In RE Appraisal of Ancestry.Com, Inc. ( 2015 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE APPRAISAL OF ) CONSOLIDATED
ANCESTRY.COM, INC. ) C.A. No. 8173-VCG
MEMORANDUM OPINION
Date Submitted: October 14, 2014
Date Decided: January 5, 2015
Kevin G. Abrams, J. Peter Shindel, Jr., and Matthew L. Miller, of ABRAMS &
BAYLISS LLP, Wilmington, Delaware, Attorneys for Petitioner Merion Capital,
L.P.
Ronald A. Brown, Jr., Marcus E. Montejo, and Eric J. Juray, of PRICKETT,
JONES & ELLIOTT, P.A., Wilmington, Delaware, Attorneys for Petitioners Merlin
Partners LP and The Ancora Merger Arbitrage Fund, LP.
Stephen C. Norman, Kevin R. Shannon, and James G. Stanco, of POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Stephen
R. DiPrima, William Savitt, Adam M. Gogolak, and Steven Winter, of
WACHTELL, LIPTON, ROSEN & KATZ, New York, New York, Attorneys for
Respondent Ancestry.com, Inc.
GLASSCOCK, Vice Chancellor
Ancestry.com, Inc. (“Ancestry”) was acquired in 2012 by a private equity
firm in a cash-out transaction. Merion Capital L.P. (“Merion”), one of the
Petitioners in this appraisal action, purchased its shares of Ancestry after the record
date for that transaction. The shares were held in fungible bulk by a record owner,
Cede & Co. (“Cede”). Merion caused Cede to file a timely appraisal demand for
the shares beneficially owned by Merion. A stockholder may seek appraisal only
for shares it has not voted in favor of a merger; Cede had at least as many shares
not voted for the merger as those for which Merion sought appraisal. That is, Cede
had sufficient shares it had not voted in favor of the merger to “cover” its demand
on behalf of Merion. Merion then filed this petition for appraisal of the shares.
A plain reading of the appraisal statute as it existed prior to 2007—and case
law construing it—indicates that it is the record holder of shares whose actions
with respect to the merger determine standing to seek appraisal; the beneficial
owner’s actions are irrelevant. Ancestry points out, however, that Section 262 as it
existed prior to 2007 required the record owner to file the appraisal action on
behalf of the beneficial owner, that the 2007 amendment to Section 262(e)
allowed, for the first time, the beneficial owner to file suit in its own name, and
that Merion did so here. Thus, argues Ancestry, it is Merion, not Cede, that must
show it did not vote in favor of the merger. Moreover, according to Ancestry,
because Merion purchased its stock after the record date, it must show that its
1
predecessors did not vote in favor of the merger with respect to these shares as
well. Since it cannot demonstrate the latter fact, Ancestry posits, Merion lacks
standing here. Ancestry accordingly seeks summary judgment.
Ancestry’s arguments notwithstanding, a plain reading of the statute
discloses that, for standing purposes, it remains the record holder who must not
have voted the shares for which it seeks appraisal. Even if the focus were on the
beneficial owner rather that the record owner, Merion did not vote in favor of the
merger—to have standing, the statue requires that the stockholder must not have
voted the stock for which appraisal is sought in favor of the merger; Section 262
imposes no requirement that a stockholder must demonstrate that previous owners
also refrained from voting in favor. Accordingly, Ancestry’s Motion for Summary
Judgment is denied.
I. BACKGROUND FACTS
A. The Acquisition
Respondent Ancestry is “the world’s largest online family history
resource.”1 Its subscription-based websites allow subscribers to “discover,
preserve and share their family history.”2 Merion, a Petitioner, is a hedge fund that
buys stock following merger announcements for the purpose of seeking an
1
Resp’t’s Mot. for Summ. J. at 4.
2
Stanco Aff. Ex. 2, at 4.
