Title: Montgomery Cellular Holding Co., Inc. et al. v. Gerhard Frank Dobler, et al.
Citation: N/A
Docket Number: 496, 2004
State: Delaware
Issuer: Delaware Supreme Court
Date: August 1, 2005

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
MONTGOMERY CELLULAR  
§ 
HOLDING CO., INC., PALMER  
 
§ 
WIRELESS HOLDINGS, INC., and   
§ No. 496, 2004 
PRICE COMMUNICATIONS  
 
§ 
WIRELESS, INC., 
 
 
§ Court Below:  Court of Chancery of 
 
 
 
§ the State of Delaware, in and for New  
      
 
 Respondents-Below, § Castle County 
 
Appellants/Cross- 
 
§  
 
Appellees, 
 
§ C.A. No. 19211-NC 
              v. 
 
 
§ 
 
 
 
§ 
GERHARD FRANK DOBLER, CHAP § 
CELL, INC., GRACE M. KITTRELL, § 
GTRW PARTNERSHIP, GARY  
 
§ 
McKEE, JAMES E. BRYANT, LLOYD § 
E. DAWSON, GAULD & ENSCHEN 
 
§ 
PARTNERSHIP, JOHN BROWN, 
 
§ 
HAROLD SWART and ESSEX  
 
§ 
COUNTY CELLULAR G.P., 
 
§   
 
 
 
§  
 
Petitioners Below,  
§  
 
Appellees/Cross- 
 
§ 
 
Appellants. 
 
§ 
 
 
Submitted: May 4, 2005 
 
Decided: 
August 1, 2005 
 
Before HOLLAND, BERGER and JACOBS, Justices. 
 
 
Upon appeal from the Court of Chancery.   AFFIRMED IN PART and 
REVERSED IN PART. 
 
 
Kenneth J. Nachbar (argued) and Samuel T. Hirzel, Esquires, of Morris, 
Nichols, Arsht & Tunnell, Wilmington, Delaware; for Appellants/Cross-Appellees. 
 
 
 
 
Martin S. Lessner (argued) and Dawn M. Jones, Esquires, of Young 
Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; Of Counsel:  Laura C. 
Mow and Thomas J. Dougherty, Esquires, of Kilpatrick Stockton LLP, 
Washington, DC; for Appellees/Cross-Appellants. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JACOBS, Justice: 
 
The appellants and respondents-below, Montgomery Cellular Holding 
Company (“MCHC”),1 appeal from a judgment of the Court of Chancery in an 
appraisal proceeding brought under 8 Del. C. § 262.  The appellees, who were the 
petitioners-below, are former minority stockholders of MCHC who were “cashed 
out” of MCHC at a price of $8,102.23 per share in a short form merger between 
MCHC and MCHC’s majority stockholder, Palmer Wireless Holdings Inc. 
(“Palmer”).2  Dissatisfied with the price offered in the merger, the petitioners filed 
a Court of Chancery appraisal action.  After a three-day trial, the Court of 
Chancery determined that MCHC’s fair value was $19,621.74 per share.3  MCHC 
has appealed from that appraisal award and from the Court’s determined 
prejudgment interest rate.  The petitioners have cross-appealed from the Court of 
Chancery’s judgment insofar as it denies their claim for an award assessing their 
attorneys’ fees and expert witness fees against MCHC.   
 
Because we find MCHC’s claims of error to be without merit, we affirm the 
Court of Chancery’s valuation of MCHC and its selection of a flat prejudgment 
interest rate.  We conclude, however, that the Court of Chancery’s denial of the 
                                          
 
1 The respondents-below appellants are MCHC and its first and second tier parent companies, 
Palmer Wireless Holdings, Inc. and Price Communications Wireless, Inc.  For purposes of this 
Opinion, except where otherwise noted, we refer to the respondents collectively as “MCHC.”   
 
2 The appellees are referred to in this Opinion as the “petitioners” or the “minority shareholders.” 
 
3 Dobler v. Montgomery Cellular Holding Co., Inc., C.A. No. 19211, 2004 WL 2271592 at *1, n. 
2 (Sept. 30, 2004) (hereinafter “Mem. Op.”). 
 
2
minority shareholders’ application for an award of attorneys’ fees and expert fees 
constituted, in the circumstances of this case, an abuse of discretion.  Accordingly, 
we reverse the Court of Chancery’s denial of an award shifting those fees and for 
that limited purpose, remand this case for further proceedings. 
FACTS 
The Parties 
 
MCHC, the corporation that is the subject of this appraisal, was part of a 
complex holding company structure.  MCHC itself was a holding company that 
had no operating assets, MCHC’s sole asset being 100% of the stock of 
Montgomery Cellular Telephone Co. (“Montgomery”).  Montgomery was a 
cellular telephone system located in the area around Montgomery, Alabama.  The 
Court and the parties based their valuations of MCHC on the value of its wholly 
owned subsidiary, Montgomery.  Palmer Wireless Holdings, Inc. (“Palmer”) was 
MCHC’s majority (94.6%) shareholder.  The petitioners, who were MCHC’s 
minority shareholders, owned a 4.95% interest in MCHC.  Besides MCHC, Palmer 
owned 15 other cellular systems located throughout the southeastern United States.  
 
3
Palmer is owned by Price Communications Wireless (“PCW”), which in turn is 
wholly owned by Price Communications Corporation (“Price”).4   
 
Background 
What follows is a capsule summary of the background facts, which are based 
upon the extensive findings made by the Court of Chancery in its well-written 
Opinion. 
 
Palmer owned controlling interests in 16 cellular systems in Georgia, 
Florida, and Alabama, including a 94.6% interest in MCHC.  Some of those 
systems were wholly owned and the rest were majority-owned.   Eight of those 
cellular systems were Metropolitan Statistical Areas (“MSAs”) and eight were 
Rural Service Areas (“RSAs”).  The main difference between an MSA and an RSA 
is population density.  An MSA has greater density, while an RSA is much more 
spread out.  An MSA is generally more valuable, because an MSA usually has a 
higher penetration rate due to its demographics, such as residents with higher 
income and residents who are more conversant with wireless devices.  Moreover, 
an MSA usually has a lower cost structure than an RSA because it does not need to 
build as many cell towers to serve the same number of users.  Montgomery, which 
                                          
 
4 For purposes of clarity, the Court of Chancery adopted in its Opinion a “simplified structure” 
of the holding companies.  We adopt it as well.  Under the simplified structure, Price is the 
ultimate parent company, Palmer is the regional systems holding company, MCHC is the holding 
company for Montgomery, and Montgomery is the operating cellular company whose value is at 
issue in this case. 
 
 
4
encompasses the area surrounding Alabama’s state capital, was classified as an 
MSA.   
 
As a group, Palmer’s holdings formed a contiguous cluster of cellular 
systems in the southeastern United States.  Montgomery, located on the western 
edge of Palmer’s cluster, was at the center of the cellular systems in Alabama.  
That geographic location is important because the center of Alabama is a crucial 
area for any company that wants to provide substantial regional coverage, and 
Montgomery’s system was located in Alabama’s most populous area.  The more 
populous areas commonly have both higher penetration rates and users that spend 
more per month for their cellular phone usage.  For those reasons, Montgomery, 
and therefore MCHC, was one of Palmer’s most valuable holdings. 
 
In 
1997, 
Price 
entered 
into 
discussions 
with 
various 
cellular 
telecommunications system operators about a possible sale of Palmer’s cellular 
systems.  Those discussions continued into 2000, at which time Price hired the 
investment bank, Donaldson, Lufkin & Jenrette (“DLJ”), to solicit interest in 
acquiring Palmer.  DLJ’s efforts resulted in three potential acquirers:  Verizon and 
two other parties.  Ultimately, Verizon was the potential acquirer with whom 
Palmer negotiated an acquisition.   
 
After two months of due diligence, Verizon and Price negotiated a 
transaction agreement that was executed on November 14, 2000.  In that 
 
5
transaction, Price agreed to sell Palmer to Verizon for $2.06 billion.  The 
consummation of the transaction, however, was conditioned on the prior 
completion of an initial public offering (“IPO”) of Verizon Wireless. 
 
