Opinion ID: 1916444
Heading Depth: 1
Heading Rank: 6

Heading: Whether Cinerama Should Be Put to an Election of Remedies before Trial or Both Claims Should Be Consolidated for Trial

Text: On this issue we find the Court of Chancery to have erred. Cinerama's motion to consolidate, for purposes of trial as well as discovery, its fraud and appraisal actions should have been granted. No rule of law required the Court to put Cinerama to an election of remedies before judgment. As we have found, the Court properly concluded that Cinerama was not precluded from bringing an action to set aside the merger by reason of its earlier election to dissent and seek a judicial determination of the fair value of its shares. However, the Court incorrectly perceived that a shareholder in Cinerama's position then came under a duty to choose between the legislative conferred right to recover fair value for its shares and its equitable action for rescissory relief. The Court stated: It does not follow from that conclusion, however, that a shareholder once he or she discovers facts giving rise to a litigable claim of fraud in the merger, is relieved from the duty to choose whether to accept the fact of the merger and exercise his statutory right to a judicial determination of a fair price or whether to attack the validity of the merger itself and seek to have it set aside or be awarded other equitable relief. Obviously these forms of relief are inconsistent and at some point one must choose between them. Without defining the origins of this perceived duty, the Court found this duty to be a basis for rejecting Cinerama's argument that Weinberger had expressly approved joinder of a section 262 action and a suit for rescissory damages for breach of fiduciary duty or fraud in the underlying merger. In the Court's view, such a reading of Weinberger would destroy the distinctive nature of an appraisal action and would ... result in an unwieldy form of action. We know of no general substantive or procedural law that should require Cinerama to be put to a binding election before trial between its statutory right to receive fair value for its shares and an opportunity to litigate its fair dealing claims. The duty that the Court was alluding to implicates the doctrine of election of remedies, but the doctrine has no application in this case. Broadly speaking, an election of remedies is the voluntary choice by a party to an action of one or more co-existing, but necessarily inconsistent and repugnant remedial rights growing out of the same known facts .... Hannigan v. Italo-Petroleum Corp., Del.Super., 181 A. 4, 5 (1935) (emphasis added); see also 25 Am. Jur.2d Election of Remedies §§ 1-3 (1966); 28 C.J.S. Election of Remedies § 1 (1941). However, the alternative causes here pursued by Cinerama, of statutory appraisal and fraud in the merger, are not inconsistent or repugnant claims for relief arising out of the same known facts. An appraisal proceeding and an equitable action for rescissory damages (for illegality or other wrongdoing in extinguishing minority shareholder interests) do not involve the assertion of inconsistent rights. The appraisal action seeks the enforcement of a statutory right that is different and distinct from the alleged wrong sought to be redressed by Cinerama's fraud action. The remedies, though very different, are not inconsistent or repugnant because one remedy is premised on a state of facts that is the alternative to, rather than the converse of, the state of facts that forms the basis for recovery under the other remedy. Cf. Farmers Bank of the State of Delaware v. Dickey, Del.Super., 209 A.2d 752, 754 (1965). The election of remedies doctrine has no application to litigation where the remedies sought are for the enforcement of different and distinct rights or the redress of different and distinct wrongs. 25 Am.Jur.2d Election of Remedies § 10, at 653 (1966). Cinerama should not have been barred from proceeding to trial on its alternate claims for relief. During the consolidated proceeding, if it is determined that the merger should not have occurred due to fraud, breach of fiduciary duty, or other wrongdoing on the part of the defendants, then Cinerama's appraisal action will be rendered moot and Cinerama will be entitled to receive rescissory damages. If such wrongdoing on the part of the defendants is not found, and the merger was properly authorized, then Cinerama will be entitled to collect the fair value of its Technicolor shares pursuant to statutory appraisal and its fraud action will be dismissed. Under either scenario, Cinerama will be limited to a single recovery judgment. Cinerama, therefore, is entitled to proceed simultaneously with its statutory and equitable claims for relief. What Cinerama may not do, however, is recover duplicative judgments or obtain double recovery. Since the doctrine of election of remedies has no application to this case, it necessarily follows that the Court of Chancery committed discretionary error in denying Cinerama's motion to consolidate and, thus, Cinerama's appraisal and fraud actions should be consolidated for trial as well as discovery purposes. See La Chemise Lacoste v. Alligator Co., D.Del., 60 F.R.D. 164, 175 (1973); American Employers' Ins. Co. v. King Resources Co., 10th Cir., 545 F.2d 1265, 1269 (1976). [11] Consolidation of the actions is also necessary to put Cinerama in a position equivalent to the position it would arguably be in had defendants exercised complete candor [12] in disclosing all material information associated with the merger to the minority shareholders. Had Cinerama known at the time of the merger what it arguably learned through discovery, it is reasonable to assume that Cinerama would have first brought suit to enjoin the merger, [13] and if unsuccessful, Cinerama could still have perfected its appraisal rights. To require Cinerama to make a binding election of remedies no later than the time that it announced itself to be ready for trial would deprive Cinerama of a cause of action it would have possessed had management made a full disclosure of all material information prior to the merger, as mandated by Weinberger. See 457 A.2d at 710. Assuming the defendants failed to exercise complete candor with the minority shareholders, the minority should not be placed in a worse position than if management had acted with complete candor. See Bershad v. Curtiss-Wright Corp., Del. Supr., 535 A.2d 840 (1987). Thus, we hold that Cinerama should be permitted to exercise its appraisal rights while seeking rescissory damages in a consolidated action, subject to the limitation of a single recovery judgment. We also note that the parties by their conduct after docketing this appeal demonstrated the feasibility and desirability of consolidation. The parties' September stipulation largely moots Technicolor's argument against consolidation to the extent it is based upon the assertion that the fraud action and the appraisal action involve widely separate stages of trial preparation. The stipulation provides that all depositions taken in the appraisal action shall be admissible in the fraud action, subject to limitations on the use of Charles Simone's deposition and the right of the defendants to further depose Mr. Simone. Additionally, Technicolor agreed to produce for Cinerama's inspection all relevant financial statements from January 1, 1985 to the present. Such an agreement significantly undercuts Technicolor's position against consolidation and the Court's ruling against consolidation. Moreover, it appears that much of the evidence not covered by the stipulation that will be presented by Cinerama concerning valuation under appraisal will be the same evidence presented during the fraud action. Hence, consolidation of the two actions should result in convenience and economy in the administration of both actions. See Court of Chancery Rule 42(a). [14] Although the Court of Chancery correctly recognized the need to limit collateral attacks on cash-out mergers, it failed to account for the economy and procedural fairness that will result from the consolidation of the two actions. Thus, the ruling of the Court requiring Cinerama to make an election of remedies before trial and implicitly denying its motion to consolidate must be reversed. Cinerama will be permitted to consolidate its appraisal and its fraud actions for discovery as well as trial pursuant to Court of Chancery Rule 42(a).