In re Appraisal of Rouse Properties, Inc. ( 2016 )

EFiled: Dec 08 2016 04:13PM EST
Transaction ID 59932209
Case No. Multi-Case
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
Sunrise Partners Limited Partnership,
Petitioner, C.A. No. 12609-VCS
v.
Rouse Properties, Inc.,
Respondent.
Hudson Bay Master Fund Ltd.,
Petitioner, C.A. No. 12611-VCS
v.
Rouse Properties, Inc.,
Respondent.
DBW Lycurgus LLC,
Petitioner, C.A. No. 12617-VCS
v.
Rouse Properties, Inc.,
Respondent.
Levcap Alternative Fund, LP; Ulysses
Offshore Fund LTD; Ulysses Partners LP;
David Levin 1992 Trust (a/k/a Trust C.A. No. 12674-VCS
U/A/D 12/4/92 FBO David J. Levin);
HAL 63 Partnership – PW (a/k/a HAL 63
Partnership, L.P.); The David J. Levin
2002 Trust; Maxwell Chase Levin Trust;
Zachariah Nicholas Levin Trust dated
December 28, 2010 (a/k/a Zachariah
Nicholas Levin Trust); The David Levin
2001 Trust (a/k/a The David J. Levin
2001 Trust); Sophie Valentine Chiara
Trust U/W Judith Chiara Dated N (a/k/a
Sophie Valentine Chiara Trust U/W
Judith L. Chiara); Julian Arthur Chiara
Trust UWO Judith Chiara Dated Nove
(a/k/a Julian Arthur Chiara Trust U/W
Judith L. Chiara); Christopher Evan Beaty
Trust UWO Judith Chiara Dated No
(a/k/a Christopher Evan Beaty Trust U/W
Judith L. Chiara); Trust U/A/D 10/11/63
FBO Louise P. Belsky (a/k/a Trust U/A/D
10/11/63 Louise P. Belsky); The Jean L.
Troubh Trust U/A/D 12/18/89; Trust
U/A/D 10/11/63 FBO Elisabeth P. Doyle;
Lucas Marco Chiara Trust UWO Judith
Chiara Dated Novemb (a/k/a Lucas
Marco Chiara Trust U/W Judith L.
Chiara); Trust U/W Judith L. Chiara FBO
Ryan Thomas Beaty (a/k/a Ryan Thomas
Beaty Trust U/W Judith L. Chiara);
Kristin Beaty Paszkiewicz Trust UWO
Judith Chiara Dated (a/k/a Kristin Beaty
Paszkiewicz Trust U/W Judith L. Chiara);
Karma Alexander Mason Trust UWO
Judith Chiara Dated Nov (a/k/a Karma
Alexander Mason Trust U/W Judith L.
Chiara); Jean L. Troubh Family 2000
Trust; Audrey S. Levin; Jessica Perry
Fertig Trust UWO Judith Chiara Dated
Nove (a/k/a Jessica Perry Fertig Trust
U/W Judith L. Chiara); Benet Polikoff
and Margaret Polikoff Trust; 1/3/55 Trust
U/W Carl M. Loeb FBO Jean L. Troubh –
PW (a/k/a Trust U/W Carl M. Loeb FBO
Jean L. Troubh); The Belsky-Doyle-
Polikoff-Troubh Family Trust; Trust
U/A/D 10/11/63 FBO Benet S. Polikoff;
Trust U/W Judith L. Chiara FBO Aliana
R. Beaty (a/k/a Aliana Rae Beaty Trust
U/W Judith L. Chiara); John Levin,
Jerome Manning TTEE TR FBO Frances
Perry (FP06) (a/k/a Trust U/A/D 10/16/61
JLL FBO Frances Beaty Perry); John
Levin, Jerome Manning TTEE TR FBO
Daniela Chiara (ZZDC06) (a/k/a Trust
U/A/D 10/16/61 JLL FBO Daniela
Chiara); John Levin, Jerome Manning
TTEE JLL TR (ZZCC06) (a/k/a Trust
U/A/D 10/16/61 JLL FBO Charles
Chiara); John L Loeb, Jerome Manning
TTEE JLL 61 TR FBO NICHOLAS
(ZZJL06) (a/k/a Trust U/A/D 10/16/61
JLL FBO Nicholas Loeb); Jerome
Manning, J Levin TTEE A Lehman TR
(ZZRB02) (a/k/a Trust U/A/D 9/9/64
FBO Richard Beaty); Jerome Manning, J
Levin TTEE A Lehman Tr (ZZRB02)
(a/k/a Trust U/A/D 9/9/64 FBO Daniela
Chiara); Jerome Manning, J Levin TTEE
A Lehman Tr (ZZRB02) (a/k/a Trust
U/A/D 9/9/64 FBO Anne P. Beaty);
Jerome Manning, J Levin TTEE A
Lehman Tr (ZZRB02) (a/k/a Trust U/A/D
9/9/64 FBO Charles Chiara); Jerome
Manning, J Levin TTEE A Lehman Tr
(ZZRB02) (a/k/a Trust U/A/D 9/9/64
FBO Frances Beaty Perry); Jerome
Manning, J Levin TTEE A Lehman Tr
(ZZRB02) (a/k/a Trust U/A/D 9/9/64
FBO John L. Beaty); Levin Manning
Beaty TTEE J L Chiara TR (ZZRB05)
(a/k/a Trust U/W Judith L. Chiara FBO
Richard Beaty); Levin Manning Beaty
TTEE J L Chiara TR (ZZRB05) (a/k/a
Trust U/W Judith L. Chiara FBO John L.
