An Appraisal of the Model Business Corporation Act's Appraisal Rights Provisions

INTRODUCTION The Delaware General Corporation Law (1) and the Model Business Corporation Act (MBCA) (2) have long been regarded as the two templates of corporate law. (3) In approaching the optimal way to regulate various corporate issues, these two statutes have often reached similar conclusions. (4) In the area of shareholder appraisal rights, (5) however, the two statutes are diametrically opposed on many key elements. Most notably, MBCA chapter 13 on appraisal rights differs from Delaware's statutory appraisal provisions in four fundamental respects: (1) events that will trigger a shareholder's right to demand appraisal, (2) timing of the corporation's payment to shareholders demanding appraisal rights, (3) allocation of court costs and shareholder expenses, and (4) whether the market-out exception to appraisal rights is limited only to appraisal-triggering transactions that are not conflict-of-interest transactions. These competing models provide state legislatures options for achieving differing policy aims when enacting appraisal-rights legislation. Parts II-V of this article will address each of these four fundamental differences between the two appraisal statutes. After delineating the statutory differences, each part will explain the practical effects that flow from the competing statutory mandates and the resulting policy issues that motivated the choices that are ultimately reflected in these statutes. Finally, each part will show how state legislatures, faced with these two opposing models, have reacted to these four provisions. This article demonstrates that the vast majority of jurisdictions (6) have chosen to reject Delaware's approach and, instead, follow the MBCA on the first three issues. On the fourth issue, however, the majority of jurisdictions that have adopted a market-out exception in their appraisal statutes have followed the Delaware model. One wildcard in this last result is that, unlike the other three provisions, which have a long history in the MBCA, limiting the market-out exception to non-conflict transactions is fairly new: in 1999, the Committee on Corporate Laws (Committee), which writes the MBCA, adopted the country's first conflict exception to the market-out. As a result, lawmakers have had substantially less experience with this conflict exception and less time to evaluate its merits compared to the other three issues. II APPRAISAL-TRIGGERING TRANSACTIONS A. The Statutory Language MBCA section 13.02(a) lists five mandatory appraisal triggers, each of which specifically defines events that require the corporation to offer its shareholders appraisal rights: (1) mergers, (2) share exchanges, (3) dispositions of assets, (4) amendments to the articles, and (5) conversion or domestication. (7) Delaware, in contrast, mandates appraisal rights only for some mergers. (8) Both Delaware and the MBCA permit a corporation to offer appraisal rights for other events not mandated by their respective statutes. (9) B. Practical Effects and Policy Issues Clearly, the effect of five appraisal triggers under the MBCA, compared to only one in Delaware, is that the MBCA offers more opportunity for shareholders to demand their appraisal rights. Whether increased opportunity to exercise these rights is good corporate policy depends on one's view of appraisal rights and their function. (10) On the one hand, the numerous appraisal triggers in the MBCA allow shareholders dissatisfied with the consideration in major transactions, such as mergers, share exchanges, and significant dispositions of assets, to seek alternative valuation through their appraisal rights. Moreover, because each of the five triggers would significantly alter the nature of the shareholders' investment, the MBCA's broader range of triggers treats similarly situated shareholders more consistently than does Delaware's single trigger. On the other hand, opponents of multiple triggers contend that these triggers offer multiple opportunities for the minority of shares who demand appraisal rights to thwart the will of the majority of shares who support the appraisal-triggering transaction. …