May 30, 2019

Delaware Chancery Says No “Mulligan” on Appraisal Notices

I used to play golf, or at least I used to try to play golf.  About the only thing I had going for me was that I could drive the ball a long way. Unfortunately nobody could ever predict in which direction my drive would head. For that reason, I came to both appreciate & depend on one of golf’s grand traditions – the “Beer Cart”  the “Mulligan.”

Recently, a Delaware corporation that didn’t provide the notice of appraisal rights required under Section 262 of the DGCL argued that it deserved a Mulligan too – but in Mehta v. Mobile Posse,(Del. Ch.; 5/19), the Chancery Court shot that argument down.  The gist of the defendants’ argument was that a supplemental notice provided subsequent to the filing of the lawsuit was enough to satisfy the notice requirement.  What’s more, they had the chutzpah to attach the supplemental notice to the pleadings, and file a motion for judgment on the pleadings!

While a chutzpah strategy has won the day in the Chancery Court in the past, this recent blog from Francis Pileggi says it didn’t fly with Vice Chancellor McCormick:

The company sought a “do-over” or a mulligan for its statutory errors, because it purported to send proper notices required by DGCL Section 262–only after suit was filed. Three problems with that approach are that: (i) Such a “replicated remedy proposal” had never before been blessed by a Delaware court; (ii) Even the supplemental notice proposed was itself wrong (in part because it quoted the statute of another statute); and (iii) trying to make a “supplemental notice” sent after the lawsuit was filed does not always make it part of the pleadings.

If that wasn’t enough, the Vice Chancellor also refused to dismiss allegations that the defendants also failed to comply with various requirements under Section 228 & Section 251 of the DGCL, and found that stockholder consents approving the deal failed to achieve a ratifying effect under Section 144.  In fact, the transaction appears to have been such a festival of statutory non-compliance that VC McCormick led off her opinion with the following statement:

The complaint in this case reads like a law school exam designed to test a student’s knowledge of these and other basic legal requirements for  consummating the merger. The defendants, Mobile Posse and its board, would not have done well on that exam.

To stick with the golf analogies, if you see language like this at the beginning of an opinion, you’d be well advised to yell “FORE!” to the parties at whom it’s directed – because the judge’s drive has drawn a bead on them.

John Jenkins