2
appraisal as one of its investment strategies, a practice sometimes known as
“appraisal arbitrage.”3
In December 2012, Ancestry was acquired by the private equity firm
Permira Advisors (“Permira”) for $32 per share in cash. The transaction was
announced on October 22, 2012 and the preliminary proxy was filed on October
30. The definitive proxy was filed on November 30, 2012, indicating a record date
of November 30 and a meeting date of December 27, 2012.4 Following the
acquisition, two verified petitions for appraisal were filed. One, filed by Merion,
sought an appraisal of 1,255,000 shares,5 while the second, filed by two affiliated
hedge funds, Merlin Partners LP and The Ancora Merger Arbitrage Fund, LP,
sought appraisal of a total of 160,000 shares.6
Merion first began purchasing Ancestry shares on December 4, four days
after the record date.7 On December 12, Samuel Johnson, the portfolio manager at
Merion, notified Cede, the record owner of shares, that it would be exercising its
3
Id. Ex. 10, at 81:17–24. I note that Samuel Johnson—one of the partners of Merion, not the
great lexicographer—did not consider this phrase to be an accurate characterization of the
investment strategy in light of the technical definition of “arbitrage.” See id. at 76:21–78:20.
For a fuller description of trade in appraisal causes of action, see Merion Capital LP v. BMC
Software, Inc., C.A. No. 8900-VCG, at 2 (Del. Ch. Jan. 5, 2015).
4
Stanco Aff. Ex. 1.
5
Verified Pet. for Appraisal, Merion Capital, L.P. v. Ancestry.com, Inc., C.A. No. 8173-VCG
(Jan. 3, 2013).
6
Pet. for Appraisal of Stock, Merlin Partners LP v. Ancestry.com, Inc., C.A. No. 8175-VCG
(Jan. 3, 2013).
7
Stanco Aff. Ex. 18, at MER 0000032.
3
appraisal rights.8 The majority of Merion’s purchases occurred between December
12 and December 17, when it purchased 1,005,100 of the 1,255,000 shares for
which it seeks appraisal.9 On December 18, 2012, Cede notified Ancestry that it
was asserting appraisal rights with respect to 1,255,000 shares beneficially owned
by Merion.10
In its Petition for Appraisal, Merion asserted that it “did not vote in favor of
the merger” and that “[n]one of the petitioner’s shares were voted in favor of the
merger.”11 This assertion notwithstanding, Merion does not put forth any evidence
to verify that, in fact, none of its shares were voted in favor of the merger by prior
owners.12 Merion purchased all of its shares on the open market after the record
date and neither knows who the sellers were,13 nor acquired proxies from prior
owners to vote its shares.14
B. Procedural History
The appraisal petitions were consolidated and I held trial from June 17-19,
2014. In May 2014, a few weeks before trial, Ancestry filed its Motion for
8
Id. Ex. 17, at MER 0003055.
9
Id. Ex. 18, at MER 0000032.
10
See id. Ex. 24, at MER 0000547.
11
Verified Pet. for Appraisal ¶ 8.
12
Stanco Aff. Exs. 21, 22; see also id. Ex. 10, at 41:8–20 (Merion’s corporate representative
testified that Merion “ha[d] no evidence that could permit it to meet its burden to show that it
holds shares not voted in favor of the merger.”).
13
Id. Ex. 19 (Petitioner’s Supplemental Responses and Objections to Respondent’s First Set of
Interrogatories (Response No. 1)); Id. Ex. 10, at 43:14–25.
14
Id. Ex. 10, at 39:2–8; 73:11–20.
4
Summary Judgment, solely as to Merion’s Petition, arguing that Merion could not
show that the shares for which it sought appraisal were not voted in favor of the
merger. The question before me on this Motion for Summary Judgment, therefore,
is whether a beneficial owner is required to show that the specific shares for which
it seeks appraisal have not been voted in favor of the merger.
I reserved consideration of the Motion for Summary Judgment until after full
briefing. I heard oral argument on the Motion for Summary Judgment, along with
post-trial argument, on October 14, 2014; this Opinion relates only to the Motion
for Summary Judgment. For the following reasons, I deny the Respondent’s
Motion. The appraisal decision will issue separately.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the moving party demonstrates that
“there are no issues of material fact in dispute and the moving party is entitled to
judgment as a matter of law.”15 The parties here agree that no genuine issue of
material fact exists;16 the only issue is whether, as a matter of law, Merion has met
the statutory requirements of Section 262.
15
Ch. Ct. R. 56(c).
16
Answering Br. in Opp’n to Resp’t’s Mot. for Summ. J. at 8.
5
III. ANALYSIS
A. History of Appraisal
I find it appropriate to take occasion here to retrace the history of this
“creature of statute”17 before considering the modern iteration and the issues
concerning it that are now before me.
