Visiting Scholar Discusses Stockholder Appraisal in Delaware

“Delaware occupies such an important place in my teaching and my work that it is an absolute privilege to be here,” said Brooklyn Law School Associate Professor Minor Myers to an audience of faculty, students, and staff on Tuesday, November 12th before launching into the substance of his talk, “Do the Merits Matter in Stockholder Appraisal?”

Myers, the 2013 visiting scholar in residence in business and corporate law, also spoke on Monday, Nov. 11 at 4 p.m. at The Wilmington Club to members of the Delaware bench and bar. The annual visiting scholar program was developed to provide a venue for rising young corporate law scholars to share their research with the Delaware legal community and receive valuable feedback. Widener Law is grateful to The Delaware Counsel Group LLP and the Ruby R. Vale Foundation for co-sponsoring Myers’ visit.

Presenting a paper that he authored with Professor Charles R. Korsmo of Case Western Reserve University School of Law, Myers discussed empirical research into stockholder appraisal litigation in Delaware Chancery Court as compared to fiduciary class action suits. “Does the absence of a class action remedy mean more meritorious claims?” Myers asked of the central question that he hoped to address with the research.

Myers pointed out that the typical academic treatment of the appraisal remedy is to dismiss it as ineffective and therefore rarely used.  He countered that perception with statistics indicating substantial and increasing use of the remedy, especially among sophisticated institutional investors.  He then offered a detailed analysis and comparison between stockholder appraisal claims and traditional fiduciary class action claims brought in the Delaware Court of Chancery between 2004 and 2012. He noted that deal size seemed to be the most important variable in explaining when fiduciary class actions are initiated, with such class actions tending to target larger deals (and a commensurately greater prospect of settlement leverage), whereas the incidence of stockholder appraisal petitions correlated most strongly with deals that involved lower than expected premiums, and appeared to be uncorrelated to deal size. The implication of this research, as Professor Myers explained it, is that appraisal litigation appears to be driven by the merits from the standpoint of stockholders, while fiduciary duty class actions appear to be driven more by the fee motivations of plaintiffs’ counsel rather than the underlying merits of the claims.

These statistical observations, according to Professor Myers, are consistent with the differences in structure between appraisal actions and fiduciary duty class actions.  First, an appraisal plaintiff typically has a substantial stake in action as compared to the representative plaintiff in a fiduciary duty class action.  Second, the class of plaintiffs in a fiduciary action includes all stockholders, while an appraisal action consists only of stockholders who affirmatively elect to pursue the remedy.  Finally, fiduciary actions offer a variety of equitable remedies, and permit settlements for non-financial consideration (like supplemental disclosure), while an appraisal claim is limited to monetary compensation.  As a result of these features, appraisal litigation may tend to be relied upon only when there is a significant prospect of financial recovery, and lawyer-driven suits and settlements are less likely to occur than may be the case with fiduciary duty class actions.

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