appraisal rights proceedings

Between 2010 and 2016, the number of shareholder appraisal actions filed in Delaware courts increased every year, but in 2017 and again in 2018, the number of appraisal actions declined, according to a recent report from Cornerstone Research. The decline arguably is a result of recent Delaware Supreme Court decisions in which the court reversed lower court rulings holding that the fair value exceeded the deal price and instead indicated that the deal price should be given substantial weight, at least where the sales process was “robust.” The report, entitled “Appraisal Litigation in Delaware: Trends in Petitions and Opinions, 20016-2018” can be found here. Cornerstone Research’s February 13, 2019 press release about the report can be found here.
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It is big news when one of the most successful plaintiff-side corporate and securities lawyers decides to walk away from the game, but that is exactly what Stuart Grant of Grant & Eisenhofer, the Delaware shareholder litigation firm, is going to do. According to Alison Frankel’s interesting June 25, 2018 Reuters article and interview (here), Grant is leaving his firm effective June 30, 2018, because, in his own words, he doesn’t like losing, as he has been doing in the past few years. Both Grant’s reasons for leaving and his plans for what comes next are interesting. In his interview with Frankel, Grant also had a number of interesting things to say about a number of corporate and securities litigation topics.
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As I have detailed on this blog (most recently here), due to two Delaware court decisions — the Delaware Supreme Court’s 2015 decision in Corwin v. KKR Financial Holdings LLC  (here) and the Delaware Chancery Court’s January 2016 court decision in the In re Trulia Shareholder litigation (here)—deal litigation that in the past would have been filed in Delaware is now being filed elsewhere. But while the deal litigation in Delaware generally may be declining, in recent years there has been a significant uptick in Delaware appraisal litigation. As these cases have become more common in recent years, the question of whether or not D&O insurance covers the costs companies incur in defending appraisal actions has become increasingly common as well. Indeed, in the October 11, 2017 Advisen Quarterly D&O Claims Trends Webinar (refer here), the question of D&O insurance coverage for appraisal claim-related defense expenses was a key topic of conversation. In the following post, I review the issues involved in the question of whether or not a D&O insurance covers the costs defendants incur in defending appraisal claims.
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Much has been written about the explosive growth in merger objection litigation in recent years. A less common but increasingly frequent type of merger-related litigation is appraisal rights litigation. In these types of lawsuits an investor exercises his or her statutory right for a judicial determination of the value of his or her stock. These kinds of cases present their own sets of issues and challenges.

Among the recurring issues is the question of whether or not the costs a company incurs in an appraisal proceeding are covered under a D&O insurance policy; traditionally, D&O carriers have argued that appraisal proceedings are not covered under their policies because the request for an appraisal proceeding does not involve an alleged “Wrongful Act.” However, an August 2, 2017 memo by Peter Gillon and Benjamin Tievsky of the Pillsbury law firm  (here) argues that in many cases this coverage analysis is inaccurate and that in fact there should be coverage under the D&O policy for the expenses incurred in an appraisal proceeding.
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