Because Palmer did not control 100% of the stock of certain of its 
subsidiaries, including MCHC, the Verizon agreement also obligated Price to use 
commercially reasonable efforts to acquire those minority shareholder interests.  If 
Palmer failed to acquire the minority interest in MCHC, the agreement allowed 
Verizon to reduce the purchase price by a corresponding amount.  The price 
reduction would be computed by multiplying the minority shareholders’ pro rata 
share of FY 2000 EBITDA5 by 13.5.  This reduction provision applied to the other 
non-wholly-owned Palmer subsidiaries as well.  Thus, to receive the full $2.06 
billion purchase price, Price would have to “squeeze out” all the minority 
shareholders of MCHC and its other non-wholly-owned subsidiaries. 
 
The structure of the Verizon merger agreement gave Price a strong incentive 
to squeeze out all the minority shareholders of Palmer’s subsidiaries at a price that 
was lower than Verizon’s corresponding price reduction.  Thus, any purchase of a 
minority position using an EBITDA multiple of less than 13.5 guaranteed more 
money for Price if the Verizon deal closed.  Having no credible reason to expect 
                                          
 
5 EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. 
 
6
the Verizon deal not to close, Price caused Palmer to go forward with the cash out 
mergers. 
 
On June 30, 2001, Price caused Palmer, which owned more than 90% of the 
stock of MCHC, to eliminate the minority shareholder interest by a short form 
merger under 8 Del. C. § 253.  In determining the price to be paid to MCHC’s 
minority shareholders, Price made no effort to obtain an independent valuation, 
despite Verizon’s repeated suggestions that it do so.  When questioned about 
Price’s reasons, Price’s CFO testified that Price’s CEO did not want to hire a 
financial advisor to perform a valuation because he viewed such valuations as 
“very costly.”  Instead, in fixing the MCHC merger price, Palmer purported to rely 
on Price’s settlement of an appraisal action with the dissenting minority 
shareholders of a different Palmer subsidiary, Cellular Dynamics (“CD”).  That 
“CD settlement” is next described.   
 
CD, like MCHC, was the operator of a non-wireline cellular company in the 
southeastern United States and, like MCHC, was majority-owned by Price.  In 
1999, Price eliminated the minority shareholders of CD by a short form merger.  
Litigation ensued.  After a lengthy negotiation using POPs6 as the valuation tool, 
                                          
 
6 “POP” is a shorthand reference to the census population of a specific geographic area.  POPs 
are a common cellular industry metric for valuing cellular systems. 
 
 
7
the minority shareholders agreed to a settlement based upon a value of CD derived 
by multiplying the estimated population by $470 per POP.7 
 
Although Price had eliminated the minority shareholder interest in MCHC to 
fulfill the Verizon agreement condition to Price’s receiving the full agreed merger 
price, the initial Verizon deal was not consummated.  One month after the MCHC 
squeeze-out, Price and Verizon announced a further delay of Verizon Wireless’ 
IPO. That delay precluded Price and Verizon from completing their transaction.  
Later, Price and Verizon renegotiated the initial transaction, and signed a new 
agreement in which Verizon reduced its purchase price to $1.7 billion.  That 
second transaction was agreed to on December 18, 2001 and was consummated on 
August 15, 2002. 
 
 
 
 
 
 
 
 
 
                                          
 
7 Despite overwhelming evidence that the CD settlement was negotiated using POPs and not 
EBITDA, Price claimed that it had valued CD’s stock using an EBITDA multiplier of 10.05.  
Specifically, Price claimed that it multiplied MCHC’s FY 2000 EBITDA by 10.05, to arrive at 
the $8,102.23 per share price that was offered to MCHC minority shareholders as fair value.  In 
contrast, multiplying the $470 per POP metric by MCHC’s POPs (323,675) would have yielded 
a value of $15,212.74 per share.  As noted elsewhere in our Opinion, the Vice Chancellor 
properly rejected MCHC’s factual claim that the $8,102.33 per share merger price offered to 
MCHC’s minority shareholders had been determined based on a multiple of EBITDA. 
 
 
8
The Valuations Of The Trial Experts and  
The Decision Of The Court Of Chancery 
 
During the three-day trial, the parties presented their respective positions 
through the testimony of their valuation experts.8  The petitioners’ expert, Marc 
Sherman, who was previously a partner of KPMG in charge of its corporate 
transaction practice, valued MCHC at $21,346 per share as of the merger date.  
The respondents’ expert, Kenneth D. Gartrell, who was previously an accountant 
and auditor at Ernst & Young before becoming an independent consultant on fair 
market valuation matters, testified that the “stand-alone” value of MCHC as of the 
merger date was $7,840 per share.   
Although both experts used similar methods to value MCHC, Sherman 
looked to third party experts to create his forecasts, whereas Gartrell did not 
consult outside appraisers or other sources of relevant information.  Moreover, 
only Sherman performed a comparable transaction analysis.  The experts’ 
“significantly divergent” results, the Court of Chancery found, were attributable to 
those two differences in approach. 
A. The Respondents’ Expert Testimony 
The respondents’ expert, Gartrell, employed two valuation methodologies:  a 
comparable company analysis and a discounted cash flow (“DCF”) analysis.  In his 
                                          
 
8 The parties stipulated that the minority stockholder petitioners had complied with the 
procedural requirements of Section 262.  Accordingly, the principal issue remaining for the trial 
was the fair value of MCHC on the merger date. 
 
9
comparable company analysis, Gartrell focused on 14 rural and regional cellular 
companies.  From that data set he derived revenue multiples of 3.5 for the rural 
companies and 3.3 for the regional companies, and he derived EBITDA multiples 
of 7.1 for the rural companies and 15.2 for the regional companies.   
To eliminate the minority discount embedded in those multiples, Gartrell 
added a control premium of 35%, which was the mean of his range of control 
premia (30% to 40%).  Applying that 35% premium, Gartrell increased the median 
revenue multiples from 3.5 to 4.0 for rural cellular carriers, and from 3.3 to 4.0 for 
regional carriers; and he increased the median EBITDA multiples from 7.1 to 8.4 
for rural cellular companies and from 15.2 to 18.9 for regional companies.   
Having generated revenue and EBITDA multiples, Gartrell proceeded to 
determine their “strategic weights,” in order to “reflect[] the optimal mix of rural 
and regional business strategies” for MCHC.  Gartrell arrived at strategic weights 
of 79% for rural values and 21% for regional values, which resulted in an initial 
valuation for MCHC of $122.7 million.  Gartrell determined that valuation was too 
high, based on MCHC’s “combinatorial deficiency,” because (in Gartrell’s view) 
cellular companies are “significantly more valuable in specific combinations” and 
Gartrell viewed MCHC as a “stand-alone” company.  To account for MCHC’s lack 
of “combinatorial value,” Gartrell applied two discounts to the value he had 
derived for MCHC.  He applied the first discount—33%—to account for MCHC’s 
 
10
low combinatorial value relative to similar cellular companies.  The second 
discount—15%—accounted for MCHC’s complete lack of combinatorial value as 
a stand-alone entity.  Gartrell derived both discounts from the “C-Block auction” 
that had been conducted by the Federal Communications Commission  (“FCC”) in 
1996.9 
Gartrell used the C-Block auction as a model for valuing MCHC because (in 
his judgment) MCHC should be valued as an isolated, single license entity, like the 
start-up PCS bidders at that auction.  Applying Gartrell’s total 48% combinatorial 
discount resulted in a “stand-alone” value for MCHC of $63.3 million.  To that 
amount Gartrell then added the outstanding inter-company receivable, arriving at a 
final valuation, based on his comparable company analysis, of $80.5 million. 
Gartrell also performed a DCF valuation of MCHC.  Based on MCHC’s 
financial performance for FY 2000 and its year-to-date performance as of June 30, 
2001, Gartrell created his own forecasts of MCHC’s future financials for a five-
year period.  He then adjusted those forecasts to subtract the bad debt expense that 
resulted from MCHC’s installation of a new billing system.  For his growth rate, 
Gartrell used the long-term GNP rate, which was 3.3%.  Gartrell reasoned that the 
                                          
 
9 The C-Block auction was a 1996 auction for part of the PCS spectrum, an unproven 
technology.  Unlike earlier FCC auctions, the C-Block auction was restricted to new companies.  
To help encourage new bidders, the federal government provided financing for up to 90 percent 
of the successful bid price.  Despite the C-Block auction’s reputation for success, the FCC 
awarded licenses to many “successful” bidders who would later be forced into bankruptcy due to 
their unserviceable debt loads. 
 
