Court Opinion

ID: 9767155
Source: CourtListenerOpinion
Date Created: 2023-08-29 05:11:31.387115+00
Date Added: 2024-06-11T07:30:29.069780
License: Public Domain

DUFFY, Justice
(Retired), dissenting:
I regret that I cannot join in the opinion in which a majority of the Court has invested so much research and scholarship. But, as with many legal issues, the answer often depends on how the question is defined. As I see it, the determinative question which this appeal presents concerns the stockholder requirements of 8 Del.C. § 262.
Before discussing the statute, I want to note that the minority stockholders of Alabama By-Products Corporation (ABC) were cashed out at $75.60 per share; in the appraisal proceeding the Court of Chancery fixed the fair value of each share at $180.67 and this Court affirmed that ruling. The difference between the cash-out price and the fair value of each share is shocking, and that lends equitable persuasion to the judgment of this Court and the Court of Chancery.
But the appraisal remedy is entirely a creation of statute, Alabama By-Products Corp. v. Neal, Del.Supr., 588 A.2d 255, 256 (1991), and the majority’s ruling is based, not *268on equitable principles, but on the construction and application of Section 262(d) and (k).
The purpose of Section 262 is to give a stockholder who dissents from a merger a judicial remedy by which an independent determination is made of the fair value of the shares. Neal, 588 A.2d at 256.
At least from the time of Salt Dome Oil Corporation v. Schenck, Del.Supr., 41 A.2d 583 (1945), until now, a “stockholder” in an appraisal proceeding has meant “only the registered holder of stock.” 41 A.2d at 589. That has been the “consistent” view of this Court. ENSTAR Corp. v. Senouf, Del.Supr., 535 A.2d 1351, 1354 (1987);13 see also Matter of ENSTAR Corp., Del.Supr., 604 A.2d 404, 412 (1992). Indeed, that requirement is codified by the specific language of Section 262(a), which states: “As used in this section, the word ‘stockholder’ means a holder of record in a stock corporation.”
It is, I believe, undisputed that Cede & Co. (Cede), and only Cede, was the record holder of the stock in issue for which appraisal was sought. To state it negatively: neither Shearson Lehman nor Merrill Lynch, nor the customers of either of them, was, at any relevant time, a registered or record holder of the stock.
Demand for appraisal and perfection of that right was, in each instance, made by Cede as the record stockholder. And at the time the demands were perfected, the rights and duties of the stockholder and the corporation were fixed. Compare Southern Production Co. v. Sabath, Del.Supr., 87 A.2d 128, 132 (1952).
Without doubt, Cede had contractual (and perhaps other) obligations to Shearson Lehman and Merrill Lynch which, in turn, had obligations to their respective customers. But under Section 262 and long-settled case law, ABC had no appraisal obligation to the brokerage houses, bank depositories or other nominees which investors had chosen to hold their respective shares. Salt Dome, 41 A.2d at 589; Senouf, 535 A.2d at 1354; and ENSTAR, 604 A.2d at 412. Cede could, of course, select whatever agencies and counsel it chose to process and litigate its appraisal rights, but it cannot make Shearson Lehman nor Merrill Lynch a “stockholder” nor give either of them separate status having independent significance.
But the majority seems to regard Cede’s record holding of ABC shares as divided into two or more parts. How or when that was done is not described. Certainly the Stockholder Information Form submitted by Cede to ABC could not create a Section 262 legal duty on the corporation to thereafter deal with Shearson Lehman and Merrill Lynch as it would with a record holder. And yet that is the clear implication if ABC is liable because the brokers were paid without Court approval.14
Given the possible relationships which may lay behind a stockholder of record, the responsibility for “overseeing” the surrender of shares after a merger may well be more complex and burdensome than the majority anticipates. One may reasonably ask, for example, does the duty of oversight oblige a corporation to ask a nominee: for whom do you act? — thus piercing the veil of record ownership.
The majority states that it continues to recognize the force of Salt Dome, ENSTAR and similar cases holding that a corporation may look to the corporate books as the sole evidence of stock ownership. But, respectfully, its decision here fixes liability on ABC, (a) for failing to look beyond Cede’s record ownership to the stockbrokers who had deposited the shares with Cede; and (b) for failure to regard the brokers as “stockhold*269ers” under the dismissal prohibition in Section 262(k).
In sum, Cede was the only stockholder in this proceeding and it never withdrew from this litigation. Indeed, it is still in the case. Thus, “no appraisal proceeding in the Court of Chancery [has been] dismissed as to any stockholder.” See Section 262(k). As I see it, the statute is not implicated because Cede remains in Court, subject to its jurisdiction and responsible for any violation it may have made of Section 262.
ij; tfc % ífc #
I agree that strict compliance with Section 262 is essential and when it is applicable it should be specifically enforced.
If the policy purpose of Section 262(k) is therapeutic, that is, to bar a stockholder and the corporation from agreeing, without court approval, that some shares of an ongoing claim for appraisal ai’e withdrawn, then the statute should be amended to say so. But the plain language of Section 262(k) bars only a “dismiss[al] as to any stockholder.” When, as here, there is neither a dismissal nor a record stockholder involved, the language does not fit the facts.
In its present form, Section 262 probably does not recognize the common and practical use of nominees in stock ownership and the realities of relationships behind the corporate record. If so, then change is desirable; but creation of a duty of “oversight” by the corporation is not the way to go. Under the present statute, orderliness and certainty of an appraisal proceeding will be maintained if, as heretofore, a corporation’s legal duty is to deal only with the stockholder of record. Cf. Schneyer v. Shenandoah Oil Corporation, Del.Ch., 316 A.2d 570 (1974). Its relationship with beneficial owners and other nominees should be governed by other principles of law.
I would reverse the Order of the Court of Chancery and direct that judgment be entered for the respondents.

. The Court quoted and reaffirmed the policy reasons stated in Salt Dome as to why the corporation “may rightfully look to the corporate books as the sole evidence of membership," i.e., the record holder of shares. 535 A.2d at 1356.

. The rather curious caption of the case describes the petitioners as follows:
CEDE & CO. acting on behalf of Shearson Lehman Brothers, Inc. and Amy N. Ager and MERRILL LYNCH, PIERCE, FENNER & SMITH, acting on behalf of CEDE & CO. Implicitly, that accurately states that this is
Cede's case — while it acts for Shearson Lehman and Merrill Lynch acts for it. In short, only Cede’s rights are asserted and those are based on its status as the record holder of ABC shares.