December 2015

In last month’s decision in Houseman v. Sagerman, Vice Chancellor Glasscock addressed the common law analogue to Delaware’s appraisal rights statute – the remedy of “quasi-appraisal” for a breach of fiduciary duty.  In the November 19 opinion, the court described a long litigation history stemming from the merger of Universata, Inc., into an LLC purchaser.  The Housemans, shareholders of Universata, did not in the first instance exercise statutory appraisal rights, choosing instead to sue a putative purchaser of their shares under a “put contract” in Minnesota.  The Minnesota state court dismissed that breach of contract action in 2012.  More than two years after the close of the Universata merger, the Housemans filed a complaint in Delaware Chancery alleging breach of fiduciary duty in the sale process.  Of interest to us was the Court’s discussion of the Housemans’ claim for quasi-appraisal.  Vice Chancellor Glasscock observed that quasi-appraisal was not a cause of action at all, but was rather a remedy available to shareholders upon a finding of a breach of fiduciary duty.  The Vice Chancellor acknowledged that there could be confusion as to what, exactly, quasi-appraisal was, but made clear that it is ultimately a remedy whereby the court awards shareholders damages “based on the going-concern value of their previously owned stock” upon an appropriate finding of liability.  For background on the quasi-appraisal remedy in stockholder litigation in general, see this article from the HLS Forum on Corporate Governance and Financial Regulation.

Notwithstanding the ostensive viability of their claim, the Housemans would not receive quasi-appraisal – not because it was not a cause of action, but because of the doctrine of laches, an equitable doctrine similar to a statute of limitations that bars a cause of action when there is prejudicial delay in bringing it.  In the Houseman case, the plaintiffs waited 27 months to bring a breach of fiduciary duty claim (and thus seek quasi-appraisal), choosing to litigate the Minnesota breach of contract issues in the first instance.  The Court thus granted summary judgment to defendants on the breach of fiduciary claim, and in doing so barred the quasi-appraisal remedy, as the claim was simply brought too late.

**Update on January 21, 2016: the Westlaw Journal has now covered the same case discussed in this post:  Houseman et al. v. Sagerman et al., 31 Westlaw Journal Delaware Corporation Law Update 3 (2016).

As reported in Law360, Dole shareholders have settled their class action arising from the Company’s 2013 take-private deal for a $114 million payout.  In August 2015, the Delaware Chancery Court had awarded Dole shareholders $148 million, in a combined appraisal and entire fairness action.  The settlement thus disposes of the Dole shareholders’ appraisal case as well as the shareholder class claims.

In a related story, Law360 has also reported that two California investment funds filed a complaint in Delaware federal court on Wednesday accusing Dole executives of a fraud designed to drive down the company’s price before the 2013 take-private deal, similar to the class claims that were settled earlier this week.