In Re GGP, Inc. Stockholder Litigation

IN THE SUPREME COURT OF THE STATE OF DELAWARE
IN RE GGP, INC. STOCKHOLDER §
LITIGATION §
§ No. 202, 2021
§
§ Court Below–Court of Chancery
§ of the State of Delaware
§
§ C.A. No. 2018-0267
Submitted: March 9, 2022
Decided: July 19, 2022
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and
MONTGOMERY-REEVES, Justices, constituting the Court en banc.
Upon appeal from the Court of Chancery. AFFIRMED IN PART, REVERSED
IN PART, AND REMANDED.
Michael Hanrahan, Esquire (argued), Ronald A. Brown, Jr., Esquire, Stephen D.
Dargitz, Esquire, J. Clayton Athey, Esquire, Marcus E. Montejo, Esquire, Samuel L.
Closic, Esquire, PRICKETT JONES & ELLIOTT, P.A., Wilmington, Delaware;
Carl L. Stine, Esquire, Adam J. Blander, Esquire, Antoinette Adesanya, Esquire,
WOLF POPPER LLP, New York, New York; Brian D. Long, Esquire, LONG LAW,
LLC, Wilmington, Delaware; Frank P. DiPrima, Esquire, LAW OFFICE OF
FRANK DIPRIMA, P.A., Morristown, New Jersey, for Plaintiffs-Below,
Appellants.
Kevin G. Abrams, Esquire, John M. Seaman, Esquire, Matthew L. Miller, Esquire,
ABRAMS & BAYLISS LLP, Wilmington, Delaware; John A. Neuwirth, Esquire
(argued), Evert J. Christensen, Jr., Esquire, Seth Goodchild, Esquire, Matthew S.
Connors, Esquire, Nicole E. Prunetti, Esquire, WEIL, GOTSHAL & MANGES
LLP, New York, New York, for Defendant-Bellow, Appellee Brookfield Property
Partners, L.P.
Peter J. Walsh, Jr., Esquire, Berton W. Ashman, Jr., Esquire, Jaclyn C. Levy,
Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Peter
E. Kazanoff, Esquire, Michael J. Garvey, Esquire, Sara A. Ricciardi, Esquire,
SIMPSON THACHER & BARTLETT LLP, New York, New York, for Defendants-
Below, Appellees Mary Lou Fiala, Janice R. Fukakusa, John K. Haley, and Christina
M. Lofgren.
Raymond J. Dicamillo, Esquire, Susan M. Hannigan, Esquire, RICHARDS,
LAYTON & FINGER, Wilmington, Delaware; Brian T. Frawley, Esquire, Y.
Carson Zhou, Esquire, SULLIVAN & CROMWELL LLP, New York, New York,
for Defendant-Below, Appellee Sandeep Mathrani.
David J. Teklits, Esquire, Thomas P. Will, Esquire, MORRIS, NICHOLS, ARSHT
& TUNNELL LLP, Wilmington, Delaware, for Defendants-Below, Appellees
Richard B. Clark, J. Bruce Flatt, and Brian W. Kingston.
2
TRAYNOR, Justice, for the Majority:
In the negotiations leading up to a merger in which Brookfield Property
Partners, L.P. and its affiliates acquired GGP, Inc., Brookfield evinced its concern
over the number of GGP stockholders who might seek appraisal under 8 Del. C.
§ 262. Brookfield sought to allay this concern by including in the merger agreement
an appraisal-rights closing condition that would allow it to terminate the transaction
if a specified number of GGP shares demanded appraisal. But the special committee
of GGP directors charged with negotiating the terms of the merger agreement held
firm in opposition to this condition, and Brookfield relented. The condition was
nixed.
The plaintiffs in this case, former GGP stockholders, allege that Brookfield
and the directors of GGP decided to come at this problem from another angle.
According to the stockholders, GGP’s directors, urged on by Brookfield, structured
the merger so that, as a practical matter, the GGP stockholders’ appraisal rights were
eviscerated. The plaintiffs say that Brookfield and the GGP directors accomplished
their objective by dividing the consideration Brookfield would pay for GGP shares
into a sizeable pre-closing dividend followed by a relatively small residual payment,
the latter of which the merger proxy defined as the “per share merger consideration.”
GGP’s directors then told their stockholders that they were “entitled to exercise their
appraisal rights solely in connection with the merger,” which occurred after the
3
declaration of the dividend, and that the appraised fair value of GGP—a company
being sold for $23.50-per-share—“may be greater than, the same as or less than” the
“per share merger consideration,” valued at $0.312.
The GGP stockholders claim that, by divorcing the appraisal remedy from the
large pre-closing dividend and linking it to the meager “per share merger
consideration,” Brookfield and the GGP directors led them to believe that a fair value
determination in an appraisal proceeding would be limited to the value of post-
dividend GGP. This description of appraisal rights, coupled with other descriptions
of how the transaction was to be effected, led the stockholders, or so they have
alleged, to believe that their appraisal rights had either been eliminated or so reduced
as to be meaningless. And by agreeing to do this, they say, the GGP directors, with
the aid of Brookfield, breached their fiduciary duties.
The stockholders filed suit in the Court of Chancery seeking quasi-appraisal
damages, and the defendants—the GGP directors and Brookfield—moved to
dismiss, contending that the stockholders’ complaint failed to state a claim upon
which relief could be granted. The Court of Chancery concluded that, because it
could consider the pre-closing dividend as a “relevant factor” under the appraisal
statute, the defendants’ structuring of the merger did not deny the stockholders their
right to seek appraisal.1 The court, moreover, determined that, although the
1
In re GGP, Inc. S’holder Litig., 2021 WL 2102326 (May 25, 2021).
4
defendants’ appraisal disclosures “could have been more clearly drafted,”2 they were
sufficient. The court therefore found that the plaintiffs’ complaint failed to state a
claim.
We agree with the Court of Chancery—though for different reasons—that,
whether or not they may have intended to, the defendants did not, by paying a large
portion of the merger consideration by way of a pre-closing dividend, structure the
merger in a manner that effectively and unlawfully eliminated appraisal rights. We
disagree, however, with the court’s conclusion that the merger proxy’s disclosures
regarding appraisal were sufficient.
Although it is undisputed that the GGP directors notified stockholders that
appraisal rights were available and complied with Section 262’s notice requirements
by including in the notice a copy of the statute, the manner in which the merger
proxy described the merger and the stockholders’ attendant appraisal rights was, at
best, materially misleading. In our view, the disclosures, having described the
merger and appraisal rights in a confusing manner, did not provide the stockholders
the information they needed to decide whether to dissent and demand appraisal.
And, as will be more fully developed below, it is reasonably conceivable to us that
GGP’s directors, aided and abetted by Brookfield, consciously crafted the
transaction and the related disclosures in such a way as to deter GGP’s stockholders
2
Id. at *33.
5
from exercising their appraisal rights. Consequently, we have concluded that the
Court of Chancery erred when it dismissed the plaintiffs’ disclosure claim against
the GGP directors and the stockholders’ aiding-and-abetting claim against
Brookfield.
I
A
GGP (or “the Company”) was a real estate company and one of the largest
owners and operators of shopping malls in the United States.3 The Plaintiffs in this
case are former GGP stockholders Randy Kosinski, Arthur Susman, and Robert
Lowinger. The Defendants are Brookfield Property Partners (“Brookfield” or
“BPY”) as well as the members of GGP’s Board of Directors and the Special
Committee (the “Director Defendants”) that approved the sale of GGP to Brookfield
and disseminated the Definitive Proxy Statement (the “Proxy”).4
3
The facts are drawn from the well-pleaded allegations in the Plaintiffs’ Third Amended
Complaint as well as from documents integral to the Complaint or incorporated in it by reference,
including the June 26, 2018 definitive proxy statement disseminated by GGP. We also draw on
the Court of Chancery’s 2021 opinion in this case and its review of the pertinent facts as pleaded.
In re GGP, Inc. S’holder Litig., 2021 WL 2102326 (Del. Ch. May 25, 2021); see also Kosinski v.
GGP, Inc., 214 A.3d 944 (Del. Ch. 2019) (awarding Kosinski access to GGP’s books and records
under 8 Del. C. § 220).
4
The operative complaint in this case names the following GGP directors as defendants: Richard
B. Clark, Mary Lou Fiala, J. Bruce Flatt, Janice R. Fukakusa, John K. Haley, Daniel B. Hurwitz,
Brian K. Kingston, Christina M. Lofgren, and Sandeep Mathrani. Compl. ¶¶ 27–38, App. to
Answering Br. at B26–31. Clark, Flatt, Kingston, and Mathrani were GGP board members during
the relevant period, and Fiala, Fukakusa, Haley, Hurwitz, and Lofgren served on the Special
Committee. Id. Mathrani was also GGP’s CEO. Id.
6
Before it was sold to Brookfield, GGP’s properties included the Christiana
Mall in Newark, Delaware, and other luxury malls throughout the country. GGP
was organized as a tax-advantaged real estate investment trust (“REIT”) that was
publicly traded on the New York Stock Exchange. After the consummation of the
sale at issue in this case (the “Transaction”), GGP was reconstituted and renamed
Brookfield Property REIT Inc. (“BPR”).5 BPR is a publicly traded U.S.-registered
REIT and is designed to mirror the economics of a BPY unit.6
Before the Transaction, GGP had counted Brookfield as a shareholder since
at least 2010, when Brookfield made a multi-billion-dollar equity investment in the
Company and helped it to emerge from bankruptcy. In exchange, Brookfield
received the right to appoint three directors to the nine-member GGP Board. When
merger negotiations began in 2017, Brookfield owned about 35 percent of GGP’s
voting stock.7
On May 1, 2017, GGP was trading at $23.07 per-share. On an investor
conference call that day, GGP CEO Sandeep Mathrani shared his view that “there is
a wide discount between public and private markets. The sum of the parts is far
greater than GGP’s current stock price.”8 Mathrani added that “we are reviewing all
5
Compl. ¶ 206(f), App. to Answering Br. at B116.
6
Id.
7
Id. ¶ 136, App. to Answering Br. at B78.
8
Id. ¶ 71, App. to Answering Br. at B42–43 (quoted emphasis removed).
7
strategic alternatives to bridge the gap” and “the disconnect has gotten so wide [that]
it is up to us to demonstrate to the market that there’s a real estate value at stake
here.”9 In June 2017, Mathrani argued to the GGP Board that “[t]he Company is
trading at a deep discount to its private market valuation”10 and explained that “the
current share price of $22.00 represents an approximately 20% discount to the mean
[net asset value] per share estimate of Wall Street research analysts[.]”11 Brookfield,
at this time merely a major stockholder in GGP, appeared to share in Mathrani’s
optimism. On a November 2, 2017 investor call, Brookfield CFO Bryan Davis
pegged GGP’s net asset value at “about $30 per share.”12
Nine days later, on November 11, Brookfield made an unsolicited offer to buy
the rest of GGP it did not own, about 65 percent of the company (the “2017 Offer”).
Under the 2017 Offer, each GGP share would be exchanged for, subject to proration,
either (a) $23.00 in cash or (b) 0.9656 limited partnership units in the Bermuda-
registered BPY.13 The implied total offer value of the 2017 Offer was $13.8
billion.14 On November 12, the GGP Board established a five-member Special
Committee to negotiate with Brookfield.15 After three weeks of internal discussions,
9
Id. ¶ 71, 74, App to Answering Br. at B43.
10
Id. ¶ 76, App. to Answering Br. at B44 (quoted emphasis removed).
11
Id.
12
Id. ¶ 78, App to Answering Br. at B46.
13
Id. ¶ 137, App. to Answering Br. at B78.
14
Proxy at 68, App. to Opening Br. at A96.
15
Compl. ¶¶ 144–45, App. to Answering Br. at B83–85.
8
the Special Committee rejected the 2017 Offer, in part because of concern that many
GGP stockholders would be restricted from, or otherwise not interested in, owning
units of BPY, a Bermuda-registered partnership that was not organized as a REIT.16
During the next three months, the Special Committee negotiated for GGP
shareholders to have the option to receive equity in a United States-registered
REIT.17 Brookfield agreed to this in February 2018—it eventually offered GGP
stockholders equity in BPR, a newly formed U.S. REIT designed to mirror the
economics of BPY—but the parties continued to negotiate other issues.18 According
to the Proxy, the Special Committee credited concerns from GGP management
during this period that trends in the real estate market were growing less favorable.
Interested in either making progress with Brookfield or cutting off
negotiations entirely, the Special Committee countered on February 24 at $24.00-
per-share, a one dollar increase from Brookfield’s previous offer. The Special
Committee then requested Brookfield’s “best and final” offer. Brookfield quickly
responded with its final top-line offer (the “February 25 Offer”). According to the
Proxy:
The final proposal provided for consideration per share of
GGP common stock, at the election of the unaffiliated
16
Proxy at 63, App. to Opening Br. at A91; see Compl. ¶ 199, App. to Answering Br. at B113.
17
Proxy at 63–68, App. to Opening Br. at A91–96.
18
Id. The February 24 Offer included the option to receive, subject to proration, one share of class
A stock in BRP REIT, “a newly created REIT that was expected to be listed on the NASDAQ
upon closing[.]” Compl. ¶ 199, App. to Answering Br. at B113.
9
GGP common stockholders and subject to proration, of up
to $23.50 in cash, subject to a maximum aggregate amount
of cash to be paid of $9.25 billion, with the remainder of
the consideration to consist of BPY units (or shares of
class A stock) at an exchange ratio of 1:1.19
The February 25 Offer carried an implied value of $14.5 billion, up slightly from the
$13.8 billion 2017 Offer.20
The Special Committee met with its advisers the next day and instructed them
to begin negotiating definitive transaction documents in line with the February 25
offer. The Special Committee circulated a draft merger agreement on February 27.21
Counsel for Brookfield responded with various proposed changes and, on March 7,
a new draft agreement. The new draft featured a proposed structure with various
steps—including “special dividends”—that were to occur over three days and
culminate in the merger. It also included an “appraisal rights closing condition.”22
Generally speaking, an appraisal-rights closing condition allows the purchaser
to terminate the transaction if a specified number of shares demands appraisal.23
Although the Proxy does not disclose the contours of Brookfield’s demand or the
19
Id. at 70, App. to Opening Br. at A98.
20
Id.
21
Id. at 71, App. to Opening Br. at A99.
22
Proxy at 72, App. to Opening Br. at A100.
23
See, e.g., In re Books-A-Million, Inc. S’holders Litig., 2016 WL 5874974, at *5 (Del. Ch. Oct.