At common law, mergers could only be consummated upon the unanimous
favorable vote of a company’s stockholders. The unanimity requirement created in
stockholders a veto power that “made it possible for an arbitrary minority to
establish a nuisance value for its shares by refusal to cooperate.”18 When the
Delaware General Corporation Law was enacted in 1899, our General Assembly
provided for consolidation or merger by less-than-unanimous vote of the
stockholders:
Any two more corporations organized under the provisions of
this Act or existing under the laws of this State . . . may consolidate
into a single corporation . . . . ; the directors or a majority of them, of
such corporations, as desire to consolidate, may enter into an
agreement signed by them, and under the corporate seals of the
respective corporations, prescribing the terms and conditions of
consolidation . . . .
Written notice of the time and place of a meeting to consider
the purpose of entering into such an agreement, shall be mailed to the
17
Kaye v. Pantone, Inc., 395 A.2d 369, 374 (Del. Ch. 1978).
18
Voeller v. Neilston Warehouse Co., 311 U.S. 531, 535, n.6 (1941); see, e.g., Paine v.
Saulsbury, 166 N.W. 1036 (Mich. 1918) (refusing to allow a 99% stockholder to dissolve a
corporation because the 1% minority stockholders would not agree), cited in In re Unocal
Exploration Corp. Shareholders Litig., 793 A.2d 329, 339 (Del. Ch. 2000), aff'd sub nom.,
Glassman v. Unocal Exploration Corp., 777 A.2d 242 (Del. 2001)).
6
last known post office address of each stockholder of each
corporation . . . , and the written consent of the owners of at least two-
thirds of the capital stock of each corporation shall be necessary to the
validity and adoption of such an agreement . . . .19
At the same time, however, recognizing the need for give-and-take to
compensate dissenting stockholders for their loss of the ability to block mergers, an
appraisal remedy was provided by statute20:
If any stockholder in either corporation consolidating aforesaid,
who objected thereto in writing, shall within twenty days after the
agreement of consolidation has been filed and recorded, as aforesaid,
demand in writing from the consolidated corporation payment of his
stock, such consolidated corporation shall, within three months
thereafter, pay to him the value of the stock at the date of
consolidation.21
That section provided for a three-person panel to ascertain the value of the stock in
anticipation of disagreement of valuation. The panel was to be comprised of one
individual chosen by each of the dissenting stockholder and the consolidated
corporation, and the third to be chosen by those two together.22
The appraisal statute has been amended many times since its inception at the
turn of the twentieth century, as would be clear to any reader of the statutory
19
21 Del. Laws c. 273 § 54 (1899) (emphasis added).
20
See Reynolds Metals Co. v. Colonial Realty Corp., 190 A.2d 752, 755 (Del. 1963); Francis I.
duPont & Co. v. Universal City Studios, 343 A.2d 629, 634 (Del. 1975); Meade v. Pac. Gamble
Robinson Co., 51 A.2d 313, 316 (Del. Ch. 1947) (citing Chicago Corp. v. Munds, 172 A. 452(Del. Ch. 1934), decree aff'd, 58 A.2d 415 (Del. 1948)); Barry M. Wertheimer, The
Shareholders' Appraisal Remedy and How Courts Determine Fair Value, 47 Duke L.J. 613, 614
(1998). But see Robert B. Thompson, Exit, Liquidity, and Majority Rule: Appraisal's Role in
Corporate Law, 84 Geo. L.J. 1, 14 (1995) (noting that not all states provided for appraisal in
tandem with allowing mergers by less-than-unanimous vote).
21
21 Del. Laws c. 273 § 56 (1899).
22
Id.
7
language above who is familiar with the modern statute. In its earlier iterations,
appraisal was simply designed to serve as “a statutory means whereby the
shareholder can avoid the conversion of his property into other property not of his
choosing”23—characterized by scholars as a historic “liquidity purpose.”24 In the
wake of an evolution of a “more fungible view of property rights,” where the
difference between shares of a selling and surviving corporation is perhaps not
always significant, and in light of national securities markets providing liquidity in
many cases, the place for appraisal within our corporate law changed.25 Appraisal,
it is theorized, came to serve instead “as a check against opportunism by a majority
shareholder in mergers and other transactions in which the majority forces minority
shareholders out of the business and requires them to accept cash for their
shares.”26 More recently, a market has arisen between the stockholders subject to a
merger—protection of whom was the traditional concern of the appraisal statute—
and those who purchase stock from them pending the merger, seeking to maximize
value through appraisal litigation. A vigorous debate exists as to whether such
23
Francis I. duPont & Co., 343 A.2d at 634.