11
long-term GNP was the correct growth rate because MCHC had already saturated 
its market and therefore could not grow faster than the overall economy.  Using 
those growth rates for his DCF analysis, Gartrell valued MCHC at $59.1 million, 
to which he added the $17.2 million inter-company receivable, to reach a final 
DCF valuation of $76.3 million. 
Thus, Gartrell’s comparable company analysis and his DCF analysis resulted 
in a valuation of MCHC that ranged from $76.3 million to $80.5 million—values 
both lower than the unilaterally set price that had been paid to the minority 
shareholders in the MCHC merger.  Having no reason to differentiate between 
those two values, Gartrell averaged them to arrive at his final valuation for MCHC 
of $7,840 per share. 
The Court of Chancery found that Gartrell’s valuation approach was legally 
and factually flawed, and must be disregarded in its entirety, for three reasons.  
First, the Vice Chancellor found that Gartrell’s overall theoretical framework was 
invalid as a matter of law, because Gartrell’s “stand alone” approach valued 
MCHC as if it were not a going concern that had contractual relationships with 
other cellular providers.  In fact, the Court found, MCHC had contractual 
relationships with Palmer and Palmer’s larger preexisting networks, and those 
relationships represented value to which MCHC’s minority stockholders were 
entitled.  By valuing MCHC on a counterfactual “stand alone basis,” the Court 
 
12
concluded, Gartrell “intended to deprive the minority stockholders of existing 
value as of June 30, 2001.”10 
Second, the Vice Chancellor found that Gartrell’s DCF analysis was fatally 
flawed and entitled to no weight because:  (i) Gartrell used a generic growth rate 
(the long-term growth rate of GNP) as his growth rate for MCHC without any 
valid, credible explanation and despite his having had access to industry-specific 
growth rates; (ii) Gartrell used a constant growth rate, which would yield the same 
value for MCHC regardless of the time frame;11 and (iii) Gartrell created the 
financial projections based entirely on his own judgment, without reference to 
other available sources of relevant information.  For these reasons, the Vice 
Chancellor determined, Gartrell’s DCF analysis was “meaningless.”12 
Third, the Court of Chancery found that Gartrell’s comparable company 
analysis was invalid because of his methodology and his data.  To begin with, 
Gartrell switched between the mean and the median at critical points.  To compute 
his EBITDA multiples, Gartrell used figures that were the median of their data set, 
but for every other computation he used the mean.  Had Gartrell used the mean 
numbers consistently throughout, the value of MCHC based on EBITDA would be 
                                          
 
10 Mem. Op. at *9. 
 
11 Id. at *10 (“In essence, [Gartrell’s] DCF is nothing more than an extension of year one’s 
financial results.”) 
 
12 Id. 
 
13
over $163 million which, when added to the non-operating assets, would be $183 
million—a figure much closer to the value reached by the petitioners’ expert.13  
Moreover, when calculating the correct weighting for the EBITDA ratio between 
rural and regional carriers, Gartrell applied a much higher weight (79%) to the 
rural companies than to the regional companies (21%).  That (in the Court’s words) 
was “simply not reality,” because MCHC was an MSA and had the future potential 
of an MSA.14  As the Vice Chancellor found, “the conclusion would appear 
inescapable that Gartrell established a pre-determined valuation figure to which he 
applied the EBITDA multiples.”15   
Lastly, Gartrell chose inputs (based on the C-Block auction) that were not 
relevant to a valuation of MCHC, because the C-Block auction suffered from 
“obvious and glaring” flaws which included outdated data, different technology, an 
emerging market and inexperienced bidders.  The result, the Court found, was that 
the C-Block data “[could] not be termed comparable in any reasonable sense of the 
word.”16 
MCHC has not appealed the Court of Chancery’s rejection, in its entirety, of 
the valuation of its expert, Gartrell. 
                                          
 
13 Id. 
 
14 Id. at *11, n.98. 
 
15 Id. 
 
16 Id. 
 
14
B. The Petitioners’ Expert Testimony 
 
The petitioners’ expert, Marc Sherman, performed three different 
financial analyses of MCHC:  a comparable transactions analysis, a DCF analysis, 
and a comparable company analysis.  In his comparable transactions analysis, 
Sherman split the selected comparable transactions into three categories:  similar 
sized transactions, the initial Verizon transaction, and the CD settlement.  For the 
similar sized transactions category, Sherman considered five transactions that 
occurred between May 2000 and January 2001, each involving a cellular company 
with approximately the same number of POPs.  The remaining two categories (the 
initial Verizon transaction and the CD settlement) involved single transactions that 
were included in the analysis because they were related to the sale of MCHC. 
 
Sherman then analyzed each category using his four cellular system metrics 
(POPs, subscribers, EBITDA, and revenue).  For each metric, Sherman computed a 
value of MCHC based on the category of comparable transactions, and then 
weighted these values to derive his final overall valuation.  Sherman did that as 
follows:  he first weighted the metrics based on their importance in valuing cellular 
companies.  He then weighted the category of comparable transactions within each 
metric.  The result of that process is shown infra on the table, which breaks down 
Sherman’s categories, metrics, valuations, and weightings as follows: 
 
15
Category 
Valuation 
Metric 
Weighting 
Category 
Weighting 
POPs 
 
45% 
 
         Verizon Transaction 
$ 199,278,316 
 
20% 
         CD Settlement 
$ 199,286,698 
 
10% 
         Similar Sized Transactions
$ 136,352,297 
 
15% 
Subscribers 
 
20% 
 
         Verizon Transaction 
$ 226,758,135 
 
15% 
         CD Settlement 
$ 225,865,136 
 
5% 
Operating Cash Flows 
 
25% 
 
         Verizon Transaction 
$ 160,650,176 
 
20% 
         CD Settlement 
$ 226,738,142 
 
5% 
Revenue 
 
10% 
 
         Verizon Transaction 
$ 236,517,971 
 
7% 
         CD Settlement 
$ 224,240,681 
 
3% 
Total 
 
100% 
100% 
 
 
Multiplying the valuations by their respective weightings, Sherman 
computed a value of $192 million based on comparable transactions.  To that 
figure he added the $20 million value of the non-operating assets to arrive at a 
comparable transactions value for MCHC of $212 million. 
 
Sherman also performed a DCF analysis.  Because of the lack of 
management projections, Sherman created forecasts of MCHC’s cash flows based 
on predictions by others for the cellular industry and the economy.  In creating 
those forecasts, Sherman relied primarily on Paul Kagan, an outside industry 
 
16
expert.17  Sherman also looked to industry growth reports that showed an annual 
growth rate for the wireless industry of 16%. 
 
The next step in Sherman’s DCF analysis was to determine the discount rate 
using a weighted average cost of capital (“WACC”) approach.  Applying that 
approach to the inputs he determined for each component of the WACC formula, 
Sherman arrived at a discount rate of 13.25%. 
 
For his DCF projection period, Sherman used a ten-year period from June 1, 
2001 to May 31, 2011.  Before projecting the cash flows, however, Sherman first 
adjusted them by removing two “irregularities”:  (i) a non-recurring $861,000 bad 
debt expense resulting from Montgomery having installed a new billing system, 
and (ii) the rent of $638,000 MCHC paid annually to Old North, a wholly owned 
subsidiary of Palmer.18  Lastly, using a capitalization rate of 9.25% and a growth 
rate of 4%, Sherman calculated a terminal value of $258 million.   
From these inputs, Sherman arrived at a final enterprise (DCF) valuation of 
$150 million for Montgomery as a going concern, operating asset of MCHC.  To 
that figure Sherman added the value of Montgomery’s non-operating assets, which 
                                          
 
17 As an example of the industry figures Sherman relied on, Kagan projected wireless subscriber 
growth of 23% in 2001, declining to 7.7% in 2005.  Additionally, Kagan predicted an industry-
wide market penetration of 78% by 2008. 
 