Beaty); Levin Manning Beaty TTEE J L
Chiara TR (ZZFP05) (a/k/a Trust U/W
Judith L. Chiara FBO Frances Beaty
Perry); Levin Manning Beaty TTEE J L
Chiara TR (AB05) (a/k/a Trust U/W
Judith L. Chiara FBO Anne P. Beaty);
Levin Manning Beaty TTEE J L Chiara
TR (ZZRB05) (a/k/a Trust U/W Judith L.
Chiara FBO Charles Chiara); The Jessica
Levin 2001 Trust; The Jacob Thomas
Carter Trust (a/k/a The Jacob Thomas
Carter 2005 Trust); The Emily Renee
Carter Trust (a/k/a The Emily Renee
Carter 2005 Trust); The Lisa Louise
Carter Trust (a/k/a The Lisa Louise Carter
2005 Trust); The Jennifer Carter 2005
Family Trust (a/k/a The Jennifer Levin
Carter 2005 Family Trust); The Talia
Bela Chorowsky Trust; The Daniel Silver
Levin Annual Exclusion Trust; The Noa
Rachel Chorowsky Trust; The Allison
Levin Carter Trust (a/k/a The Allison
Levin Carter 2005 Trust); John Levin
John T Beaty, J Manning TTEE FLL TR
FBO Charles Chiara (a/k/a Trust U/I/D
6/1/74 FBO Charles Chiara); John Levin
John T Beaty J Manning TTEE FLL TR
FBO John L Beaty (a/k/a Trust U/I/D
6/1/74 FBO John L. Beaty); John Levin
John Loeb Jr, Jerome Manning TTEE
(ZZJL03) (a/k/a Trust U/I/D 6/1/74 FBO
Nicholas Loeb); John Levin John T
Beaty, J Manning TTEE 74 TR FBO
Alexandra (a/k/a Trust U/I/D 6/1/74 FBO
Alexandra Loeb Driscoll); John Levin
John T Beaty, J Manning TTEE FLL
Trust (a/k/a Trust U/I/D 6/1/74 FBO
Frances Beaty Perry); John Levin, Jerome
Manning TTEE TR FBO John Beaty
(ZZJB07) (a/k/a Trust U/A/D 10/16/61
FLL FBO John L. Beaty); John Levin,
Jerome Manning TTEE JLL 61 TR FBO
Alexandra Loeb Driscoll (a/k/a Trust
U/A/D 10/16/61 FLL FBO Alexandra
Loeb Driscoll); Jerome A Manning John
A Levin, Arthur L Loeb TTEE (ZZAL02)
(a/k/a Trust U/W Frances L. Loeb FBO
Arthur L. Loeb); Arthur Loeb Foundation
Inc. C/O Arthur Loeb (a/k/a Arthur Loeb
Foundation Inc.); Judith L Chiara Char
Fund # 3 C/O Levin Capital Strategies
(a/k/a Judith L. Chiara Charitable Fund,
Inc.); Jerome A Manning TTEE Louis
D’almeida CRT (a/k/a Louis D’Almeida
Charitable Remainder Trust); Manning
Levin Beaty TTEE TR U/W FLL FBO
Anne P Beaty (a/k/a Trust U/W Frances
L. Loeb FBO Anne P. Beaty); Manning
Levin Beaty TTEE TR U/W FLL FBO
Frances B Perry (a/k/a Trust U/W Frances
L. Loeb FBO Frances Beaty Perry); John
Levin J Manning, John Loeb Jr TTEE TR
U/W FLL FBO Nicholas Loeb (a/k/a
Trust U/W Frances L. Loeb FBO
Nicholas Loeb); Manning Levin Loeb
TTEE TR U/W FLL FBO Alexandra L
Driscoll (a/k/a Trust U/W Frances L.
Loeb FBO Alexandra Loeb Driscoll);
Manning Levin Loeb TTEE TR U/W FLL
FBO Kristin (a/k/a Trust U/W Frances L.
Loeb FBO Kristin Beaty Paszkiewicz);
Manning Levin Beaty TTEE TR U/W
FLL FBO Chrisoph Beaty (a/k/a Trust
U/W Frances L. Loeb FBO Christopher
Beaty); Manning Levin Beaty TTEE TR
U/W FLL FBO Ryan Beaty (a/k/a Trust
U/W Frances L. Loeb FBO Ryan Beaty);
Manning Levin Beaty TTEE TR U/W
FLL FBO John L Beaty (a/k/a Trust U/W
Frances L. Loeb FBO John L. Beaty);
Manning Levin Beaty TTEE TR U/W
FLL FBO Charles Chiara (a/k/a Trust
U/W Frances L. Loeb FBO Charles
Chiara); John Levin, Jerome Manning
TTEE Trust FBO Sophie V. Chiara U/W
5/17/96 (a/k/a Trust U/W Frances L. Loeb
FBO Sophie Valentine Chiara); John
Levin John T Beaty, J Manning TTEE J L
Chiara TR FBO Daniela Chiara (a/k/a
Trust U/W Judith L. Chiara FBO Daniela
Chiara); John Levin John Loeb Jr, Jerome
Manning TTE (ZZAL03) (a/k/a Trust
U/I/D 6/1/74 FBO Arthur L. Loeb); John
Levin John T. Beaty, J Manning TTEE
(ZZRB04) (a/k/a Trust U/I/D 6/1/74 FBO
Richard Beaty); John Levin John T Beaty,
J Manning TTEE FLL Trust ZZAB04
(a/k/a Trust U/I/D 6/1/74 FBO Anne P.
