issues remaining after the denial of summary judgment.

IV

From all the facts adduced at trial, the Court finds that the Belzbergs did not make any affirmative misrepresentation of the facts to Enstar but they never told Enstar that their shares had been sent to Enstar in October 1984 and that the Belzbergs had subsequently received the merger consideration.

The ultimate issue, therefore, is whether the Belzbergs had any legal duty to affirmatively call these facts to the attention of Enstar. If they did, they breached that duty.

To determine whether the Belzbergs had a legal duty to reveal these facts to Enstar it is first necessary to ascertain what was occurring during the January 1986 settlement negotiations.

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