Meade v. Pacific Gamble Robinson Co.

1. The statute providing for the appraisal of, and payment for, the value of shares of a stockholder who is dissatisfied with merger of corporation contains no implication that interest on value fixed by appraisers should be allowed as a benefit to stockholder who proceeds under statute for any period prior to 60 days from appraisers' decision and notice. Rev. Code 1935, § 2093, as amended by 43 Del. Laws, c. 132, § 16.

2. The direction that merged corporations must pay dissatisfied stockholder value of his stock within three months after merger applies where corporation and stockholder come to an agreement as to value of stock within 30 days after merger. Rev. Code 1935, § 2093, as amended by 43 Del. Laws, c. 132, § 16.

3. The act of merging two corporations did not constitute a legal wrong as to dissatisfied stockholder, nor did failure of merged corporation to reach an agreement with stockholder as to value of his stock so that stockholder was not entitled to interest on value of his stock until lapse of 60-day period given merged corporation to pay such value after its determination by appraisers. Rev. Code 1935, § 2093, as amended by43 Del. Laws, c. 132, § 16.

4. Where statute created remedy involved in proceeding by which value of stock of dissatisfied stockholder was ascertained after merger of corporations and there was no illegality or other wrongful conduct on part of corporation, stockholder would not be granted interest on basis of the exercise of equitable discretion prior to expiration of 60 days from appraisers' decision and notice as fixed by statute as time for payment of value. Rev. Code 1935, § 2093, as amended by 43 Del. Laws, c. 132, § 16.

5. The apportionment of costs in a proceeding for appointment of appraisers to determine value of stock of dissatisfied stockholder in connection with corporate merger is confided to the discretion of Court of Chancery, so that, to justify a modification of order for costs, reviewing court must find an abuse of judicial discretion. Rev. Code 1935, § 2093, asamended by 43 Del. Laws, c. 132, § 16.

6. Court of Chancery may tax against surviving corporation all appraisal costs in proceeding to appraise value of shares of stockholder dissatisfied with merger, where there is no basis for concluding that stockholder acted in bad faith, or occasioned unnecessary expense, or made use of procedure for purpose of being "bought off" by corporation rather than for purpose of obtaining a fair value for his shares. Rev. Code 1935, § 2093,as amended by 43 Del. Laws, c. 132, § 16. The complainant, Meade, was a shareholder of a corporation which was merged with another. The defendant, Pacific Gamble Robinson Co., is the surviving corporation. Complainant obtained an appraisal of his shares pursuant toSection 61 of the Delaware Corporation Law, Rev. Code of Del. (1935) § 2093, as amended by 43 Laws of Del. c. 132, § 16, p. 468 (under the provisions existing prior to the 1943 amendment of the act [44 Del. Laws, c. 125, § 5]). The main question is whether defendant must pay interest from the date of the merger on the value of the shares fixed by the appraisers.

The case began in Chancery by a petition of complainant for the appointment of a third appraiser under Section 61. The court appointed an appraiser who, together with the two appraisers designated by the parties, fixed a value of the shares. Later, defendant filed a petition in the original proceeding to compel complainant to assign to it his certificates for shares held in the merging company, upon payment to him of the amount of the appraisers' award; and to obtain the taxing of costs. Complainant took the position that he was entitled to the appraised value plus interest from the date of the merger. Upon motion of complainant, pending a hearing on defendant's petition, the Vice-Chancellor ordered defendant to pay the full amount of the appraisers' award so that complainant might at once receive all of it except $10,000, which sum was to be held in the registry of the court subject to further order; and likewise ordered complainant to deposit the certificates for his shares in the registry. After a hearing, the Vice-Chancellor held that interest on the award should not begin to run until sixty days after the decision of the appraisers and notice to defendant. Complainant assigns this part of the decree as error. The Vice-Chancellor taxed the costs against defendant. In its appeal, defendant assigns as error the taxing of all costs against it, and also the exclusion from costs of certain of its expenses in connection with the appraisal. The decree entered recites that the court was advised that complainant intended to prosecute an appeal. It then provides that the certificates for complainant's shares and the $10,000 deposited under the previous order be retained in the registry of the court pending the outcome of the appeal.

