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Manti Holdings, LLC v. Authentix Acquisition Company, Inc.

Court of Chancery of Delaware

August 14, 2019


          Date Submitted: May 28, 2019

          John L. Reed, of DLA PIPER LLP, Wilmington, Delaware, Attorney for Petitioner/Counterclaim-Defendants.

          Samuel A. Nolen, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorney for Respondent/Counterclaim-Plaintiff.



         Before me is the Petitioners' Motion for Reargument of my Letter Opinion of October 1, 2018 (the "Letter Opinion").

         Motions for reargument are, in my view, a tool that generally serves best left in the sheath; they are, I find, rarely fruitful, and most often result in additional expense for the litigants and effort by the Court, to no purpose. A motion for reargument, as this Court has pointed out on numerous occasions, does not provide a forum to relitigate issues decided by the trial judge, and if the trial court is in error on those issues, vindication is available on appeal, not via reargument. Nonetheless, reargument can be a useful tool if used as designed, to forestall a final opinion in which the judge has disregarded matters of law or fact, or has inadvertently failed to respond to an argument of counsel. In such cases, exercise of the motion can save the expense and delay of the matter being reviewed on appeal and remand, and I look on the (rare) well-founded motion for reargument as beneficial to the system of justice-and the time and effort of both bench and appellate judges-as well as to the client.

         The Petitioners advance such a useful motion here. In my Letter Opinion of October 1, 2018, on the Petitioners' Motion to Dismiss the counterclaims and the Respondent's Motion for Partial Summary Judgment, I decided what I considered to be the issue before me: whether, pursuant to contract, the Petitioners had waived their ability to pursue appraisal rights under the DGCL. The parties had opposing positions on this issue based on the applicable contractual language, positions they presented forcefully in oral argument. I found that the Petitioners had agreed to waive appraisal rights. Largely missing from the oral argument, however, and missing from my Letter Opinion, was a predicate issue: whether a stockholder can, via contract, validly waive her appraisal rights to begin with.

         The Petitioners moved for reargument, in part on that ground. In examining the applicable briefing, it is clear that the Petitioners raised fairly the issue of the enforceability of a stockholder agreement to waive appraisal rights. As a result, I should have addressed it initially, and I rectify that omission here. Upon consideration, I find on this issue in the Respondent's favor; nonetheless, the Petitioners' Motion for Reargument was well-taken.

         I. BACKGROUND

         I will recite in this Letter Opinion only those facts and contractual provisions necessary to my decision. The facts available at the time I issued the Letter Opinion have been supplemented at my request by the parties' Joint Stipulation of Fact (the "Joint Stipulation"), submitted on May 28, 2019; those facts are referenced as appropriate.

         This matter relates to the sale via merger of Authentix Acquisition Co. ("Authentix") to a third-party entity. As of 2008, the Petitioners were the sole owners of Authentix, Inc.[1] In that year, Authentix, Inc. merged into Authentix, with The Carlyle Group and J.H. Whitney & Co. (collectively, "Carlyle") as the new majority owner.[2] As a condition of the merger, the Petitioners agreed to roll over their interest in Authentix, Inc. into Authentix; also as a condition of the merger, they entered into a Stockholders Agreement ("SA").[3] In 2009, as a response to a need for capital, the SA was amended to recognize a new issuance of preferred stock, Series B, in which the Petitioners and other equity holders were invited to participate.[4] Carlyle participated in the Series B round.[5]

         The SA was not a contract of adhesion. As provided in the supplemental Joint Stipulation of Fact, the Petitioners-who were, I find, sophisticated parties-were represented by counsel, who exchanged drafts of the proposed SA before agreeing to a final contract.[6] In other words, the sole owners of Authentix, Inc., with the help of counsel, negotiated the terms of the SA, as part of the 2008 merger with the Carlyle entity, Authentix, which merger was, I presume, valuable to the Petitioners. One of the provisions in that negotiated contract was, as I have found, a waiver of appraisal rights at issue here. The SA also rigorously limits the Petitioners' rights to sell their shares: the Carlyle majority must approve any sale, and the buyer must consent in writing to be bound by the SA's terms, including the waiver of appraisal rights.[7] Presumably, the Petitioners have enjoyed the benefit of their bargain, through the time of the sale of Authentix.

         The Petitioners seek statutory appraisal under Section 262 of the Delaware General Corporation Law ("DGCL") in connection with a 2017 transaction.[8] On October 1, 2018, I issued my Letter Opinion in this matter, granting the Respondent's Motion for Partial Summary Judgment on whether the Petitioners are contractually barred from exercising their appraisal rights.[9] In short, I found that the Petitioners had, by the SA, waived their right to statutory appraisal in the event of a sale of Authentix, provided that stockholders received the "same price."[10]

         In the October 1 Opinion, I held that the parties' contractual rights and obligations continued post-merger, that the transaction at issue triggered those contractual rights and obligations-specifically, to refrain from seeking appraisal- and that the company has the authority to enforce the SA.[11] On October 8, 2018, the Petitioners moved for reargument of the October 1, 2018 Letter Opinion.

         In their Motion, the Petitioners submit that, in the Letter Opinion, I erred as a matter of the application of fact to the SA. Per the Petitioners, contrary to my ruling, under the plain terms of the SA the merger constitutes a "sale of equity securities," and so Section 3(e) of the SA applies here.[12] Under that provision, the Petitioners are entitled to receive the "same price" as [Carlyle] stockholders in the event of a sale.[13] The Petitioners also submit that I erred as a matter of law; that under Delaware law, statutory appraisal rights cannot be waived via contract.[14]

         On November 20, 2018, I directed the parties to supplement their briefing on the Motion for Reargument, to address one narrow issue: whether a contractual undertaking to limit or waive future appraisal rights, in connection with a transaction that is not yet contemplated, is enforceable. The parties submitted further briefing, which concluded on January 4, 2019. I asked them to supplement that briefing with a factual recitation, the Joint Stipulation of Fact, filed on May 28, 2019. At that time, the Motion was submitted for decision. What follows is my analysis specifically limited to the facts as stated above: Does the DGCL forbid the sophisticated owners of a corporation from negotiating a term as part of a merger agreement that binds them to a future sale and waives statutory appraisal rights? I conclude that it does not.

         II. ANALYSIS

         Under Court of Chancery Rule 59(f), a party may move for reargument within five days after the Court issues an opinion. Reargument is warranted only where "the Court has overlooked a decision or principle of law that would have controlling effect or . . . misapprehended the facts or the law so the outcome of the decision would be different."[15] "A motion for reargument is not a mechanism to present new arguments or to relitigate claims already considered by the Court."[16]

         A. No error as a matter of law

         The Petitioners contend that the October 1, 2018 Letter Opinion erred as a matter of law. Per the Petitioners, the mistake of law was that I upheld an agreement that abrogates the statutory right of appraisal.[17] In the Letter Opinion, I assumed without deciding that I could avoid decision of the ability of these parties to waive appraisal, because the Petitioners informed me at Oral Argument that there were no issues of law.[18] On reargument, the Petitioners assert that they preserved this issue in briefing.[19] Upon review, I do not consider the issue to be waived, even ...

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