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Tiny deals can bring large complications.  Mannix v. PlasmaNet, Inc. involved appraisal rights in a merger where the merger consideration, after adjustments, amounted to $114,000, to be split amongst 19,307,715 shares, or roughly six-tenths of a penny per share.

Under Section 262(e) of the DGCL, there need be only one appraisal petition—filed by the surviving corporation or by a former stockholder—to commence an appraisal proceeding and thereby entitle all former stockholders with perfected appraisal rights to receive what the Court determines to be the “fair value” of the corporation’s stock. In the interests of judicial economy. it does not make sense for each dissenting stockholder to file a separate petition.

Mannix was the petitioner in the appraisal action.  Certain non-appearing dissenters who did not file the appraisal petition entered into a settlement agreement to receive equity in the surviving corporation conditioned upon a dismissal with prejudice of the non-appearing dissenters’ appraisal demands.  These non-appearing dissenters had to certify their status as accredited investors because they were receiving restricted stock.  The Company made the same settlement offer to petitioner and others who demanded appraisal rights.

The Court stated the petitioner had not cited any authority that would preclude the non-appearing dissenters from accepting a settlement unless the petitioner and all other non-appearing dissenters also are offered—and are able to accept—a settlement on the same terms. The Court noted that assuming for the sake of argument that PlasmaNet’s settlement offer cannot be accepted by all non-appearing dissenters because they are not accredited investors, that factor is not a persuasive reason in the Court’s opinion to preclude the PlasmaNet from settling with the non-appearing dissenters.

The Court rejected the petitioner’s argument that the proposed settlement would undercut the economics of the appraisal proceeding (by reducing the number of shares in play and thus the potential aggregate recovery in this action).  The Court noted that when  petitioner filed his appraisal petition, he was the first former PlasmaNet stockholder to do so. Petitioner and his counsel thus voluntarily accepted the risk that this appraisal proceeding might be limited to a few PlasmaNet shares. Even if petitioner expected that other former PlasmaNet stockholders had demanded appraisal, no provision of the appraisal statute prevents the non-appearing dissenters from seeking to settle their appraisal demands, as was done here.

The Court distinguished a case where the Court rejected a settlement amongst the petitioners in another action and the surviving company.  That case was different, according to the Court, because settlement by the petitioners would have terminated the appraisal for all of the non-appearing dissenters, leaving them without a remedy.

The Court did not decide the question as to whether the non-appearing dissenters that settle are responsible for a pro-rata portion of the petitioner’s attorney’s fees because the question was not yet ripe.


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