10, 2016), aff’d, 164 A.3d 56 (Del. 2017); see also Charles Korsmo & Minor Myers, Reforming
Modern Appraisal Litigation, 41 Del. J. Corp. L. 279, 327–28 (2017) (“[A]n acquirer that is
worried about potential appraisal liability can quite easily address that liability directly by putting
a closing condition in the merger agreement that allows the buyer to walk away in the event more
than, say, 10% of the shares demand appraisal.”).
10
threshold at which the appraisal-rights closing condition would have been triggered,
it does disclose that the Special Committee actively fought the inclusion of such a
condition. On March 10—three days after receiving Brookfield’s latest draft
agreement—the Special Committee requested “the deletion of the proposed
appraisal rights closing condition[.]”24 Undeterred, Brookfield on March 13 sent
back a draft agreement proposing that “the closing would be subject to the previously
proposed appraisal rights closing condition[.]”25 In response, the Special Committee
met to discuss five specified open issues, one of which was “the proposed appraisal
rights closing condition[.]”26 The Special Committee refused to budge on this point
and, on March 19, “sent a revised draft of the merger agreement . . . , which did not
reflect any material concessions on the material open issues.”27
According to the Proxy, after the appraisal-rights closing condition failed to
stick, the parties hammered out a small number of other open items. Negotiators
cleared these issues during the week of March 19, and on March 26, the Special
Committee met to consider the fairness of Brookfield’s final proposal (the “Final
Offer”), which offered stockholders $23.50 in cash or one unit of either BPY or the
new BRP REIT, subject to proration, and did not contain an appraisal-rights closing
24
Proxy at 73, App. to Opening Br. at A101.
25
Id. at 74, App. to Opening Br. at A102.
26
Id.
27
Proxy at 76, App. to Opening Br. at A104; Compl. ¶ 304, App. to Answering Br. at B163.
11
condition.28 At this meeting, the Special Committee’s financial adviser, Goldman
Sachs, opined that
the aggregate amount of the pre-closing dividend in the
form of cash and shares of class A stock (or, at the election
of GGP common stockholders, BPY units) and merger
consideration to be paid to the GGP common stockholders
(other than BPY and its affiliates) pursuant to the merger
agreement was fair from a financial point of view to such
holders.29
The Proxy does not describe any substantive negotiations between the Special
Committee and Brookfield about the pre-closing dividend. Instead, the
“Background of the Transactions” section of the Proxy notes that Brookfield’s 2017
Offer proposed “consideration per share of . . . $23.00,”30 while the Final Offer was
for “consideration per share of . . . up to $23.50 in cash[.]”31
Shortly after Goldman’s presentation, and still on March 26, the Special
Committee determined that Brookfield’s offer was fair and formally recommended
that the GGP Board support it.32 Immediately following the Special Committee’s
28
Compl. ¶¶ 166, 304, App. to Answering Br. at B97, B163; GGP common stockholders received
“a combination of cash, representing 61% of the deal consideration, and either [a BPY unit or a
BRP unit], representing the other 39%.” Compl. ¶ 167, App. to Answering Br. at B97. During the
week of March 19, the parties heavily negotiated the right of GGP shareholders to exchange shares
in BRP REIT for shares in BPY if they so desired after the close of the merger. These negotiations
are not directly relevant to this appeal. See Proxy at 75–78, App. to Answering Br. at A103–106.
29
Id. at 78, App. to Opening Br. at A106.
30
Id. at 60, App. to Opening Br. at A88.
31
Id. at 70, App. to Opening Br. at A98. Both the 2017 Offer and the Final Offer proposed that
GGP stockholders could also elect to receive equity compensation, subject to mandatory proration.
Additionally, the Proxy notes that the final “blended offer price” was slightly lower than $23.50
after all required adjustments were made. Id. This difference is not relevant to our analysis.
32
Id. at 79, App. to Opening Br. at A107.
12
meeting and recommendation, GGP’s Audit Committee and the GGP Board
approved the Final Offer.33 GGP and Brookfield executed the merger agreement on
March 26, 2018.
B
The Transaction required approval by GGP’s stockholders. Accordingly,
Brookfield and GGP worked together to prepare the Proxy, which they filed on June
27, 2018.34 The Proxy is 344 pages—not including the introductory letter, selected
definitions, or the various exhibits—and is a deeply challenging read. It explained
that, upon receipt of the required shareholder approvals, Brookfield would acquire
GGP through a multi-step process headlined by a large pre-closing dividend (the
“Pre-Closing Dividend”).35 The Pre-Closing Dividend would be funded by
Brookfield36 and become payable to all eligible stockholders after GGP adopted
various charter amendments (the “Charter Amendments”), which facilitated the
Transaction by, among other things, allowing GGP to issue new classes of equity.37
33
Id.
34
Compl. ¶ 3, App. to Answering Br. at B10; GGP, 2021 WL 2102326, at *2.
35
Proxy at 56, App. to Opening Br. at A84. “Under the terms of the merger agreement, BPY will
acquire GGP through a series of transactions including (i) the Brookfield affiliate exchange; (ii)
the pre-closing dividend; (iii) the charter amendments; (iv) the bylaws amendments; (v) the
partnership agreement amendment and restatement; (vi) the pre-closing transactions as BPY may
request, including recapitalization or financing transactions; and (vii) the merger.” Id.36
Proxy at iii, App. to Opening Br. at A19 (“‘aggregate cash dividend amount’ refers to the amount
designated by BPY to GGP that constitutes the aggregate amount of cash that GGP will pay as the
pre-closing dividend[.]”); see also Opening Br. at 19–20.
37
Compl. ¶ 206(b), App. to Answering Br. at B115; Proxy at 56, App. to Opening Br. at A84.
13
The Pre-Closing Dividend was to be followed, the next day, by the closing of the
Transaction, which would trigger the right to the “per share merger consideration”
(the “Per-Share Merger Consideration”).38 According to the Merger Agreement,
which was attached to the Proxy as Exhibit A, the Pre-Closing Dividend was an
automatic payment, while the Per-Share Merger Consideration would be paid only
upon surrender of certificates of share ownership to a payment agent.39
The Court of Chancery summarized the mechanics of the Transaction:
[s]tructurally, the deal consideration would be paid in two
parts: (1) a pre-closing dividend of cash and shares,
amounting to about 98.5% of the deal consideration (the
“Pre-Closing Dividend”), and (2) $0.312 per share in cash
at closing, representing the balance of the deal
38
App. to Opening Br. at A399–40; Ch. Dkt. No. 118, Ex. 17 at 2 [hereinafter “Aug. 24, 2018
BPR Form 8-K at _”] (reporting that the Transaction closed at 8:00 am on August 28, 2018, and
that the Pre-Closing Dividend “became payable on August 27, 2018[.]” The form is dated August
24 because that was the date of the earliest event reported.); accord Ch. Dkt. No. 118, Ex. 8 at 1
(Brookfield press release announcing that “[i]t is expected that the payment date for the pre-closing
dividend will be August 27, 2018, and that the closing of the transaction will occur on August 28,
2018, subject to customary closing conditions.”).
39
Id. at A408. (“[2](c) Payment Procedures. Promptly following the Pre-Closing Dividend
Date . . . the Company or the Surviving Corporation . . . shall cause the Payment Agent to make
payment to each holder of Company Shares that is entitled to receive the Pre-Closing Dividend. . . .
Promptly following the Merger Effective Time . . . Parent and the Surviving Corporation shall
cause the Payment Agent to mail to each holder of record . . . a certificate or certificates (the
“Certificates”) which immediately prior to the Merger Effective Time represented outstanding
Company Shares . . . whose shares were converted into the right to receive the Merger
Consideration . . . . Upon surrender of Certificates for cancellation to the Payment Agent . . . the
holders of such Certificates shall be entitled to receive in exchange therefor an amount in cash
equal to the product obtained by multiplying (x) the aggregate number of Company Shares
represented by such Certificates . . . by (y) the Per Share Merger Consideration[.]”); see also
Answering Br. at 15 (“Delaware law required GGP to pay the Pre-Closing Dividend to any GGP
stockholders who demanded appraisal. Indeed, it is black-letter law that directors may not
discriminate among stockholders of the same class or series in the payment of a dividend[.]”)
(internal citations and quotation marks omitted).
14
consideration, capped at $200 million [the Per-Share
Merger Consideration].40
These exact figures were not ascertainable from the Proxy. Instead, the Proxy used
161 words to define Per-Share Merger Consideration41 and noted that the final
amount of that payment would be determined after the effective time of the merger.42
That said, stockholders who strung together the various defined terms and followed
the Proxy’s dense descriptions would have learned that the deal price was $23.50-
per-share, that the Per-Share Merger Consideration would be tiny, and that the Pre-
Closing Dividend would make up the lion’s share of the consideration delivered in
the merger—including more than $9 billion of the $9.25 billion in cash on offer.43
In two hypotheticals included to illustrate the mechanics of the transaction, the Proxy
40
GGP, 2021 WL 2102326, at *1; Compl. ¶ 4, App. to Answering Br. at B11.
41
Proxy at vi, App. to Opening Br. at A22. “‘per share merger consideration” refers to an amount
of cash equal to the quotient of (i) $9,250,000,000 less (a) the aggregate cash payment required to
be made pursuant to the GGPOP partnership agreement to holders of common units of GGPOP as
a result of the Transactions at any time following the Brookfield affiliate exchange through and
including the effective time of the merger, less (b) the aggregate cash payment required to be made
pursuant to the GGPOP partnership agreement, to holders of the class of units designated under
the GGPOP partnership agreement as “LTIP units,” as a result of the Transactions at any time
following the Brookfield affiliate exchange through and including the effective time of the merger,
less (c) the aggregate cash consideration to be paid with respect to shares of GGP restricted stock
as a result of the Transactions through and including the effective time of the merger and less (d)
the aggregate cash dividend amount, divided by (ii) the merger share number[.]” Id.42
Proxy at 7–8, App. to Opening Br. at A35–6; Compl. ¶ 166, App. to Answering Br. at B97.
43
By this, we mean that the Pre-Closing Dividend would constitute most—but not all—of the
consideration delivered in the Transaction. We recognize, however, that in Aesop’s fable “The
Lion’s Share,” from which the idiom is derived, the king of the beasts, having gone a-hunting with
a fox, a jackal, and a wolf, appropriated the entire spoil of the hunt, much to the chagrin of his
fellows.
15
assumed that the Per-Share Merger Consideration would be $0.20 and the Pre-
Closing Dividend would be $23.30.44
This distinction between the two types of consideration was central to the
entire Proxy. While, in some places, the Proxy discussed the various steps of the
sale collectively as “the Transactions,” it defined the Per-Share Merger
Consideration and Pre-Closing Dividend as completely separate from each other.45
Keeping with this distinction, the Proxy defined “merger consideration” as “the per
share merger consideration multiplied by the merger share number,” i.e., not
including the Pre-Closing Dividend.46 Likewise, the Proxy said that the “merger”—
which it defined as “the merger of Goldfinch [the acquisition vehicle] with and into
GGP, with GGP surviving the merger”47—would occur after the declaration of the
Pre-Closing Dividend and the execution of the Charter Amendments.48
44
Proxy at 7, App. to Opening Br. at A35.
45
Id. at vi, App. to Opening Br. at A22. “‘pre-closing dividend’ refers to the special dividend
declared by GGP, following receipt of the requisite stockholder approval at the special meeting,
payable to the unaffiliated GGP common stockholders (not including holders of GGP restricted
stock, but including certain holders of GGP options who are deemed stockholders), as of the record
date of the pre-closing dividend, which is expected to be July 27, 2018, consisting of either cash
or class A stock, at the election of such GGP common stockholders (with deemed stockholders
being deemed to have elected cash) and subject to proration, with a payment date of the charter
amendments closing[.]” Id.46
Id.47
Id.; id. at 56, App. to Opening Br. at A84 (“At the effective time of the merger, Goldfinch will
merge with and into GGP, with GGP surviving the merger.”).
48
Id. at 56, App. to Opening Br. at A84. The Merger Agreement, attached to the Proxy as Exhibit
A, explained that the Merger Closing Date would be “the first (1st) Business Day following the
Charter Closing Date.” App to Opening Br. at A399–40. The Charter Closing Date was also the
payment date of the Pre-Closing Dividend. Id. The Complaint alleges that these steps, along with
16
The distinction between types of consideration was also prominent in the
Proxy’s discussion of appraisal rights, which is central to this appeal. In a section
entitled “Appraisal Rights in the Merger,” the Proxy explained that:
If the Transactions are completed, GGP common
stockholders who comply exactly with the applicable
requirements and procedures of Section 262 of the DGCL
will be entitled to demand appraisal of their GGP common
stock and receive in lieu of the per share merger
consideration a cash payment equal to the “fair value” of
their GGP common stock, as determined by the Court of
Chancery, in accordance with Section 262 of the DGCL,
plus interest, if any, on the amount determined to be the
fair value, subject to the provisions of Section 262 of the
DGCL. Such appraised value may be greater than, the
same as or less than the per share merger consideration.49
This opinion refers to the above-quoted text, together with the entire “Appraisal
Rights in the Merger” section appearing at pages 335–39 of the Proxy, as the
“Appraisal Rights Notice.”
Again, the Per-Share Merger Consideration—ultimately valued at 31 cents—
was a tiny portion of the overall deal price. It would become payable immediately
following the completion of the sale process’s final step, which the Proxy referred
to as the “merger.”50 This was all distinct from the Pre-Closing Dividend, which
the other elements of the Transaction, occurred “virtually simultaneously between Monday,
August 27, 2018, after securities markets closed, and August 28, 2018, before markets opened[.]”
Compl. ¶ 206, App. to Answering Br. at B115.
49
Proxy at 335, App. to Opening Br. at A384.
50
Id. at 56, App. to Opening Br. at A363.
17
was worth about 98.5 percent of the consideration and would become payable the
day before the closing.51
The Appraisal Rights Notice—and its guidance that the fair value of each
share of GGP, a multi-billion-dollar company being sold for $23.50-per-share, “may
be greater than, the same as or less than” 31 cents—was not a scrivener’s error or a
one off. Elsewhere, the Proxy reiterated to stockholders that they were “entitled to
exercise appraisal rights solely in connection with the merger.”52 The Proxy’s
introductory letter said the same thing.53 And an election form, which was
distributed after the stockholder vote had succeeded and the appraisal deadline had
passed, directed stockholders to review the Proxy and stated that “[a]ppraisal is only
available with respect to the Merger Consideration.”54 Each of these notices was
consistent with the manner in which the Proxy and its exhibits described the closing
process, which was that the Pre-Closing Dividend would become payable before the
51
Id.; see App. to Opening Br. at A399–40.
52
Proxy at 15, App. to Opening Br. at A43.