18 Montgomery sold all of its cell towers and cell sites to Old North for $1.  Old North 
subsequently leased back the same properties to Montgomery at an annual rent of $638,000.  
Sherman removed that rental expense because it was a lopsided transaction that showed clear 
evidence of corporate control on the part of Price. 
 
17
increased his valuation to $170 million.  Finally, to that sum, Sherman applied a 
control premium of 31%, thereby increasing his DCF valuation to $216 million.19 
 
In his third (comparable company) analysis, Sherman found only two 
comparable companies, neither of which was similar in size to Montgomery.  
Sherman excluded companies that had international operations, multiple lines of 
business, or prepaid customers, as well as companies that used PCS technology.  
After selecting his comparable companies, Sherman applied the same metrics that 
he used in his comparable transactions analysis and gave them the same weight.  
That approach resulted in a valuation of $206 million.  After adding in the value of 
the non-operating assets, Sherman’s ultimate comparable company valuation of 
MCHC was $226 million. 
 
Thus, Sherman’s three analyses valued MCHC within a range of from $212 
million to $226 million.  Sherman derived his final fair value by combining the 
results of his three analyses into a weighted average, giving 80% weight to the 
comparable transactions value, 15% weight to the DCF value, and 5% weight to 
the comparable company value.  Sherman’s heavy weighting of the comparable 
transactions analysis reflected his judgment that the transaction data, particularly 
                                          
 
19 Sherman added a control premium to his DCF valuation to account for suspected financial 
irregularities that he could not specifically identify.  Sherman was aware that Delaware courts 
generally do not apply control premia to DCF valuations, but he applied a control premium in 
this case to compensate for what he suspected were financial rents being improperly extracted 
from MCHC by Price. 
 
18
the initial Verizon transaction price, were the best indication of value for MCHC.  
In contrast, Sherman gave little weight to the DCF analysis because of his concerns 
about the reliability of MCHC’s financial data and the lack of management 
projections.  He gave even less weight to the comparable company valuation 
because of the scarcity of publicly traded companies to which MCHC could 
reliably be compared.  Combining the results of the three analyses into a weighted 
average yielded a fair value for MCHC of $213,455,619, or $21,346 per share. 
 
In making its independent determination of MCHC’s fair value, the Court of 
Chancery adopted Sherman’s overall valuation framework, and most—but not 
all—of Sherman’s inputs.  The Court made adjustments to some of the inputs that 
it did not adopt.  The result was to reduce Sherman’s valuation of $213,455,619 
($21,346 per share) to a final valuation of MCHC of $196,217,373, or $19,621.74 
per share20 
 
Because the Vice Chancellor’s valuation analysis is discussed more 
extensively elsewhere in this Opinion, at this point we summarize the Court’s 
critical valuation rulings only briefly. 
First, with respect to the comparable transaction analysis, the Vice 
Chancellor determined that the Verizon transaction price and the CD settlement 
price were valid inputs.  But, the Court adjusted Sherman’s CD settlement price by 
                                          
 
20 Mem. Op. at *8, *11, *18. 
 
19
eliminating what Sherman perceived (incorrectly, the Court determined) to be a 
minority discount.  The Court then independently increased the CD settlement 
figure ($470 per POP) by 15% to eliminate a so-called “settlement haircut,” to 
arrive at a value of $540.50 per POP.21 
Second, the Court adjusted Sherman’s DCF valuation by eliminating the 
31% control premium that Sherman had added to his DCF value.22  That 
adjustment reduced Sherman’s DCF valuation of MCHC from $216 million to 
$170 million.23 
 
Third, and most significant, the Court adjusted the weights that Sherman had 
accorded to the values derived by his three valuation methods.  Sherman had 
weighted the comparable transaction value at 80% of total fair value.  Because the 
effect of that weighting was to give the Verizon transaction an overall weight of 
50%—a weight the Court found to be “too significant”—the Vice Chancellor 
reduced the weight accorded to the comparable transactions valuation from 80% to 
65%.24 
                                          
 
21 Id. at *15. 
 
22 Id. at *17. 
 
23 Id. at *7. 
 
24 Id. at *17. 
 
 
20
 
Finally, because Sherman had corrected the figures derived from MCHC’s 
financial statements in a reasonable manner, and also had looked to third party 
authority for guidance on other inputs, the Court determined that the 15% weight 
Sherman had accorded to the DCF valuation should be increased to 30%.25 
MCHC’s Claims Of Error On Appeal  
 
On appeal, MCHC does not challenge the Court of Chancery’s adoption of 
Sherman’s overall valuation framework.  Instead, MCHC limits its attack to 
selected inputs to the valuation model that Sherman used and that the Vice 
Chancellor adopted.  MCHC also challenges the prejudgment interest rate adopted 
by the Court. 
Specifically, MCHC contends that the Court of Chancery erred in four 
different respects, namely by:  (1) including in its comparable transactions analysis 
the price that Verizon Wireless initially agreed to pay to acquire Palmer; (2) adding 
a 15% premium to the price that the minority shareholders of CD, a separate 
Palmer subsidiary, had agreed to accept to settle their appraisal action; (3) 
subtracting the management fees that Palmer charged to MCHC, as reported in 
MCHC’s financial statements; and (4) adopting a flat prejudgment interest rate 
rather than a variable rate that would have reflected the periodic changes in the 
federal discount rate.  Those claims are next addressed. 
                                          
 
25 Id. The 5% weight that Sherman accorded to the comparable companies valuation (5%) 
remained the same. 
 
21
MCHC’s Challenges To The Court Of Chancery’s Factual Findings 
MCHC’s first three claims of error challenge the Court of Chancery’s factual 
findings pertaining to the proper treatment of three inputs to its valuation analysis.  
This Court reviews the Court of Chancery’s factual findings with a high level of 
deference.26  So long as the Court of Chancery has committed no legal error, its 
factual findings will not be set aside on appeal unless they are clearly wrong and 
the doing of justice requires their overturn.27  We conclude, for the reasons next 
discussed, that none of the challenged findings is clearly wrong, and indeed, all 
have firm support in the evidentiary record. 
1. The Verizon Transaction 
 
MCHC’s first claim of error is that the Court of Chancery improperly 
included the initial “Verizon transaction” price in its comparable transactions 
valuation of MCHC.  The Verizon transaction resulted from an agreement that 
Price negotiated with Verizon in November 2000.  In that agreement, Verizon 
contracted to acquire Palmer for $2.06 billion. 
                                          
 
26 Kahn v. Lynch Communications Systems, Inc., 638 A.2d 1110, 1114 (Del. 1994); Cede & Co. 
v. Technicolor, Inc., 634 A.2d 345, 360 (Del. 1993). 
 
27 Levitt v. Bouvier, 287 A.2d 671, 673 (Del. 1972); Harris v. State, 305 A.2d 318, 319 (Del. 
1973); Cede & Co. v. Technicolor, Inc. ___ A.2d ___, No. 357, 2004, 2005 WL 1038789 (Del. 
May 4, 2005). 
 
 
 
22
The accomplishment of the initial Verizon transaction was conditioned on 
the completion of an initial public offering (“IPO”) of Verizon Wireless.28  The 
Verizon-Palmer agreement also required Palmer to use “commercially reasonable 
efforts” to acquire all the minority shareholder interests in the 16 cellular markets 
that Palmer owned, including MCHC.29  In conformity with that agreement, Palmer 
eliminated the minority shareholders’ interest in MCHC and its other non-wholly-
owned subsidiaries through short form mergers.  
On July 31, 2001, one month after the MCHC-Palmer merger was 
accomplished but before the Verizon-Palmer transaction was scheduled to close, 
Price and Verizon announced that the Verizon transaction would not go forward as 
planned, because Verizon would not be able to complete its IPO by the contractual 
September 30, 2001 deadline.  Following that announcement, Price and Verizon 
negotiated a new agreement wherein the purchase price of Palmer was reduced 
                                          
 
28 Section 9.07 of the Verizon agreement provided: 
 
IPO.  Subject to market conditions, [Verizon] will use all reasonable efforts to 
consummate an initial public offering of acquirer stock on or before September 
30, 2001.  Notwithstanding the foregoing or anything to the contrary set forth in 
this Agreement, [Verizon] shall not have any obligation to complete such an 
initial public offering if, in the judgment of [Verizon] … market or other factors 
precludes such an offering or the restructuring contemplated in connection with 
such an offering on terms acceptable to [Verizon] and each partner of Cellco. 
 