Beaty); Levin Beaty Manning Daniela
Chiara TTEE ZZDC04 (a/k/a Trust U/I/D
6/1/74 FBO Daniela Chiara); Richard N
Beaty Jr (LCS) (a/k/a Richard N. Beaty,
Jr.); Daniela Chiara; Jerome Manning, J
Loeb Jr TTEE Trust FBO Arthur Loeb
(ZZAL05) (a/k/a Trust U/I/D 12/31/40
FBO Arthur L. Loeb); John Loeb Jr,
Jerome Manning TTE Trust FBO Arthur
Loeb (a/k/a Trust U/A/D 9/9/64 FBO
Arthur L. Loeb); John Loeb Jr, J Manning
TTEE Trust FBO John Loeb Jr (a/ka/
Trust U/A/D 9/9/64 FBO John Loeb Jr);
Mr. Arthur L Loeb (a/k/a Arthur L.
Loeb); John A. Levin, John Loeb Jr TTEE
U/W CML Tr FBO Arthur Loeb ZZAL06
(a/k/a Trust U/W Carl M. Loeb FBO
Arthur L. Loeb); John Levin, Jerome
Manning TTEE Tr FBO Richard Beaty Jr
(RB06) (a/k/a Trust U/A/D 10/16/61 JLL
FBO Richard N. Beaty); John Levin,
Jerome Manning TTEE Tr JLL 61 FBO
John L Beaty (ZZJB06) (a/k/a Trust
U/A/D 10/16/61 JLL FBO John L.
Beaty); John Levin, Jerome Manning
TTEE Tr JLL 61 FBO Ann P Beaty
(ZZAB06) (a/k/a Trust U/A/D 10/16/61
JLL FBO Anne P. Beaty); The Lisa
Louise Carter Trust; Ann L. Bronfman
Fam Char Trust (a/k/a Ann L. Bronfman
Family Charitable Trust); Matthew
Bronfman; Stacy Bronfman (a/k/a Stacey
Bronfman); Tr U/W Henry A. Loeb FBO
Betty Pearson Clause 6 (a/k/a Trust U/W
Henry A. Loeb FBO Betty Pearson); Tr
U/W Judith L. Chiara FBO Stroock &
Stroock & Lavan (a/k/a Trust U/W Judith
L. Chiara FBO Rosa Anna Iaia); Tr U/W
Judith L. Chiara FBO Stroock & Stroock
& Lavan (a/k/a Trust U/W Judith L.
Chiara FBO Lawrence Birns); TR UWO
Carl M. Loeb FBO E L Levin (a/k/a Trust
U/W Carl M. Loeb FBO Elisabeth L.
Levin); Jessica Levin 2002 Trust (a/k/a
The Jessica Levin 2002 Trust); Henry L.
Levin; The Jacob Thomas Carter Trust;
The Henry Levin 2001 Trust (a/k/a The
Henry L. Levin 2001 Trust); The Elise E
Lieberman Trust (a/k/a The Elise Evelyn
Lieberman Trust); The Jennifer Levin
Carter 2001 Family Trust (a/k/a The
Jennifer Levin Carter 2001 Trust); The
Treetops Foundation; The Allison Levin
Carter Trust; HJJD Associates, a
partnership c/o Henry Levin (a/k/a HJJD
Associates, L.P.); Trust 12/4/92 FBO
Henry L. Levin (a/k/a Trust U/A/D
12/4/92 FBO Henry L. Levin); The
Elisabeth & John Levin Trust (a/k/a Trust
U/A/D 12/4/92 FBO Jessica E. Levin);
Elisabeth Levin (a/k/a Elisabeth L.
Levin); The Emily Renee Carter Trust;
Gabriela Talia Bronfman Legacy Trust
UW Ann L. Bronfman (a/k/a Gabriela
Talia Bronfman Legacy Trust U/W Ann
L. Bronfman); Gabriela T Bronfman
appointed Tr UW Ann L. Bronfman (a/k/a
Gabriela Talia Bronfman Appointed Trust
U/W Ann L. Bronfman); Jeremy Samuel
Bronfman Legacy Tr UW Ann L.
Bronfman (a/k/a Jeremy Samuel
Bronfman Legacy Trust U/W Ann L.
Bronfman); Christine Davies Special
Account – SD (a/k/a Christine Davies
I/T/F Steffan Davies); Coby B. Bronfman
Appointed Tr UWO Ann L. Bronfman
(a/k/a Coby Benjamin Bronfman
Appointed Trust U/W Ann L. Bronfman);
Fiona M. Woods; Trust 12/4/92 FBO
Jennifer Levin Carter (a/k/a Trust U/A/D
12/4/92 FBO Jennifer Levin Carter);
Adam R. Bronfman Fam Foundation Inc.