24
See Thompson, supra note 20, at 4–5; Wertheimer, supra note 20, at 615.
25
Thompson, supra note 20, at 4.
26
Id. (“In earlier times, policing transactions in which those who controlled the corporation had a
conflict of interest was left to the courts through the use of fiduciary duty or statutes that limited
corporate powers. Today, that function is left for appraisal in many cases. The overwhelming
majority of appraisal cases in the last decade reflect this cash-out context: less than one in ten of
the litigated cases illustrate the liquidity/fundamental change concern of the classic appraisal
remedy.”); see also Wertheimer, supra note 20, at 615–16 (“The remedy fulfills this function ex
ante, deterring insiders from engaging in wrongful transactions, and ex post, providing a remedy
to minority shareholders who are subjected to such transactions.” (footnote omitted)).
8
litigation is wholesome;27 for my purposes, however, it is important to note that
appraisal rights are a creation of the legislature, not judge-made law, and are “not
determined with reference to a stockholder’s purpose.”28 My function here is to
ensure compliance with the statutory prerequisites, and if they are met, to
determine fair value.
B. The Appraisal Statute
1. Overview of the Appraisal Statute
The right to appraisal of stock is set out in 8 Del. C. § 262. Subsection (a)
sets forth the standing requirement, describing those stockholders who “shall be
entitled” to appraisal:
Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds
such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and
who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of
the stockholder’s shares of stock under the circumstances described in
subsection (b) and (c) of this section. As used in this section, the
word “stockholder” means a holder of record of stock in a
corporation . . . .29
27
See, e.g., Minor Myers & Charles R. Korsmo, Appraisal Arbitrage & the Future of Public
Company M&A, 92 Wash. U. L. Rev. (forthcoming 2015), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2424935.
28
2 Edward P. Welch et al., Folk on the Delaware General Corporation Law § 262.05 (6th ed.
2014).
29
8 Del. C. § 262(a).
9
Thus, in order for a petitioner to perfect the appraisal remedy according to the plain
language of Section 262(a), the petitioner need only show that the record holder of
the stock for which appraisal is sought: (1) held those shares on the date it made a
statutorily compliant demand for appraisal on the corporation; (2) continuously
held those shares through the effective date of the merger; (3) has otherwise
complied with subsection (d) of the statute, concerning the form and timeliness of
the appraisal demand; and (4) has not voted in favor of or consented to the merger
with regard to those shares.
Section 262(d) provides that notice of a merger invoking appraisal rights
must be given to the “stockholder,” that is, the “holder of record of stock”30 and
prescribes how that record holder perfects appraisal rights, by making a written
demand prior to the vote. Finally, the most recent iteration of subsection (e) sets
out the procedure by which a record stockholder who has complied with
subsections (a) and (d) and is otherwise entitled to appraisal may file its petition. It
also provides such record holder the opportunity to request a statement from the
company setting forth “the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares.”31 The
subsection concludes with the following provision: “Notwithstanding subsection
30
Id.
31
Id. § 262(e).
10
(a) of this section, a . . . beneficial owner . . . may in such person’s own name, file
a petition or request from the corporation the statement described in this
subsection.”32 Therefore, reading subsections (d) and (e) together, the statute
provides that the stockholder of record eligible for appraisal must provide the
written demand, but once that is done, either the holder of record or the beneficial
owner may demand information regarding aggregate shares subject to appraisal,
and either may file the appraisal petition.
To reiterate, here, Cede was the holder of record with respect to shares not
voted for the transaction, and thus had standing to make a demand under
subsections (a) and (d). It did so. With respect to those shares, the beneficial
owner, Merion, filed the petition in its own name, pursuant to subsection (e). In
this situation, Ancestry argues that Merion must demonstrate that it, and not Cede,
meets the requirements of subsection (a), and that subsection (e), read properly,
imposes on Merion an obligation to demonstrate not merely that it did not vote the
stock in question for the merger, but that no one else did so, either. This Court
previously faced an analogous issue in another case, In re Appraisal of
Transkaryotic Therapies, Inc.
