Opinion ID: 2351146
Heading Depth: 1
Heading Rank: 2

Heading: Was the Chancellor right in dismissing the appraisal proceeding over Southern's objection?

Text: The applicable provisions of Section 61 of the General Corporation Law are set forth above. In substance, these provisions of the statute declare that a stockholder who shall have perfected his right to appraisal and payment shall be deprived of the three principal rights belonging to the stock, viz., the right to vote, the right to dividends, and the right to any other distribution upon it, unless one of the three events or conditions shall thereafter occur. These three conditions are: (1) that no appointment of an appraiser be applied for within the specified time; (2) that the proceeding be dismissed as to the stockholder; and (3) that the stockholder with the written approval of the corporation deliver to it a written withdrawal of his objections to and his acceptance of the consolidation or merger. Upon the happening of any of these conditions the stockholder loses his right to appraisal and payment and reacquires the rights belonging to his stock theretofore lost. Plaintiffs in the court below, desiring to withdraw their objections and accept the terms of the merger, invoked the provisions of the second condition in the statute with respect to the dismissal of the proceeding as to a stockholder, as well as the provisions of Rule 41 of the Court of Chancery relating to dismissals. The motions to dismiss assigned no grounds or reasons therefor; presumably plaintiffs wished (naturally enough) to take advantage of the substantial rise in the value of Southern common stock. [1] Southern objected, urging that since the only ground advanced for the dismissal of the proceeding as to the plaintiffs was their desire to resume full stockholder status the third condition applied and the court was without power to dismiss it without the consent of the corporation. Accordingly the question before us is whether in the instant case such consent is required. In resolving this question, a review of the history of the present Section 61 is of help. Prior to the amendment of 1943, [2] the appraisal of dissenters' shares after a consolidation or merger was primarily an extra-judicial proceeding in the nature of a compulsory arbitration, to be invoked only by the stockholder by serving upon the resulting or surviving corporation a demand for the appointment of an appraiser. The corporation had no right to compel the appraisal of dissenting shares. Moreover, the Court of Chancery had no general jurisdiction of the matter, its powers being largely limited to applications for the appointment of appraisers, [3] bills to compel transfer of stock after award made, [4] and applications to tax costs. [5] Unless this jurisdiction was invoked, an appraisal of dissenting shares proceeded from initial demand to final payment without judicial supervision. Finally, although a dissenting stockholder was said to be given an election or put to an election by the statute, Stephenson v. Commonwealth & Southern Corp., supra [18 Del.Ch. 91, 156 A. 216]; Cole v. National Cash Credit Ass'n, 18 Del.Ch. 47, 56, 156 A. 183, 187, no time was set when such election must be made; and it is at least doubtful whether prior to the award the corporation acquired any equitable or other right to the shares of the dissentient. Cf. Hottenstein v. York Ice Machinery Corp., 3 Cir., 146 F.2d 835. The 1943 amendment has effected substantial and important changes. The Court of Chancery is given general control over the appraisal in a proceeding in the nature of a class suit, to which the corporation and all dissenting stockholders are made parties and in which they are subjected to the jurisdiction of the court. The corporation, like the stockholder, is given the right to initiate the proceeding and bring the stockholder into court for the purpose of appraising his stock. The appraiser is not an arbitrator; his status is akin to that of a master in chancery. [6] A time is fixed within which the court's jurisdiction must be invoked. Finally, there have been added the provisions above quoted, divesting a stockholder who has perfected his right to appraisal of rights appertaining to his shares and fixing the conditions under which those rights may be reacquired. What is the effect of these provisions upon the status of the stockholder who has perfected his right to appraisal? In the first place, it is clear that his status is now expressly defined. Whether, after perfection of his right to appraisal, the dissentient is to be deemed a quasi-creditor or a quasi-stockholder is an unimportant matter of labeling. Certain it is that he has lost for the time being all the substantial rights of a stockholder  the right to vote, the right to receive dividends, and the right to receive any distribution upon the shares. His status is primarily that of a monetary claimant against the consolidated or surviving corporation, and is more nearly analogous to that of a creditor than to that of a stockholder. In the second place, when we read the section as a whole, bearing in mind the significant changes from the former law, it is clear that upon the completion of the steps required to perfect the right to appraisal the stockholder has made an election to withdraw from the corporate enterprise and take the value of his stock  an election which is irrevocable unless one of the three conditions specified in the statute shall subsequently occur. The right of the corporation to initiate the appraisal proceeding, and the language of the third condition requiring  or at least necessarily implying  its consent to withdrawal, leave little doubt of the legislative intent. If, prior to award (or even prior to hearing) stockholders who have chosen to acquire the status of claimants are permitted to abandon the proceeding, the corporation's right to bring them into court in a case where appraisal is advantageous to the other stockholders would be of little substantive value. The conferring of this right suggests a legislative intent to give the corporation power to prevent the claimant from resuming by his own inaction his full status as a stockholder. When this consideration is reinforced by the specific language of the third condition, the conclusion is apparent that when a dissenting stockholder has perfected his right to appraisal the corporation has acquired a correlative right to obtain his stock upon payment therefor  a right subject to be defeated only by the occurrence of one of the three events specified in the statute. This brings us to the nub of plaintiffs' case. Notwithstanding the requirements of consent embodied in the third condition, plaintiffs insist that the court has power to dismiss the proceeding as to any stockholder for no other reason than his desire to reacquire his full status as a stockholder by accepting the terms of the consolidation