(a/k/a Adam R. Bronfman Family
Foundation Inc.); and Coby Benjamin
Bronfman Legacy Tr UW Ann L.
Bronfman (a/k/a Coby Benjamin
Bronfman Trust U/W Ann L. Bronfman),
Petitioners,
v.
Rouse Properties, Inc.,
Respondent.
Brookdale International Partners, L.P.
And Brookdale Global Opportunity Fund,
Petitioners,
C.A. No. 12549-VCS
V.
Rouse Properties, Inc.,
Respondent.
MEMORANDUM OPINION
Date Submitted: November 4, 2016
Date Decided: December 8, 2016
Stuart M. Grant, Esquire, Cynthia A. Calder, Esquire, and Kimberly A. Evans,
Esquire of Grant & Eisenhofer P.A., Wilmington, Delaware, Attorneys for
Petitioners Sunrise Partners Limited Partnership, Hudson Bay Master Fund Ltd.,
DBW Lycurgus LLC, Levcap Alternative Fund LP, et al.
Stephen E. Jenkins, Esquire, Andrew D. Cordo, Esquire, and Marie M. Degnan,
Esquire of Ashby & Geddes, PA, Wilmington, Delaware, Attorneys for Petitioners
Brookdale International Partners, L.P. and Brookdale Global Opportunity Fund.
Kevin G. Abrams, Esquire and Daniel R. Ciarrocki, Esquire of Abrams & Bayliss
LLP, Wilmington, Delaware, and John A. Neuwirth, Esquire and Evert J.
Christensen, Jr., Esquire of Weil, Gotshal & Manages LLP, New York, New York,
Attorneys for Respondent Rouse Properties, Inc.
SLIGHTS, Vice Chancellor
After a merger closes, it is not uncommon for several dissenting
stockholders to file separate petitions with this Court seeking statutory appraisal of
the fair value of their shares. It is, however, uncommon for those stockholders not
to agree on the manner in which the multiple petitions should be consolidated and
then prosecuted. Unfortunately, this is that uncommon case. Two camps of
appraisal petitioners, representing five separate petitioners, have been unable to
agree on a unified leadership structure or a unified approach to prosecuting the
appraisal petitions. When negotiations among the camps reached an impasse, one
camp filed a motion with the Court to appoint lead counsel. The other camp
opposes the motion.
For the reasons that follow, the motion is granted. I am satisfied that
Delaware’s appraisal statute does not prohibit the Court from appointing lead
counsel in an appraisal proceeding even when some petitioners object. This
authority is an extension of the Court’s inherent power to manage its cases in a
manner that attempts to ensure efficient, consistent and fair outcomes for all
concerned. Since appraisal proceedings are in the nature of class actions, I have
drawn heavily from this Court’s jurisprudence regarding the efficient management
of class actions in reaching my decision here, including the guidelines this Court
has established to assist in the selection of an appropriate class leadership structure.
1
While I have determined that it is best to appoint lead counsel in this
instance, I emphasize that this is a case-specific determination that reflects my
exercise of discretion in a particular case. As noted, in most instances, appraisal
petitioners will agree on the appropriate means to prosecute their respective
petitions. That is to be encouraged. When the various petitioners do not agree,
there may well be cases where the Court determines it is best to allow each
petitioner to chart its own course without consolidation or coordination. This is
not such a case.
I. BACKGROUND
On July 6, 2016, Rouse Properties, Inc. (“Rouse”) and BSREP II Retail
Holdings Corp., an affiliate of Brookfield Asset Management, Inc. (collectively,
“Brookfield”), closed a merger by which Brookfield acquired Rouse in an all-cash
transaction for $18.25 per share (the “Merger”). Following the Merger, on July 11,
2016, Petitioners, Brookdale International Partners, L.P. and Brookdale Global
Opportunity Fund (collectively, “Brookdale”), the beneficial owners of
approximately 21% of the shares that demanded appraisal, filed their Verified
Petition for Appraisal of Stock. On August 1 and August 18, 2016, Sunrise
Partners Limited Partnership, entities and individuals affiliated with Levin Capital
Strategies, LP, Hudson Bay Master Fund Ltd. and DBW Lycurgus LLC
(collectively the “Majority Petitioners”) each filed separate petitions for appraisal.
2
The Majority Petitioners represent the beneficial owners of approximately 75% of
the shares entitled to appraisal. In all, the five separate actions represent 6,721,182
shares of Rouse stock. All petitions seek a determination of the fair value of Rouse
as a going concern as of July 6, 2016.
Brookdale is represented by Ashby & Geddes, PA (“A&G”). The Majority
Petitioners are represented by Grant & Eisenhofer P.A. (“G&E”).1 On August 25,
2016, A&G contacted G&E to discuss logistics for moving the five separate
actions forward by consolidating the actions and establishing a leadership
structure. During these discussions, A&G made it clear that, notwithstanding
consolidation, Brookdale would insist that it be permitted to engage and call its
own valuation witness at trial and that it otherwise be permitted to separate from
the litigation path chosen by the Majority Petitioners should it choose to do so.