32
Id.
11
2. Transkaryotic and the 2007 Amendment to Section 262(e)
In Transkaryotic, decided in 2007, this Court was asked “whether under 8
Del. C. § 262 a beneficial owner, who acquires shares after the record date, must
prove that each of its specific shares for which it seeks appraisal was not voted in
favor of the merger?”33 Ultimately, then-Chancellor Chandler answered that
question in the negative, concluding that “[u]nder the literal terms of the statutory
text and under longstanding Delaware Supreme Court precedent, only a record
holder, as defined in the DGCL, may claim and perfect appraisal rights. Thus, it
necessarily follows that the record holder’s actions determine perfection of the
right to seek appraisal.”34 More pointedly, the Court held that “the actions of the
beneficial holders are irrelevant in appraisal matters.”35 The Court considered the
way in which shares of stock are often held:
[M]ost securities issued by domestic companies listed on the NYSE
and on the Nasdaq are “on deposit” with central securities
depositories, such as the Depository Trust Company (“DTC”).
Securities deposited at DTC as part of its book-entry system are
generally registered in the name of DTC's nominee, Cede & Co.
(“Cede”), making DTC's nominee the registered owner or record
holder of these securities. The securities deposited as a part of this
system are held in an undifferentiated manner known as “fungible
bulk,” which means that no DTC participant, no customer of any
33
In re Appraisal of Transkaryotic Therapies, Inc., 2007 WL 1378345, at *1 (Del. Ch. May 2,
2007); see also id. at *3 (“The question presented in this case can be stated thusly: Must a
beneficial shareholder, who purchased shares after the record date but before the merger vote,
prove, by documentation, that each newly acquired share (i.e., after the record date) is a share not
voted in favor of the merger by the previous beneficial shareholder?”).
34
Id. at *3.
35
Id. at *4.
12
participant (such as an intermediary bank or broker), and no investor
who might ultimately have a beneficial interest in securities registered
to Cede, has any ownership rights to any particular share of stock
reflected on a certificate held by Cede.36
Simply put, the Court found that it was “incorrect” to “assum[e] that Cede’s
aggregate share vote on the [merger] may be traced to ‘specific shares’ attributable
to specific beneficial owners.”37
Cede had voted some shares in favor of the merger and some against, but the
Court ultimately found that this did not preclude Cede’s petition for appraisal with
respect to shares not voted in favor of the merger; i.e., Cede, having otherwise
perfected its appraisal rights with respect to approximately 11 million shares for
which appraisal was sought, and having voted approximately 17 million shares
against the merger, was able to exercise appraisal rights for the 11 million shares
held by the beneficial owner.38
Following the Transkaryotic decision, which noted that only record holders
could “claim and perfect appraisal rights,”39 the General Assembly amended
Section 262(e) of the appraisal statute to add, in relevant part,
Notwithstanding subsection (a) of this section, a person who is the
beneficial owner of shares of such stock held either in a voting trust or
by a nominee on behalf of such person may, in such person’s own
36
Id. at *2.
37
Id.
38
Id. at *4.
39
Id. at *3 (emphasis added).
13
name, file a petition or request from the corporation the statement
described in this subsection.40
Notably, when presented with occasion to reconsider the role of beneficial
owners in appraisal actions in light of modern trading practices, the General
Assembly decided to allow beneficial owners to file a petition in their own name
and seek a statement from the corporation,41 but did not otherwise amend Section
262 to allow beneficial owners to perfect appraisal rights by not voting in favor
and making a timely demand; those provisions remain applicable only to
“stockholders,” still defined as “record owners.” Further, the General Assembly
took no action to amend the statute in light of the Court’s holding that a record
owner need only show that the number of shares that it did not vote in favor of the
merger is equal to or greater than the number of shares for which it perfected
appraisal on behalf of petitioning beneficial owners. There is, in short, no
indication that the Court’s observation that “the actions of beneficial holders are
irrelevant in appraisal matters”42 is no longer accurate, except with respect to rights
granted in Section 262(e).
40
8 Del. C. § 262(e) (emphasis added).
41
Ancestry makes an argument based on the statutory language describing the statement from
the corporation; I address it below.
42
Transkaryotic, 2007 WL 1378345, at *4.
