1988 Cede Co V Technicolor Inc 542 A2d 1182

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Cede & Co. v. Technicolor

Supreme Court of Delaware
October 14, 1987, Submitted ; June 10, 1988, Decided
Nos. 18, 1987, Consolidated with No. 19, 1987
Reporter
542 A.2d 1182 *; 1988 Del. LEXIS 165 **
CEDE & CO. v. TECHNICOLOR, INC., 1987
Cede & Co. and Cinerama, Inc., Petitioners Del. Ch. LEXIS 376 (Del. Ch., Jan. 13, 1987)
Below, Appellants, v. Technicolor, Inc.,
Respondent Below, Appellee. Cinerama, Inc.,
a New York Corporation, Plaintiff Below,
Appellant and Cross-Appellee, v. Technicolor, Disposition: Affirmed, in part; Reversed in
Inc., a Delaware Corporation, Morton part; and Remanded.
Kamerman, Arthur N. Ryan, Fred R. Sullivan,
Guy M. Bjorkman, George Lewis, Richard M.
Blanco, Jonathan T. Isham, MacAndrews &
Forbes Group, Incorporated, a Delaware
Corporation, Macanfor Corporation, a Core Terms
Delaware Corporation, and Ronald O.
merger, shareholder, election, consolidate,
Perelman, Defendants Below, Appellees and
unfair, rescissory, discovery, wrongdoing,
Cross-Appellants
fiduciary, cash-out, interlocutory, cross-appeal,
deposition, stock, later-discovered, equitable,
perfected
Subsequent History: Subsequent appeal at,
Remanded by Cede & Co. v. Technicolor, Inc.,
758 A.2d 485, 2000 Del. LEXIS 283 (Del.,
2000) Case Summary
Procedural Posture
Plaintiff shareholders and defendants, in
Prior History: [**1] Court below: Court of
related suits, sought review of Court of
Chancery of the State of Delaware in and for
Chancery, New Castle County (Delaware)
New Castle County, C.A. No. 7129 Court
rulings denying defendants' motion to dismiss
Below: Court of Chancery of the State of
plaintiff's fraud conspiracy, self-dealing, and
Delaware in and for New Castle County, C.A.
waste, action, defendants' cross-appeal
No. 8358
asserting plaintiff's lack of standing, and
denying plaintiff's motion to amend its
appraisal action and requiring plaintiff to make
Page 2 of 17
an election of remedies.
Business & Corporate

Law > ... > Shareholder Actions > Actions
Against Corporations > General Overview
Overview
Torts > Business Torts > Fraud &
Plaintiffs, shareholders of defendant Misrepresentation > General Overview
corporation, filed an appraisal proceeding
under Del. Code. Ann. tit. 8, § 262 and a Business & Corporate
minority shareholders' suit for damages for Law > ... > Shareholder Actions > Appraisal
alleged fraud. Plaintiffs alleged that the Actions & Dissent Rights > General
appraisal proceeding and rescissory suit for Overview
fraud served different purposes and were
designed to provide different and not HN1[ ] Shareholder Actions, Actions
interchangeable remedies. Defendants alleged Against Corporations
that plaintiffs lacked standing to bring the fraud
A statutory appraisal proceeding under Del.
action after electing appraisal relief under Del.
Code Ann. tit. 8, § 262 and a rescissory suit for
Code Ann. tit 8, § 262. On appeal, the court
fraud, misrepresentation, self-dealing and
determined that the statutory appraisal and
other actionable wrongs violative of entire
fraud claims were distinct causes of action that
fairness to minority shareholders serve
as a matter of law could be brought together.
different purposes and are designed to provide
Additionally, the court held that consolidation
different, and not interchangeable, remedies.
of the actions would have resulted in
convenience and economy in the
administration of both actions.
Law > ... > Shareholder Actions > Appraisal
Actions & Dissent Rights > General
Overview
Outcome Governments > Legislation > Statutory

