In re GGP, Inc. Stockholder Litig.

• Decision Date: 19 July 2022
• Docket Number: 202, 2021
• Citation: 282 A.3d 37
• Parties: IN RE GGP, INC. STOCKHOLDER LITIGATION
• Court: Supreme Court of Delaware

282 A.3d 37

IN RE GGP, INC. STOCKHOLDER LITIGATION

No. 202, 2021

Supreme Court of Delaware.

Submitted: March 9, 2022

Decided: July 19, 2022

Reargument Denied: August 10, 2022

Michael Hanrahan, Esquire (argued), Ronald A. Brown, Jr., Esquire, Stephen D. Dargitz, Esquire, J. Clayton Athey, Esquire, Marcus E. Montejo, Esquire, Samuel L. Closic, Esquire, PRICKETT JONES & ELLIOTT, P.A., Wilmington, Delaware; Carl L. Stine, Esquire, Adam J. Blander, Esquire, Antoinette Adesanya, Esquire, WOLF POPPER LLP, New York, New York; Brian D. Long, Esquire, LONG LAW, LLC, Wilmington, Delaware; Frank P. DiPrima, Esquire, LAW OFFICE OF FRANK DIPRIMA, P.A., Morristown, New Jersey, for Plaintiffs-Below, Appellants.

Kevin G. Abrams, Esquire, John M. Seaman, Esquire, Matthew L. Miller, Esquire, ABRAMS & BAYLISS LLP, Wilmington, Delaware; John A. Neuwirth, Esquire (argued), Evert J. Christensen, Jr., Esquire, Seth Goodchild, Esquire, Matthew S. Connors, Esquire, Nicole E. Prunetti, Esquire, WEIL, GOTSHAL & MANGES LLP, New York, New York, for Defendant-Bellow, Appellee Brookfield Property Partners, L.P.

Peter J. Walsh, Jr., Esquire, Berton W. Ashman, Jr., Esquire, Jaclyn C. Levy, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Peter E. Kazanoff, Esquire, Michael J. Garvey, Esquire, Sara A. Ricciardi, Esquire, SIMPSON THACHER & BARTLETT LLP, New York, New York, for Defendants-Below, Appellees Mary Lou Fiala, Janice R. Fukakusa, John K. Haley, and Christina M. Lofgren.

Raymond J. Dicamillo, Esquire, Susan M. Hannigan, Esquire, RICHARDS, LAYTON & FINGER, Wilmington, Delaware; Brian T. Frawley, Esquire, Y. Carson Zhou, Esquire, SULLIVAN & CROMWELL LLP, New York, New York, for Defendant-Below, Appellee Sandeep Mathrani.

David J. Teklits, Esquire, Thomas P. Will, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware, for Defendants-Below, Appellees Richard B. Clark, J. Bruce Flatt, and Brian W. Kingston.

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and MONTGOMERY-REEVES, Justices, constituting the Court en banc.

TRAYNOR, Justice, for the Majority:

In the negotiations leading up to a merger in which Brookfield Property Partners, L.P. and its affiliates acquired GGP, Inc., Brookfield evinced its concern over the number of GGP stockholders who might seek appraisal under 8 Del. C. § 262. Brookfield sought to allay this concern by including in the merger agreement an appraisal-rights closing condition that would allow it to terminate the transaction if a specified number of GGP shares demanded appraisal. But the special committee of GGP directors charged with negotiating the terms of the merger agreement held firm in opposition to this condition, and Brookfield relented. The condition was nixed.

The plaintiffs in this case, former GGP stockholders, allege that Brookfield and the directors of GGP decided to come at this problem from another angle. According to the stockholders, GGP's directors, urged on by Brookfield, structured the merger so that, as a practical matter, the GGP stockholders’ appraisal rights were eviscerated. The plaintiffs say that Brookfield and the GGP directors accomplished their objective by dividing the consideration Brookfield would pay for GGP shares into a sizeable pre-closing dividend followed by a relatively small residual payment, the latter of which the merger proxy defined as the "per share merger consideration." GGP's directors then told their stockholders that they were "entitled to exercise their appraisal rights solely in connection with the merger," which occurred after the declaration of the dividend, and that the appraised fair value of GGP—a company being sold for $23.50-per-share—"may be greater than, the same as or less than" the "per share merger consideration," valued at $0.312.

The GGP stockholders claim that, by divorcing the appraisal remedy from the large pre-closing dividend and linking it to the meager "per share merger consideration," Brookfield and the GGP directors led them to believe that a fair value determination in an appraisal proceeding would be limited to the value of post-dividend GGP. This description of appraisal rights, coupled with other descriptions of how the transaction was to be effected, led the stockholders, or so they have alleged, to believe that their appraisal rights had either been eliminated or so reduced as to be meaningless. And by agreeing to do this, they say, the GGP directors, with the aid of Brookfield, breached their fiduciary duties.