14
C. Application of the Statute to these Facts
Merion’s argument in this case is statutory and quite simple—it involves a
straightforward reading of the statute, considered in light of this Court’s decision in
Transkaryotic. Essentially, Merion argues that, as beneficial owner, it must cause
the stockholder—i.e., Cede & Co., the record owner—to make demand. Cede
must also have had sufficient shares not voted in favor of the merger, per the
Transkaryotic decision, to cover the number of shares for which Merion sought
appraisal. Having thus perfected appraisal rights through Cede, the beneficial
owner may file in its own name in light of the 2007 amendment to Section 262(e),
which Merion did here. Thus, Merion concludes, it has standing to pursue
appraisal.
Ancestry argues to the contrary: “The statute as amended permits Merion to
bring its own petition, but does nothing to excuse Merion from the obligation that
has always attached to every Delaware appraisal petitioner to show that the shares
it seeks to have appraised were not voted in favor of the merger.”43 In other words,
Ancestry assumes that in amending subsection (e) of Section 262 to allow
beneficial owners to bring a petition, the General Assembly necessarily, if silently,
amended the standing requirements of subsection (a).
As this Court has previously stated,
43
Opening Br. in Supp. of Mot. for Summ. J. at 2.
15
In interpreting a statute, Delaware courts must ascertain and give
effect to the intent of the legislature. If the statute is found to be clear
and unambiguous, then the plain meaning of the statutory language
controls. The fact that the parties disagree about the meaning of the
statute does not create ambiguity. Rather, a statute is ambiguous only
if it is reasonably susceptible of different interpretations, or if a literal
reading of the statute would lead to an unreasonable or absurd result
not contemplated by the legislature. If a statute is ambiguous,
however, courts should consider the statute as a whole, rather than in
parts, and read each section in light of all others to produce a
harmonious whole. Courts also should ascribe a purpose to the
General Assembly's use of statutory language, and avoid construing it
as surplusage, if reasonably possible.44
Additionally,
where a provision is expressly included in one section of a statute, but
is omitted from another, it is reasonable to assume that the
[l]egislature was aware of the omission and intended it. The courts
may not engraft upon a statute language which has been clearly
excluded therefrom by the [l]egislature.45
In consideration of the foregoing principles, I find Section 262 to be
unambiguous, and thus, its plain meaning controls. Accordingly, as applied to
these facts, I find that: (1) Cede, the record owner, made demand as required by
Section 262(a); (2) consistent with Transkaryotic, Cede had at least as many shares
not voted in favor of the merger as the number for which demand was made; and
44
In re Krafft–Murphy Co., Inc., 62 A.3d 94, 100 (Del. Ch. 2013), quoted in In re Krafft-Murphy
Co., Inc., 82 A.3d 696, 702 (Del. 2013) (footnotes and internal quotations omitted); see also
Doroshow, Pasquale, Krawitz & Bhaya v. Nanticoke Mem'l Hosp., Inc., 36 A.3d 336, 342–43
(Del. 2012) (“At the outset, a court must determine whether the provision in question is
ambiguous. Ambiguity exists when a statute is capable of being reasonably interpreted in two or
more different senses. If the statute is unambiguous, then there is no room for judicial
interpretation and the plain meaning of the statutory language controls. If it is ambiguous, we
consider the statute as a whole, rather than in parts, and we read each section in light of all others
to produce a harmonious whole.” (internal footnotes and quotation marks omitted)).
45
Giuricich v. Emtrol Corp., 449 A.2d 232, 238 (Del. 1982).
16
(3) in exercise of its rights under Section 262(e), the beneficial owner, Merion,
filed its petition in its own name. Under the unambiguous language of subsection
(a), Merion has standing to pursue appraisal here.
Ancestry suggests that giving the statute its plain meaning could lead to an
absurdity: an “interpretation that relieves an appraisal petitioner of the burden of
showing that the shares it seeks to have appraised were ‘not voted in favor of the
merger’ leads to absurd results inconsistent with the statute’s text” because “the
number of shares that qualify for appraisal cannot exceed the number of shares not
voted in favor of the merger.”46 This is not, to my mind, a concern on the facts
presented, because under the statute it is the record holder’s burden to show that it
did not vote in favor of the merger with respect to the shares for which appraisal is
sought. Transkaryotic teaches that, for stock held in fungible bulk, the record
holder must have refrained from voting a number of shares sufficient to cover the
demand. Cede meets that requirement here.