Brookdale also made it clear that it would agree to compensate only its own chosen
counsel, A&G, even if G&E was to take on the role of lead counsel. G&E
objected to Brookdale’s conditions and, despite further efforts to work out
alternative arrangements, the parties could not reach agreement on a leadership
structure.
1
Brookdale consulted with G&E about representation but ultimately elected to engage
A&G. It appears that the fee structure proposed by G&E was contingent upon the
outcome of the proceedings while A&G agreed to bill on a non-contingent basis.
3
On September 26, 2016, the Majority Petitioners filed a Motion to
Consolidate and for Appointment of Lead Counsel (the “Motion”). In the Motion,
the Majority Petitioners and G&E contend that all petitioners will benefit from a
coordinated and unified approach to the litigation. While it is willing to listen to
A&G and Brookdale, and to take their views into account when formulating
litigation strategy, G&E maintains that it should not be placed in a leadership
structure where Brookdale can call its own shots if and when it chooses. Nor
should the Court sanction a leadership structure where Brookdale may choose not
to pay G&E for its work on behalf of all stockholders entitled to appraisal.
According to the Majority Petitioners and G&E, the various strands of autonomy
Brookdale seeks to impose on the leadership structure would encourage “free
riding” and create other negative incentives for Brookdale and for future appraisal
petitioners.
Brookdale and A&G oppose the Motion. They argue that the Court cannot
force them to accept G&E as lead counsel because such a court-ordered leadership
structure would deny Brookdale its statutory right to “participate fully” in this
appraisal proceeding.2 They also contend that an order appointing G&E as lead
counsel would deny Brookdale its right to be represented by its counsel of choice.
Finally, as for the argument that denying the Motion might create negative
2
8 Del. C. § 262(h).
4
incentives, Brookdale and A&G maintain that they have no intention of “free
riding” here and they assure the Court that they will carry their fair share of the
litigation load.
II. ANALYSIS
I address the Motion in four parts. First, I address the uncontested motion to
consolidate the various appraisal actions relating to Rouse. Second, I consider
whether Brookdale is correct that Delaware’s appraisal statute does not allow the
Court to appoint a leadership structure over the objection of a stockholder who
appears to have properly perfected a claim for appraisal. Third, I consider whether
the Court has the inherent power to appoint a leadership structure that it believes
will further the efficient, consistent and fair litigation of all pending petitions for
appraisal. In this regard, I consider whether there is anything unique about
appraisal actions that would justify managing these actions differently than the
manner in which this Court manages class actions. Finally, I draw on this Court’s
jurisprudence in the class action context to determine the appropriate leadership
structure in this case.
A. The Separate Petitions Will Be Consolidated
None of the parties dispute that the five separate appraisal petitions should
be consolidated pursuant to Court of Chancery Rule 42(a), and for good reason.
The actions share common questions of law and fact and in each the petitioner
5
seeks the identical relief – a declaration of the fair value of Rouse as a going
concern at the time of the merger. For these reasons, separate appraisal actions
relating to the same entity are typically prime candidates for consolidation. This
case is no exception. The motion to consolidate will be granted.
B. The Appraisal Statute Does Not Prohibit the Appointment of
Leadership Over the Objection of a Petitioner Who Otherwise
Has Standing to Pursue Appraisal of its Shares
Brookdale argues that the Court lacks authority to “override an active
appraisal petitioner’s choice of counsel by appointing sole lead counsel over the
petitioner’s objection and thereby deprive the petitioner of its statutory right to
participate in the litigation.”3 In support of this argument, Brookdale points to a
provision in 8 Del. C. § 262(h) which provides that a stockholder whose name
appears on the surviving corporation’s verified list of all stockholders who have
demanded payment for their shares “may participate fully in all proceedings until it
is finally determined that such stockholder is not entitled to appraisal rights under
this section.” After carefully reviewing this provision and other relevant portions
of Delaware’s appraisal statute, I am satisfied that the statutory language
highlighted by Brookdale does not support its contention that the appointment of
3
Opp’n of Pet’rs Brookdale International Partners, L.P. and Brookdale Global
Opportuiny Fund to Mot. for Consolidation and Appointment of Lead Counsel at 9.
6
lead counsel would somehow deprive it of its statutory right to participate fully in
this appraisal action as contemplated by the statute.
“Words and phrases [in Delaware statutes] shall be read with their context
and shall be construed according to the common and approved usage of the English
language.”4 When words within a statute are undefined, Delaware courts
frequently look to standard dictionary definitions for guidance.5 Merriam-
Webster’s Dictionary defines the verb “participate” as follows: “to take part; to
have a part or share in something.”6
Nothing in the Court’s order appointing a leadership structure will deny
Brookdale of its right to “take part” fully in this appraisal litigation along with all
of the other petitioners. Regardless of which law firm is on point to prosecute the
petitions for appraisal, Brookdale will remain an active petitioner and its claim for
appraisal will be protected. The issue in appraisal is fair value; nothing more and
nothing less.7 In this regard, Brookdale’s interests are perfectly aligned with all
4
1 Del. C. § 303.
5
Ingram v. Thorpe, 747 A.2d 545, 548 (Del. 2000).
6
Participate, Merriam-Webster’s Collegiate Dictionary (10th ed. 1996). To “direct,” on
the other hand, means “to point out, prescribe or determine a course or procedure.”