The judgment of the trial court denying Remedies & Rights
defendants' motion to dismiss plaintiffs' fraud
action and defendants' cross-appeal asserting Mergers & Acquisitions
plaintiffs' lack of standing were affirmed. Denial Law > Mergers > Rights of Dissenting
of plaintiffs' motion to amend its appraisal Shareholders
action was affirmed; however, the judgment
HN2[ ] Shareholder Actions, Appraisal
requiring plaintiffs make an election of
Actions & Dissent Rights
remedies was reversed.
LexisNexis® Headnotes
Page 3 of 17
An appraisal proceeding is a limited legislative minority's share interest on the day of the
remedy intended to provide shareholders merger, reflecting all relevant information
dissenting from a merger on grounds of regarding the company and its shares. This
inadequacy of the offering price with a judicial includes information concerning future events
determination of the intrinsic worth, fair value, not arising solely from the accomplishment or
of their shareholdings. expectation of the merger, which, if made
public, can affect the current value of the
shares and "which are known or susceptible of
Business & Corporate proof as of the date of the merger.
Overview Business & Corporate
HN3[ ] Shareholder Actions, Appraisal Against Corporations > General Overview
Actions & Dissent Rights
Value is traditionally arrived at by determining Misrepresentation > General Overview
the true or intrinsic value of the shareholders'
proportionate interest in the company, value HN5[ ] Shareholder Actions, Actions
on a going-concern rather than a liquidated Against Corporations
basis.
In contrast to appraisal, entire fairness, fair
price and fair dealing, is the focal point against
Business & Corporate which the merger transaction and
Law > ... > Shareholder Actions > Appraisal consideration arrived at can be measured. The
Actions & Dissent Rights > General appraisal remedy may not be adequate in
Overview certain cases, particularly where fraud,
misrepresentation, self-dealing, deliberate
Mergers & Acquisitions waste of corporate assets, or gross and
Law > Mergers > Rights of Dissenting palpable overreaching are involved.
Shareholders
Mergers & Acquisitions Law > General Business & Corporate

Overview Law > ... > Shareholder Actions > Actions
HN4[ ] Shareholder Actions, Appraisal
Actions & Dissent Rights Torts > Business Torts > Fraud &
Misrepresentation > General Overview
The Weinberger process for determining the
"fair value" of the company's outstanding HN6[ ] Shareholder Actions, Actions
shares by includes all generally accepted Against Corporations
techniques of valuation used in the financial
community, thereby supplementing the The test for fairness of a merger is not a
previously employed rigid or stylized approach bifurcated one as between fair dealing and
to valuation. Weinberger directs that this price. All aspects of the issue must be
"liberalized approach" to appraisal shall be examined as a whole since the question is one
used to determine the value of a cashed-out of fairness.
Page 4 of 17

Business & Corporate Actions & Dissent Rights > General
Law > ... > Shareholder Actions > Appraisal Overview
Overview HN9[ ] Shareholder Actions, Actions
Against Corporations
Mergers & Acquisitions
Law > Mergers > Rights of Dissenting In a fraud claim, the approach to determining
Shareholders relief may be the same as that employed in
determining fair value under Del. Code Ann. tit.
HN7[ ] Shareholder Actions, Appraisal 8, § 262. However, an appraisal action may
Actions & Dissent Rights not provide a complete remedy for unfair
dealing or fraud because a damage award in a
In a Del. Code Ann. tit. 8, § 262 appraisal
fraud action may include rescissory damages if
action the only litigable issue is the
the trier of fact considers them susceptible of
determination of the value of the appraisal
proof and a remedy appropriate to all issues of
petitioners' shares on the date of the merger,
fairness before him.
the only party defendant is the surviving
corporation and the only relief available is a
judgment against the surviving corporation for
the fair value of the dissenters' shares.
Business & Corporate Civil Procedure > ... > Class
Law > ... > Shareholder Actions > Actions Actions > Derivative Actions > General
Against Corporations > General Overview Overview
Torts > Business Torts > Fraud & HN10[ ] Shareholder Actions, Actions
Misrepresentation > General Overview Against Corporations
HN8[ ] Shareholder Actions, Actions Procedural requirements of standing
Against Corporations developed to control derivative actions have
no relevance to individual shareholder suits
A fraud action asserting fair dealing and fair
claiming a private wrong.
price claims affords an expansive remedy and
is brought against the alleged wrongdoers to
provide whatever relief the facts of a particular
Business & Corporate Law > ... > Actions
case may require. In evaluating claims
Against Corporations > Derivative
involving violations of entire fairness, the trial
Actions > Enforcement of Corporate Rights
court may include in its relief any damages
sustained by the shareholders. Civil Procedure > ... > Class
Actions > Derivative Actions > General
Overview
Page 5 of 17
Business & Corporate Misrepresentation > General Overview

Against Corporations > General Overview HN12[ ] Governments, Fiduciaries
Business & Corporate Statutory appraisal is limited to the payment of