53
App. to Opening Br. at A13 (“As discussed in the attached joint proxy statement/prospectus,
GGP common stockholders are entitled to appraisal rights solely in connection with the merger.”).
54
Ch. Dkt. 127, Ex. C at 6; see GGP, 2021 WL 2102326, at *32. We agree with the Court of
Chancery’s observation that the election form “could not have misled any stockholder into
foregoing appraisal because it was disseminated after the stockholder vote when the time to seek
appraisal had expired.” Id. (emphasis in original). Even so, the election form presents an
instructive example of how the Company viewed—and described—the Transaction. GGP
concedes that “the Election Form . . . was consistent with the Proxy.” Answering Br. at 31.
18
“merger,” with the separately defined Per-Share Merger Consideration becoming
payable upon closing.55
Notably, in its detailed reasons for recommending the approval of the Final
Offer, the Special Committee appeared to take a different view of appraisal rights
than the rest of the Proxy. The Special Committee told stockholders that counting
in favor of approval was
the availability of appraisal rights under Delaware law
. . . which provides those eligible GGP common
stockholders with an opportunity to have the Court of
Chancery determine the fair value of their shares of GGP
common stock, which may be more than, less than, or the
same as the consideration to be received in the
Transactions[.]56
Thus, while the Appraisal Rights Notice told stockholders that GGP’s fair value
would be “greater than, the same as or less than” 31 cents, the Special Committee’s
reasons for approving the Final Offer included that the fair value would be “greater
than, the same as or less than the consideration to be received in the Transactions,”
which was $23.50.
55
See Proxy at 56, App. to Opening Br. at 84.
56
Proxy at 86, A114 (emphasis added).
19
C
1
Ninety-four percent of stockholders unaffiliated with Brookfield approved the
Transaction on July 26, 2018.57 On August 27, the Pre-Closing Dividend became
payable by GGP with Brookfield’s funds.58 On August 28, the Transaction closed,
and the Per-Share Merger Consideration became payable.59 The Plaintiffs allege
that GGP stockholders received both payments together in the same wire or check.60
The Plaintiffs filed their original Complaint in April 2018, shortly after the
Transaction—then just a merger agreement subject to ratification—was
announced.61 They filed their operative Third Amended Complaint, which this
decision refers to as the Complaint, in May 2020.62 During the intervening period,
Plaintiff Randy Kosinski “sought books and records under Section 220 of the
Delaware General Corporation Law to investigate possible wrongdoing in
connection with the merger.”63 The Court of Chancery described Kosinski as “the
quintessential main street investor,” found that he had stated a credible basis and
proper purpose for his investigation, and ordered GGP to produce records essential
57
GGP, 2021 WL 2102326, at *2; Compl. ¶ 229, App. to Answering Br. at B129.
58
Compl. ¶ 206, App. to Answering Br. at B115; Proxy at iii, App. to Opening Br. at A19; see
also Opening Br. at 19–20.
59
Compl. ¶ 206, App. to Answering Br. at B115; Aug. 24, 2018 BPR Form 8-K at 2.
60
Compl, ¶ 207, App. to Answering Br. at B117–18.
61
Ch. Dkt. No. 1.
62
Ch. Dkt. No. 109.
63
Kosinski, 214 A.3d at 946–47.
20
to his inspection demand.64 GGP eventually “produced documents including Board
and Special Committee meeting minutes and materials, director questionnaires, as
well as emails.”65
The Plaintiffs’ Complaint draws on certain of those books and records, as well
as the public Proxy. It alleges six causes of action. The Court of Chancery dismissed
each count, and on appeal the Plaintiffs press only two. Count III asserts that the
Defendants designed the large Pre-Closing Dividend to improperly eviscerate GGP
stockholders’ appraisal rights.66 Count III also alleges that the Defendants “breached
their fiduciary duty of loyalty by failing to provide GGP stockholders with a fair
summary of their appraisal rights and [not] disclosing all material information
relevant to GGP stockholders asked to vote in favor of the Buyout or pursue
appraisal.”67
Count VI alleges that Brookfield aided and abetted the Director Defendants’
fiduciary breaches because it helped design the Transaction and “co-authored, co-
filed, and disseminated the misleading and deficient Proxy to GGP’s
stockholders.”68 Count VI is relevant on appeal because the Court of Chancery
64
Id. at 957–58.
65
GGP, 2021 WL 2102326, at *10.
66
Compl. ¶ 305, App. to Answering Br. at B163.
67
Id. ¶ 303, App. to Answering Br. at B163. The Complaint also alleges that the Defendants had
“a statutory duty to provide a fair summary of appraisal rights,” presumably referring to 8 Del.
C. § 262(d)(1). Compl. ¶ 232, App. to Answering Br. at B130.
68
Id. ¶ 329, App. to Answering Br. at B168. GGP, 2021 WL 2102326, at *35.
21
found that Brookfield was not a controller and therefore did not owe fiduciary duties
to GGP’s stockholders. That said, “it is well settled that a third party who knowingly
participates in the breach of a fiduciary’s duty becomes liable to the beneficiaries of
the trust relationship.”69
Key to the Plaintiffs’ disclosure claim is their allegation that “Defendants’
misleading statements and omissions . . . would have dissuaded any rational
stockholder from seeking appraisal.”70 The Plaintiffs also assert that, by telling
stockholders that the fair value of GGP would be “greater than, the same as or less
than” the Per-Share Merger Consideration of 31 cents, the Appraisal Rights Notice
erroneously gave the impression that a dissenter would “only place[] a de minimis
part of GGP’s supposed pre-Buyout value at issue.”71 According to the Complaint:
Defendants’ conduct was intentional, a contrived scheme
to dissuade Class members from exercising appraisal
69
Malpiede v. Townson, 780 A.2d 1075, 1096 & n.75 (Del. 2001) (quoting Gilbert v. El Paso Co.,
490 A.2d 1050, 1057 (Del. 1984)); see also Jackson v. Smith, 254 U.S. 586, 589 (1921) (holding
that those “who knowingly join a fiduciary” in an enterprise which constitutes a breach of fiduciary
duty “become jointly and severally liable with him for such profits.”).
70
Compl. ¶ 209, App. to Answering Br. at B118–19.
71
Id. ¶ 225–26, App. to Answering Br. at B128; see also App. to Opening Br. at A900 (“‘What
truly occurred’ is that Defendants structured the transaction such that an economically rational
stockholder would never opt for appraisal rights. Further, ‘what truly occurred’ is that
stockholders were denied the right to appraisal for all but a de minimis portion of the value of their
shares.”) (emphasis removed)); see also Manti Holdings, LLC v. Authentix Acquisition Co., Inc.,
261 A.3d 1199, 1224 (Del. 2021) (“Section 262(g) provides a de minimis exception from appraisal
rights for stockholders of publicly-traded corporations.”); and see id. at 1250 n.94 (Valihura, J.,
dissenting) (“The Majority cites the de minimis exception from appraisal rights for stockholders
of public-traded corporations. . . . The amendment to Section 262(g) was designed to address the
concern that certain potential appraisal petitioners were targeting corporations and demanding
settlements to address threatened appraisal claims, even non-meritorious claims. Some referred to
this phenomenon as ‘appraisal arbitrage.’”).
22
rights that BPY was actively trying to limit in negotiations
with the Special Committee. While the Special Committee
rejected the appraisal right condition BPY sought in the
Buyout, Defendants were nonetheless successful in
presenting GGP stockholders with an option no reasonable
stockholder would accept – pursue the appraisal for only
1.5% of the consideration put in controversy by the
Buyout.72
As a remedy for the Defendants’ alleged breaches of the duty of loyalty, the
Complaint requests quasi-appraisal damages.73
2
After oral argument, the Court of Chancery ordered supplemental briefing on
Count III, asking the parties to address three questions.74 First, the court inquired as
to whether the Transaction’s structure violated Section 262 by stripping most of
GGP’s value out via the Pre-Closing Dividend shortly before the merger.75 Second,
it requested that the parties specify, based on the structure of the Transaction, “what
specifically was a GGP stockholder entitled to have the Court appraise[.]”76 Third,
the court asked if the definitions of Per-Share Merger Consideration, Pre-Closing
Dividend, and “merger consideration” were materially misleading. The parties
72
Compl. ¶ 304, App. to Answering Br. at B163; see also id. ¶¶ 209–234.
73
Id. ¶ 307, App. to Answering Br. at B164.
74
Ch. Dkt. No. 143.
75
Id. at 4.
76
Id. at 4–5.
23
submitted supplemental briefing in response to these questions on February 18,
2021.77
In an opinion issued on May 25, 2021, the Court of Chancery found that the
Plaintiffs had failed to state a non-exculpated claim against the Defendants. As to
Count III, the court first determined that the Pre-Closing Dividend did not
unlawfully deprive stockholders of their appraisal rights because, in a hypothetical
appraisal, the Court of Chancery would have had the “flexibility” to consider the
Pre-Closing Dividend as a “relevant factor” and adjust its fair-value determination
accordingly.78 Second, the court determined that, although “the Proxy could have
been more clearly drafted” and “the stockholders may have been better served had
Defendants capitalized the defined term ‘merger consideration’ and tightened up its
definition,” the Complaint failed to allege an actionable disclosure violation.79
According to the court, the Proxy adequately disclosed that stockholders had the
“right to an appraisal of their shares” and was not required to entertain hypotheticals
presented by the Transaction’s structure.80
77
Ch. Dkt. Nos. 146–47.
78
GGP, 2021 WL 2102326, at *31.
79
Id. at *33.
80
Id. at *32.
24
II
The Plaintiffs have appealed the Court of Chancery’s dismissal of the
Complaint.81 We review a trial court’s ruling on a motion to dismiss de novo.82 We
“(1) accept all well pleaded factual allegations as true, (2) accept even vague
allegations as ‘well pleaded’ if they give the opposing party notice of the claim, (3)
draw all reasonable inferences in favor of the non-moving party, and (4) do not
affirm a dismissal unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances.”83 Naturally, our review recognizes
that stockholder plaintiffs often have the ability under Section 220 to obtain
corporate documents in support of their claims, as the Plaintiffs did here.84 These
documents, and other public materials that the Plaintiffs refer to, like the Proxy,
necessarily shape the range of “reasonably conceivable” outcomes.
81
Sup. Ct. Dkt. No. 1.
82
Central Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 535 (Del. 2011).
83
Id. (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
84
AmerisourceBergen Corp. v. Lebanon Cnty. Employees’ Ret. Fund, 243 A.3d 417, 426 n.33
(Del. 2020) (quoting Ca. State Teachers’ Ret. Sys. v. Alvarez, 179 A.3d 824, 839 (Del. 2018)); see
also Lawrence A. Hamermesh & Michael L. Wachter, The Importance of Being Dismissive: The
Efficiency Role of Pleading Stage Evaluation of Shareholder Litigation, 42 J. Corp. L. 603 (2017)
(observing that “Delaware’s system affirmatively encourages reliance on factually specific
pleadings as a basis for substantive evaluation of shareholder litigation at an early stage of the
proceedings” and that “the Delaware system provides or depends on mechanisms that enable and
encourage the plaintiff and the defendants as well to supply relevant information that meaningfully
assists the courts in improving the fairness and utility of that substantive, pleading stage
evaluation.”).
25
III
The threshold question in this appeal is whether the Transaction’s use of the
Pre-Closing Dividend to shift consideration from the purchaser, Brookfield, to
GGP’s stockholders violated Delaware law by improperly restricting or eliminating
appraisal rights.85 We conclude that it did not. In Part III.A, we offer a brief history
of the appraisal remedy in Delaware as well as a description of the remedy’s
characteristics as relevant here. In Part III.B, we hold that dividends that are
conditioned on the consummation of a merger are treated as merger consideration
under Delaware law, meaning that the fair value of an entity that declares a
conditional dividend—such as the Pre-Closing Dividend—is appraised as if the
dividend had not been declared. In Part III.C, we hold that receiving a conditional
dividend that is merger consideration as a matter of law does not result in the
abandonment of a stockholder’s appraisal right. This is because Section 262 does
not prohibit the receipt of dividends payable before the effective date of the merger,
and our settled prohibition of the “acceptance” of merger consideration does not
apply to the choiceless receipt of a mandatory payment such as the Pre-Closing
Dividend. After explaining these conclusions about how GGP would have been
appraised, we turn in Part IV to the Plaintiffs’ claim that GGP’s directors violated
their fiduciary duty of disclosure.
85
Opening Br. at 15–31.
26
A
Before the Delaware appraisal statute, now located at 8 Del. C. § 262, was
enacted in 1899, a consolidation or merger of corporations required unanimous
stockholder approval.86 This effectively gave individual stockholders a veto right
over any transaction with which they disagreed. This form of minority protection
led to nuisance blocking, threatening stockholder democracy.87 To curb nuisance
blocking, the Delaware General Assembly enacted statutes that “permit[ted] the
consolidation or merger of two or more corporations without the consent of all the
stockholders. . . .”88 At the same time, the General Assembly protected dissenting
minority stockholders by creating appraisal rights.89 In an appraisal proceeding, the
stockholder receives her pro rata share of the fair value of the appraised company—
as calculated by the Court of Chancery—instead of accepting the consideration
offered in the approved transaction. “Accordingly, the Court of Chancery’s task in
an appraisal proceeding is to value what has been taken from the shareholder, i.e.,
the proportionate interest in the going concern.”90
86
Solera Ins. Coverage Appeals, 240 A.3d 1121, 1133 (Del. 2020) (citing Dell, Inc. v. Magnetar
Global Event Driven Master Fund Ltd., 177 A.3d 1, 19)).
87
Schenley Indus., Inc. v. Curtis, 152 A.2d 300, 301 (Del. 1956) (“This, at times, brought about
an intolerable situation, since one or more minority stockholders, if he or they desired to do so,
could impede the action of all the other stockholders.”).
88
Id.89
Id.90
Cede & Co. v. Technicolor, Inc., 684 A.2d 289, 298 (Del. 1996) (“Technicolor IV”).
27
Section 262 is implicated when the terms of a merger or consolidation require
stockholders “to accept any consideration other than shares of stock in the surviving
company, shares of stock listed on a national securities exchange [or held of record
by more than 2,000 holders], [] cash received as payment for fractional shares,”91 or
any combination of shares of stock and cash received for fractional shares. 92 Here,
GGP stockholders received a combination of cash, representing 61 percent of the
consideration delivered in the Transaction, and equity in one of two entities,
representing the remaining 39 percent.93 All parties agree that this structure
triggered Section 262, allowing dissenting stockholders to seek a judicial appraisal
of the fair value of their stock.
