In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation
Unpublished Memorandum Opinion Declining to Certify Interlocutory Appeal (Transaction ID 75906213) (2025)
Rule of Law:
Interlocutory appeals in Delaware are exceptional, not routine, requiring strict analysis by the trial court to determine if the order decides a substantial issue of material importance that merits early appellate review, and if the likely benefits of such review outweigh its certain costs, consistent with Delaware Supreme Court Rule 42.
Facts:
- Sears Hometown and Outlet Stores, Inc. (the Company), a publicly traded entity, was controlled by Sears Holdings Corporation (Holdings), which was in turn controlled by Edward 'Eddie' S. Lampert.
- In 2019, the Company and Holdings agreed to a merger where each Company share was converted into the right to receive $3.21 from Transform Holdco LLC (Parent), an entity controlled by Lampert.
- Stockholder plaintiffs challenged the Merger as a squeeze-out transaction at an unfair price, alleging breach of fiduciary duty by Lampert and other fiduciaries (the Plenary Action).
- Cannon Square, LLC (the Fund) asserted its right to an appraisal, seeking a judicial determination of the fair value of its shares (the Appraisal Proceeding).
- In 2022, the Company and Parent filed voluntary petitions for bankruptcy, rendering the Fund an unsecured general creditor and making its appraisal claim and contractual right to merger consideration from Parent worthless.
- The Fund subsequently chose to join the Plenary Action, increasing the size of the class.
- The court later found that the Merger was not entirely fair and that Lampert had breached his duty of loyalty, determining a fair price for shares was $4.06 each, and awarded incremental compensatory damages of $0.85 per share to class members who had received the $3.21 merger consideration.
- The Fund, not having received the merger consideration due to the bankruptcies, intervened to establish its entitlement to the full fair-price damages award of $4.06 per share.
Procedural Posture:
- Stockholder plaintiffs filed a plenary class action (the Plenary Action) in the Court of Chancery of the State of Delaware, alleging breach of fiduciary duty by Edward S. Lampert and other fiduciaries in connection with the merger.
- Cannon Square, LLC (the Fund) asserted its right to an appraisal in the Court of Chancery of the State of Delaware, seeking a judicial determination of the fair value of its shares (the Appraisal Proceeding).
- The Court of Chancery entered an order coordinating the Plenary Action and the Appraisal Proceeding for purposes of discovery and trial.
- After the Company and Parent filed voluntary petitions for bankruptcy, rendering the Fund's appraisal claims worthless, the Fund chose to join the Plenary Action.
- The Court of Chancery issued a Post-Trial Opinion, finding that the Merger was not entirely fair and that Lampert had breached his duty of loyalty, awarding compensatory damages of $0.85 per share to class members who had received the merger consideration.
- The Fund intervened to assert its entitlement to the full fair-price damages award, as it had not received the merger consideration.
- The Court of Chancery issued a Remedy Opinion, holding that the Fund was entitled to the full compensatory damages award of $4.08 per share without offset.
- Defendant Edward S. Lampert (the controller) filed an application with the Court of Chancery of the State of Delaware to certify an interlocutory appeal from the Remedy Opinion.
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Issue:
Does the Court of Chancery's Remedy Opinion, which held that an appraisal claimant who subsequently joined a plenary class action after its appraisal claims became worthless, is entitled to full fair-price damages without offset for merger consideration it never received, meet the strict criteria for certification of an interlocutory appeal under Delaware Supreme Court Rule 42?
Opinions:
Majority - Laster, V.C.
No, the Court of Chancery should not certify an interlocutory appeal from its Remedy Opinion. First, the application for certification was untimely, filed three days beyond the deadline calculated under Supreme Court Rule 11. Although Lampert’s counsel made a mistake by calculating under a different rule, this constitutes excusable neglect, not the 'good cause' required for an extension. Second, the Remedy Opinion did not resolve a substantial issue of material importance that warrants early appellate review. The court decided the merits of the fiduciary duty claims in the Post-Trial Opinion over a year prior; the Remedy Opinion merely quantified the Fund’s entitlement to damages based on settled precedent. The court rejected Lampert’s policy argument that the Remedy Opinion unfairly 'offloads credit risk' onto defendants, clarifying that damages for disloyalty are owed to make beneficiaries whole, regardless of an appraisal claimant's choice or a company's solvency. The Remedy Opinion applied established legal principles from cases like Technicolor, Emerging Communications, Dole Food, and Mindbody to the specific facts, which does not constitute a question of first impression nor does it create a conflict with other trial court decisions. The reasoning of Technicolor makes clear that an appraisal claimant can pursue a plenary action and choose between remedies, and the timing or reason for that choice (e.g., bankruptcy) is irrelevant, as is proving a causal role of the defendant in the appraisal's failure. Furthermore, the issues raised regarding the appraisal statute were settled by Technicolor, and accepting Lampert's arguments would require overruling that precedent. Third, an interlocutory appeal would not terminate the litigation; a reversal would only remand for further consideration of the settlement, and the case is on the verge of a final judgment (either after a fee award or settlement approval), allowing for a single appeal as of right. Therefore, the court finds no substantial benefits to interlocutory review that outweigh its certain costs, and the interests of justice do not support granting it.
Analysis:
This decision reaffirms Delaware's stringent standards for certifying interlocutory appeals, highlighting the judiciary's commitment to the 'final order' doctrine to prevent piecemeal litigation and conserve judicial resources. By denying certification, the court emphasizes that even significant financial implications or complex factual scenarios will not justify an early appeal if the underlying legal principles are settled. The ruling also reinforces the lasting precedential value of Cede & Co. v. Technicolor, Inc., ensuring that claimants in fiduciary duty actions retain the flexibility to choose their most favorable remedy without being penalized by intervening events like bankruptcy, and that disloyal fiduciaries remain obligated to pay full compensatory damages.