29 If Palmer failed to acquire the minority shareholder interest in its companies, the agreement 
allowed Verizon to reduce the purchase price of the transaction, by multiplying the minority 
shareholders’ pro rata share of FY 2000 EBITDA. 
 
23
from $2.06 billion to $1.7 billion.  On August 15, 2002, Verizon purchased Palmer 
for that reduced price. 
 The minority shareholders’ expert, Marc Sherman, treated the initial $2.06 
billion Verizon transaction as a comparable transaction.  To determine what 
portion of that aggregate price should be attributed to MCHC, Sherman divided the 
total $2.06 billion purchase price by each of four financial metrics commonly used 
in valuing cellular systems, and then applied the resulting price per metric to 
MCHC’s corresponding metrics to determine what portion of the purchase price 
for Palmer represented the value of MCHC.  Although Sherman used other 
transactions besides the Verizon transaction to conduct his valuation analysis, he 
accorded the Verizon transaction the greatest weight (62%).  In addition, Sherman 
gave his comparable transactions analysis the most weight (80%) of the three 
valuation methods he employed.  As a consequence, the Verizon transaction price 
represented 50% of Sherman’s ultimate valuation of MCHC.  As earlier noted, the 
Court of Chancery adopted Sherman’s methodology, but reduced the weight 
accorded to Sherman’s comparable transactions value from 80% to 65%, thereby 
reducing the overall weight of the Verizon transaction to 40.3% of Sherman’s 
ultimate fair value of MCHC. 
 
 
 
24
On appeal MCHC argues that the Vice Chancellor’s inclusion of the Verizon 
transaction in its comparable transactions analysis was erroneous, because:  (a) the 
Court failed to “back out” the synergistic elements of the Verizon transaction price, 
as Delaware law requires, and (b) the Verizon transaction did not reflect MCHC’s 
going concern value, again as Delaware appraisal law requires.  We conclude that 
the Court of Chancery did not err in either respect. 
(a)  The Treatment Of The Synergies In The Verizon Transaction 
MCHC argues that the Court of Chancery erroneously included the Verizon 
transaction, because the transaction price contained synergistic elements of value 
whose inclusion is proscribed by 8 Del. C. § 262.  That statute requires the Court 
of Chancery to appraise the subject shares by “determining their fair value 
exclusive of any element of value arising from the accomplishment or expectation 
of the merger or consolidation.”30  In determining statutory “fair value,” the Court 
must value the appraisal company as a “going concern.”31  In performing its 
valuation, the Court of Chancery is free to consider the price actually derived from 
                                          
 
30 8 Del. C. § 262. 
 
31 Cede & Co. v. Technicolor, Inc., 684 A.2d 289, 298 (Del. 1996) ([T]he Court of Chancery’s 
task in an appraisal proceeding is to value what has been taken from the shareholder, i.e., the 
proportionate interest in the going concern.”). 
 
 
25
the sale of the company being valued, but only after the synergistic elements of 
value are excluded from that price.32   
Those synergistic elements were not excluded here, MCHC claims, because 
the price Verizon agreed to pay for Palmer reflected the “combinatorial value” that 
Verizon expected to realize by acquiring 16 cellular markets (including MCHC) in 
a single transaction.  MCHC argues that Palmer had unique strategic value to 
Verizon, because Verizon had a particular need to acquire cellular systems in the 
southeastern United States to fill the gaps in its national network.  The cluster of 
systems that Verizon acquired, plus Palmer’s unique strategic value to Verizon, 
were (MCHC urges) synergies that should have been excluded from the purchase 
price before the Verizon transaction could be considered in any valuation of 
MCHC.  Because that was not done, the argument goes, the entire comparable 
transactions valuation was fatally flawed. 
The Court of Chancery acknowledged in its Opinion that the initial Verizon 
transaction price represented a value “that implicitly incorporated whatever 
synergies [Verizon] expected to realize from creating a national network.”33  The 
Court found, however, that the only “combinatorial value” that was attributable to 
                                          
 
32 MPM Enter., Inc. v. Gilbert, 731 A.2d 790, 796 (Del. 1999); Union Ill. 1995 Inv. Ltd. P’ship  
v. Union Fin. Group, Ltd., 847 A.2d 340, 356 (Del. Ch. 2003). 
 
33 Mem. Op., 2004 WL 2271592 at *12-*13. 
 
 
26
Palmer was “deal-making value.”  That is, by offering a cluster of 16 cellular 
systems for sale at one time, Palmer would be reducing Verizon’s transaction costs 
and eliminating “a holdout problem.”34  But, the Court found, Palmer offered no 
business-related combinatorial value to MCHC, and MCHC was probably the most 
valuable company in Palmer’s cluster.35  Thus, the Vice Chancellor concluded, the 
only synergies included in the purchase price were deal-making—not business-
related—synergies. 
That conclusion is supported by the evidence.  The Verizon merger with 
Palmer did not add any synergistic business value to MCHC (as the Court found) 
because Montgomery was a metropolitan statistical area (MSA), which is generally 
more valuable than a rural service area (RSA), and Montgomery had superior 
demographics relative to Palmer’s other cellular holdings.36    Therefore, the only 
synergies required to be eliminated from the Verizon transaction price were the 
                                          
 
34 Id. at *14. 
 
35 Id. 
 
36 Montgomery ranked second among Palmer’s holdings in terms of POPs (the census population 
of a geographic area) and was generally best or second best in the other demographic categories.  
Mem. Op. at *2, n. 6.  The Court rejected MCHC’s argument that Montgomery was a “sick 
sister” among Palmer’s holdings.  MCHC’s argument to that affect relied upon Montgomery’s  
EBITDA, which the Court found had purposely been driven down by Price.  Id. at *14.  This 
Court defers to the Court of Chancery’s factual findings because the evidentiary record amply 
supports them. 
 
 
27
Palmer-related “deal making” synergies.  The question became how to determine 
the value of those synergies.   
The Court of Chancery was unable precisely to quantify those “deal-
making” synergies, because MCHC did not present any reliable evidence at trial of 
what those synergies were worth.  Having received no helpful evidence from 
MCHC, the Court of Chancery had to—and did—account for the synergies in a 
different way, namely, by reducing the total weight accorded to the comparable 
transactions component of the overall valuation, from 80% to 65%.37  Although in 
a perfect world that may not have been the ideal solution, in this world it was the 
only one permitted by the record evidence, given MCHC’s failure to obtain a pre-
merger valuation and to present legally reliable expert valuation testimony during 
the trial.   
In a statutory appraisal proceeding, each side has the burden of proving its 
respective valuation positions by a preponderance of the evidence.38  Even if one 
side fails to satisfy its burden, the Court is not free to accept the competing 
valuation by default, but must use its own independent judgment to determine fair 
value.39  Having failed to present any reliable evidence to enable the Court of 
                                          
 
37 Mem. Op. at *17. 
 
38 M.G. Bancorporation v. LeBeau, 737 A.2d 513, 520 (Del. 1999). 
 
39 Gonsalves v. Straight Arrow Publishers, Inc., 701 A.2d 357, 362 (Del. 1997). 
 
 
28
Chancery to carry out “its statutory obligation to engage in an independent 
valuation exercise,”40 MCHC cannot now credibly argue that the Court erred by 
resorting to a valuation approach necessitated by MCHC’s own failure.  Given the 
paucity of synergy-related evidence for which MCHC was responsible, the Vice 
Chancellor coped admirably with the evidence that was presented, and reached a 
reasonable valuation using the analytical tools and evidence that were available to 
him. 
In our most recent decision in Cede & Co. v. Technicolor, Inc.,41 we 
reaffirmed that our deferential standard of review in corporate appraisal cases is 
“based on a recognition ‘that the Court of Chancery, over time, has developed an 
expertise’ in statutory appraisal proceedings.”42  Where, as here, a controlling 
stockholder has provided no reliable evidence, either pre-merger or during the trial, 
to enable the Court of Chancery to perform its mandated task, the Court may rely 
upon its expertise and upon whatever evidence is presented to determine fair value 
independently.  In this case, the Court was free to use whatever methodology was 
supportable by the record to reach a valuation result that excluded, to the extent 
reasonably possible, the synergies implicit in the comparable transaction being 
                                          