To perfect appraisal rights, stockholders must strictly comply with the
requirements of Section 262. Section 262(a) provides that the right to seek appraisal
extends only to each stockholder who (1) “holds shares of stock on the date of the
making of a demand” for appraisal, (2) “continuously holds such shares through the
effective date of the merger,” and (3) “has neither voted in favor of the merger
. . . nor consented thereto in writing[.]” Section 262 does not explicitly forbid
dissenting stockholders from receiving merger consideration, but the general rule is
91
La. Mun. Police Employees’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1191 (Del. Ch. 2007) (citing
8 Del. C. § 262).
92
8 Del. C. § 262(b).
93
Compl. ¶ 167, App. to Answering Br. at B97.
28
that “[a]cceptance of the merger consideration is simply an abandonment of the
appraisal right, no more and no less, at least in the usual case.”94
When determining the fair value of a dissenting stockholder’s shares under
Section 262, the Court of Chancery must “take into account all relevant factors,”
which include “market value, asset value, dividends, earning prospects, the nature
of the enterprise and any other facts which were known or which could be
ascertained as of the date of merger and which throw any light on future prospects
of the merged corporation[.]”95 The court calculates a per-share valuation by first
“envisag[ing] the entire pre-merger company as a ‘going concern.’”96 “‘[T]he
corporation must be viewed as an on-going enterprise, occupying a particular market
position in the light of future prospects.”97 “The valuation should reflect the
‘“operative reality” of the company as of the time of the merger,’” but it should not
consider a minority discount or any synergies or value arising from the merger.98
94
In re PNB Holding Co. S’holders Litig., 2006 WL 2403999, at *22 (Del. Ch. Aug. 18, 2006)
(Strine, VC).
95
Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950).
96
Dell, 177 A.3d at 20.
97
Id.; see also William T. Allen & Reiner Kraakman, Commentaries and Cases on the Law of
Business Organizations 492 (2016) (“The appraisal right is a put option—an opportunity to sell
shares back to the firm at a price equal to their ‘fair value’ immediately prior to the transaction
triggering the right. Thus, there are two dimensions to appraisals: (1) the definition of the
shareholder’s claim (i.e., what it is specifically that the court is supposed to value) and (2) the
technique for determining the value.”).
98
Dell, 177 A.3d at 20. Section 262(h) directs the court to “determine the fair value of the shares
exclusive of any element of value arising from the accomplishment or expectation of the merger
or consolidation.” We have described this as a “very narrow” exclusion. Technicolor IV, 684
A.2d at 299 (“The ‘accomplishment or expectation’ of the merger exception in Section 262 is very
29
Section 262 also places strict compliance requirements on corporations.
Within certain time periods outlined in the statute, corporations must notify
stockholders of record of their right to seek appraisal and attach a copy of Section
262 to that notice.99 Additionally, when disclosing appraisal rights to stockholders,
corporate directors must provide all material information necessary to make an
informed decision to either approve the merger or dissent and seek appraisal.100 If
the directors provide notice that violates the fiduciary duty of disclosure,
stockholders may, subject to affirmative defenses and exculpation under Section
102(b)(7), be entitled to a “quasi-appraisal,” a term this Court coined in Weinberger
v. UOP.101
As we explained in Berger v. Pubco Corp., in a quasi-appraisal, the Court of
Chancery determines the fair value of the corporation and, if it exceeds the deal
price, awards the balance as damages to an opt-out class of the former corporation’s
narrow, ‘designed to eliminate use of pro forma data and projections of a speculative variety
relating to the completion of a merger.’ Weinberger v. UOP, Inc., 457 A.2d [701, 713 (Del. 1983).]
That narrow exclusion does not encompass known elements of value, including those which exist
on the date of the merger because of a majority acquiror’s interim action in a two-step cash-out
transaction.”).
99
8 Del. C. § 262(d)(1).
100
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000); Nagy v. Bistricer, 770 A.2d 43,
59 (Del. Ch. 2000); Turner v. Bernstein, 776 A.2d 530, 541-52 (Del. Ch. 2000) (Turner I); see
also In re Orchard Enters., Inc. S’Holder Litig., 88 A.3d 1, 47 (Del. Ch. 2014) (Laster, VC) (“The
fiduciaries who serve the entity owe fiduciary duties; the entity that is served does not.”) (citing
A.W. Fin. Servs., S.A. v. Empire Resources, Inc., 981 A.2d 1114, 1127 n.36 (Del. 2009)).
101
Weinberger v. UOP, 457 A.2d 701, 714–15 (Del. 1983) (granting plaintiff stockholder a “quasi-
appraisal remedy” after buyer-affiliated directors of target failed to disclose internal valuation of
target that was significantly higher than the approved deal price).
30
stockholders.102 Berger concerned a “short-form” merger under 8 Del. C. § 253, but
decisions issued before and after Berger support the application of the quasi-
appraisal remedy to other mergers as well.103 Indeed, “[o]ne cause of action where
the Delaware Supreme Court and the Court of Chancery consistently have held that
quasi-appraisal damages are available is when a fiduciary breaches its duty of
disclosure in connection with a transaction that requires a stockholder vote.”104 The
Plaintiffs in this case allege that GGP’s directors violated their disclosure duties and
seek quasi-appraisal as a remedy. GGP argues that no fiduciary violation occurred
but does not contest the availability of quasi-appraisal as a remedy.
To summarize, Delaware law requires the Court of Chancery, when
conducting an appraisal, to determine the value of the corporation at the time of the
102
Berger v. Pubco Corp., 976 A.2d 132, 138–45 (Del. 2009).
103
Orchard Enters, 88 A.3d at 47 (“As these decisions show, quasi-appraisal damages are one
possible remedy for breaches of the duty of disclosure, and the availability of the quasi-appraisal
damages measure is not limited to short-form mergers.”). In Orchard Enterprises, Vice
Chancellor Laster exhaustively surveyed the development of quasi-appraisal, which he dated back
to our decision in Weinberger. Id. at 42–43. He explained that the term “‘[q]uasi-appraisal’ is
simply a short-hand description of a measure of damages” that, like other types of compensatory
damages, is “measured by the harm inflicted on the plaintiff at the time of the wrong.” Id. at 42.
See also Weinberger, 457 A.2d at 714–15; Turner v. Bernstein, 768 A.2d 24, 28–9 (Del. 2000)
(Strine, VC) (Tuner II) (holding that quasi-appraisal was available after third-party merger where
directors “breached their fiduciary duties by failing to disclose all the material facts that []
stockholders needed to determine whether to accept the merger consideration or seek
appraisal[.]”); and see PNB Holding Co., 2006 WL 2403999, at *32 (ordering a “quasi-appraisal
award” of damages to estate that suffered from former executor’s “failure as a fiduciary” that
caused estate to fail to perfect appraisal rights.).
104
Orchard Enters., 88 A.3d at 42. “The premise for the award is that without the disclosure of
false or misleading information, or the failure to disclose material information, stockholders could
have voted down the transaction and retained their proportionate share of the equity in the
corporation as a going concern. Quasi-appraisal damages serve as a monetary substitute for the
proportionate share of the equity that the stockholders otherwise would have retained.” Id.31
merger as if it had not occurred and the company had continued as a going
concern.105 Once this fair value is determined, each petitioner is entitled to his pro
rata portion of the appraised company’s value, plus interest.106 And, although
stockholders must comply exactly with Section 262 to secure the appraisal remedy,
they may be entitled to a quasi-appraisal if they can show that the corporation’s
directors violated their fiduciary duty of disclosure when they sought stockholder
approval of the deal.
B
Our review of Delaware appraisal law frames the question of how an appraisal
proceeding conducted under Section 262 would consider a transaction, such as the
one at issue here, that utilizes a large dividend to transfer consideration to
stockholders shortly before closing. The Defendants have argued throughout this
case that the answer is uncertain and that they left stockholders to figure out how an
appraisal would view the Transaction GGP and Brookfield designed. 107 Repeatedly
noting that they advised GGP’s stockholders to retain lawyers to help them navigate
105
Technicolor IV, 684 A.2d at 298; see also Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553
(Del. 2000) (“The underlying assumption in an appraisal valuation is that the dissenting
shareholders would be willing to maintain their investment position had the merger not
occurred.”).
106
See 8 Del. C. § 262(h).
107
Answering Br. at 29 (“Plaintiffs’ contention that GGP should have disclosed its subjective
views on how the Court of Chancery would treat the dividend in determining ‘fair value’ is simply
not the law.”).
32
the appraisal process,108 the Defendants explain that a dissenter “would have been
free to make any argument and submit any evidence she (and her experts) wished as
to how the court should treat the Pre-Closing Dividend.”109 The Court of Chancery
agreed, holding that the Pre-Closing Dividend was a “relevant factor” that the
appraising court could—or could not—consider under Section 262(h).110
The Plaintiffs argue that the Pre-Closing Dividend was “part of the Merger,”
such that any appraisal proceeding would have measured GGP’s value before the
payment was made.111 They observe that the Pre-Closing Dividend was detailed in
the section of the Merger Agreement entitled “THE MERGER,” that it was
dependent on stockholder approval of the Transaction, and that it was paid with
Brookfield’s funds in the same check or wire as the Per-Share Merger
Consideration.112 The significance of labeling the Pre-Closing Dividend as legal
merger consideration—“part of the Merger”—is, according to the Plaintiffs, this:
108
Id. at 3, 26–30.
109
Id. at 16. The Defendants also acknowledged that they might well have fought to limit any
appraisal action to valuing GGP after payment of the Pre-Closing Dividend. As Counsel for GGP
explained:
“You’re accepting [the Pre-Closing Dividend], to the extent that was merger
consideration, but you’re not accepting the $0.312, and that’s the part that you’re
forfeiting, and then you can go into court and you can say to the judge whatever
you want, you can say ‘you should take into account both the dividend and the
$0.312 in valuing my shares,’ [or] ‘you should only take into account the $0.312,’
perhaps a defendant would say. Anything could be argued in the appraisal court.”
March 9, 2022 Oral Argument at 38:00–39:00, In re GGP, Inc. S’holder Litig. (No. 202, 2021)
https://livestream.com/accounts/5969852/events/10198573/videos/229793264.
110
GGP, 2021 WL 2102326, at *31.
111
Opening Br. at 6, 17.
112
Id. at 18–20; Compl, ¶ 207, App. to Answering Br. at B117–18.
33
“[i]f the Dividend was part of the Merger, then the fair value determination would
be based on GGP as it stood pre-Dividend but if, as the Proxy said, the Dividend was
separate from the Merger, then fair value would be determined post-Dividend.”113
We agree with the Plaintiffs: the Pre-Closing Dividend was, as a matter of
Delaware law, merger consideration in the Transaction, just like the Per-Share
Merger Consideration. The Defendants’ careful efforts to divide the deal price into
two payments—while no doubt confusing to the stockholders who attempted to read
the Proxy—do not change the object of the Court of Chancery’s appraisal. That is to
say, the court would have been required to determine the fair value of GGP as an
entity before both payments were made.
Although the Transaction hardly exhibits a common structure, its use of a
large conditional dividend is similar to the merger Chancellor Chandler considered
in Louisiana Municipal Police Employees Retirement System v. Crawford.114
Crawford dealt with a stock-for-stock merger of equals between Caremark and
CVS.115 After Express Scripts made an unsolicited offer to acquire Caremark, CVS
sweetened its offer by agreeing to a conditional dividend of $6-per-share.116
Caremark and CVS then scheduled a stockholders’ meeting for the approval of the
113
Reply Br. at 2; Opening Br. at 6, 22–23.
114
Crawford, 918 A.2d at 1179.
115
Id.116
Id. at 1182–83.
34
merger, but certain Caremark stockholders sued to enjoin the meeting because the
disclosures did not inform stockholders of their appraisal rights.117 Caremark and
CVS responded that the dividend had “independent legal significance preventing it
from being recognized as merger consideration.”118 Thus, they argued, the merger
did not trigger appraisal rights.119
The Court of Chancery rejected that argument and determined that the
conditional dividend was, as matter of law, merger consideration.120 The court
elaborated that the dividend was “simply cash consideration dressed up in a none-
too-convincing disguise.”121 The court reached this conclusion because the dividend
was being paid to Caremark stockholders on behalf of CVS and was conditioned on
the approval of the merger.122 The Chancellor therefore held that payment of the
cash dividend as part of the merger consideration triggered the stockholders’
appraisal rights under Section 262(b).123
The Defendants argue that Crawford is not applicable here because it held
only that conditional dividends trigger appraisal rights, not that conditional
117
Id. at 1183–84, 1192.
118
Id. at 1191.
119
Id.120
Id. at 1192 (“In this case, the label ‘special dividend’ is simply cash consideration dressed up
in a none-too-convincing disguise. When merger consideration includes partial cash and stock
payments, shareholders are entitled to appraisal rights.”).
121
Id.122
Id. at 1191.
123
Id. at 1192.
35
dividends are part of the merger consideration for purposes of an appraisal action.124
Thus, the Defendants contend that, to the extent Crawford is relevant, they satisfied
it by disclosing in the Proxy that GGP stockholders had the right to seek appraisal
of their shares.125 But the obvious application of Crawford’s holding is that the Pre-
Closing Dividend is merger consideration not only for the purpose of triggering
appraisal rights but also for the purpose of framing the scope of the appraisal
proceeding under Section 262. Because such proceedings determine the value of the
corporation at the time of the merger as if it had not occurred, dividends expressly
conditioned on the merger—like all other merger consideration—must be treated as
if they had not been paid.
We therefore hold that the Pre-Closing Dividend was, as a matter of Delaware
law, merger consideration in the Transaction. This is because it was conditioned on
the Transaction’s approval and, according to the Complaint, paid with Brookfield’s
funds in the same wire as the Per-Share Merger Consideration. Thus, a properly
conducted appraisal of GGP would have valued the Company as if the Pre-Closing
Dividend and Per-Share Merger Consideration had not been paid.
124
Answering Br. at 18–19.
125
Id. at 19.
36
C
Because we have held that the Pre-Closing Dividend was merger
consideration under Delaware law, we must now decide whether each GGP
stockholder’s receipt of this payment effected a forfeiture of the right to seek
appraisal. If the Transaction operated in this way, we must also determine if it was
consistent with our law.126 Writing as Vice Chancellor, former Chief Justice Strine
explained the general rule: “Acceptance of the merger consideration is simply an
abandonment of the appraisal right, no more and no less, at least in the usual case.”127
But this is not the general or usual case. The Transaction designed by Brookfield
and the Director Defendants featured the large Pre-Closing Dividend, which was
worth 98.5 percent of the deal price and automatically became payable the day
before closing, and the tiny Per-Share Merger Consideration, which was worth 1.5
percent of the offer and became payable upon closing.128 In our view, receipt of the
Pre-Closing Dividend did not effect a waiver of appraisal rights.