The potential for “over-appraisal” posited by Ancestry is a theoretical
concern where the appraisal arbitrageur acquires stock after a record date, which
stock may have been voted in favor of the merger by the seller. I discuss this issue
briefly in connection with a discussion of the information rights conveyed to
stockholders in Section 262(e) below, and more fully in Merion Capital LP v.
46
Opening Br. in Supp. of Mot. for Summ. J. at 16.
17
BMC Software, Inc.47 Suffice it to say here that Ancestry raises a theoretical
problem which is not present in the case before me, and which in any event would
at most threaten a policy goal of the statute, not render the statute absurd or
inoperable. Such a concern may of course be addressed by the legislature, but it is
insufficient to permit me to look past the unambiguous language of the statute.
The plain language of the statute, including the 2007 amendment to Section
262(e), does not impose on beneficial owners any new burden in connection with
affording them the opportunity to file petitions in their own names. Further,
nothing has changed the longstanding requirement under Delaware law that “[t]o
be entitled to appraisal, the beneficial owner must ensure that the record holder of
his or her shares makes the demand.”48 That record holder—not the beneficial
owner—is subject to the statutory requirements for showing entitlement to
appraisal and demonstrating perfection of appraisal rights under Sections 262(a)
and (d). While beneficial owners may file a petition in their own names, the record
holder is still required to comply with the statutory requirements in order for that
petition to be viable.
Even if Section 262 did impose the voting/consent prohibition of subsection
(a) on a beneficial owner petitioning for appraisal, Merion would meet that
requirement here. Merion did not cause its stock to be voted for the merger.
47
C.A. No. 8900-VCG, at 18–20 (Del. Ch. Jan. 5, 2015).
48
Dirienzo v. Steel Partners Holdings L.P., 2009 WL 4652944, at *3 (Del. Ch. Dec. 8, 2009).
18
Ancestry points out that Merion cannot demonstrate that the stock it beneficially
owns—held in fungible bulk by Cede—was not voted for the merger by the sellers.
The plain language of the standing requirement of subsection (a) focuses on the
actions of the stockholder, not on the shares, however. Ancestry argues that not
imposing a share-tracing requirement49 on arbitrageurs could lead to the result
discussed above: theoretically, more shares could be appraised than the total not
voted for the merger.
To demonstrate that this could not comport with legislative intent, Ancestry
points to the requirement that subsection (e) imposes on the corporation to provide
an informational statement. Section 262(e) provides that a stockholder or
beneficial owner
upon written request, shall be entitled to receive from the corporation
. . . a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number
of holders of such shares.50
This information, Ancestry points out, is intended to provide a potential petitioner
with information about the pool of other potential litigants, so that it can assess
whether the costs of appraisal litigation can be allocated in a way that makes the
49
I use the term “share-tracing requirement” as a shorthand for the burden that Ancestry suggests
the statute imposes on appraisal petitioners; it is somewhat imprecise, as Ancestry suggests that
the burden could be met in a number of ways, including through, for instance, a petitioner buying
shares after the record date also buying sufficient proxies to cover the number of shares for
which it seeks appraisal. See infra note 54.
50
Id. § 262(e).
19
litigation financially viable. In order for this statement to provide usable
information, Ancestry argues, a share-tracing requirement must be imposed on
arbitrageurs; otherwise, “shares not voted. . . with respect to which demands . . .
have been received” may inadequately describe the pool of eligible shares, which
could include shares voted for the merger by prior owners now held by
arbitrageurs. Once again, Ancestry has merely pointed out that the statute may not
perfectly fulfill what it suggests is the policy goal of the legislature. If the General
Assembly wishes to address the “problems” caused by appraisal arbitrage, either
substantive or with respect to the operation of Section 262, presumably it will do
so, but the fact that, in Ancestry’s reading, the statutory language is an imperfect
representation of legislative intent does not give a judge license to rewrite clear
statutory language; nothing Ancestry has pointed out makes operation of the statute
impossible or leads to a result that is absurd.