The stockholders filed suit in the Court of Chancery seeking quasi-appraisal damages, and the defendants—the GGP directors and Brookfield—moved to dismiss, contending that the stockholders’ complaint failed to state a claim upon which relief could be granted. The Court of Chancery concluded that, because it could consider the pre-closing dividend as a "relevant factor" under the appraisal statute, the defendants’ structuring of the merger did not deny the stockholders their right to seek appraisal.¹ The court, moreover, determined that, although the defendants’ appraisal disclosures "could have been more clearly drafted,"² they were sufficient. The court therefore found that the plaintiffs’ complaint failed to state a claim.

We agree with the Court of Chancery—though for different reasons—that, whether or not they may have intended to, the defendants did not, by paying a large portion of the merger consideration by way of a pre-closing dividend, structure the merger in a manner that effectively and unlawfully eliminated appraisal rights. We disagree, however, with the court's conclusion that the merger proxy's disclosures regarding appraisal were sufficient.

Although it is undisputed that the GGP directors notified stockholders that appraisal rights were available and complied with Section 262 ’s notice requirements by including in the notice a copy of the statute, the manner in which the merger proxy described the merger and the stockholders’ attendant appraisal rights was, at best, materially misleading. In our view, the disclosures, having described the merger and appraisal rights in a confusing manner, did not provide the stockholders the information they needed to decide whether to dissent and demand appraisal. And, as will be more fully developed below, it is reasonably conceivable to us that GGP's directors, aided and abetted by Brookfield, consciously crafted the transaction and the related disclosures in such a way as to deter GGP's stockholders from exercising their appraisal rights. Consequently, we have concluded that the Court of Chancery erred when it dismissed the plaintiffs’ disclosure claim against the GGP directors and the stockholders’ aiding-and-abetting claim against Brookfield.

I

A

GGP (or "the Company") was a real estate company and one of the largest owners and operators of shopping malls in the United States.³ The Plaintiffs in this case are former GGP stockholders Randy Kosinski, Arthur Susman, and Robert Lowinger. The Defendants are Brookfield Property Partners ("Brookfield" or "BPY") as well as the members of GGP's Board of Directors and the Special Committee (the "Director Defendants") that approved the sale of GGP to Brookfield and disseminated the Definitive Proxy Statement (the "Proxy").⁴

Before it was sold to Brookfield, GGP's properties included the Christiana Mall in Newark, Delaware, and other luxury malls throughout the country. GGP was organized as a tax-advantaged real estate investment trust ("REIT") that was publicly traded on the New York Stock Exchange. After the consummation of the sale at issue in this case (the "Transaction"), GGP was reconstituted and renamed Brookfield Property REIT Inc. ("BPR").⁵ BPR is a publicly traded U.S.-registered REIT and is designed to mirror the economics of a BPY unit.⁶

Before the Transaction, GGP had counted Brookfield as a shareholder since at least 2010, when Brookfield made a multi-billion-dollar equity investment in the Company and helped it to emerge from bankruptcy. In exchange, Brookfield received the right to appoint three directors to the nine-member GGP Board. When merger negotiations began in 2017, Brookfield owned about 35 percent of GGP's voting stock.⁷

On May 1, 2017, GGP was trading at $23.07 per-share. On an investor conference call that day, GGP CEO Sandeep Mathrani shared his view that "there is a wide discount between public and private markets. The sum of the parts is far greater than GGP's current stock price."⁸ Mathrani added that "we are reviewing all strategic alternatives to bridge the gap" and "the disconnect has gotten so wide [that] it is up to us to demonstrate to the market that there's a real estate value at stake here."⁹ In June 2017, Mathrani argued to the GGP Board that "[t]he Company is trading at a deep discount to its private market valuation"¹⁰ and explained that "the current share price of $22.00 represents an approximately 20% discount to the mean [net asset value] per share estimate of Wall Street research analysts[.]"¹¹ Brookfield, at this time merely a major stockholder in GGP, appeared to share in Mathrani's optimism. On a November 2, 2017 investor call, Brookfield CFO Bryan Davis pegged GGP's net asset value at "about $30 per share."¹²

Nine days later, on November 11, Brookfield made an unsolicited offer to buy the rest of GGP it did not own, about 65 percent of the company (the "2017 Offer"). Under the 2017 Offer, each GGP share would be exchanged for, subject to proration, either (a) $23.00 in cash or (b) 0.9656 limited partnership units in the Bermuda-registered BPY.¹³ The implied total offer value of the 2017 Offer was $13.8 billion.¹⁴ On November 12, the GGP Board established a five-member Special Committee to negotiate with Brookfield.¹⁵ After three weeks of internal discussions, the Special Committee rejected the 2017 Offer, in part because of concern that many GGP stockholders would be restricted from, or otherwise not interested in, owning units of BPY, a Bermuda-registered...