For public company shareholders, a cashout merger offer (even one at a too-low price) tells you that someone wants your shares and intends to pay you cash for them. And, at least in US actions, it is the rare public-company focused appraisal case that concerns collections. Indeed, if an acquirer is paying cash for a public company, the idea of collections barely registers.
But, one bears reminding, appraisal actions are not a special breed of lawsuit where payment is somehow guaranteed. Enter In re Lee, 898 F.3d 768 (7th Cir. 2018), where we find a federal appeals court dealing with appraisal remedy related collections.
How Lee got from an Indiana appraisal case to the 7th Circuit is a tortured route, but the core facts of relevance are straightforward: a minority investor obtained a judgment under Indiana’s appraisal remedy against a corporation. The controlling majority shareholder filed for bankruptcy (and because all bankruptcy is in federal court – the federal court angle). Post-merger, the controlling shareholder “gutted” the merged company, leaving it with nothing to satisfy the appraisal judgement. The aggrieved minority shareholder sought to access the controlling shareholders personal assets. The District Court agreed with this; and the 7th Circuit affirmed. (For a more robust discussion of non-appraisal aspects of In re Lee, see this article.)
Focusing on the appraisal angle, this case highlights a couple points. Appraisal remains a potential remedy for minority shareholder oppression. While this blog, and many Delaware appraisal cases, cover billion dollar companies targeting other billion dollar companies, appraisal is not limited to such cases. An aggrieved shareholder of a small company, including a family company, may indeed have appraisal rights (depending on their jurisdiction and the facts of the case). And finally, in many instances appraisal remains part of a larger litigation environment. In other contexts (here, the bankruptcy limited the minority shareholders options), other potential litigation approaches may have possible – whether fraudulent conveyance lawsuits, or using information gleaned via appraisal in another action.
Lee, and cases like it are a useful reminder: While appraisal may be a somewhat unique remedy, it is still litigation. Appraisal can still face litigation risks (like collections), and it can be part of a larger litigation strategy than just ‘bring an appraisal.’