Direct, Merriam-Webster’s Collegiate Dictionary (10th ed. 1996).
7
Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1187 (Del. 1988) (“[I]n a section 262
appraisal action the only litigable issue is the determination of the value of the appraisal
petitioners’ shares on the date of the merger. . .”).
7
other petitioners seeking appraisal; they all share an absolute incentive to obtain
the highest possible value for their Rouse shares. It appears that Brookdale has
perfected its rights to appraisal and that it will hereafter “participate” fully in this
appraisal action. It will not, however, “direct” the course of this consolidated
litigation on behalf of the petitioners and the statute does not guarantee it a right to
do so.
In addition to considering the “common and approved” usage of words
within a statute, Delaware courts are directed to consider “context” when
construing the statute’s meaning.8 Several provisions within Delaware’s appraisal
statute support the conclusion that the statute’s use of the phrase “participate fully”
is not intended to confer a right upon all individual appraisal petitioners to litigate
their claims separately or to direct the course of the litigation should the Court
determine to consolidate separately filed petitions. Section 262(h), for example,
provides that “[a]fter the Court determines the stockholders entitled to an appraisal,
the appraisal proceeding shall be conducted in accordance with the rules of the
Court of Chancery. . . .”9 Court of Chancery Rule 42(a), in turn, which governs
consolidation, provides that “[the Court] may make such orders concerning
8
See 1 Del. C. § 303 (“Words and phrases [in Delaware statutes] shall be read with their
context. . . .”).
9
8 Del. C. § 262(h).
8
[consolidated] proceedings … as may tend to avoid unnecessary costs or delay.”10
An order consolidating multiple appraisal actions and appointing lead counsel to
prosecute the action serves the function of “avoid[ing] unnecessary costs and
delay.”
After incorporating the Court of Chancery Rules, Section 262(h) goes on to
state that “[a]ny stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder’s certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.”11 Section 262(f), in turn, provides that “[u]pon the filing of [an appraisal]
petition by a stockholder, service of a copy thereof shall be made upon the
surviving or resulting corporation, which shall within 20 days after such service
file in the office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares . . .”12 Thus, the
“participate fully” language in Section 262(h) refers to “any stockholder whose
10
Ct. Ch. R. 42(a).
11
8 Del. C. § 262(h).
12
8 Del. C. § 262(f).
9
name appears on the list filed pursuant to subsection (f),” regardless of whether vel
non the stockholder actually filed a petition for appraisal in this Court.
When read together, and in context, Sections 262(f) and (h) do not support
Brookdale’s position that Section 262(h) is intended to provide an appraisal
petitioner with the right to exercise complete autonomy in the prosecution of its
petition or to prevent the appointment of lead counsel in consolidated appraisal
litigation. Since the statute recognizes that a dissenting stockholder who has
chosen not to file a petition can “participate fully” in the proceedings, as that
phrase appears in the statute, it is not reasonable to interpret the phrase as
guaranteeing a dissenting stockholder who has filed a petition the right to
separately prosecute the petition in consolidated appraisal litigation with the
counsel of its choosing.
Finally, I note that Section 262(j) expressly contemplates that appraisal
petitioners may be held accountable for attorney’s fees beyond those charged by
their individual counsel.13 Specifically, the statute acknowledges that counsel who
leads the effort on behalf of the “appraisal class” should be compensated by the
“entire appraisal class.”14 That is all G&E is seeking here.
13
8 Del. C. § 262(j).
14
In re Appraisal of Dell, Inc., 2016 WL 6069017, at*3 (Del. Ch. Oct. 17, 2016)
([Section 262(j)] says that you can tax and allocate costs and expenses pro rata across the
entire appraisal class. That’s in the statute.”); Id. (“The fees and expenses at the end
10
Brookdale’s argument that it will be denied its statutory right to “participate
fully” in these proceedings if the Court appoints G&E as lead counsel is not
supported by a reasonable interpretation of the appraisal statute. Nothing in the
statute stands as an impediment to the Court’s exercise of either its authority under
Court of Chancery Rule 42 to enter orders that will “tend to avoid unnecessary
costs or delay” or its inherent power to manage its docket.15
C. Appraisal Actions Are in the Nature of a Class Action
Brookdale emphasizes that appraisal actions are not, in fact, susceptible to
certification as class actions and, therefore, the Court should not look to its
practices in managing class actions when deciding whether to appoint lead counsel
here. Brookdale is correct as a matter of substantive law that this Court will not
certify a class of dissenting stockholders who seek statutory appraisal. Even so,
our courts have long-recognized that, procedurally, “an appraisal action is a
proceeding in the nature of a class suit.”16 Three examples illustrate the point.
under 262(j) can be taxed against the entire appraisal class pro rata because that’s what’s
fair. It’s a classic application of common-fund principles. . . . ”); Matter of Appraisal of
Shell Oil Co., 1992 WL 321250, at *2 (Del. Ch. Oct. 30, 1992) (“Pursuant to 8 Del. C.
§ 262(j), the attorney fees will be assessed pro rata from all the shares entitled to share in
the appraisal award.”).
15
See Pfizer, Inc. v. Warner-Lambert Co., 1999 WL 33318818, at *1 (Del. Ch. Dec. 22,
1999) (“This Court has the inherent authority to control its own docket, and to manage
the scheduling of multiple lawsuits arising from the same set of operative facts.”).