 
40 Id.  
 
41 Cede & Co. v. Technicolor, Inc. ___ A.2d ___, No. 357, 2004, 2005 WL 1038789 (Del. May 
4, 2005). 
 
42 Id. at *5. 
 
 
29
considered.  The Court’s chosen method of eliminating the deal-making synergics 
from the Verizon transaction price represented a reasonable application of its 
expertise to the evidence available, and is entitled to deference from this Court.   
(b) Whether Including The Verizon Transaction Price  
     Was Inconsistent With a Going Concern Valuation 
 
MCHC next contends that including the Verizon transaction in its 
comparable transaction analysis led the Court of Chancery to commit reversible 
error by not valuing MCHC as a going concern.  Delaware law requires that in an 
appraisal action, a corporation “must be valued as a going concern based on the 
‘operative reality’ of the company as of the time of the merger.”43  In determining a 
corporation’s “operative reality,” the use of “speculative” elements of future value 
arising from the expectation or accomplishment of a merger is proscribed, but 
elements of future value that are known or susceptible of proof as of the date of the 
merger may be considered.44  As we have held, “any … facts which were known or 
which could be ascertained as of the date of the merger and which throw any light 
on future prospects of the merged corporation are not only pertinent to an inquiry 
                                          
 
43 M.G. Bancorporation, Inc., 737 A.2d at 525. 
 
44 Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983); 8 Del. C. § 262(h). 
 
 
30
as to the value of the dissenting stockholder's interest, but must be considered by 
the agency fixing the value.”45   
MCHC argues that the Verizon transaction was not part of MCHC’s 
“operative reality” for two reasons.  First, the transaction was conditioned on the 
successful completion of Verizon’s IPO.  Second, at the time of the MCHC-Palmer 
merger, the transaction was not expected to close.  MCHC characterizes the 
Verizon transaction as a mere “option” whose exercise was entirely within 
Verizon’s control and which neither Price nor Verizon realistically expected to 
close at the time the MCHC-Palmer merger occurred.  The Court of Chancery 
found otherwise, however, and the record supports its finding.   
The Vice Chancellor rejected MCHC’s argument that because the Verizon-
Price agreement was conditional, it was impermissibly “speculative” and did not 
reflect MCHC’s going concern value.  The Court of Chancery found that the 
Verizon transaction was more than an offer (or an “option” as MCHC argues).  
Rather, it was a validly executed enforceable transaction agreement which bound 
Verizon to the implied covenant of good faith and fair dealing that inheres in every 
contract.46  Moreover, Section 9.07 of the Verizon-Price agreement required 
                                          
 
45 Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950), quoted with approval in 
Weinberger v. UOP, Inc., 457 A.2d 701, 713 (Del. 1983).  See also Cede Co. v. Technicolor, 
Inc., 684 A.2d 289, 299 (Del. 1996). 
 
46 Mem. Op. at *14. 
 
 
31
Verizon to use “reasonable efforts” to consummate the IPO, and excused Verizon 
from a failure to do so only if market or other identified factors precluded the 
offering or the necessary restructuring.47   
Rejecting MCHC’s contrary argument, the Vice Chancellor also found as 
fact that at the time of the Palmer-MCHC merger the Verizon transaction was 
expected to close.  As the Court pointed out, there were no contemporaneous press 
releases or other communications to the market that Price or Verizon did not 
expect the deal to go through.  And, at that time the securities industry continued to 
report that the deal was going forward as planned.  Not until July 31, 2001 (one 
month after the Palmer-MCHC merger took place) did the parties publicly 
announce that the sale of Palmer to Verizon would not close.  The Court 
characterized as “self-serving” the testimony of Price’s CFO, and of its counsel, 
that at the time of the MCHC merger, Palmer and Price did not think Verizon 
would successfully complete the IPO.  To the contrary (as the Court pointed out), 
the fact that Price caused Palmer to initiate a cash-out merger with MCHC was 
clear proof that Price did expect the Verizon deal to close.   
                                          
 
47 See note 28, supra. 
 
32
Given that record and those findings, the Court of Chancery correctly held 
that the Verizon transaction was a known element of future value that was 
susceptible of proof at the time of the merger.48   
2.  
 Adjustment Of The CD Settlement Price  
To Eliminate The Settlement Discount 
 
MCHC’s second claim of error is that the Court of Chancery improperly 
adjusted the “CD settlement” price to eliminate what the Court regarded as a 
“settlement haircut.” MCHC argues that the record does not support that 
adjustment.  MCHC is incorrect. 
The CD settlement was a settlement of litigation that arose out of Price’s 
elimination, in a short form merger, of the minority shareholders of Cellular 
Dynamics (“CD”), a cellular company located in the southeastern United States.  
The minority shareholders of CD sued, and after protracted negotiations the parties 
agreed to a settlement price of $470 per POP.  For purposes of valuing MCHC, 
both parties agreed that the CD settlement was a comparable transaction. 
Accordingly, Sherman utilized the $470 per POP metric in performing his 
comparable transactions analysis. 
                                          
 
48 Cede & Co. v. Technicolor, Inc., 684 A.2d 298 (“The Court of Chancery found that the 
Perelman Plan for Technicolor was the operative reality on the date of the merger.”) 
 
 
33
The Vice Chancellor upheld Sherman’s use of the CD settlement price, but 
adjusted that price to reflect what the Court described as a “settlement haircut;”49 
that is, a discount that reflected factors unrelated to CD’s fair value, such as the 
costs of litigation and the uncertainty of the appraisal action’s outcome.  To 
eliminate that settlement discount, the Court of Chancery increased the CD 
settlement price by 15%, thereby reaching a value of $540.50 per POP as more 
fairly reflective of the value of CD.  The Court then included that upwardly-
adjusted CD settlement value in the comparable transactions analysis.   
On appeal, MCHC contends that there was no evidence of record that the 
CD settlement reflected a “settlement haircut,” or that the selection of a 15% 
adjustment was appropriate.  We disagree.  There was ample evidence to support 
the Court of Chancery’s finding that the CD settlement reflected a discount from 
CD’s fair value.  The record included an exchange of several letters between Price 
and CD during settlement negotiations.  Those letters included an offer by CD, on 
December 19, 2000, to settle the litigation for $500 per POP.  In that December 19 
letter, the CD minority shareholders specifically stated that the $500 per POP offer 
was less than CD’s fair value, but was being made in an effort to resolve the matter 
                                          
 
49 The Court also held that Sherman had incorrectly adjusted the CD settlement to remove a 
perceived minority discount.  The settlement price could not properly reflect such a discount, 
because Georgia law (CD’s state of incorporation) did not allow minority discounts.  
Accordingly, the Court removed the control premium that Sherman had added to adjust for the 
(perceived) minority discount.  Mem. Op. at *15. 
 
34
quickly.  That letter evidences that CD’s minority shareholders were willing to 
settle for an amount below fair value to avoid the costs and delays of litigation.  
Sherman’s testimony also supports that conclusion.  Sherman testified that CD’s 
minority shareholders would be expected to take less for their shares of stock than 
the corporation’s going concern value, to avoid “the continuing expense and risk of 
litigation.”  The December 19 letter, together with Sherman’s testimony, provided 
sufficient support for the Court’s finding that $470 per POP represented a 
settlement for less than CD’s going concern value. 
Although there was no evidence of the precise magnitude of the actual CD 
settlement discount, the Court of Chancery did not err by selecting 15% as a 
reasonable measure.  That percentage was based on evidence that the CD minority 
shareholders had accepted a price lower than CD’s fair value, as well as the Court 
of Chancery’s extensive expertise in the appraisal of corporate enterprises—an 
expertise that this Court has recognized on several occasions.50  To reiterate, 
where, as here, one side of the litigation presents no competent evidence to aid the 
Court in discharging its duty to make an independent valuation, we will defer to 
the Vice Chancellor’s valuation approach unless it is manifestly unreasonable, i.e., 
                                          
 
50 Cede & Co. v. Technicolor, Inc. ___ A.2d ___, No. 357, 2004, 2005 WL 1038789 at *5 (Del. 
May 4, 2005) (citing In re Appraisal of Shell Oil Co., 607 A.2d 1213, 1219 (Del. 1992)). 
 
