Submitted: September 15, 2014
Ram Mehta and Neena Mehta, Buena Park, California; Pro Se Plaintiffs.
William M. Lafferty, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Attorneys for Defendants.
LASTER, Vice Chancellor.
Plaintiffs Ram Mehta and Neena Mehta owned common stock of Smurfit-Stone Container Corporation (the “Company” or “Smurfit-Stone”). In this lawsuit, they challenge (i) decisions leading up to the Company's bankruptcy, along with steps taken in connection with its exit from bankruptcy, (ii) the Company's subsequent merger with and into Rock-Tenn CP, LLC (“Rock-Tenn Sub”), a wholly owned acquisition subsidiary of Rock-Tenn Company (“Rock-Tenn Parent”), and (iii) Rock-Tenn Sub's failure to provide them with the merger consideration after their demand for appraisal lapsed. The defendants have moved to dismiss the complaint for failure to state a claim on which relief can be granted. The challenges to the stock distribution and the merger are dismissed, but a claim against Rock-Tenn Sub for failing to provide the Mehtas with their share of the merger consideration survives.
I. FACTUAL BACKGROUND
The facts are drawn from the verified amended complaint (the “Complaint”) and the documents it incorporates by reference. Other facts are undisputed or subject to judicial notice. The plaintiffs, as non-movants, receive the benefit of all reasonable inferences.
A. The Bankruptcy Proceeding
Smurfit-Stone is a Delaware corporation that manufactures paperboard and paper-based packaging. On January 26, 2009, Smurfit-Stone filed a voluntary petition in bankruptcy under Chapter 11 of the Bankruptcy Code. By order dated June 21, 2010, the bankruptcy court approved the Company's plan of reorganization. In re Smurfit-Stone Container Corp., Case No. 09-10235 (BLS) (Bankr. D. Del. Jun 21, 2010) (ORDER) [hereinafter “Confirmation Order”].
Under the plan of reorganization, and pursuant to the Confirmation Order, Smurfit-Stone's existing shares were cancelled and new shares of common stock were distributed to the Company's creditors and stockholders. Creditors received 95.5% of the new common stock. The common and preferred stockholders split the remainder. As part of the plan of reorganization, Smurfit-Stone's new board of directors approved employment agreements for management that contemplated the payment of bonuses if Smurfit-Stone engaged in a change-of-control transaction within a specified timeframe. See In re Smurfit-Stone Container Corp. S'holders Litig., 2011 WL 2028076, at *2 (Del. Ch. May 24, 2011). Significantly, the Confirmation Order discharged and released all claims against Smurfit-Stone and its directors relating to the bankruptcy. See Confirmation Order ¶¶ 51–55.
The Mehtas owned Smurfit-Stone common stock before the bankruptcy proceeding. After the reorganization, the Mehtas held 1, 486 shares of Smurfit-Stone common stock.
B. The Merger With Rock-Tenn
On January 23, 2011, Smurfit-Stone and Rock-Tenn Parent announced their intention to merge. The merger agreement called for Smurfit-Stone to merge with and into Rock-Tenn Sub. Pursuant to the merger, each share of Smurfit-Stone common stock would be converted into the right to receive $17.50 in cash and .30605 shares of Rock-Tenn Parent common stock.
Over the next two months, stockholders pursued litigation in Delaware and Illinois challenging the adequacy of the merger consideration. After the Illinois cases were stayed in favor of the consolidated Delaware action, this court denied the stockholder plaintiffs' application for a preliminary injunction. See Smurfit-Stone S'holders Litig., 2011 WL 2028076, at *1. The merger closed on May 27, 2011. The Delaware action was later settled, and this court approved the settlement by order dated February 2, 2012 (the “Settlement Order”). The Settlement Order certified the Delaware action as a class action, granted the defendants broad releases covering all possible claims arising out of or relating to the merger, and dismissed the Delaware litigation with prejudice.
C. The Appraisal Demand
Through their broker, TD Ameritrade, the Mehtas made a timely demand for appraisal. Because they demanded appraisal, the Mehtas did not receive the merger ...