16
Ala. By-Prods. Corp. v. Cede & Co., 657 A.2d 254, 260 (Del. 1995) (citing Southern
Production Co., Inc. v. Sabath, 32 Del. Ch. 497, 508 (Del. 1952)).
11
First, Section 262(k) requires approval of the Court before an appraisal
proceeding can be dismissed as to any stockholder.17 The purpose of this
requirement is to avoid the harm that might be caused to other dissenting
stockholders if one petitioner settles at a premium while leaving others to fend for
themselves and possibly receive less value for their shares.18 This same concern
that defendants might attempt to “pick-off” the class representative with a premium
settlement at the expense of other class members is one of the primary reasons this
Court also requires that all class action settlements be approved by the Court.19
17
8 Del. C. § 262(k).
18
Ala. By-Prods. Corp., 657 A.2d at 261 (discussing the “policy behind the
Section 262(k) court approval requirement” is to avoid the “vice of selling out the
class.”). See also In re Appraisal of Dell Inc, Consol. C.A. No. 9322 (June 27, 2015)
(TRANSCRIPT) at 7 (“But what I need you to do, because this is ‘in the nature of’ a
class action, is to at least reach out to the Magnetar folks and the other folks on the
verified list and let them know that this offer has been made.”).
19
Ala. By-Prods. Corp., 657 A.2d at 260 (stating “[t]he court approval requirement
ensures that a shareholder does not settle out of the class suit at a premium, thereby
abandoning the prosecution of the action to the detriment of other class members.”). The
fact that appraisal petitioners have no right to “opt out” of the resolution of a consolidated
appraisal action does not render the procedural guidance to be drawn from this Court’s
management of class action litigation any less apt. Indeed, our courts will certify a class
as a non-opt-out class under Court of Chancery Rule 23(b)(1) even where the class is
entitled to only monetary relief in cases where all members of the class are similarly
situated with respect to issues of liability and damages and share identical incentives. See
Turner v. Bernstein, 768 A.2d 24, 30–31 (Del. Ch. 2000) (citing In re Mobile Commc’ns
Corp. of Am., Inc. Consol. Litig., 1991 WL 1392, at *15 (Del. Ch. Jan. 7, 1991)).
Therefore, there is nothing unusual or unjust about requiring Brookdale to accept the
appraisal value determined in an appraisal proceeding prosecuted by Court-appointed
lead counsel, who have the same incentive as Brookdale’s preferred counsel to maximize
the recovery for all petitioners.
12
The similarity of the procedural form and the representative character of class
actions and appraisal litigation is a reflection that the named plaintiff/petitioner is
standing in the shoes of others who have similarly vested, if not identical, interests.
Second, as noted, Section 262(j) incorporates basic common-fund principles
with respect to the allocation of counsel fees among the appraisal class at the
conclusion of the litigation.20 In this regard, the appraisal statute itself implicitly
acknowledges that appraisal litigation is in the nature of a class action.21
Third and finally, I note that the fiduciary relationship that exists between
court-appointed lead counsel in a class action and all members of the class also
exists between court-appointed lead counsel in an appraisal action and all other
stockholders entitled to appraisal.22 After the Court enters the order consolidating
the actions and appointing G&E as lead counsel, G&E will owe duties of care and
loyalty to Brookdale.23 Brookdale’s interests will be protected by G&E along with
the interests of all stockholders entitled to appraisal.
20
Dell, 2016 WL 6069017, at *3.
21
Ala. By-Prods. Corp., 657 A.2d at 260.
22
Id; Dell, 2016 WL 6069017, at *3 (“[R]emember, part of what you do when you are
an appraisal claimant is you take on a fiduciary role . . . to the people who didn’t file
because there are members of the appraisal class who haven’t filed petitions, and they're
entitled to rely on the actions of those who did file.”).
23
In re M & F Worldwide Corp. S’holders Litig., 799 A.2d 1164, 1175 (Del. Ch. 2002)
(stating that in the context of representative litigation “counsel owed a duty to act in good
faith on behalf of all intended beneficiaries of the representative action, and not simply at
13
D. The Hirt Factors Support the Appointment of G&E as Lead
Counsel
Having determined that this consolidated appraisal action is in the nature of
a class action, it is appropriate to look for guidance to this Court’s practices
regarding the management of class action litigation. As an initial matter, the Court
will exercise its discretion to appoint lead counsel in a class action when multiple
complaints have been filed and the Court determines that it will be more effective
for the class and more efficient for the management of the litigation to create a
structure where the class speaks with the clear voice of unified advocates rather
than the cluttered and potentially disingenuous voices of several competing
advocates.24
Here, it is evident that Brookdale and the Majority Petitioners, and A&G and
G&E, notwithstanding their efforts to coordinate, will struggle to speak with a
the direction of the named plaintiffs.”); Id. at n. 34 (“By now it is well established that by
asserting a representative role on behalf of a proposed class, representative plaintiffs and
their counsel voluntarily accept a fiduciary obligation towards members of the putative
class.”); In re Agent Orange Prod. Liability Litig., 800 F.2d 14, 18 (2d Cir. 1986) (“the
class attorney’s duty does not run just to the plaintiffs named in the caption of the case; it
runs to all of the members of the class.”); Parker v. Anderson, 667 F.2d 1204, 1211 (5th
Cir. 1982) (“The duty owed by class counsel is to the entire class and is not dependent on
the special desires of the named plaintiffs.”).