We start our analysis with the text of Section 262.129 Delaware’s appraisal
statute does not contain a specific textual prohibition against receiving consideration
126
Opening Br. at 15–33.
127
PNB Holding, 2006 WL 2403999, at *22.
128
See Aug. 24, 2018 BPR Form 8-K at 2 (reporting that the Transaction closed at 8:00 am on
August 28, 2018, and that the Pre-Closing Dividend “became payable on August 27, 2018[.]”).
129
Noranda Aluminum Holding Co. v. XL Insur. Am., Inc., 269 A.3d 974, 977–78 (Del. 2021)
(“When interpreting a statute, our goal is ‘to ascertain and give effect to the intent of the legislators,
as expressed in the statute.’”) (quoting Dewey Beach Enters., Inc. v. Bd. of Adjustment of Town of
Dewey Beach, 1 A.3d 305, 307 (Del. 2010)).
37
offered in a merger. Instead, Section 262(a) provides that appraisal is only available
to the stockholder, otherwise eligible, who “has neither voted in favor of the
merger . . . nor consented thereto in writing[.]”130 Receipt of the Pre-Closing
Dividend does not offend this prohibition because it was payable to supporting and
dissenting GGP stockholders alike the day before the Transaction closed.131
Nor does the Pre-Closing Dividend contravene Section 262(k). According to
that subsection, dissenting stockholders may not “receive payment of dividends or
other distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the merger or
consolidation)[.]”132 Thus, Section 262 creates an express exception allowing
stockholders to receive dividends payable before the “effective date of the merger.”
Here, that day was August 28, 2018, and the Pre-Closing Dividend became payable
on August 27.133
130
8 Del. C. § 262(a); see also id. § 262(d)(1) (“Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify each stockholder of
each constituent corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or consolidation has become
effective[.]”) (emphasis added).
131
Aug. 24, 2018 BPR Form 8-K at 2; App. to Opening Br. at A399 (“The Company shall declare
a special dividend payable to the holders of record of Company Shares (other than to holders of
Company Restricted Stock, but including to each holder of an In-the-Money Company Option,
with respect to the number of Company Shares that are deemed issued in respect of such Company
Option under Section 2.07(d)(i)) as of the end of trading on the NYSE on the Charter Closing Date,
with a payment date of the Charter Closing Date (the “Pre-Closing Dividend”).”); see also
Answering Br. at 15 (“Delaware law required GGP to pay the Pre-Closing Dividend to any GGP
stockholders who demanded appraisal.”).
132
8 Del. C. § 262(k) (emphasis added).
133
Aug. 24, 2018 BPR Form 8-K at 2.
38
Again, it is true that, in more traditional mergers where the deal consideration
is not surgically bifurcated into separate payments, acceptance of that consideration
effects a waiver of the appraisal right. We have explained as much, as has the Court
of Chancery.134 In these more typical scenarios, taking the merger consideration
means that the stockholder is no longer dissenting and has accepted the terms of the
transaction. But we have also explained that “the basic principle underlying the
appraisal statute [is] that an investor make an election either to accept the merger
consideration or to pursue an appraisal of his shares.”135 Here, qualifying GGP
stockholders had no choice: they all received the Pre-Closing Dividend, and the only
election they could make was whether it came in prorated cash or stock.136 This did
not constitute acceptance of the Transaction’s terms and, as a result, did not operate
to waive appraisal rights.
In sum, we have concluded that the Pre-Closing Dividend was merger
consideration for appraisal purposes under Delaware law and that receipt of this
134
See, e.g., Berger, 976 A.2d at 138 & n.17 (“[A] stockholder who seeks appraisal must forego
all of the transactional consideration and essentially place his investment in limbo until the
appraisal action is resolved.”) (quoting Turner I, 776 A.2d at 547–48); see also PNB Holding,
2006 WL 2403999, at *22; and see Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d
697, 712 (Del. Ch. 2004) (in a statutory appraisal, “the key trade-off inherent in that legislative
remedy [is] the required eschewal of the merger consideration.”).
135
Alabama By-Prod. Corp. v. Cede & Co., 657 A.2d 254, 262 (Del. 1995) (emphasis added)
(citing Smith v. Shell Petroleum, Inc., 1990 WL 186446 (Del. Ch. Nov. 26, 1990)).
136
See March 9, 2022 Oral Argument at 28:15–29:10, In re GGP, Inc. S’holder Litig. (No. 202,
2021) https://livestream.com/accounts/5969852/events/10198573/videos/229793264 (COUNSEL
FOR DEFENDANTS: “What we are telling you is that, because of the nature of this transaction,
because there’s cash involved, you can forgo the per share merger consideration, you can’t forgo
the dividend—you’re going to get that—and you can seek appraisal of your shares.”).
39
payment did not violate the eligibility requirements established by Section 262 or
our doctrine. We therefore hold that the Transaction did not improperly eviscerate
the appraisal rights of GGP stockholders. A properly conducted appraisal would
have allowed otherwise eligible dissenters to participate, despite their receipt of the
Pre-Closing Dividend, and would have valued GGP as if none of the steps of the
Transaction—including the Pre-Closing Dividend, the Charter Amendments, and
the Per-Share Merger Consideration—had taken place. With this established, we
turn next to the Plaintiffs’ claim that GGP’s directors violated their fiduciary duty of
disclosure when they drafted the Appraisal Rights Notice and the rest of the Proxy.
IV
The Complaint alleges that the Defendants made materially misleading
disclosures regarding the GGP stockholders’ appraisal rights.137 According to the
Plaintiffs, these flawed disclosures were part of an intentional effort to structure and
describe the Transaction in a way that would mislead stockholders and dissuade
them from dissenting from the Transaction and exercising their appraisal rights.138
137
Compl. ¶ 303, App. to Answering Br. at B163; Opening Br. at 31, 34–42.
138
Compl. ¶ 17, App. to Answering Br. at B22 (“The only rational inference from the false notice
of appraisal rights and material omissions is that Defendants intentionally and coercively presented
appraisal as a non-rational economic choice because it applied to almost none of the value of the
GGP shares.”); id. ¶ 217, App. to Answering Br. B124 (“Defendants intentionally excluded from
the definition of merger consideration payments required by Section 2.03 of the Merger
Agreement, which includes the Pre-Closing Dividend. The exclusion of the dividend from the
definition of “merger consideration” in the Merger Agreement renders Defendants’ notice of
appraisal rights in the Proxy contrary to Delaware law because it falsely describes the right to
appraisal.”).
40
This objective, the Plaintiffs assert, was consistent with Brookfield’s repeated
demand of an appraisal-rights closing condition, which the Special Committee
ultimately rejected.139 Accepting, as we must, all well pleaded factual allegations in
the Complaint as true, and drawing all reasonable inferences in the Plaintiffs’ favor,
we conclude that the Plaintiffs have stated a claim that the Director Defendants
violated their fiduciary duty of disclosure with Brookfield’s support.
A
The fiduciary duty of disclosure is a sharpened application of corporate
directors’ omnipresent duties of care and loyalty that obtains when directors seek
stockholder action, such as the approval of a proposed merger, asset sale, or charter
amendment.140 In these situations, directors have “a fiduciary duty to disclose fully
and fairly all material information within the board’s control[.]”141 This specific
disclosure duty is independent from a corporation’s statutory obligation to notify its
stockholders of their appraisal rights under Section 262. It is also distinct from a
139
Compl. ¶ 304, App. to Answering Br. at B163.
140
Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998); Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170,
1172 (Del. 2000) (“The duty of disclosure is a specific formulation of those general duties that
applies when the corporation is seeking stockholder action.”); see also Orchard Enters., 88 A.3d
at 16–17 (summarizing duty of disclosure doctrine).
141
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992); Appel v. Berkman, 180 A.3d 1055, 1057 (Del.
2018) (“Precisely because Delaware law gives important effect to an informed stockholder
decision, Delaware law also requires that the disclosures the board makes to stockholders contain
the material facts and not describe events in a materially misleading way.”) (internal citation
omitted) (citing 2 Stephen A. Radin, The Business Judgment Rule 1715 (6th ed. 2009)).
41
director’s fiduciary duty to avoid misleading partial disclosures.142 Of course, these
separate obligations may overlap, especially where, as here, corporate directors seek
stockholder ratification of a proposed transaction that triggers the statutory appraisal
remedy.
When a stockholder asserts a disclosure violation linked to a request for her
vote, “the essential inquiry . . . is whether the alleged omission or misrepresentation
is material,” and the stockholder need not prove reliance, causation, or damages.143
Information is considered material “if there is a substantial likelihood that a
reasonable stockholder would consider it important in deciding how to vote.”144
Stated another way, there must be “a substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable stockholder as having
significantly altered the ‘total mix’ of information made available.”145 Notably, “the
question is not whether the information would have changed the stockholder’s
142
Zirn v. VLI Corp., 681 A2d 1050, 1056 (Del. 1996); see also Arnold v. Society for Sav. Bancorp,
Inc., 650 A.2d 1270, 1280 (Del. 1994) (“[O]nce defendants traveled down the road of partial
disclosure of the history leading up to the Merger and used the vague language described, they had
an obligation to provide the stockholders with an accurate, full, and fair characterization of those
historic events”).
143
Malone, 722 A.2d at 12 (“An action for a breach of fiduciary duty arising out of disclosure
violations in connection with a request for stockholder action does not include the elements of
reliance, causation and actual quantifiable monetary damages.”).
144
Louden v. Archer–Daniels–Midland Co., 700 A.2d 135, 142 (Del. 1997); In re Walt Disney Co.
Deriv. Litig., 731 A.2d 342, 376 (Del. Ch. 1998), rev’d in part on other grounds sub nom. Brehm
v. Eisner, 746 A.2d 244 (Del. 2000); see also Rosenblatt v. Getty Oil Co., 493 A. 2d 929 (Del.
1985), in which this Court adopted the United States Supreme Court’s articulation of the
materiality standard in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
145
Skeen, 750 A.2d at 1172.
42
decision to accept the merger consideration, but whether ‘the fact in question would
have been relevant to him.’”146
Because the duty of disclosure sounds in the fiduciary duties of both care and
loyalty, certain violations fall within the coverage of exculpatory charter provisions
authorized by 8 Del. C. § 102(b)(7). Section 102(b)(7) allows stockholders, via a
provision in the corporate charter, to eliminate or limit “the personal liability of a
director to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as director[.]”147 Critically, Section 102(b)(7) provisions may not
exculpate directors for their breaches of the duty of loyalty or “acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law[.]”148
Thus, “[a] good faith erroneous judgment as to the proper scope or content of
required disclosure implicates the duty of care rather than the duty of loyalty” and
may be exculpated.149 However, “where a complaint alleges or pleads facts
sufficient to support the inference that the disclosure violation was made in bad faith,
knowingly or intentionally, the alleged violation implicates the duty of loyalty” and
146
Shell Petroleum, Inc. v. Smith, 606 A.2d 112, 115 (Del. 1992) (citing Barkan v. Amsted Indus.,
567 A.2d 1279, 1289 (Del. 1989).
147
8 Del. C. § 102(b)(7).
148
Id. Two other categories also may not be exculpated: violations of 8 Del. C. § 174 and
violations relating to “any transaction from which the director derived an improper personal
benefit.” Id.
149
Zirn, 681 A.2d at 1062.
43
may not be exculpated.150 Here, GGP’s charter includes a provision that exculpates
directors to the fullest extent authorized by Section 102(b)(7). 151 The Plaintiffs
allege that this does not protect the Director Defendants because they intentionally
misled stockholders about their appraisal rights in the Proxy.152
B
The Plaintiffs allege in the Complaint that the Director Defendants, aided and
abetted by Brookfield, violated their fiduciary duty of disclosure by inaccurately
describing the entity that would be subject to appraisal.153 The Plaintiffs observe
that the Proxy told stockholders that their appraisal rights were limited to GGP as it
was positioned after declaring the Pre-Closing Dividend and amending its charter,
when in fact a properly conducted appraisal would have valued the Company before
these steps were taken.154 The Plaintiffs allege that this disclosure was “materially
150
O’Reilly v. Transworld Healthcare, Inc., 745 A.2d 902, 915 (Del. Ch. 1999) (Steele, VC) (citing
Zirn, 681 A.2d at 1061–62)); Arnold, 650 A.2d at 1287 (“[C]laims alleging disclosure violations
that do not otherwise fall within any exception are protected by Section 102(b)(7) and any
certificate of incorporation provision (such as Article XIII) adopted pursuant thereto.”). Writing
as a Vice Chancellor in O’Reilly, former Chief Justice Steele offered a helpful explanation of the
pleading dynamic in duty of disclosure cases, explaining that “after Malone[,] knowledge is no
longer an element” of a duty of disclosure claim, but “knowledge that the statement is false or
misleading would be relevant to a claim to exempt directors from liability for the breach of the
duty of disclosure pursuant to exculpatory charter provisions authorized by 8 Del. C. § 102(b)(7).”
O’Reilly, 745 A.2d at 920 n.34.
151
App. to Answering Br. at B3.
152
Compl. ¶ 304, App. to Answering Br. at B163; see also id. ¶¶ 209– 234.
153
Id. ¶ 233, App. to Answering Br. at B130.
154
Opening Br. at 6–7, 36–42
44
misleading and incomplete.”155 They also claim that it was intentional and that the
Defendants hoped to dissuade stockholders from dissenting and seeking appraisal.156
Contrariwise, the Defendants argue that the Proxy accurately disclosed “that
GGP stockholders were entitled to seek appraisal of their shares in connection with
the Transaction[.]”157 The Defendants add that, to the extent the Transaction they
designed implicated uncertainty in our appraisal law, they were not required to
speculate and offer legal advice about how an appraisal proceeding would operate.158
We take up these contentions regarding the adequacy of the Director
Defendants’ disclosures in turn. We hold that the Proxy was materially misleading
and that the defenses offered by Brookfield and the Director Defendants are without
merit.
1
As previously quoted in this decision, the heart of the Appraisal Rights Notice
in the Proxy explained that
155
Id. at 42.
156
Id.
157
Answering Br. at 28 (emphasis in original); see also March 9, 2022 Oral Argument at 22:30–
23:30, In re GGP, Inc. S’holder Litig. (No. 202, 2021)
https://livestream.com/accounts/5969852/events/10198573/videos/229793264 (COUNSEL FOR
DEFENDANTS: “[T]he GGP stockholders were entitled, pursuant to the statute and as we
disclosed in the Proxy, [to] appraisal on their shares. That’s what they were entitled to. It was up
the appraiser—the Vice Chancellor or Chancellor—to decide how that appraisal proceeding was
going to work. They were entitled to appraisal of their shares. That’s exactly what the statute
says, and that’s what the disclosure said.”).
