Mannix v. PlasmaNet, Inc., C.A. No. 10502-CB (Del. Ch. July 21, 2015) (Bouchard, C.)
In this memorandum opinion, the Court of Chancery granted a motion to dismiss and approved a settlement whereby certain former stockholders would dismiss their appraisal demands in exchange for shares of the surviving corporation. Further, the former stockholders had to attest to their status as “accredited investors” under the federal securities laws. In so ruling, the Court held it was permissible for the surviving corporation to settle the appraisal demands of certain non-appearing former stockholders on terms that may not be available to others who sought appraisal.
On August 29, 2014, PlasmaNet, Inc. (“PlasmaNet”) merged with Free Lotto, Inc. with Plasma as the surviving corporation. Four months later, Christopher D. Mannix (“Petitioner”) sought appraisal of his PlasmaNet shares. Other shareholders, including Robert Altschuler, Lance Lundberg, Gijs Van Theil, Hoefslag, LLC, and Southgreen Acquisition, LLC (“Non-Appearing Dissenters”) also sought appraisal but did not join in Petitioner’s proceeding nor did they file a separate proceeding. PlasmaNet and the Non-Appearing Dissenters entered into a settlement whereby the Non-Appearing Dissenters would receive equity interests in PlasmaNet so long as they attested to their status as “accredited investors.” PlasmaNet made the same offer to Petitioner and all other shareholders who properly demanded appraisal. Petitioner did not accept the offer and PlasmaNet moved to dismiss this proceeding with prejudice as to the Non-Appearing Dissenters.
Petitioner argued that dismissal was inappropriate for two reasons. First, Petitioner claimed that any settlement offer must be available to all former PlasmaNet stockholders and since not all former shareholders qualified as an accredited investor, the motion must be rejected. In rejecting Petitioners argument, the Court held that the appraisal statute does not prohibit the corporation from settling appraisal demands of non-appearing dissenters. Further, the Court analogized appraisal proceedings with class actions. In class actions, defendants are able to settle with non-representative class members. Accordingly, the same logic states that a surviving corporation may settle appraisal demands with non-appearing dissenters. In so holding, the Court reasoned that approval of the settlement would have no legal effect on Petitioner’s standing in the appraisal proceeding or on the ability of other stockholders to continue to rely on the current proceeding.
Second, Petitioner argued that the proposed settlement would undercut the economics of the current appraisal proceeding by reducing the number of shares in play and thus the potential aggregate recovery available. The Court also rejected this argument, reasoning that the Petitioner voluntarily accepted the risk that the current appraisal proceeding would be limited to only his shares. If the Court were to accept Petitioner’s argument, the Court noted that this would effectively give him a settlement hold-up right that was not envisioned by the appraisal statute.