MICHAEL C. HALPIN and MICHAEL A. CHRISTIAN, Petitioners,
RIVERSTONE NATIONAL, INC. a Delaware corporation, Respondent. RIVERSTONE NATIONAL, INC., Counterclaim Plaintiff/Third-Party Plaintiff,
MICHAEL C. HALPIN and MICHAEL A. CHRISTIAN, Counterclaim Defendants, - and -WALTER SMITH, STEPHEN DAVIS, and PAL H. OTTESEN, Third-Party Defendants.
Submitted: November 5, 2014
S. Mark Hurd and Christopher P. Quinn, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Danny David and Amy Pharr Hefley, of BAKER BOTTS LLP, Houston, Texas; Attorneys for Petitioners/Counterclaim-Defendants Michael C. Halpin and Michael A. Christian.
Blake Rohrbacher and Andrew J. Peach, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Harry H. Schneider, of PERKINS COIE LLP, Seattle, Washington; Attorneys for Respondent and Counterclaim Plaintiff/Third-Party Plaintiff Riverstone National, Inc.
Samuel T. Hirzel, II and Dawn Kurtz Crompton, of PROCTOR HEYMAN LLP, Wilmington, Delaware; Attorneys for Third-Party Defendants Walter Smith, Stephen Davis, and Pal H. Ottesen.
GLASSCOCK, Vice Chancellor
The right to statutory appraisal is the right to have this Court determine the fair value of shares of corporate stock subject to conversion, without the stockholder's consent, into other property by merger. A stockholder in such a situation may opt to forgo the consideration offered in the merger, in favor of fair value as it is determined in an appraisal action in this Court. The rights of holders of preferred stock are largely contractual, and this Court has found that such stockholders may waive appraisal rights ex ante by contract. However, the relationships between the common stockholders (the residual owners of the corporation), the directors (the fiduciaries managing the corporation on those owners' behalf), and the majority stockholder-if any-having voting control over the corporation (who also stands as a fiduciary to the minority stockholders in certain situations) are in the main governed by the Delaware General Corporation Law and the common law of fiduciary relationships. The question of whether common stockholders can, ex ante and by contract, waive the right to seek statutory appraisal in the case of a squeeze-out merger of the corporation is therefore more nuanced than is the case with preferred stockholders. That question has not yet been answered by a court of this jurisdiction.
In this action, minority common stockholders of a corporation seek appraisal of their shares after a June 2014 acquisition of the corporation by a third party, which was approved by the written consent of the corporation's 91% controlling stockholder in May 2014. For the purposes of this Memorandum Opinion, I presume that the Petitioners have perfected their right to appraisal under Section 262 of the DGCL. The corporation has counterclaimed, however, and seeks summary judgment in its favor on the appraisal claims based on a stockholders agreement between the corporation and certain minority stockholders, including the Petitioners, entered into in 2009. That agreement provided the corporation with "drag-along" rights in case of a change in control, including the right to compel the minority stockholders to vote in favor of certain change-in-control transactions. Such a favorable vote would make the minority stockholders ineligible for appraisal rights, and indeed the corporation considers the stockholders agreement as embodying a right to force a waiver of appraisal on the minority common stockholders, which the corporation seeks to enforce specifically here. This would appear to raise the question limned above: may common stockholders, ex ante, contractually commit to a waiver of the appraisal rights provided by statute? I need not reach that question, however, because the unambiguous language of the stockholders agreement at issue only provides for the drag-along rights to be exercised prospectively-not after a merger has been accomplished. Since the corporation did not demand a vote in favor of a change in control in the manner explicitly required by the stockholders agreement, it may not specifically enforce the drag-along rights here, even if I assume that the waiver of appraisal was otherwise enforceable. The stockholders agreement, accordingly, does not prevent the Petitioners from proceeding to appraisal.
I. BACKGROUND FACTS
A. Parties and Relevant Non-Parties
Respondent, Counterclaim Plaintiff, and Third-Party Plaintiff Riverstone National, Inc. ("Riverstone" or the "Company") is a Delaware corporation.
Petitioners and Counterclaim Defendants Michael C. Halpin and Michael A. Christian, and Third-Party Defendants Walter Smith, Stephen Davis, and Pal H. Ottesen (together, the "Minority Stockholders"), were individual stockholders of Riverstone during the period relevant to this dispute.
Non-party CAS Capital Limited ("CAS"), a private limited company organized under the laws of England and Wales, was the holder of a majority of the issued and outstanding shares of Riverstone's common stock-approximately 91%-during the period relevant to this dispute.
B. The Stockholders Agreement
On June 5, 2009, the Minority Stockholders entered into an agreement with Riverstone, then known as Consolidated American Services, Inc., setting forth certain rights and obligations of the Minority Stockholders (the "Stockholders Agreement"). Relevant here, Section 3 of the Stockholders Agreement granted Riverstone the power, subject to certain restrictions, to require the Minority Stockholders to tender and/or vote their shares in favor of a "Change-in-Control Transaction" approved by a majority of Riverstone's stockholders (the "Drag-Along"). Specifically, Section 3 states, in relevant part:
[I]f at any time any stockholder of the Company, or group of stockholders, owning a majority or more of the voting capital stock of the Company (hereinafter, collectively the "Transferring Stockholders") proposes to enter into any [Change-in-Control Transaction], the Company may require the Minority Stockholders to participate in such Change-in-Control Transaction with respect to all or such number of the Minority Stockholders' Shares as the Company may specify in its discretion, by giving the Minority Stockholders written notice thereof at least ten days in advance of the date of the transaction or the date that tender is required, as the case may be. Upon receipt of such notice, the Minority Stockholders shall tender the specified number of Shares, at the same price and upon the same terms and conditions applicable to the Transferring Stockholders in the transaction or, in the discretion of the acquirer or successor to the Company, upon payment of the purchase price to the Minority Stockholders in immediately available funds [(the "Participation Right")]. In addition, if at any time the Company and/or any Transferring Stockholders propose to enter into any such Change-in-Control Transaction, the Company may require the Minority Stockholders to vote in favor of such transaction, where approval of the shareholders is required by law or otherwise sought, by giving the Minority Stockholders notice thereof within the time prescribed by law and the Company's Certificate of Incorporation ...