24
In re Del Monte Foods Co. S’holders Litig., 2010 WL 5550677, at *6 (Del. Ch. Dec.
31, 2010) (stating the when appointing lead counsel “[t]he Court’s overriding goal is
establish a leadership structure that will provide effective representation.”).
14
unified voice during this litigation.25 Indeed, I detect a significant risk that the two
camps may present conflicting positions that could undermine the credibility of the
petitioners’ overall presentation. I am also troubled by Brookdale’s absolute
refusal to consider an arrangement where it will contribute to the compensation of
G&E at the end of the litigation for its share of any common benefit that G&E
might bring to all stockholders seeking appraisal. While I have no doubt that A&G
would make meaningful contributions to the litigation effort, even the structure
that Brookdale proposes would have G&E tackling the lion’s share of the work.
Brookdale’s blanket refusal to agree to compensate G&E for even a portion of this
work smacks of free riding. Under these circumstances, I am satisfied that the
appointment of lead counsel is appropriate.
When appointing lead counsel in the class action context, this Court looks to
the factors set forth in Hirt v. U.S. Timberlands Service Co.26 They are:
 The quality of the pleading that appears best able to represent
the interests of the shareholder class and derivative plaintiffs;
 [T]he relative economic stakes of the competing litigants in the
outcome of the lawsuit (to be accorded “great weight”);
25
I note that A&G and G&E have worked well together in the past in appraisal litigation.
I suspect, in this case, that the disagreements are more client-driven than counsel-driven.
26
2002 WL 1558342, at *2 (Del. Ch. July 3, 2002) (drawing heavily from Chancellor
Chandler’s decision in TWC Tech. Ltd. P’ship v. Intermedia Commc’ns, Inc., 2000 WL
1654504, at *4 (Del. Ch. Oct. 17, 2000)).
15
 [T]he willingness and ability of all the contestants to litigate
vigorously on behalf of an entire class of shareholders;
 [T]he absence of any conflict between larger, often institutional,
stockholders and smaller stockholders;
 [T]he enthusiasm or vigor with which the various contestants
have prosecuted the lawsuit; [and]
 [T]he competence of counsel and their access to the resources
necessary to prosecute the claims at issue.27
The unique facts of each controversy over the appointment of lead counsel
will often cause the Court to dwell on certain Hirt factors while glossing over
others. This “nuanced and case-specific” approach helps to ensure that the Court
establishes “a leadership structure that will provide effective representation” and
best serve the interests of the petitioners.28
While A&G has not moved to be appointed lead counsel, and so this is not a
traditional scenario where the Court is selecting lead counsel among several firms
vying for lead counsel status, application of the Hirt factors strengthens the
conclusion that appointing G&E as lead counsel is appropriate in this case. I will
address the Hirt factors that have informed my decision in ascending order of
relevance.
27
Id. (footnotes and internal quotation marks omitted).
28
In re Delphi Fin. Gp. S’holder Litig., 2012 WL 424886, at *1 (Del. Ch. Feb. 7, 2002)
(“[E]ach factor is given weight only to the extent that it bears on the ultimate question of
what is in the best interests of the plaintiff class.”).
16
First, the quality of the pleadings is not a factor that weighs in favor of
either counsel. Given that this is an appraisal action, the pleadings are relatively
simple and fairly standardized. Second, the enthusiasm and vigor in the
prosecution of the action thus far does not favor or disfavor G&E. All counsel
have demonstrated enthusiasm and vigor in the prosecution of their respective
petitions for appraisal and I am certain that both G&E and A&G would continue to
represent their clients with skill and appropriate energy. Third, I detect no conflict
in the incentives that both Brookdale and Majority Petitioners have to seek the
highest value they can achieve for their Rouse shares. Fourth, the competence of
counsel weighs in favor of G&E. There is no doubt that all counsel involved in
this dispute are highly competent and among the best of the lawyers who regularly
prosecute appraisal actions in this Court. Nevertheless, G&E’s track record in
appraisal litigation is exceptional. Fifth, the relative competing economic stakes of
the litigants is a factor that heavily favors G&E. The Majority Petitioners are the
beneficial owners of over 75% of the shares entitled to appraisal. While both
camps of petitioners have large economic stakes that would incentivize them to
participate actively in the litigation, the difference between the economic stakes of
the two camps is large enough to “demonstrate a substantial relative difference”
under Hirt.29 The Court must give this factor “great weight.”30
29
Wiehl v. Eon Labs, 2005 WL 696764, at *3 (Del. Ch. Mar. 22, 2005).
17
III. CONCLUSION
Because I have concluded that the appointment of lead counsel in this action
would not deprive Brookdale of its statutory right to participate fully in the
proceedings, that the appointment of lead counsel is appropriate because appraisal
proceedings are in the nature of class actions, that Brookdale’s concerns are
mitigated by the fiduciary and ethical duties to which it will be owed by lead
counsel and that the Hirt factors favor the appointment of G&E, the Motion is
GRANTED. An implementing order will be entered shortly.
30
Hirt, 2002 WL 1558342, at *2.
18