Major proxy firm Institutional Shareholder Services (ISS) issues guidance every year for investors laying out ISS’s recommendations for voting on various shareholder issues.  The 2021 US voting guidelines, in line with the 2020 guidelines, recommend voting in favor of appraisal rights.  This is of little surprise as appraisal rights remain critical shareholder rights and can provide immense value to shareholders in certain situations.

ISS also issues guidelines for investors focused on specific issues.  For example, ISS’s 2021 Climate Proxy Voting Guidelines also endorse appraisal rights, while mostly focused on issues of interest to investors seeking to bring about other forms of corporate change, generally in the “ESG” (Environmental, Social, and Corporate Governance) arena.

Prior ISS ‘specialty’ guidelines include their Catholic Advisory Services Recommendation – which, again, was in favor of appraisal rights.

The Delaware Supreme Court heard argument on January 13th in the SourceHOV case, with interesting issues on the proper standard of review, the concept and application of operative reality, and expert credibility coming up.  Some key questions asked and argued were:

  • Of relevance to private company investors: what is the standard of review appropriate when there is no market evidence for an appraisal fight, and the Court is forced to decide between a ‘battle of the experts’?  While questions of ‘standard of review’ may seem foreign to investors, the standard of review can heavily influence how likely a higher court is to leave the decision of the lower court in place.  Here, where SourceHOV has so far refused to pay the investors despite the judgment, a sense of how likely the decision being overturned is would weigh into any calculation of resolution.
  • Of relevance to all investors interested in appraisal rights:  How must a court deal with the “operative reality” of the company? Operative reality speaks to what is ‘actually’ occurring at the time of the challenged corporate action.  For example, in 2017 case SWS, changes to SWS’s capital structure as the result of cancelling debt in exchange for equity were part of the “operative reality” because the exercise of the warrants and debt cancellation was a known element of value as of the Merger Date and was not conditioned or contingent on the merger.   Operative reality depends on the facts of each specific case.
  • And of relevance to all: how much does expert credibility matter, and how is credibility overall determined by the trial court in an appraisal case?  Of relevance here, in SourceHOV, the Company’s expert, and the Company, were considered less credible in part because of extremely low valuations, as well as alleged malfeasance regarding the backdating of a document. As one prior analysis observed, the Chancery Court, in a case where the parties agreed that market based evidence of value was lacking or irrelevant, went back to ‘traditional’ valuation methodologies, ultimately adopting the vast majority of the petitioner’s expert’s discounted cash flow analysis based on the credibility of that analysis.

We’ll continue to cover this case as the Delaware Supreme Court renders its decision.

You can view arguments of the Delaware Supreme Court here.

You can read Law360’s review of the argument here.

We previously covered the Chancery Court decision here.

IRS & Business Taxation of the Cannabis Industry

This industry round-up by Global X ETFs surveys the near-term challenges and longer-term prospects for cannabis companies.  The piece examines several industry tailwinds, including “trends in new dispensary openings, a shift to e-commerce, and the introduction of new consumable forms of cannabis” fueling growth across North America, as well as further legalization efforts amid the COVID-19 crisis.

Previous Cannabis valuation and analysis pieces include this FTI paper, and two papers by E&Y.

See the source image

Chancellor Andre G. Bouchard of the Delaware Chancery Court will retire effective April 30, 2021.

Chancellor Bouchard handed down a number of major appraisal decisions during his time on the bench, including Solera, DFC Global, Cirillo Family Trust, and Farmers & Merchants. We covered his appointment in 2014, and his first appraisal opinion back in 2015.

The retiring Chancellor has not indicated his future plans.

See the notice here.

It looks likely – per this blog post from Deminor Recovery Services.  With numerous US-listed People’s Republic of China (“PRC”) companies facing threats to their listings, the attractiveness of withdrawing from the US market may become stronger.   Take privates, mergers, and other arrangements resulting in the delisting of the PRC company from the US exchange (with or without an intention to relist in the PRC or similar) can be expected.

The connection to appraisal?  The vast majority of US-listed PRC companies are variable interest entities whereby the PRC-based operating entity contracts away its economic rights to a Cayman Islands based entity, which, in turn, lists American Depository Securities (ADS) or Receipts (ADR) on the US exchange.  The delisting process goes in reverse – the delisting of the ADS/ADR and rolling up of the Cayman entity generally allows for Cayman appraisal rights.

Per the Deminor piece, experience suggests that many of these delisting arrangements will occur at prices unfavorable to shareholders, who may then turn to their Cayman appraisal remedy – something we have blogged about extensively before.

Will a wave of delistings result in a wave of Cayman appraisal?  The pieces certainly seem to be in place.