or merger. Such power is said to be contemplated by the language embodying the second condition under which stockholder status may be reassumed, viz., that the proceeding be dismissed as to such stockholder; and also, it is said, to be within the purview of the rule of court referred to. We think these contentions unsound. They lead to a result quite at variance with the intent and purpose of the statute deducible from its language. The obvious answer to both is that to apply the second condition (or the rules of court) to the instant case is to nullify the third condition of the statute and transgress the elementary rule that every clause of a statute must be given effect. Harlee v. Federal Finance Corp., 4 W.W.Harr. 345, 34 Del. 345, 351, 152 A. 596. If the third condition does not apply to the case here presented, to what case does it apply? Plaintiffs suggest that it provides for an extrajudicial termination of proceedings leading to appraisal before or after the filing of a petition in the Court of Chancery. This suggestion appears to concede that during the period after dissent has been perfected and before the filing of a petition or the expiration of the time within which it may be filed the dissenting stockholder may not withdraw his objections and accept the merger unless the corporation consents. This is clearly right, but the concession exposes the weakness of plaintiffs' position. If the corporation's veto power exists before the filing of the petition, it must follow that it continues thereafter. It would be highly unreasonable to conclude that the corporation, by exercising its power to file a petition for appraisal of the dissenting stock, may thereby lose, at the option of the stockholder, the very rights it seeks, by filing the petition, to enforce. And it is clearly immaterial whether the corporation or the stockholder has filed the petition, since the alignment of the parties in the appraisal proceeding would not ordinarily be a matter of substance, and the enforcement of substantive rights should not depend upon a race for jurisdiction. Plaintiffs cite to us the opinion of the Vice Chancellor in the case of In re Universal Pictures Co., 28 Del.Ch. 72, 37 A.2d 615. That case involved an appraisal proceeding (the first under the 1943 amendment to Section 61) in which the corporation had excepted to the sufficiency of certain objections to the merger and demands for payment by stockholders who had pledged their stock with brokers as collateral for loans. It was urged that the objections and demands of margin stockholders must be joined in by the broker-pledgees. On the authority of the case of Schenck v. Salt Dome Oil Corp., supra, subsequently reversed, 28 Del.Ch. 433, 41 A.2d 583, 158 A.L.R. 975, the Vice Chancellor overruled the objection, saying: Granting that in establishing his right to an appraisal, a claimant must at some point show the consent of the broker, I find nothing in the statute which compels proof of that consent before the hearing. [28 Del.Ch. 72, 37 A. 2d 620] In reaching that conclusion, however, the Vice Chancellor dealt with an incidental argument advanced by the corporation to the effect that unless the broker-pledgee were required to join in the objection and demand he might refuse to surrender the certificate when required, since he might not concur in the margin stockholder's election to seek appraisal  an election which, it was asserted, entailed an irrevocable decision important to both. Dealing with this argument, the Vice Chancellor said: The corporation's conclusion concerning the irrevocability of a stockholder's election to demand payment is not justified. The statutory provisions referred to are those concerning the disenfranchisement and dividend disqualification, and are expressly limited. They are operative unless (1) `the appointment of an appraiser shall not be applied for within the time    provided'; or (2) `the proceeding be dismissed as to such stockholder'; or (3) `such stockholder shall with the written approval of the corporation deliver to the corporation a written withdrawal of his objections to and an acceptance of such consolidation or merger'. The first and second qualifications do not involve a `written approval' of the corporation; and the second may clearly become applicable without the consent, or even in spite of the dissent, of the corporation.  (Emphasis supplied.) 28 Del.Ch. 82-83, 37 A.2d 620. To the extent that the holding of the Vice Chancellor is inconsistent with the views herein set forth it must be disapproved. We hold the rights of the stockholder and of the corporation with respect to appraisal to be fixed at the time the right to appraisal is perfected, subject only to the happening of one of the three conditions specified. The concept of rights as fixed and determined and subject to be defeated only by the happening of a condition subsequent is a familiar one in the law. To construe the statute as fixing no rights until it affirmatively appears that none of the three conditions can happen would be, we think, an inversion both of its language and of its intent. The general comment of the Vice Chancellor (in italics above) with respect to the scope of the second condition of the statute is answered by the consideration already adverted to, viz., that to apply the second condition to the instant case is to render the third nugatory. The two conditions must be considered together. Obviously, the primary purpose of the second is to provide for the case where the dissentient is found by the court, on objection by the corporation, not to be entitled to appraisal. Cases of dismissal without the consent of the corporation, or over its objection, such as a dismissal for cause by the Chancellor ex mero motu, would presumably be rare; but we cannot say they might not occur, and such a possibility may have been contemplated by the Vice Chancellor. We do not attempt to envisage all the cases to which the second condition might apply; it is enough to say that it has a purpose and meaning quite in harmony with the purpose and meaning of the third condition. We are clearly of opinion that the provisions of the second condition relating to the dismissal of an appraisal proceeding as to a stockholder do not apply to this case, which is governed by the provisions of the third condition. For the foregoing reasons we are constrained to disagree with the decision of the Chancellor. In remanding the case to the Court of Chancery for further proceedings, we express no opinion upon the proper course of such further proceedings if it should appear that the certificates of stock issued and delivered to plaintiff Sabath had been negotiated to bona fide purchasers for value. Questions of that kind are not before us. The judgment of the court below is reversed and the cause is remanded to the Court of Chancery for further proceedings in conformity with this opinion