158
Answering Br. at 28–29.
45
If the Transactions are completed, GGP common
stockholders who comply exactly with the applicable
requirements and procedures of Section 262 of the DGCL
will be entitled to demand appraisal of their GGP common
stock and receive in lieu of the per share merger
consideration a cash payment equal to the “fair value” of
their GGP common stock, as determined by the Court of
Chancery, in accordance with Section 262 of the DGCL,
plus interest, if any, on the amount determined to be the
fair value, subject to the provisions of Section 262 of the
DGCL. Such appraised value may be greater than, the
same as or less than the per share merger
consideration.159
Separately, the Proxy defined the “merger” as occurring after GGP’s charter was
amended and the Pre-Closing Dividend was declared and told the GGP stockholders
that they were “entitled to exercise their appraisal rights solely in connection with
the merger.”160 The fair value available in that proceeding, stockholders were told,
would be “greater than, the same as or less than” the “per share merger
consideration.” This decision capitalizes Per-Share Merger Consideration for the
reader’s convenience; the Proxy defined it in lowercase as the sliver of
compensation, eventually set at $0.312, that would remain after GGP declared the
massive Pre-Closing Dividend.161
These disclosures were, in our view, confusing and misleading. As discussed
above, a properly conducted appraisal would have valued GGP before the Charter
159
Proxy at 335, App. to Opening Br. at A384 (emphasis added).
160
Id. at 15, App. to Opening Br. at A43.
161
Id. at vi, App. to Opening Br. at A22.
46
Amendments and the payment of the Pre-Closing Dividend and the Per-Share
Merger Consideration. It was the fair value of this pre-Transaction entity that
stockholders were set to part with if they consented to the Transaction, and therefore
it was this fair value that the stockholders were entitled to in an appraisal. Indeed,
at the second oral argument in this appeal, the Defendants acknowledged as much:
You get an appraisal of your shares, you get your pro rata
share in the company at the effective time of the merger,
which the court would be free to decide was before any of
the transaction mechanics began to happen. Before the
pre-closing dividend was paid, and before the per-share
merger consideration was paid. What was your pro rata
share of the Company? That’s what the statute says. You
get appraisal on your shares, and the determination is,
before anything happened with respect to the merger
mechanics, what was your pro rata share of the
company?162
The italicized portion of the above argument is a correct statement of
Delaware law. The problem for the Defendants is that it is not what they disclosed
in the Proxy. In contrast to this belated and qualified concession, the Proxy
repeatedly decoupled the appraisal analysis from everything but the Per-Share
Merger Consideration. To quote again from the Appraisal Rights Notice,
stockholders were informed that the appraised fair value of GGP—a company that
was being sold for $23.50-per-share—would be “greater than, the same as or less
162
See March 9, 2022 Oral Argument at 25:15–26:10, In re GGP, Inc. S’holder Litig. (No. 202,
2021) https://livestream.com/accounts/5969852/events/10198573/videos/229793264 (emphasis
added).
47
than the per share merger consideration” of $0.312.163 The reason this was so, the
Proxy explained separately, was that any appraisal would be “solely in connection
with the merger,” which would occur after declaration of the Pre-Closing Dividend
and the amendment of GGP’s charter to authorize the issuance of new types of
equity.164 It is reasonably conceivable, if not reasonably certain, that a GGP
stockholder who read the Proxy would have taken it at its word and concluded that
appraisal rights were limited to the fair value of GGP after payment of the Pre-
Closing Dividend. Stockholders who reached this conclusion were misled.
We recognize that the Court of Chancery did not read the Proxy’s appraisal
disclosures as we have here. Instead, the court understood them to mean that, if
the Preclosing Dividend plus the closing consideration
[i.e., the per share merger consideration of $0.312]
undervalued the dissenting stockholder’s shares. . .[,] the
dissenting shareholder would receive an appraisal award
that reflected the difference between what she had
received in the Pre-Closing Dividend and the adjudicated
value of her shares.165
Likewise, the Special Committee, in its evaluation of the benefits of the Transaction
as recorded in the Proxy, considered the availability of appraisal rights and told
stockholders that the fair value of GGP’s shares “may be more than, less than, or the
163
Proxy at 335, App. to Opening Br. at A363.
164
Id. at 56, App. to Opening Br. at A84.
165
GGP, 2021 WL 2102326, at *32.
48
same as the consideration to be received in the Transactions,” which included the
Pre-Closing Dividend.166
Would that it had been so disclosed in the Appraisal Rights Notice—but, as
discussed, it was not. Instead, the Appraisal Rights Notice stated that a dissenting
stockholder would receive not the difference between the fair value of the
stockholder’s shares as appraised by the court and the already received Pre-Closing
Dividend, but rather a cash payment “equal to the ‘fair value’” of those shares, and
explicitly correlated that value to the $0.312 Per-Share Merger Consideration. In
this way—and unlike the straightforward description of how an appraisal award
would be determined that was offered by the Court of Chancery and, belatedly, by
the Defendants at oral argument—the Proxy’s description of appraisal rights was
misleading.
2
Information is considered material “if there is a substantial likelihood that a
reasonable stockholder would consider it important in deciding how to vote.”167 At
this early stage of the proceedings, we believe that it is reasonably conceivable that
the Proxy’s failure to correctly identify which entity would be subject to appraisal
was material to stockholders in at least two ways. First, the entity confusion created
166
Proxy at 86, App. to Opening Br. at A114.
167
Louden, 700 A.2d at 142.
49
by the Proxy left stockholders to ponder difficult questions about how GGP would
be valued after declaring the Pre-Closing Dividend, which obligated the Company
to pay out more than $9 billion in cash.168 Second, it is reasonably conceivable that
the Proxy’s definitions of Per-Share Merger Consideration and the “merger” led
some stockholders to believe that they could not qualify for appraisal at all due to
the operation of Section 262(g) and its de minimis condition.169
We begin with what should be apparent by now: the Proxy told stockholders
that they were entitled to an appraisal only of the GGP that remained after the
Company declared the Pre-Closing Dividend and amended its charter, but this was
incorrect as a matter of Delaware law. Although it may be possible to envision
statements of the law that suffer from a technical inaccuracy but are not necessarily
material to a stockholder’s decision about how to vote, this is not one of them. We
think it obvious that stockholders would have conceivably found it important to
know that a properly conducted appraisal would have valued GGP before the
declaration of the Pre-Closing Dividend and the execution of the Charter
Amendments. Adequately informed, stockholders could have made a judgment
about the value of the total consideration offered in the Transaction and their view
of the fair value of GGP as a going concern. Indeed, this is the precise judgment the
168
Opening Br. at 6–9, 34–42; Compl. ¶¶ 206, 225, App. to Answering Br. at B115, 128.
169
Opening Br. at 25–27, 31; Compl. ¶ 226, App. to Answering Br. at B128
50
Special Committee made in recommending the Transaction.170 Instead, stockholders
were left to guess about how an appraisal would consider the Pre-Closing Dividend
and the Charter Amendments, and whether the fair value of GGP after these steps
were taken—when added to the Pre-Closing Dividend—would make them whole.
Next, it is reasonably conceivable that the Proxy’s defective description of
appraisal rights was consequential to the stockholders’ evaluation of the eligibility
criteria laid out in Section 262(g). That subsection provides, in pertinent part, that
the Court of Chancery must dismiss appraisal proceedings unless the total number
of dissenting shares is either more than one percent of the total amount of shares
outstanding or the “value of the consideration provided in the merger . . . for such
total number of [dissenting] shares exceeds $1 million[.]”171
At issue here is the second of Section 262(g)’s thresholds, what some call the
de minimis condition, which provides that dissenters must represent at least $1
million in “consideration provided in the merger.” Even though the Proxy mirrored
this statutory text, the Plaintiffs argue that they were misled because the Defendants
defined Per-Share Merger Consideration to represent just $0.312 out of the total deal
170
Proxy at 86, App. to Opening Br. at A114 (explaining that stockholders had the “opportunity
to have the Court of Chancery determine the fair value of their shares of GGP common stock,
which may be more than, less than, or the same as the consideration to be received in the
Transactions[.]”).
171
8 Del. C. § 262(g).
51
price of $23.50.172 Thus, applying the Defendants’ own defined terms, the Plaintiffs
maintain that stockholders were left with the impression that they needed to satisfy
the $1 million threshold by aggregating shares worth $0.312, rather than $23.50.
The Defendants counter this argument on three grounds. First, they claim that
the Plaintiffs waived it by failing to advance it in the Court of Chancery. We
disagree. In their Complaint, the Plaintiffs allege that “the misleading disclosure is
material because no rational stockholder would dissent on the Buyout and perfect
his appraisal rights if by doing so he only placed a de minimis part of GGP’s
supposed pre-Buyout value at issue.”173 The Complaint also asserts that “[u]nder
Delaware law, the Pre-Closing Dividend would be included as part of ‘the value of
the consideration provided in the merger’ under Section 262(g).”174 Finally, in their
briefing to the Court of Chancery, the Plaintiffs argued that “[t]he Proxy falsely
disclosed (in buried, confusing form) stockholders’ appraisal rights by stating that
only the [Per-Share Merger Consideration], a de minimis portion of deal
consideration, could form the basis for recovery in any appraisal proceeding.”175
Second, and on the merits, the Defendants argue that, even if the Proxy was
confusing or inaccurate, it is “speculative” whether stockholders were harmed
172
Opening Br. at 27; Compl. ¶ 225–26, App. to Answering Br. at B128; see also App. to Opening
Br. at A900.
173
Compl. ¶ 226, App. to Answering Br. at B128.
174
Id. ¶ 218, App. to Answering Br. at B125.
175
App. to Opening Br. at A1104; see also App. to Opening Br. at A900 (“[S]tockholders were
denied the right to appraisal for all but a de minimis portion of the value of their shares[.]”).
52
because Section 262(g) allows for the aggregation of holdings and “only 0.5% of
GGP’s outstanding shares would be required to reach” the $1 million de minimis
threshold. We do not agree. While it may take speculation to conclude that the
Section 262(g) threshold was factually insurmountable, it is nevertheless reasonably
conceivable that individual stockholders were harmed when the Proxy misled them
about the total number of shares that had to dissent in order for appraisal to be
available. Put differently, by dramatically overstating the number of shares that
Section 262(g) required for appraisal to be available, the Proxy conceivably
dissuaded stockholders from seriously considering appraisal at all.176
Third, at oral argument, the Defendants suggested that the Proxy was not
misleading at all because stockholders could have disregarded the defined terms and
come to the independent conclusion that “consideration provided in the merger”
included both the Pre-Closing Dividend and the Per-Share Merger Consideration,
As the Defendants argued:177
176
In their Answering Brief, the Defendants offer that “GGP received multiple appraisal demands
in connection with the Transaction—including by clients represented by signatories to Plaintiffs’
Opening Brief in this appeal.” Answering Br. at 23 n.59 (emphasis in original). At this early stage
of the case, it is not clear from the pre-discovery record how many demands were made and how
they were disposed of—be it by settlement, Section 262(g), loss of interest, or otherwise.
177
See March 9, 2022 Oral Argument at 39:37–41:07, In re GGP, Inc. S’holder Litig. (No. 202,
2021) https://livestream.com/accounts/5969852/events/10198573/videos/229793264. Counsel
also argued that “‘the value of the consideration provided in the merger,’ . . . could reasonably
conceivably be read, and should be read, as including both the pre-closing dividend and the
$0.312.” Whether or not such a reading is viable, at this stage of the case we “do not affirm a
dismissal unless the plaintiff would not be entitled to recover under any reasonably conceivable
set of circumstances.” Central Mortg., 27 A.3d at 535 (citing Savor, 812 A.2d at 896–97).
53
I think the language in 262(g) talks about, and you quoted
it Your Honor, ‘the value of the merger consideration,’
which one could fairly assume includes both the pre-
closing dividend and the $0.312, and why would someone
be dissuaded under those circumstances from seeking
appraisal?
THE COURT: Well, because you’re telling us the merger
consideration could include both, but the proxy defines it
as excluding the dividend.
As discussed at length, the Proxy persistently separated the Pre-Closing Dividend
and the Per-Share Merger Consideration. Stockholders were told that the Pre-
Closing Dividend would be declared before the “merger”178 and that appraisal rights
were available “solely in connection with the merger” and the $0.312 in Per-Share
Merger Consideration that came with it.179 Given this, stockholders could hardly
have been expected to conclude that they could satisfy Section 262(g) by adding the
two types of consideration together.
We therefore hold that the Proxy’s erroneous statements about which entity
would be appraised—the GGP before the Transaction or the GGP after the Charter
Amendments and the payment of the Pre-Closing Dividend—were material because
they deprived stockholders of necessary information about the fair value available
in an appraisal proceeding and misled stockholders about the operation of Section
262(g).
178
Proxy at 56, App. to Opening Br. at A84.
179
Id. at 15, App. to Opening Br. at A43.
54
3
As an overarching defense to the Plaintiffs’ duty of disclosure claim, the
Defendants argue that that their disclosure duties did not require them to explain to
stockholders the implications of the transaction structure on their appraisal rights
“much less speculate about how a court might decide hypothetical legal issues.”180
Tellingly, the Defendants maintain that the “hypothetical legal issue” requiring
speculation is how the Pre-Closing Dividend might be treated in an appraisal
proceeding.”181 We note here that the conceded presence of a “hypothetical legal
issue” supports our conclusion that the Proxy disclosure left stockholders in the dark
about the true nature of their appraisal rights. It also reinforces the inference,
mentioned previously, that the Defendants were poised to press for a narrow, post-
dividend valuation in the event that a sufficient number of GGP stockholders
pursued an appraisal remedy.182
But, from a disclosure perspective, the Defendants’ approach suffers from a
more fundamental flaw: the Appraisal Rights Notice—read with the Proxy’s defined
terms—did offer stockholders advice about how an appraisal proceeding would
operate. It did so by applying the definition of the residual $0.312 payment as the
180
Answering Br. at 3.
181
Id. at 28. (“Plaintiffs’ argument that the Proxy misled GGP stockholders conflates the
requirement to disclose the right to an appraisal of shares, which the Proxy accurately did, with a
desire for disclosure of (or advice on) how the Pre-Closing Dividend might affect a hypothetical
appraisal proceeding.”) (emphasis in original).
182
See note 109, supra.