Section 61 of the Corporation Law, prior to the 1943 amendment, provided as follows:

"Consolidation or Merger; Payment for Stock of Dissatisfied Stockholder: — If any stockholder in any corporation of this State consolidating or merging as aforesaid, who objected thereto in writing, shall within twenty days after the date on which the agreement of consolidation or merger has been filed and recorded, as aforesaid, demand in writing from the corporation resulting from or surviving such consolidation or merger, payment of his stock, such resulting or surviving corporation shall, within three months thereafter, pay to him the value of his stock at said date, exclusive of any element of value arising from the expectation or accomplishment of such consolidation or merger. If within thirty days after the date of such written demand the corporation and such stockholder fail to come to an agreement as to such value of such stock, such stockholder may demand an appraisal of his stock by three disinterested persons, one of whom shall be designated by the stockholder, one by the directors of the resulting or surviving corporation and the other by the two designated as aforesaid and may serve written notice on such corporation designating therein one appraiser and requiring the corporation to designate a second appraiser within thirty days from the date of service of such notice. If within thirty days from the date of service of such notice the corporation shall have failed to designate a second appraiser or if the two appraisers first designated shall fail to designate a third appraiser within thirty days from the designation of the second appraiser, such stockholder may apply to the Chancellor to designate a second and a third appraiser, or a third appraiser, as the case may be. The decision of the appraisers as to such value of such stock shall be final and binding upon the corporation and such stockholder. In case the value of such stock as so fixed by the appraisers is not paid to such stockholders within sixty days from the date of such decision and of notice thereof given to the corporation, the decision of the appraisers shall be evidence of the amount due from the corporation, and such amount may be collected as other debts are by law collectible from the resulting or surviving corporation. Upon receipt of payment in full of the value of such stock, such stockholders shall transfer his stock to the said resulting or surviving corporation, to be disposed of by the directors thereof, or to be retained for the benefit of the remaining stockholders.

"The cost of any such appraisal, including a reasonable fee to each of the appraisers, may on application of any party in interest be determined by the Chancellor and taxed upon the parties to such appraisal, or either or both of them, as may appear to be equitable."

Complainant elected to avail himself of the benefits of the statute to obtain a payment in money for his shares instead of accepting whatever would have been his rights under the merger agreement. Complainant claims as a benefit the right to interest from the date of the merger, or at least, from a date three months after the merger. This latter is based on the statutory direction that a surviving corporation shall, within three months after the merger, pay the value of the stock at the date of the merger.

The statute makes no mention of interest. It employs express terms in designating what the corporation shall pay, what the stockholder and the corporation may agree upon, and what the appraisers are authorized to fix or decide. In each instance, this is the value of the stock at the date of the merger. The value "as so fixed by the appraisers" is what the corporation should pay within sixty days from their decision and notice to the corporation. Their decision as to the value is final and binding upon the parties and is "evidence of the amount due from the corporation." The statute makes "such amount" collectible from the surviving corporation "as other debts are by law collectible." In our view, these express provisions seem rather to negative than to suggest an implication that interest on the value fixed by the appraisers (for any period prior to sixty days from the appraisers' decision and notice) should be allowed as a benefit to stockholders who proceed under the statute.

