May 22, 2017

Appraisal Rights: Chancery Clarifies Basis for “Quasi-Appraisal”

Earlier this month, in In re Cyan Stockholders Litigation, Delaware Chancellor Bouchard dismissed post-merger fiduciary duty and quasi-appraisal claims arising out of Ciena’s 2015 acquisition of Cyan in a primarily stock-for-stock transaction.

As this Wilson Sonsini memo notes, the Chancellor rejected the plaintiffs’ fiduciary duty claims based on fully-informed, un-coerced shareholder approval of the deal.  He also declined to endorse the use of a “quasi-appraisal” claim as an end-run around applicable limits on duty of care claims:

Because the court had already rejected the plaintiffs’ disclosure claims and concluded that the plaintiffs failed to allege a non-exculpated breach of fiduciary duty, Count Two was barred by Cyan’s exculpatory charter provision adopted pursuant to Section 102(b)(7). The court held, “When the cause of action supporting plaintiffs’ request for a quasi-appraisal remedy is for breach of a fiduciary duty, plaintiffs cannot circumvent the protection afforded in Cyan’s certificate of incorporation through artful pleading.”

The memo also points out that the decision shows that post-closing disclosure claims require plaintiffs to identify material omissions, and not “laundry lists of disclosure violations that aren’t material or that are of the ‘tell me more’ variety.”

John Jenkins