With litigation over section 220 demands becoming more frequent and contentious, the Supreme of Court Delaware weighed in an en banc ruling and affirmed shareholders’ rights to inspect a company’s books and records.  In this protracted dispute which we’ve previously blogged about, AmerisourceBergen Corporation took the Chancery Court’s ruling allowing shareholders the right to inspect the Company’s documents relating to opioid distribution compliance to the Delaware Supreme Court.  The full-five justice panel of the Delaware Supreme Court upheld the Chancery Court’s decision, ruling that investors need not identify what they intend to do with the books and records in the event they confirm their suspicion of wrongdoing.   The Supreme Court also held that when alleging a proper purpose for the books and records pursuant to Section 220 of the Delaware General Corporation Law, the shareholder need not establish that the wrongdoing under investigation is legally actionable.

This decision, along with another recent opinion, show that Delaware Courts are growing weary of certain defendant strategies to thwart books and records demands in litigation.  The opinion also reaffirms the relatively broad “proper purpose” legal standard shareholders must meet to gain access to books and records, and thereby take advantage of this important shareholder rights tool.  As the Supreme Court clarified, a “myriad” of proper purposes to inspect books and records have been accepted under Delaware law, and the shareholder need only show by “a preponderance of the evidence” a credible basis from which the court can infer possible mismanagement or wrongdoing.

A pdf copy of the opinion is available here.

Private vs Public Company - Key Differences Between the Two

While the appraisal landscape, and many of the major appraisal decisions of the past few years, have concerned the appraisal of public companies, it is critical for investors and practitioners to not lose sight of private appraisal.

Appraisal rights can be available to shareholders of privately held corporations, and can be exercised when a private company is taken over.  As an example, shareholders of private company Zoox have demanded appraisal [$$] resulting from Amazon’s purchase of Zoox for about $1.3 billion, arguing that this price was well below what Zoox was valued at in recent rounds of capital raising.

Notably, the same shareholders seeking appraisal had previously sued Zoox under Section 220 of the Delaware General Corporation Law, seeking books and records related to the deal.  As we have noted , appraisal and Section 220 demands are increasingly becoming intertwined as they offer shareholders, especially private company shareholders, one of the only effective remedies to get additional information about deals potentially hostile to their interests, and, for appraisal, one of the only effective remedies for minority shareholders to be properly compensated for their interests.

The Zoox appraisal demand is a reminder that appraisal is a relevant right to far more than just investors pursuing an “appraisal strategy” – private equity firms, startup employees and any other minority shareholder should be aware of their appraisal rights (and other shareholder rights) and protect their interests.  This becomes especially relevant when an investor is considering an investment, and then, when that investment is acquired or engages in another corporate act allowing appraisal.

Pharmaceutical company Gilead’s “overly aggressive defense strategy” received the ire of Vice Chancellor McCormick of the Delaware Court of Chancery, who found in a recent decision [$$] that shareholders easily showed they had the right to access books and records to investigate possible wrongdoing in connection with Gilead’s marketing of HIV drugs, and allowed the investors to seek attorneys’ fees from the company.

The stockholders joined in “chorus with a host of other accusers,” alleging Gilead violated antitrust laws, committed mass torts, infringed on government patents, and defrauded government programs in its efforts to protect its market share.  The coordinated complaint in the action told a story “replete with inequity as the biblical verse that the company’s namesake brings to mind,” according to the Delaware Chancery.

After Gilead fought discovery and proceeded to trial over the shareholders’ access to books and records, the Vice Chancellor ruled in favor of the shareholders and lamented that the company’s strategy “epitomizes a trend.”  According to the Vice Chancellor, “Delaware courts have urged stockholders to use the ‘tools at hand’ and pursue Section 220 inspections before filing derivative lawsuits for decades, and this court has seen a rise in Section 220 enforcement actions in recent years.”  However, the “regrettable reaction by defendant corporations, has been massive resistance,” said the Vice Chancellor.

This decision reaffirms that properly purposed books and records demands are exactly that: proper and shareholders should take advantage of these important tools.  At times, attorneys fees may be available for certain denials of shareholders’ inspection rights.

Flag of Washington - Wikipedia

Does Washington state offer appraisal rights (also known as dissenters rights)?

Yes it does – according to this post from the Jacob Freeman Law Firm in Seattle.  And unlike Delaware (indeed, unlike the majority of US states), Washington does not have a “market out exception”.   We’ve covered before that the somewhat maligned “market out exception” can prevent appraisal rights when a minority shareholder can sell their shares into a market, making Washington a potentially favorable state for appraisal.

Also of relevance to those looking at appraisal rights: “Washington courts disfavor discounts in determining the “fair value,” including in particular marketability discounts and discounts for built-in capital gains.”

Readers of this blog know that different states have different rules; when thinking about appraisal rights, it is critical to

Read more about Washington appraisal rights.