Berger v. Pubco Corp.

Supreme Court of Delaware · Corporations

CorporationsShort-form mergerAppraisalDisclosureDelawareSection 253Section 262short-form merger

Facts

Pubco was a Delaware corporation whose shares were not publicly traded, and over 90% of its shares were owned by Robert H. Kanner, Pubco's president and sole director. Kanner used a wholly owned subsidiary to effect a Section 253 short-form merger that cashed out the minority at $20 per share. The merger notice gave some limited company information and attached financial statements, but it did not disclose how Kanner determined the $20 price, gave little meaningful detail about the company's operations or prospects, and attached an outdated copy of the appraisal statute. The Court of Chancery found those disclosure defects material and then fashioned a quasi-appraisal remedy modeled on Gilliland.

Issue

When minority stockholders are cashed out in a Delaware Section 253 short-form merger without receiving material information needed to decide whether to seek appraisal, what remedy is appropriate? Specifically, may the court require those stockholders to opt in to quasi-appraisal and escrow part of the merger consideration, or must the remedy proceed without those conditions?

Rule

Under Glassman, appraisal is the exclusive remedy for a short-form merger only if there is no fraud or illegality and the minority receives all material facts necessary to decide whether to accept the merger price or seek appraisal. If the controller breaches that disclosure duty, the controller forfeits the benefit of exclusive appraisal, and the minority is entitled to a quasi-appraisal class action to recover the difference between fair value and the merger price without having to opt in or escrow merger proceeds. The proper remedy is the one that best effectuates the policies of Sections 253 and 262 and Glassman, while remaining practical and fair.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Ridge Holdings, a Delaware parent corporation based in Cleveland, owns 92% of Riverbend Components, a closely held Delaware subsidiary. After a Section 253 cash-out merger, Riverbend sends minority stockholders a notice with sparse financial statements but omits any explanation of how the $18 per-share price was set, even though the company has no public filings and little outside information is available.

If minority stockholders sue claiming they lacked the information needed to decide whether to seek appraisal, which remedy is most consistent with the governing rule?

Explanation. When a controller in a Section 253 short-form merger fails to disclose material facts needed for an informed appraisal decision, it forfeits the protection of exclusive statutory appraisal. The appropriate remedy is quasi-appraisal, but not entire-fairness review and not a fully replicated statutory appraisal. The majority held that the proper form is an opt-out class remedy without opt-in or escrow requirements because that approach best serves Sections 253 and 262, Glassman, practicality, and fairness. (Derived from Berger v. Pubco Corp. (n.d.).)