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Andrew and Suzanne Schwartz 2000 Family Trust v. AM Apparel Holdings, Inc., C.A. No. 3172-VCS (July 28, 2008)

July 28, 2008

In this action seeking appraisal pursuant to 8 Del. C. 262, the Court of Chancery held that respondent AM Apparel failed to show that petitioners’ appraisal demands were untimely. The proposed Merger of AM Apparel and Newco was announced to shareholders in a March, 2007 memorandum, which indicated that the Merger would be approved by written consent of AM Apparel’s majority stockholder and would close on March 30, 2007. The March memorandum informed shareholders of their right to seek appraisal, but did not contain the formal appraisal notice required under Delaware law and did not inform shareholders how to exercise their appraisal rights. The petitioners nonetheless filed appraisal demands on April 4, 2007, unaware that the Merger had not yet closed. The Merger ultimately closed on April 20, 2007 and AM Apparel sent a formal notice to its shareholders on April 26, 2007, indicating that shareholders wishing to seek appraisal must do so on or before May 17, 2007. Petitioners did not submit new appraisal demands, relying on their previous submissions.

The Court rejected AM Apparel’s argument that the appraisal demands were untimely. Although
8 Del. C. 262(d)(2) requires an appraisal demand to be submitted within 20 days after notice
of the effective date of the merger, the Court held that equity excused non-compliance with the
statute in this case, because AM Apparel’s own confusing communications caused petitioners’ nonconformance.  The Court held that the March memorandum was unclear and indicated that closing was imminent, that petitioners acted reasonably in submitting appraisal demands in response to the March memorandum, and that the April 26, 2007 notice did not clearly indicate that shareholders were required to submit new appraisal demands in order to comply with the statute. Accordingly, the Court held that petitioners could proceed with their appraisal action.

The full opinion is available here