55
“per share merger consideration” and, as previously discussed, closely linking the
court’s “fair value” determination in a hypothetical appraisal proceeding to the
residue of GGP represented by that limited consideration. Thus, whether or not the
Defendants were originally required to tell stockholders how the complex
Transaction they designed would affect their appraisal rights, once the Defendants
attempted to offer such an explanation, they were required to be correct and
complete.183 In other words, they had to tell the stockholders that a properly
conducted appraisal would determine the value of GGP before the payment of the
Pre-Closing Dividend and the execution of the Charter Amendments. Because this
did not happen, the Defendants are left to “face the consequences of a breach of
fiduciary duty.”184
4
GGP’s charter contains a Section 102(b)(7) exculpatory provision.185 The
Plaintiffs argue that it does not apply here because the Director Defendants intended
to mislead stockholders about the true nature of their appraisal rights.186 At this early
stage of this case, we “do not affirm a dismissal unless the plaintiff would not be
entitled to recover under any reasonably conceivable set of circumstances.”187 With
183
Arnold, 65- A.2d at 1280.
184
Disney, 731 A.2d at 376.
185
App. to Answering Br. at B3.
186
See Compl. ¶¶ 302–307, App. to Answering Br. at B163–64; Reply Br. at 16–127.
187
Central Mortg., 27 A.3d at 535 (citing Savor, 812 A.2d at 896–97).
56
this standard in mind, we conclude that it is reasonably conceivable that the Director
Defendants, aided and abetted by Brookfield, committed a violation of the fiduciary
duty of disclosure that may not be exculpated.
The Complaint alleges that the Director Defendants, with Brookfield’s
support, “breached their fiduciary duty of loyalty by failing to provide GGP
stockholders with a fair summary of their appraisal rights and [not] disclosing all
material information relevant to GGP stockholders” and their decision whether to
support the Transaction.188 The Plaintiffs also claim that this “conduct was
intentional, a contrived scheme to dissuade Class members from exercising appraisal
rights that BPY was actively trying to limit in negotiations with the Special
Committee.”189 While we do not accept unsupported allegations as true even at the
pleading stage—after all, stockholder plaintiffs often have the ability to draw on
public documents and Section 220 books and records in order to fill out their
complaints—we believe that the Plaintiffs have met their initial burden for at least
two reasons.
First, the Complaint observes that Brookfield demanded an appraisal-rights
closing condition early in its negotiations with the Special Committee.190 As
188
Compl. ¶ 303, App. to Opening Br. at B163.
189
Id. ¶ 304, App. to Answering Br. at B163; see also id. ¶¶ 209–234; see also Opening Br. at 33
(“Brookfield’s repeated insistence on a condition permitting it to withdraw if there were significant
appraisal demands permits an inference that substituting a structure placing 98.5% of the
consideration in the Dividend was an alternate way of limiting appraisal demands.”).
190
Compl. ¶ 224, 304, App. to Answering Br. at B128, 163.
57
discussed above, an appraisal-rights closing condition allows the purchaser to
terminate the transaction if a specified number of shares demands appraisal.191 The
Proxy, which the Court of Chancery determined was integral to the Complaint and
therefore incorporated by reference, supports the Complaint’s allegation.192 It
indicates that Brookfield twice demanded an appraisal-rights closing condition and
was rejected by the Special Committee on both occasions.193 After these rejections,
the parties agreed to bifurcate the deal consideration into two pieces, the large Pre-
Closing Dividend and the tiny Per-Share Merger Consideration. In our view, it is
reasonably conceivable that the Defendants settled on this structure and the related
Proxy disclosure as another method of limiting Brookfield’s exposure to appraisal
demands.
Second, and relatedly, the Defendants have not identified an alternative
justification for the structure they chose. Although it is generally true that corporate
directors do not have to justify each element of a proposed transaction structure when
they communicate with stockholders, in this case the Plaintiffs have argued, with
citation to a Proxy written by the Defendants, that Brookfield’s purchase of GGP
was designed and disclosed with the explicit aim of curtailing the statutory appraisal
rights that were triggered by the Transaction’s cash consideration. Facing this
191
See note 23, supra.
192
GGP, 2021 WL 2102326, at *3 & n.6.
193
See Proxy at 73–76, App. to Opening Br. at A101–104.
58
argument in litigation, the Defendants have had every opportunity to explain to this
Court why the negative inferences proposed by the Plaintiffs are not reasonably
conceivable. Instead, the Defendants on appeal offer a blanket and summary denial,
maintaining that “[n]o facts are alleged in the Complaint suggesting that the GGP
directors’ conduct concerning appraisal rights was ‘deliberate, intentional, unlawful,
and in bad faith,’ as Plaintiffs contend[.]”194 At this stage, this is not enough to
defeat the Plaintiffs’ well-pleaded claim that the Defendants committed a knowing
violation of the fiduciary duty of disclosure.
V
The judgment of the Court of Chancery dismissing Counts I, II, IV, and V of
the Complaint is affirmed. The judgment of the Court of Chancery dismissing
Counts III and VI of the Complaint is reversed, and this matter is remanded for
further proceedings in accordance with this opinion.
194
Answering Br. at 32–33.
59
MONTGOMERY-REEVES, Justice, concurring in part, dissenting in part, joined
by VAUGHN, Justice:
We agree with the Majority’s decision to affirm the dismissal of the Plaintiffs’
claim that the Transaction structure deprived stockholders of their right to seek
appraisal for two reasons. First, we agree that the Pre-Closing Dividend is merger
consideration. Second, we agree that stockholders can accept the Pre-Closing
Dividend and still seek appraisal. However, we depart from our colleagues in the
majority on their interpretation of the disclosure of appraisal rights. We do not
believe it is reasonably conceivable that the disclosure is misleading. We also would
hold that the Plaintiffs waived the Section 262(g) arguments presented on appeal.
Thus, we would affirm the Court of Chancery’s decision.
The Plaintiffs argue that if the Pre-Closing Dividend is merger consideration
for appraisal purposes, they state a reasonably conceivable claim that the notice of
appraisal in the Proxy is misleading.195 The Plaintiffs contend that the Proxy did not
accurately inform stockholders of the appraisal rights that were available because
“[i]t told them that appraisal rights were limited to the Merger (excluding the Pre-
Closing Dividend) and that an appraisal proceeding would only determine whether
fair value post-Dividend was greater than, the same as or less than the $.0312 [sic]
195
Opening Br. 34-42.
60
merger consideration.”196 In general, the Plaintiffs take issue with the Proxy because
it
identifies the $0.312 in cash received in the merger
as “the per share merger consideration” and specifies that
stockholders perfecting appraisal rights would “receive in
lieu of the per share merger consideration a cash payment
equal to the fair value of their GGP common stock,” which
might be “greater than, the same as or less than the per
share merger consideration.”197
In other words, the Plaintiffs believe that the Proxy is misleading because it
“expressly, directly and repeatedly said” “that appraisal would be limited to the [Per-
Share Merger Consideration].”198
Plaintiffs further allege that “in light of Crawford, the notice was not an
accurate statement of the available appraisal rights” because “under Crawford the
Dividend might be part of the Merger.”199 And because, according to the Plaintiffs,
Delaware law requires corporations to provide notice of the scope of an appraisal
proceeding, the Proxy’s failure to mention that the Dividend would be merger
consideration for appraisal purposes renders it incomplete and misleading.200
196
Id. at 36.
197
Id. at 37.
198
Id. at 39.
199
Id. at 40, 41.
200
Id. at 40-42.
61
A. Disclosure Obligations Under Delaware Law
“[D]irectors of Delaware corporations are under a fiduciary duty to disclose
fully and fairly all material information within the board’s control when it seeks
shareholder action.”201 “The duty of disclosure is a judicially imposed fiduciary
duty”202 that “serves the ultimate goal of informed stockholder decision making.”203
“The duty of disclosure is, and always has been, a specific application of the general
fiduciary duty owed by directors”204 and is “[a] combination of the fiduciary duties
of care and loyalty.”205 “The Delaware fiduciary duty of disclosure is not a full-
blown disclosure regime like the one that exists under federal law . . . .”206
“Directors of Delaware corporations have a fiduciary duty to shareholders to
exercise due care, good faith and loyalty whenever they communicate publicly or
directly with shareholders about the corporation’s affairs.”207 “When stockholder
action is requested, directors are required to provide shareholders with all
information that is material to the action being requested and ‘to provide a balanced,
truthful account of all matters disclosed in the communications with
shareholders.’”208
201
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
202
Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533, 537 (Del. 1996).
203
Clements v. Rogers, 790 A.2d 1222, 1236 (Del. Ch. 2001).
204
Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998).
205
Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1163 (Del. 1995).
206
Id.207
Emerald Partners v. Berlin, 726 A.2d 1215, 1223 (Del. 1999).
208
Id. (citing Malone, 722 A.2d at 12).
62
“A board can breach its duty of disclosure under Delaware law in a number
of ways—by making a false statement, by omitting a material fact, or by making
partial disclosure that is materially misleading.”209 “The last of these occurs where
a board makes a required or even non-obligatory pronouncement on a subject that is
incomplete and by which shareholders are materially misled.”210 Omitted facts are
considered material “if there is a substantial likelihood that a reasonable stockholder
would consider [them] important in deciding how to vote.”211 Stated another way,
there must be “a substantial likelihood that the disclosure of the omitted fact would
have been viewed by the reasonable stockholder as having significantly altered the
‘total mix’ of information made available.”212 Therefore, the primary question is
whether the alleged misrepresentation is material with respect to the stockholder
action being sought.213 Notably, “the question is not whether the information would
have changed the stockholder’s decision to accept the merger consideration, but
whether ‘the fact in question would have been relevant to him.’”214
209
In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 376 (Del. Ch. 1998).
210
Id.211
Louden v. Archer–Daniels–Midland Co., 700 A.2d 135, 142 (Del. 1997).
212
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1172 (Del. 2000).
213
Malone, 722 A.2d at 12.
214
Shell Petroleum, Inc. v. Smith, 606 A.2d 112, 115 (Del. 1992) (citing Barkan v. Amsted Indus.,
567 A.2d 1279, 1289 (Del. 1989).
63
“When determining whether there has been a disclosure violation, a proxy
statement should be read as a whole.”215 Thus, it is not dispositive that a sentence
or particular characterization read in isolation may be misleading if the misleading
nature of that sentence or characterization cannot be sustained in light of the entire
proxy statement.216 This concept is grounded in the fact that, “in order to be material,
the omitted fact must contribute meaningfully to the ‘total mix’ of information
available to the stockholders.”217
Under Delaware case law, the corporation’s disclosure of appraisal rights
must include all material information to allow stockholders to determine whether to
accept the merger consideration or seek appraisal.218 Thus, the disclosure of
215
IRA Tr. FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *18 (Del. Ch. Dec. 11, 2017); see
In re MONY Grp. Inc. S’holder Litig., 852 A.2d 9, 31 (Del. Ch. 2004) (noting that a proxy
statement should be read fully when determining whether a proxy statement is misleading); In re
3Com S’holders Litig., 2009 WL 5173804, at *1 (Del. Ch. Dec. 18, 2009) (“So long as the proxy
statement, viewed in its entirety, sufficiently discloses and explains the matter to be voted on, the
omission or inclusion of a particular fact is generally left to management’s business judgment.”).
216
See Crane, 2017 WL 7053964, at *18 (“When the Proxy is read in full, I do not believe the
‘sunset’ characterization was materially misleading because the Proxy makes clear that the
Conflicts Committee and the Board believed it was important to Yield’s success that NRG
continue to be Yield’s controlling stockholder and that NRG would not be in danger of losing
control any time soon after the Reclassification.”).
217
Ehlen v. Conceptus, Inc., 2013 WL 2285577, at *2 (Del. Ch. May 24, 2013).
218
Shell, 606 A.2d at 114 (“As the majority shareholder, [the parent company] bears the burden of
showing complete disclosure of all material facts relevant to a minority shareholders’ decision
whether to accept the short-form merger consideration or seek an appraisal.”); Bershad v. Curtiss-
Wright Corp., 535 A.2d 840, 846 (Del. 1987) (“Nonetheless, the defendants retain the burden of
proving complete disclosure of all material facts relevant to the merger vote.”); see Skeen, 750
A.2d at 1174 (“We agree that a stockholder deciding whether to seek appraisal should be given
financial information about the company that will be material to that decision. In this case,
however, the basic financial data were disclosed and appellants failed to allege any facts indicating
that the omitted information was material.”).
64
appraisal rights must comply with Section 262’s notice obligations and include all
material information (i.e., that which meaningfully adds to the total mix of
information a stockholder takes into account when deciding whether to accept the
merger consideration or seek appraisal).
B. The Plaintiffs Fail to State a Claim That the Proxy Is False or
Misleading
The following passage from the Proxy lies at the heart of this appeal:
If the Transactions are completed, GGP common
stockholders who comply exactly with the applicable
requirements and procedures of Section 262 of the DGCL
will be entitled to demand appraisal of their shares of the
GGP common stock (i.e., the dissenting shares) and
receive in lieu of the per share merger consideration a cash
payment equal to the “fair value” of their GGP common
stock, as determined by the Court of Chancery, in
accordance with Section 262 of the DGCL, plus interest,
if any, on the amount determined to be the fair value,
subject to the provisions of Section 262 of the DGCL.
Such appraised value may be greater than, the same as or
less than the per share merger consideration.219
The Plaintiffs contend that the Proxy directly states that GGP would be
appraised after the payment of the Pre-Closing Dividend because the Proxy uses the
defined term “per share merger consideration.”220 The majority agrees and
concludes that because the Proxy defines the “merger” as occurring after the Pre-
Closing Dividend was declared, and because the Proxy states that GGP stockholders
219
App. to the Opening Br. A363 (hereinafter “A__”).
220
Opening Br. at 37-39.
65
are “entitled to exercise their appraisal rights solely in connection with the merger,”
it is reasonably conceivable that a stockholder would conclude that GGP would be
appraised after the payment of the Pre-Closing Dividend. We disagree.
1. The Proxy’s use of the term “per share merger
consideration”
The Plaintiffs take issue with the Proxy’s use of the defined term “per share
merger consideration” in the sentences quoted above.221 In particular, the Plaintiffs
argue that the definition of per share merger consideration, which excludes the Pre-
Closing Dividend, is misleading because it implies that any appraisal proceeding
would value the corporation after the payment of the Pre-Closing Dividend. We
disagree and would conclude that the Proxy’s use of that definition simply described
the mechanics of a potential appraisal proceeding.
