Opinion ID: 1916444
Heading Depth: 1
Heading Rank: 5

Heading: Whether Cinerama May Assert in its Appraisal Proceeding its Claim of Fraud in the Merger

Text: The Court of Chancery correctly denied Cinerama's motion to amend and enlarge its appraisal action to include its claim for rescissory relief for conspiracy, illegality, fraud, and breach of fiduciary duty. As previously noted, statutory appraisal is limited to the payment of fair value of the shares ... by the surviving or resulting corporation. 8 Del.C. § 262(i). A determination of fair value does not involve an inquiry into claims of wrongdoing in the merger. See Felder v. Anderson, Clayton & Co., Del.Ch., 159 A.2d 278 (1960); see also Weiss, Balancing Interest in Cash-Out Mergers: The Promise of Weinberger v. UOP, Inc., 8 Del.J.Corp. L. 1, 8-9 (1983). In contrast, in a fraud action seeking monetary relief for unfair dealing, the focus of the suit is whether wrongdoing can be established, see Weinberger, 457 A.2d at 714. Hence, the necessary party defendants in a fraud in the merger action are the alleged wrongdoers because it is they who arguably caused the injury and should pay any damage award. To permit Cinerama to amend its statutory appraisal action to include its fraud claims would impermissibly broaden the legislative remedy. It would also fail to bring before the Court the necessary parties for the fashioning of any appropriate relief for a fraud. Finally, to judicially expand an appraisal proceeding to include unfair dealing claims would likely create unforeseeable administrative and procedural problems for litigants and the courts. In most cases only a small proportion of shareholders will have perfected appraisal rights and thus have access to the expanded appraisal remedy. See Joseph v. Shell Oil Co., 498 A.2d at 1122; see also Rabkin, 498 A.2d at 1107; 8 Del.C. § 262(d). If shareholders are permitted to litigate fraud claims in appraisal proceedings, shareholders not seeking appraisal would be required to litigate entire fairness claims identical to the claims litigated by shareholders with perfected appraisal rights but through separate actions. This would create a substantial risk of inconsistent judgments and raise issues of collateral estoppel. See Coca-Cola Co. v. Pepsi-Cola Co., Del.Super., 172 A. 260 (1934), cited in Blonder-Tongue Lab., Inc. v. University of Ill. Found., 402 U.S. 313, 323 n. 9, 91 S.Ct. 1434, 1439 n. 9, 28 L.Ed. 2d 788 (1971). On the several grounds stated, we conclude that the Court of Chancery did not abuse its discretion in denying Cinerama's motion to amend its appraisal action. See Ct.Ch.R. 15; see also Bokat v. Getty Oil Co., Del.Supr., 262 A.2d 246 (1970).