 
35
on its face is outside a range of reasonable values.51  Here, the record supports the 
conclusion that the use of a 15% adjustment was reasonable and a judicious 
application of the Vice Chancellor’s valuation expertise.   
3. 
Eliminating The Management Fees Paid by MCHC To  
Palmer As An Input To The DCF Valuation 
 
MCHC’s third claim of error challenges the Court of Chancery’s adjustment 
of MCHC’s financial statements to eliminate from the DCF valuation the 
management fees Palmer had charged MCHC.  The Court found that those fees 
were essentially a pretext, unrelated to the actual furnishing of management 
services, that Price used to justify upstreaming money from MCHC to Palmer.  The 
Vice Chancellor upheld Sherman’s elimination of those fees from MCHC’s 
financial statements for purposes of conducting his DCF valuation.  On appeal, 
MCHC contends that the elimination of those fees was not supported by the 
evidence.  The record, however, shows otherwise. 
Because there were no management projections upon which Sherman could 
rely to project MCHC’s future cash flows, Sherman had to create his own 
forecasts.  To do that he relied upon various sources, including MCHC’s financial 
statements.52  But Sherman did not accept MCHC’s financial statements at face 
                                          
 
51 Cf. Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 45-46 (Del. 1994). 
 
52 Sherman relied, in addition to the financial statements, upon the predictions of an industry 
expert who provided industry growth forecasts, including subscriber growth, market penetration, 
and annual growth.  Sherman also considered the predictions of Verizon’s internal consultant. 
 
36
value.  In his review of those statements, he identified several irregularities.53  The 
management fees that Palmer charged to MCHC represented one of those 
irregularities.  The evidence established that since 1998, Palmer had charged 
MCHC more than $3 million in management fees, and that in the first five months 
of 2001 alone, those fees totaled $603,000.  To determine MCHC’s future cash 
flows more accurately, Sherman eliminated those fees. 
The Court of Chancery found that Sherman’s subtraction of the management 
fees was appropriate, and the record amply supports that finding.  None of Price’s 
officers who testified were able to explain what management services Palmer had 
provided to MCHC, or how those management fees were calculated.   Indeed, 
Price’s CEO characterized the fees (under oath) as “accounting bullshit.”  The 
Court was also troubled by the fact that Palmer charged management fees only to 
its subsidiaries that had minority shareholders, but not to those subsidiaries that 
Palmer wholly owned.  Tellingly, after Palmer eliminated MCHC’s minority 
shareholders in the merger, Palmer stopped charging management fees to MCHC.
 
That evidence strongly supports the elimination of the management fees as 
an expense.  Accordingly, we uphold the Court’s determination that Sherman 
                                          
 
53 In addition to the management fees, Sherman also identified, and adjusted MCHC’s financial 
statements to account for:  an unexplained $16.6 million inter-company loan from Montgomery 
to Palmer; corporate allocations for interconnection charges, switch charges, monthly service 
charges, and billing charges, which Palmer could not explain or document; an $861,000 bad debt 
expense; and a vendor overcharge.  The Court of Chancery found that all of those adjustments 
were appropriate.  See Mem. Op. at *16-17, n.140-43.  Aside from the elimination of the 
management fees, none of those adjustments are challenged on appeal. 
 
37
properly eliminated those management fees in conducting his DCF valuation 
analysis. 
The Adoption Of a Flat Prejudgment Interest Rate 
 
Finally, MCHC claims that the Court of Chancery erred by setting the 
prejudgment interest rate at a flat 8.25%.  That rate represented the legal rate of 
interest, which is defined by 6 Del. C.  § 2301(a) as the federal discount rate plus 
5%.  MCHC does not dispute the Court’s adoption of the legal rate of interest.  
What MCHC contends is that the Court was required to adjust that rate to reflect 
the periodic changes to the federal discount rate. 
8 Del. C. § 262(h) directs the Court of Chancery to determine the fair value 
of a stockholder’s shares, “together with a fair rate of interest, if any.” Although 
the legal rate has historically been considered as the “benchmark” for prejudgment 
interest, the Court of Chancery has broad discretion to determine the appropriate 
rate of interest, and may award a different rate.54  The decision to award a 
particular rate of interest is within the sound discretion of the Court of Chancery.55  
Accordingly, we review the Vice Chancellor’s determination of the interest rate for 
abuse of discretion. 
                                          
 
54 Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del. 1988). 
 
55 In re Shell Oil Co, 607 A.2d 1213, 1221 (Del. 1992); Rapid-American Corp. v. Harris, 603 
A.2d 796, 807 (Del. 1992). 
 
 
38
MCHC argued before the Court of Chancery that the appropriate rate of 
interest was the legal rate.  The Court accepted MCHC’s argument.  MCHC did 
not argue that the legal rate should track the historical variations in the federal 
reserve discount rate during the prejudgment interest period.  Thus, the Court 
adopted a flat rate of 8.25%, based on the 3.25% federal discount rate on the 
merger date.  Although the Court noted that it would be more accurate to adopt a 
varying rate that reflected changes to the federal discount rate over the course of 
the litigation, the Vice Chancellor adopted the flat rate in this case, because MCHC 
had presented no evidence of any changes in the federal discount rate.    
Despite that, MCHC now argues that the Court of Chancery erred by not 
adjusting the 8.25% legal rate at “regular intervals” to reflect changes in the federal 
discount rate between the merger date and the date of final judgment.  MCHC did 
not present that argument to the Court of Chancery during post-trial briefing, 
however, nor did it introduce evidence of any federal reserve discount rate other 
than 3.25%.  In essence, MCHC contends that the Court of Chancery should have, 
sua sponte, taken judicial notice of the changes in that discount rate, because those 
rates are published and readily available in an online database.   
 
39
This argument fails for two reasons.  First, this Court will not entertain a 
claim or argument that was not fairly presented to the trial court.56  Second, the 
“interests of justice” exception to that rule does not apply so as to require us to 
resolve MCHC’s belated claim.57  The rules of evidence require a court to take 
judicial notice of facts only if the court is “requested by a party and supplied with 
the necessary information.”58  Otherwise, the Court has discretion to decide 
whether or not to take judicial notice of certain facts.59  Here, MCHC neither 
provided the necessary information nor requested that the Court take judicial 
notice.  Absent any such request, the Court quite properly relied on MCHC’s 
position and the evidence before it, and set the only interest rate that was supported 
by that evidence:  a flat rate.  In the circumstances, it was not an abuse of 
discretion for the Vice Chancellor to do that.  We therefore uphold the Court’s 
prejudgment interest rate determination. 
 
 
                                          
 
56 Del. Supr. Ct. R. 8.  (“Only questions fairly presented to the trial court may be presented for 
review; provided, however, that when the interests of justice so require, the Court may consider 
and determine any question so presented.”)   
 