As explained in the majority opinion, although stockholders must forgo the
merger consideration to demand appraisal, Section 262(k) entitles all stockholders
of record (even those that demand appraisal) to dividends payable before the
effective date of the merger. Because the Pre-Closing Dividend was a dividend
payable prior to the effective date of the Transaction, GGP stockholders who
demanded appraisal were entitled to that payment. And because the Per-Share
Merger Consideration did not take the form of a dividend payable prior to the
221
Id.66
effective date of the Transaction, stockholders were required to forgo the Per-Share
Merger Consideration to perfect their appraisal right. Thus, under the mechanics of
an appraisal proceeding, any payment required by the Court of Chancery would be
made in place of only the Per-Share Merger Consideration because Section 262(k)
entitles the stockholder to the Pre-Closing Dividend. In other words, the Proxy’s
use of “per share merger consideration” accurately reflects that the Per-Share Merger
Consideration, and not the Pre-Closing Dividend, would be the only consideration
at risk in an appraisal action.
Thus, we do not believe that Plaintiffs stated a reasonably conceivable claim
that the Proxy’s use of “per share merger consideration” was misleading.
2. The Proxy’s use of the term “merger”
The majority holds that it is reasonably conceivable that a stockholder could
read the Proxy and conclude that any appraisal proceeding would value the Company
after payment of the Pre-Closing Dividend because the Proxy states that GGP
stockholders are “entitled to exercise their appraisal rights solely in connection with
the merger.”222 And because the Proxy defines the merger as occurring after the
declaration of the Pre-Closing Dividend, a stockholder could reasonably read the
Proxy as stating that appraisal would be limited to the approximately one and a half
222
A43 (emphasis added).
67
percent of the value of the company left at the time it paid the Per-Share Merger
Consideration. We disagree.
In our view, the phrase “in connection with” qualifies the word “merger.”
There is nothing more connected to the Transaction than the Pre-Closing Dividend—
after all, it makes up 98.5% of the Transaction’s consideration, is conditioned on the
Transaction’s approval, and is funded by the buyer. That the Pre-Closing Dividend
was connected to the merger is disclosed throughout the entirety of the Proxy:
• Therefore, as a result of receiving the pre-closing dividend
and the per share merger consideration, unaffiliated GGP
common stockholders . . . will be entitled to receive, for
each share of issued and outstanding GGP common stock
and each share of GGP common stock deemed held, and
subject to proration, total consideration of up to $23.50 in
cash or one (1) share of class A stock, at the election of
such GGP common stockholders (with deemed
stockholders being deemed to have elected cash).223
• Q: How do I calculate the value of the total consideration
received in connection with the Transactions?
A: Unaffiliated GGP common stockholders . . . will
be entitled to receive, for each share of issue and
outstanding GGP common stock, and subject to proration,
total consideration of up to $23.50 in cash or one (1) share
of class A stock, at the election of such GGP common
stockholders (with deemed stockholders being deemed to
have elected cash).224
• If the Transactions, including the merger, are not
completed, GGP common stockholders will not receive
any consideration in connection with the Transactions.225
223
A34 (emphasis added).
224
A36 (emphasis added).
225
A47 (emphasis added).
68
• [E]quity award average cash amount is the value (rounded
to the nearest $0.001) of the aggregate cash consideration
that would be paid in respect of each share of GGP
common stock . . . in connection with (i) the pre-closing
dividend, assuming that every share makes a cash election
and the form of consideration is prorated in accordance
with the merger agreement, and (ii) the per share merger
consideration.226
• At a meeting of the special committee held on March 26,
2018, Goldman Sachs & Co. LLC, which we refer to as
Goldman Sachs, rendered to the special committee its oral
opinion, subsequently confirmed in writing, to the effect
that, as of that date, and based upon and subject to the
factors and assumptions set forth in Goldman Sachs’
written opinion, the aggregate amount of the pre-closing
dividend in the form of cash and the shares of class A stock
. . . and merger consideration, which we refer to
collectively as the aggregate consideration, to be paid to
GGP common stockholders, pursuant to the merger
agreement was fair from a financial point of view to such
holders.227
• As a result, the BPY general partner board revised its
initial offer that BPY publicly announced on November
13, 2017 to: (i) increase the cash consideration from
$23.00 to $23.50 per share of the GGP common stock; (ii)
increase the aggregate cash consideration by $1.85 billion
from $7.4 billion to $9.25 billion . . . .228
• [E]ach of the Parent parties and the Brookfield filing
persons believes that the Transactions are substantively
and procedurally fair to unaffiliated GGP common
stockholders based on its consideration of the following
factors, among others: the consideration per share of GGP
common stock of up to $23.50 in cash or one (1) share of
class A stock or one BPY unit, subject to proration, and
226
A54, 239 (emphasis added).
227
A57-58 (emphasis added).
228
A147 (emphasis added).
69
the other terms and conditions of the merger agreement . .
. .229
• [I]n no event shall the Company be obligated to
consummate the Charter Closing unless the Escrow Agent
has confirmed to the Company the receipt of an amount at
least equal to the sum of (i) the Total Cash Amount . . . .230
o ‘Total Cash Amount’ shall mean
$9,250,000,000 less (i) the Partnership Common
Unit Cash Amount, less (ii) the Partnership LTIP
Unit Cash Amount, less (iii) the Total Restricted
Stock Cash Consideration.231
And “[w]hen determining whether there has been a disclosure violation, a
proxy statement should be read as a whole.”232
Similarly, in the same paragraph as the first sentence at issue, the notice of
appraisal in the Proxy states that “GGP common stockholders should note . . . the
opinion of Goldman Sachs as to the fairness, from a financial point of view, of the
consideration payable in a sale transaction, such as the merger consideration . . . .”233
In other words, the Proxy’s notice of appraisal references Goldman Sachs’ opinion
as to the fairness of the Transaction value; that opinion concludes that the Pre-
Closing Dividend plus the Per-Share Merger Consideration is a fair price.234 Thus,
229
A150 (emphasis added).
230
A398-99.
231
A393.
232
Crane, 2017 WL 7053964, at *18; see In re MONY Grp. Inc. S’holder Litig., 852 A.2d at 31(noting that a proxy statement should be read fully when determining whether a proxy statement
is misleading); In re 3Com S’holders Litig., 2009 WL 5173804, at *1 (“So long as the proxy
statement, viewed in its entirety, sufficiently discloses and explains the matter to be voted on, the
omission or inclusion of a particular fact is generally left to management’s business judgment.”).
233
A363.
234
A57-58.
70
the Goldman Sachs opinion further confirms that the Pre-Closing Dividend is
connected to the merger.
For these reasons, we do not think it is reasonably conceivable that a
stockholder would read the entirety of the Proxy and conclude that the Pre-Closing
Dividend was not declared “in connection with” the merger.
3. The Proxy’s Discussion of the Consideration of the Pre-
Closing Dividend in an Appraisal Action
We also disagree with the appellant and the majority for an additional reason.
In our opinion, it is not reasonably conceivable that a stockholder would read the
Proxy, the Agreement, or the statute and conclude that the Company’s value for
appraisal purposes would be determined after payment of the Pre-Closing Dividend.
Section 262(h) instructs the Court of Chancery “to determine the fair value of
the shares exclusive of any element of value arising from the accomplishment or
expectation of the merger.”235 The Court has held that in an appraisal action, while
“the fair value determination must be measured by the ‘operative reality’ of the
corporation at the time of the merger,” “the court should first envisage the entire pre-
merger company as a ‘going concern,’ as a standalone entity, and assess its value as
such” without considering any elements of value (positive or negative) arising from
235
8 Del. C. § 262(h).
71
the merger.236 In other words, in an appraisal action the court must value the
company as it would have been had the merger never occurred.237
Traditionally, this has explained why synergies and other elements of value
arising from the merging of corporations should not be considered in an appraisal
proceeding. Elements of value arising from the expectation of the merger should be
backed out of an appraisal proceeding because that value would not arise had the
merger never occurred. But there is nothing more representative of “value arising
from the accomplishment or expectation of the merger” than the merger
consideration itself—the value of the transaction at issue. As the Court of Chancery
aptly noted in In re Dollar Thrifty Shareholder Litigation, where the use of a $200
million dividend in a merger gave rise to questions regarding the reasonableness of
the merger’s termination fee, the “value of the Merger . . . is logically quantified as
the amount of consideration flowing into [the] shareholders’ pockets.”238 In other
words, under the statute, which was attached to the notice of appraisal, the Court of
Chancery would value GGP as if the Pre-Closing Dividend had not been paid
because value arising from the merger—here, the payment of the Pre-Closing
236
Brigade Leveraged Cap. Structures Fund Ltd. v. Stillwater Mining Co., 240 A.3d 3, 17 (Del.
2020); Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1, 20 (Del. 2017)
(emphasis added); 8 Del. C. § 262(h).
237
See id.
238
14 A.3d 573, 613 (Del. Ch. 2010) (emphasis added).
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Dividend to GGP239 and then to its stockholders—would not be part of the
corporation as a going concern had the merger never occurred.
Notably, the Plaintiffs agree with this conclusion in their brief, stating, “if, as
in Crawford, the Dividend was part of the Merger, GGP’s operative reality would
not include the Dividend and fair value would be based on GGP’s pre-Dividend
value.”240
Moreover, that the Court of Chancery’s determination of fair value would
exclude any element of value arising from the accomplishment or expectation of the
merger was repeated three times in the appraisal notice of the Proxy:
• [H]olders of record of GGP common stock . . . will be
entitled to have their GGP common stock appraised by
the Court of Chancery and to receive in lieu of the per
share merger consideration, a cash payment equal to
the “fair value” of such shares, exclusive of any element
of value arising from the accomplishment or
expectation of the merger . . . .241
• After determining the stockholders entitled to
appraisal, the Court of Chancery will appraise the “fair
value” of the GGP common stock, exclusive of any
element of value arising from the accomplishment or
expectation of the merger . . . .242
• Section 262 of the DGCL provides that fair value is to
be “exclusive of any element of value arising from the
accomplishment or expectation of the merger.”243
239
A12, 31 (“(d) the amount designated by BPY to GGP that constitutes that aggregate amount of
cash that GGP will pay as the pre-closing dividend . . . .”).
240
Opening Br. 23.
241
A363 (emphasis added).
242
A366 (emphasis added).
243
Id. (emphasis added).
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It is not reasonable to read the plain language of the Proxy or the statute244 and
assume that “any element of value arising from the accomplishment or expectation
of the merger” would somehow exclude the Pre-Closing Dividend, which, as the
Plaintiffs note multiple times, makes up 98.5 percent of the Transaction’s value.245
The use of the word “any” in this context means “each” or “every.” Thus, the plain
language of the Proxy and statute render unreasonable any reading that the Pre-
Closing Dividend was not included in the definition of value for appraisal purposes,
which means the appraisal action would value the corporation as if the Pre-Closing
Dividend was not paid.
Moreover, we note that in the Plaintiffs’ first argument on appeal, they
convincingly argue that the Pre-Closing Dividend is merger consideration for
purposes of an appraisal, pointing to at least two portions of the Proxy that support
their stance.246 The Plaintiffs cannot have it both ways. They cannot seriously allege
in the first argument that the Proxy makes clear that the Pre-Closing Dividend is
merger consideration but contend in the second argument that the Proxy misleads
244
The Proxy states in capital letters, that the summary is “NOT A COMPLETE STATEMENT
OF THE LAW PERTAINING TO APPRAISAL RIGHTS UNDER SECTION 262 OF THE
DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262 . . .
.” A363. There, in Section 262(h) the stockholders would find, yet again, that the Court of
Chancery cannot consider value arising from the expectation of accomplishment of the merger in
its appraisal of GGP.
245
A363; 8 Del. C. § 262(h) (emphasis added).
246
See Opening Br. 20-21 (“The Proxy confirms the interrelationship of the Dividend and the
merger consideration.”).
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stockholders into concluding that the Pre-Closing Dividend is not connected to the
merger for appraisal purposes.
When the Proxy is read in full, the sentences at issue are not misleading
because the whole of the Proxy makes clear that GGP would be valued as if the Pre-
Closing Dividend had not been paid. As such, it is not reasonable for a stockholder
to conclude that an appraisal action would value the corporation after the distribution
of the Pre-Closing Dividend.
Thus, we would affirm the Court of Chancery’s holding that the Plaintiffs did
not state a reasonably conceivable claim that the Proxy violated Section 262 or
Delaware disclosure obligations.
C. The Plaintiffs Waived Their De Minimis Argument
Finally, the Plaintiffs contend, and the majority opinion concludes, that it is
reasonably conceivable that the Proxy’s definitions of Per-Share Merger
Consideration and the “merger” led some stockholders to believe that they could not
qualify for appraisal at all due to Section 262(g)’s de minimis condition.
The majority concludes that this argument is not waived because the
complaint states, “[T]he misleading disclosure is material because no rational
stockholder would dissent on the Buyout and perfect his appraisal rights if by doing
so he only placed a de minimis part of GGP’s supposed pre-Buyout value at issue.”247
247
App. to Answering Br. B128.
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The majority also relies on the following sentence from the Plaintiffs’ brief below:
“The Proxy falsely disclosed (in buried, confusing form) stockholders’ appraisal
rights by stating that only the [Per-Share Merger Consideration], a de minimis
portion of deal consideration, could form the basis for recovery in any appraisal
proceeding.”248 We disagree.
On appeal, the Plaintiffs argue that the Transaction’s structure effectively
eliminated appraisal rights because the Pre-Closing Dividend was too small for most
stockholders to satisfy Section 262(g)’s de minimis requirement. In the complaint,
the Plaintiffs argue that stockholders likely would not seek appraisal because only a
de minimis portion of the consideration would be at issue in an appraisal proceeding.
That is, the Plaintiffs alleged that stockholders were dissuaded from seeking
appraisal because the small, de minimis amount of money that would have been at
stake in an appraisal proceeding—the Per-Share Merger Consideration—rendered
appraisal futile. While we acknowledge that both statements use the term de
minimis, they convey separate concepts. Their argument on appeal relates to whether
GGP stockholders could meet Section 262(g)’s de minimis exception. Their
argument below states only that appraisal would be limited to the small (de minimis)
Per-Share Merger Consideration. It cannot be enough that a plaintiff merely uses
the same phrase—a plaintiff must also make the same argument. Thus, we would
248
A1094.
76
hold that under Supreme Court Rule 8, the Plaintiffs waived the de minimis argument
made on appeal.
In sum, we would hold that the Proxy was not misleading for three reasons:
(1) the Proxy’s use of the term “per-share merger consideration” in the appraisal
notice tells the stockholders what is at risk in an appraisal proceeding; (2) the Proxy’s
use of the term “merger” is qualified by the phrase “in connection with,” and the
entirety of the Proxy makes clear that the Pre-Closing Dividend is connected to the
merger; and (3) any appraisal proceeding would exclude any value (positive or
negative) arising from the Transaction and the Pre-Closing Dividend is value arising
from the Transaction. We would also hold that the Plaintiffs waived the de minimis
argument they made on appeal.
For these reasons, we respectfully dissent.
77