Complainant argues that his claim for interest is supported by the Delaware law which allows interest as a part of damages in certain actions at law, tort and contract, citing Superior TubeCo. v. Delaware Aircraft Industries, (D.C.) 60 F.Supp. 573, and authorities referred to in that opinion. The cases in which interest is allowable (excluding those involving express statutory provisions for interest) have a common characteristic in that they concern some legal wrong done to the plaintiff; that is, some breach of express or implied contract, violation of duty, unlawful conversion, or other legal transgression or default. Interest is computed as an integral part of the ascertainment of the damages to be assessed, and usually, from the date of the legal wrong. Here, the action of the merging corporations did not constitute a legal wrong to complainant. There was full statutory warrant for doing what was done. Nor did the corporation subsequently do anything which violated complainant's rights, at least up to the end of the sixty-day period after the appraisers' decision and notice to the corporation. Failure of the corporation to pay the value of the stock within three months after the merger was not a default or violation of duty. The three-months direction must be considered with relation to the rest of the statute. When so considered, it is apparent that the direction is designed for situations where the corporation and the shareholder come to an agreement as to the value of the stock within thirty days after the merger. Insofar as the statute indicates, failure to reach an agreement should no more be treated as a default of the corporation than of the shareholder. The appraisal and agreement methods of ascertainment of value are of equal legality. For situations where resort is had to the appraisal method, the statute prescribes a specific period of sixty days during which the corporation should pay the appraisers' award and after which the amount of the award becomes collectible. Defendant complied with what was required of it under Section 61, and thus violated no duty it owed complainant (at least up to the end of the sixty-day period after the appraisers' decision and notice). This, we think, makes inapplicable the law action interest cases and also cases cited involving mergers or sales of assets which were ultra vires or otherwise illegal. Because of the absence of provisions for interest in the statute and because the actual provisions seem inconsistent with its allowance, we conclude that the benefits afforded stockholders who do not wish to go along with a merger do not include interest upon the appraisers' award from the date of the merger or from a date three months after the merger.

In so deciding, we have not overlooked the cases of Skipwithv. Federal Water and Gas Corporation, 185 Misc. 248, 56N.Y.S. 2d 804 and In re Plummer, decided by Judge Moncure of the Chancery Court of the City of Richmond in 1933 (opinion not reported), which support complainant's contention. From the opinions, it would appear that the courts were largely influenced by their notions of "simple justice". In face of the plain provisions of our statute, we think irrelevant any opinions we might entertain as to whether the exclusion of interest seems just or unjust in this case, or in some cases, or in most cases. We decline to follow these authorities.

Complainant argues that even if a dissenting stockholder "is not entitled to interest as a matter of legal right, interest should be awarded" to complainant "in the exercise of equitable discretion" in view of substantial benefits derived by defendant from complainant's investment since the date of the merger. (Defendant denies that there were substantial benefits to it.) In this connection, Vice-Chancellor Seitz, said [29 Del.Ch. 406, 420, 51 A.2d 313, 320]: "When, as here, the statute creates the remedy involved in the proceeding, and there is no illegality or other wrongful conduct on the part of the corporation, I think this court cannot properly grant interest on the basis of the general power" (of the Court of Chancery). We agree with the Vice-Chancellor's reasoning and conclusion. Accordingly, we hold that interest is not allowable on the appraisers' award for any period prior to the expiration of sixty days from the appraisers' decision and notice. There is no dispute with respect to interest after that time.

We come now to the question of costs. The Vice-Chancellor taxed against defendant all costs allowed. Defendant contends that the costs should have been apportioned equally between the parties and should have included additional items. The statute confides the apportionment of costs to the discretion of the Court of Chancery. To justify a modification of the order for costs, we should have to find an abuse of judicial discretion. This we do not find. It is reasonable to construe the statute as permitting the Court of Chancery to tax all appraisal costs against the surviving corporation where there appears no basis for concluding that the shareholder acted in bad faith, or occasioned unnecessary expense, or made use of the procedure for the purpose of being "bought off" by the corporation rather than for the purpose of obtaining a fair value for his shares. The practice in the Court of Chancery and the order in this case are consistent with that construction. It is unnecessary to consider whether the excluded items of defendant's expenses should have been included as costs. The taxing of the costs below will not be disturbed. However, we notice that Vice-Chancellor specifically allowed as costs the amount of the deposit with the Register in Chancery paid by complainant at the institution of the proceeding. We assume that the specification of this item was not intended to modify the general practice that at the conclusion of a case, when costs are paid, the amount of the deposit is returned to the depositing party or credited against any costs he is required to pay.

The decree of the Court of Chancery should be affirmed, with costs of each appeal against the appellants, respectively.