Shareholders Entitled to Merger Consideration When No One Files Timely Appraisal Petition

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By Michael Greene

Oct. 21 — Stockholders who file an appraisal demand in relation to a merger are still entitled to the merger consideration from the surviving corporation when they don't file a formal appraisal petition within 120 days of the merger, the Delaware Chancery Court ruled Oct. 20.

Vice Chancellor J. Travis Laster opined that once the appraisal petition deadline passed, “the right to appraisal lapsed for all stockholders who had demanded appraisal, triggering an obligation on the part of the surviving corporation to pay them the merger consideration.”

Bankruptcy & Merger

Defendant Smurfit-Stone Container Corp. filed for bankruptcy in 2009. Two years later the company entered into a merger agreement with a subsidiary of Rock-Tenn Co.

The pro se plaintiff stockholders made a timely demand for appraisal through their broker. However, they never filed a petition for an appraisal and eventually withdrew their demand in writing.

Even though no Smurfit-Stone stockholders ever filed an appraisal petition, Rock-Tenn took the position that the plaintiffs could only receive their merger consideration if they agreed to the companies' settlement proposals. The plaintiffs never agreed and thus were never provided with the merger consideration.

Subsequently, the plaintiffs filed an action in the chancery court alleging breaches of fiduciary duty by directors of both companies related to decisions leading up the bankruptcy, the merger agreement and the failure to provide them with merger consideration.

The defendants moved to dismiss the plaintiffs' complaint for failure to state a claim on which relief can be granted.

Failure to Provide Merger Consideration

After dismissing all claims related to events leading up to the bankruptcy and the merger, Vice Chancellor Laster found that the “operative event” giving rise to Rock-Tenn's obligation to provide plaintiffs with the merger consideration was not plaintiffs' attempted withdrawal of its appraisal demand, but “the failure of any stockholder to file a petition for appraisal within 120 days after the effective time of the merger.”

Under § 262 of the Delaware General Corporation Law, stockholders must file an appraisal petition within 120 days of the merger to keep their appraisal rights from lapsing. If they fail to do so, a company may pay out the merger consideration to dissenting stockholders.

Because the 120-day deadline passed without any stockholders filing a petition, the court concluded that the plaintiffs became entitled to merger consideration and Rock-Tenn could pay this consideration “without fear that an appraisal petition might be filed later.”

Pro Se Status

The court also noted that it used a “less stringent standard” when considering the underlying substance of the plaintiffs' complaint because of their pro se status.

Vice Chancellor Laster wrote that even though the plaintiffs “had not framed a theory using recognizable legal concepts,” their claim against Rock-Tenn for failure to provide them merger consideration could be “conceptualized” under a theory of breach of contract or unjust enrichment.


In addressing the scope of damages under either of these theories, the court found that the plaintiffs were not entitled to certain consequential damages because they were not foreseeable. The court found, however, that the plaintiffs were entitled to the merger consideration of cash and stock.

Nonetheless, Vice Chancellor Laster noted that during the remedial stages of this case, the stock portion may be difficult to calculate.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

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