57 Id.  
 
58 Del. R. Evid. 201(d). 
 
59 Del. R. Evid. 201(c). 
 
 
40
The Minority Shareholders’ Cross-Appeal  
 
On their cross-appeal, the minority shareholder petitioners claim that the 
Court of Chancery erred by refusing to award their attorneys’ fees and expert 
witness fees against MCHC.  They contend that the Court of Chancery’s own 
findings establish bad faith on the part of MCHC sufficiently egregious to justify 
fee-shifting, and that the Court of Chancery’s denial of a fee-shifting award in this 
circumstances constituted an abuse of discretion. 
The Court of Chancery rejected the minority shareholders’ application for a 
fee-shifting award because, in the Court’s view, MCHC’s conduct was not 
sufficiently egregious to justify fee-shifting.60  To be sure, the Court did express 
concern about MCHC’s (and Palmer’s) behavior in carrying out the merger and in 
defending the litigation.  The Court noted that the respondents did not obtain a 
financial advisor to assist them in setting a fair merger price or otherwise secure an 
independent valuation of MCHC, and that Price’s CEO had unilaterally set the 
merger price without regard for MCHC’s fair value.61  The Court was also troubled 
by MCHC’s disposal of the company’s computers in the face of both a clear 
discovery request from the minority shareholders and a court order compelling 
MCHC to produce those computers.  The Court further found that there was 
                                          
 
60 Mem. Op. at *20. 
 
61 Id. at *19. 
 
 
41
“credible evidence” that Price’s CEO had repeatedly lied under oath.62  Despite 
those findings, the Court held that the petitioners had “failed to demonstrate the 
glaring egregiousness that would compel [the Court] to award fees and costs.”63  
This Court reviews the award or denial of attorneys’ fees under exceptions to the 
American Rule for abuse of discretion.64   
Delaware follows the “American Rule,” whereby a prevailing party is 
generally expected to pay its own attorney’s fees and costs.65  This Court has 
recognized limited equitable exceptions to that rule, including the exception for 
“bad faith” conduct during the litigation.  Although there is no single, 
comprehensive definition of “bad faith” that will justify a fee-shifting award, 
Delaware courts have previously awarded attorneys’ fees where (for example) 
“parties have unnecessarily prolonged or delayed litigation, falsified records or 
knowingly asserted frivolous claims.”66  The bad faith exception is applied in 
                                          
 
62 Id. 
 
63 Id. at *20. 
 
64 Johnston v. Arbitrium (Cayman Is.) Handels AG, 720 A.2d 542, 546 (Del. 1998). 
 
65 Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1043 (Del. 1996). 
 
66 Johnston, 720 A.2d at 546 (internal citations omitted). 
 
 
42
“extraordinary circumstances” as a tool to deter abusive litigation and to protect 
the integrity of the judicial process.67 
In this case, the Court of Chancery’s factual findings, all firmly supported by 
the record, compel the conclusion that MCHC’s conduct during the cash-out 
merger and during the course of the appraisal proceeding rose to the level of bad 
faith that both this Court and the Court of Chancery have found justifies an award 
of attorneys’ fees.  In Johnston v. Arbitrium (Cayman Is.) Handels AG,68 this Court 
held that a fee-shifting award of attorneys’ fees was appropriate under the bad faith 
exception, because the defendants had:  (i) defended the action despite their 
knowledge that they had no valid defense, (ii) delayed the litigation and asserted 
frivolous motions, and (iii) falsified evidence, and (iv) changed their testimony to 
suit their needs.69  Similarly, in RGC International Investors v. Greka Energy 
Corp.,70 the Court of Chancery awarded attorneys’ fees against the defendant under 
the bad faith exception, because the defendant had forced the plaintiff to engage in 
litigation that would not have been necessary if the defendants had acted with even 
minimal responsibility; and because the multiple theories advanced by the defense 
                                          
 
67 Id. 
 
68 720 A.2d 542 (Del. 1998). 
 
69 Johnson, 720 A.2d at 546. 
 
70 C.A. No. 17674, 2001 WL 984689 (Del. Ch. Aug. 22, 2001). 
 
 
43
had “minimal grounding in fact and law” and made the litigation more expensive 
than it should have been.71  And, in Kaung v. Cole National Corp.,72 this Court 
recently upheld the application of the bad faith exception to the American Rule 
where the plaintiff had an improper motive for filing the action, the plaintiff’s 
attorneys had made excessive and duplicative discovery requests while ignoring 
their own client’s discovery obligations, and one of the plaintiff’s key witnesses 
had refused to answer any questions during his deposition.73 
When juxtaposed against the conduct found to constitute bad faith under 
those precedents, MCHC’s conduct must similarly be regarded as demonstrative of 
bad faith.  The Court of Chancery found that Price’s CEO, Robert Price, set the 
merger price unilaterally, after ignoring repeated suggestions from Verizon that he 
hire an independent financial advisor.  The resulting unfairly low price, which was 
not based on any legitimate valuation of MCHC, forced the minority shareholders 
to initiate an appraisal action—their only remedy in a short form merger.74  
Although the bad faith exception does not apply to the conduct that gives rise to 
the substantive appraisal claim in a short form merger, evidence of a party’s 
                                          
 
71 Id. at *19. 
 
72 ___ A.2d ___, C.A. No. 480, 2004, 2005 WL 1635200 (Del. July 5, 2005).  
 
73 Id. at *5. 
 
74 Glassman v. Unocal Exploration Corp., 777 A.2d 242 (Del. 2001). 
 
 
44
prelitigation conduct can be relevant to show the motive or intent driving that 
party’s conduct during that appraisal litigation.75   Here, Price’s failure reasonably 
to ascertain MCHC’s fair value before setting the merger price was a motive for 
Price later to lie under oath and to allow the destruction of documents to obstruct 
the petitioners’ efforts to uncover evidence of MCHC’s true value—evidence that 
was essential to enforcing the only remedy that was available to the petitioners.  
MCHC’s conduct during the litigation also interfered with the Court’s 
performance of its duty to determine the fair value of the company, and 
unnecessarily prolonged and increased the costs of the litigation.  MCHC 
repeatedly refused to produce documents that had been requested in discovery.  
The most egregious instance involved the minority shareholders’ request for the 
production of documents—including computers—relating to allocations and 
intercompany loans between the respondent entities.  MCHC refused to produce 
those documents until the Court of Chancery ordered them to do so nine months 
after the initial document request.   Even after that order was issued, MCHC could 
not produce most of the information requested because MCHC had destroyed the 
computers where the information was stored.  MCHC admitted that it destroyed the 
computers after the Court of Chancery had ordered their production.   
                                          
 
75 Id.; see also Johnson, 720 A.2d at 546. 
 
45
Additionally, the Court of Chancery found that Robert Price, the CEO of 
Price and MCHC, had lied under oath about the valuation method he had used to 
determine the merger price, claiming—in the face of overwhelming evidence to the 
contrary—that the merger price was based on the CD settlement’s EBITDA 
multiplier.76  Price also appears to have testified falsely about his involvement in 
the CD settlement, contending that he had no knowledge or involvement in that 
settlement, even though he had signed the settlement agreements. 
Finally, MCHC introduced, and relied upon, expert valuation testimony that 
the Court found was “fatally flawed” in both its methodology and its data.  The 
Court was forced to reject completely the valuation testimony of MCHC’s expert, 
Gartrell, because the Vice Chancellor found that testimony was not credible and 
was designed “to deprive the minority shareholders of the existing value” in the 
company.77  The Court found that Gartrell had created his own projections for the 
DCF analysis without consulting any outside source,78 that Gartrell had never 
analyzed MCHC’s business operations, and that he had no idea what MCHC’s 
                                          
 
76 During his testimony, Price claimed that the CD settlement was based on an EBITDA 
multiplier of 10.05, despite clear evidence that the settlement was derived by multiplying CD’s 
estimated population (POP) by $470.  Despite that evidence, Price testified that he multiplied 
MCHC’s EBITDA by 10.05, and thereby reached the merger price of $8,102.23 per share.  The 
Court of Chancery found that this testimony was false, and rejected Price’s testimony as self-
serving.  Mem. Op. at *3. 
 
77 Mem. Op. at *9. 
 
78 Id. at *10. 
 
 
46
business strategy was.  The Court rejected Gartrell’s comparable company analysis 
because he had selectively used different methodologies, and had chosen inputs 
that were not relevant to MCHC’s fair value.79  Ultimately, the problems in 
Gartrell’s analysis led the Court to conclude that Gartrell had “established a pre-
determined valuation figure,” and developed his expert testimony to fit into that 
figure.80 
Given the overwhelming evidence that the respondents repeatedly acted in 
bad faith to obstruct if not prevent a fair valuation of MCHC, we are constrained to 
conclude that the Court of Chancery abused its discretion by declining to award 
attorneys’ and expert witness fees in favor of the minority shareholders and against 
the respondents.  We therefore reverse the Court’s judgment in that limited respect, 
and remand this case for a determination of the minority shareholders’ reasonable 
attorneys’ fees and expert witness fees. 
Conclusion 
For the foregoing reasons, the judgment of the Court of Chancery is affirmed 
in part, reversed in part, and remanded for proceedings consistent with the rulings 
in this Opinion. 
                                          
 
79 Id. at *10-*11. 
 
80 Id. at *11.