Finally, Ancestry contends that Section 262(e) contains an explicit share-
tracing requirement. Ancestry points to the following language from Section
262(e): “a person who is a beneficial owner of shares of such stock held . . . by a
nominee on behalf of such person may, in such person’s own name, file a petition
[for appraisal].”51 It argues that “shares of such stock” refers to the earlier
sentence in that subsection imposing on the company the information reporting
51
Reply Br. in Supp. of Resp’t’s Mot. for Summ. J. at 7 (alterations in original) (quoting 8 Del.
C. § 262(e)).
20
requirement discussed above—“shares not voted in favor of the merger or
consolidation and only with respect to which demands for appraisal have been
received.”52 Notably, however, Ancestry concedes that “[t]he subsections of § 262
pertaining to the perfection of appraisal rights were not amended to refer to
beneficial owners.”53
Subsection (e) expands the rights of petitioners under Section 262. It allows
beneficial owners as well as record holders to seek appraisal, and gives such
petitioners an informational right. The language Ancestry points to is simply
insufficient to work the legislative change Ancestry posits: to place the burden of
demonstrating perfection of rights to appraisal on the beneficial owner and impose
a share-tracing requirement. Nothing in the above-quoted subsection suggests that
the General Assembly intended to require beneficial owners who made post
record-date purchases to show that their specific shares were not voted in favor of
the merger, in contradiction to the approach taken in Transkaryotic which
accounted for the fact that beneficially-owned shares are typically held in fungible
bulk.
Ancestry’s real argument is that allowing arbitrageurs appraisal rights for
shares they acquired after the record date could lead to an unwholesome result,
namely, extending appraisal rights to shares voted for the merger by prior owners,
52
8 Del. C. § 262(e); see also Reply Br. in Supp. of Resp’t’s Mot. for Summ. J. at 7.
53
Opening Br. in Supp. of Mot. for Summ. J. at 20 (emphasis added).
21
potentially resulting in more shares appraised than the number not voted for the
merger. They ask me to remedy this by imposing a requirement on beneficial
owners who petition for appraisal, a requirement that is not found in the statute:
54
tracing the voting history of their shares. To do so would be to exercise a
legislative, not a judicial, function. 55
IV. CONCLUSION
I find that Cede perfected Merion’s appraisal rights with respect to the
shares for which is seeks appraisal, and that Merion is entitled to bring a petition
for appraisal of those shares in its own name under Section 262(e). For the
foregoing reasons, the Respondent’s Motion for Summary Judgment is denied. An
appropriate order accompanies this Memorandum Opinion.
54
Ancestry points out that “tracing”—speaking strictly—the voting history of a particular share
is not required to avoid the unwholesome result addressed above; Ancestry suggests that a
petitioner could simply buy sufficient proxies to cover the number of shares for which it seeks
appraisal, and suggests other ways of satisfying this policy concern. This argument proves too
much; it clarifies that there are a number of ways to address what Ancestry sees as a problem
with the statute. This is a matter requiring legislative, not judicial, deliberation. See Merion
Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG, at 18–20 (Del. Ch. Jan. 5, 2015).
55
See, e.g., In re Adoption of Swanson, 623 A.2d 1095, 1099 (Del. 1993) (“It is beyond the
province of courts to question the policy or wisdom of an otherwise valid law. Instead, each
judge must take and apply the law as they find it, leaving any changes to the duly elected
representatives of the people.” (internal citation omitted)); Great Hill Equity Partners IV, LP v.
SIG Growth Equity Fund I, LLLP, 80 A.3d 155, 160 (Del. Ch. 2013) (“If a valid statute is not
ambiguous, the court will apply the plain meaning of the statutory language to the facts before it.
It would usurp the authority of our elected branches for this court to create a judicial exception to
the words ‘all . . . privileges’ for pre-merger attorney-client communications regarding the
merger negotiations. That sort of micro-surgery on a clear statute is not an appropriate act for a
court to take.” (internal footnotes omitted)).
22
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE APPRAISAL OF ) CONSOLIDATED
ANCESTRY.COM, INC. ) C.A. No. 8173-VCG
ORDER
AND NOW, this 5th day of January, 2015,
The Court having considered the Respondent’s Motion for Summary
Judgment as to Merion Capital, L.P., and for the reasons set forth in the
Memorandum Opinion dated January 5, 2015, IT IS HEREBY ORDERED that the
Respondent’s Motion is DENIED.
SO ORDERED:
/s/ Sam Glasscock III
Vice Chancellor
23