August 22, 2019

Appraisal Rights: VC Glasscock Expands On Prior Ruling Allowing Waivers

Last year, I blogged about Vice Chancellor Glasscock’s letter ruling in Manti Holdings v. Authentix Acquisition, (Del. Ch.; 10/18) upholding a contractual waiver of appraisal rights.  In response to a motion for reargument, the Vice Chancellor issued new opinion in the case fleshing out his position and clarifying the circumstances under which waivers of appraisal rights would be permissible under Delaware law.

VC Glasscock’s prior opinion focused primarily on the language of a contractual “drag right” that obligated the shareholder-parties to refrain from exercising appraisal rights. It did not address the predicate issue of “whether a stockholder can, via contract, validly waive her appraisal rights to begin with.”

The Vice Chancellor addressed that issue head-on in this opinion and reaffirmed his conclusion that shareholders could – at least sometimes – lawfully waive appraisal rights. Here’s an excerpt from Steve Quinlivan’s recent blog on the case outlining the key factors supporting that conclusion:

– The stockholders agreement was not a contract of adhesion. Sophisticated parties were involved and were represented by counsel, and counsel exchanged drafts of the proposed stockholders agreement before agreeing to a final contract.

– There is no record evidence that the petitioners were not fully informed.

– The Delaware General Corporation Law, or the DGCL, does not explicitly prohibit contractual modification or waiver of appraisal rights, nor does it require a party to exercise its statutory appraisal rights. Thus, such modification or waiver serves to supplement the DGCL, and is not inconsistent with, nor contrary to, the DGCL.

– The stockholders agreement clearly and unambiguously waived appraisal rights.

– The Court did not decide whether a waiver of appraisal would be upheld in other circumstances.

John Jenkins