Lexplug logoLexplug

Rabkin v. Philip A. Hunt Chemical Corporation

Supreme Court of Delaware
498 A.2d 1099 (1985)
ELI5:

Rule of Law:

The appraisal remedy is not exclusive for minority shareholders in a cash-out merger where the complaint alleges specific acts of unfair dealing by the majority shareholder, such as manipulative timing of the transaction, that breach the fiduciary duty of entire fairness.


Facts:

  • On March 1, 1983, Olin Corporation acquired a 63.4% majority stake in Philip A. Hunt Chemical Corporation from another company.
  • The stock purchase agreement contained a 'one year commitment' requiring Olin to pay $25 per share if it acquired the remaining minority shares within one year of the closing date.
  • Olin installed its own executives on Hunt's board of directors.
  • Internal Olin memoranda indicated that Olin always intended to acquire 100% of Hunt and discussed the cost savings of waiting until after the one-year commitment expired to do so.
  • On March 27, 1984, less than four weeks after the one-year commitment expired, Olin's board proposed a cash-out merger to acquire the remaining Hunt shares for $20 per share.
  • Hunt's board formed a Special Committee of outside directors to evaluate the offer only after Olin had already publicly announced the $20 price.
  • The Special Committee's financial advisor, Merrill Lynch, determined that a fair value for Hunt's stock was in the range of $19 to $25 per share.
  • After Olin refused the committee's request to increase the price, the committee deemed the $20 offer 'fair but not generous' and recommended the merger.

Procedural Posture:

  • Minority stockholders of Hunt filed consolidated class action lawsuits against Olin Corporation in the Delaware Court of Chancery (a trial court).
  • The plaintiffs challenged the fairness of the proposed cash-out merger.
  • The Court of Chancery granted the defendants' motion to dismiss the complaints, ruling that appraisal was the plaintiffs' exclusive remedy.
  • The Court of Chancery also denied the plaintiffs' motion for leave to amend their complaints.
  • The plaintiffs (appellants) appealed the dismissal to the Delaware Supreme Court (the state's highest court).

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a minority shareholder's complaint challenging a cash-out merger state a claim for breach of the duty of entire fairness, thus avoiding dismissal on the grounds that appraisal is the exclusive remedy, when it alleges the majority shareholder purposely timed the merger to avoid a one-year price commitment?


Opinions:

Majority - Moore, Justice

Yes, a complaint alleging that a majority shareholder purposely timed a merger to avoid a contractual price commitment states a claim for unfair dealing under the entire fairness standard, which is not limited to an appraisal remedy. While Weinberger v. UOP, Inc. established appraisal as the primary financial remedy in cash-out mergers, it explicitly carved out an exception for cases involving 'fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching.' The duty of entire fairness encompasses both fair price and fair dealing, with fair dealing examining issues of timing, structure, and negotiation. Allegations of Olin deliberately manipulating the merger's timing to avoid its $25 price commitment are not mere valuation disputes suitable for appraisal; they are claims of procedural unfairness and overreaching that must be examined by the Court of Chancery for a potential breach of fiduciary duty. Therefore, the complaint should not have been dismissed.



Analysis:

This case is a significant clarification of the landmark Weinberger v. UOP, Inc. decision. It reaffirms that the 'entire fairness' standard is a robust, two-part test and that the 'fair dealing' prong is not subordinate to 'fair price.' The ruling prevents majority shareholders from using procedural manipulation, like strategically timing a merger, while claiming that the minority's only recourse is a valuation-focused appraisal proceeding. It preserves the Court of Chancery's equitable power to remedy breaches of fiduciary duty that go beyond mere price inadequacy, ensuring that minority shareholders have a meaningful path to challenge faithless conduct by a controlling shareholder.

G

Gunnerbot

AI-powered case assistant

Loaded: Rabkin v. Philip A. Hunt Chemical Corporation (1985)

Try: "What was the holding?" or "Explain the dissent"