Law > ... > Shareholder Actions > Actions fair value of the shares by the surviving or
Against Corporations > Direct Actions resulting corporation. Del. Code Ann. tit. 8, §
262(i). A determination of fair value does not
Civil involve an inquiry into claims of wrongdoing in
Procedure > ... > Justiciability > Standing > the merger. In contrast, in a fraud action
General Overview seeking monetary relief for unfair dealing, the
focus of the suit is whether wrongdoing can be
Torts > Business Torts > Fraud & established. Hence, the necessary party
Misrepresentation > General Overview defendants in a fraud in the merger action are
the alleged wrongdoers because it is they who
HN11[ ] Derivative Actions, Enforcement arguably caused the injury and should pay any
of Corporate Rights damage award.
Standing to pursue a derivative claim for injury
to the corporate entity should not be confused
with the right of a former shareholder claimant Business & Corporate
to assert a timely filed private cause of action Law > ... > Shareholder Actions > Actions
premised upon a claim of unfair dealing, Against Corporations > General Overview
illegality, or fraud.
Governments > Fiduciaries Overview
Mergers & Acquisitions HN13[ ] Shareholder Actions, Actions
Law > Antitrust > General Overview Against Corporations
Business & Corporate To judicially expand an appraisal proceeding
Law > ... > Shareholder Actions > Actions to include unfair dealing claims would likely
Against Corporations > General Overview create unforeseeable administrative and
procedural problems for litigants and the
courts. In most cases only a small proportion
of shareholders will have perfected appraisal
rights and thus have access to the expanded
Overview
appraisal remedy.
Civil Procedure > Judgments > Relief From
Judgments > General Overview
Contracts Law > Remedies > Election of
Mergers & Acquisitions Remedies
Law > Mergers > Rights of Dissenting
Shareholders HN14[ ] Remedies, Election of Remedies

Page 6 of 17
Broadly speaking, an election of remedies is Business & Corporate

the voluntary choice by a party to an action of Law > ... > Shareholder Actions > Actions
one or more co-existing, but necessarily Against Corporations > General Overview
inconsistent and repugnant remedial rights
growing out of the same known facts. Business & Corporate Law > ... > Directors
& Officers > Management Duties &
Liabilities > General Overview
HN17[ ] Shareholder Actions, Actions
Assuming the corporate management failed to
exercise complete candor with the minority
Misrepresentation > General Overview
shareholders, the minority should not be
Business & Corporate placed in a worse position than if management
Law > ... > Shareholder Actions > Appraisal had acted with complete candor.
Overview
Civil Procedure > Trials > Consolidation of
HN15[ ] Shareholder Actions, Actions Actions
HN18[ ] Trials, Consolidation of Actions
An appraisal proceeding and an equitable
action for rescissory damages for illegality or Consolidation of the appraisal and fraud
other wrongdoing in extinguishing minority actions should result in convenience and
shareholder interests do not involve the economy in the administration of both actions.
assertion of inconsistent rights. The remedies, See Del. Ct. of Chancery R. 42(a).
though very different, are not inconsistent or
repugnant because one remedy is premised
on a state of facts that is the alternative to, Civil Procedure > Trials > Consolidation of
rather than the converse of, the state of facts Actions
that forms the basis for recovery under the
other remedy. HN19[ ] Trials, Consolidation of Actions
Del. Ch. Ct. R. 42(a) provides that when

actions involving a common question of law or
Contracts Law > Remedies > Election of fact are pending before the court, it may order
Remedies a joint hearing or trial of any or all the matters
in issue in the actions; it may order all the
HN16[ ] Remedies, Election of Remedies
actions consolidated; and it may make such
The election of remedies doctrine has no orders concerning proceedings therein as may
application to litigation where the remedies tend to avoid unnecessary costs or delay.
sought are for the enforcement of different and
distinct rights or the redress of different and
distinct wrongs.
Page 7 of 17
Counsel: Gary J. Greenberg (argued), Of majority of Technicolor's shareholders.

Counsel, New York, New York, Charles S.
Crompton, Jr., Peter M. Sieglaff, Arthur L. The appeal encompasses two suits, a first-filed
Dent, of Potter Anderson & Corroon, statutory appraisal proceeding (the "appraisal
Wilmington, for Appellants Cede & Co. and action") and a later-filed shareholders'
Appellant-Cross-Appellee Cinerama, Inc. individual suit for damages for alleged fraud,
conspiracy, self-dealing and waste of
corporate assets (the "fraud action"). The
Thomas J. Allingham II (argued) of Skadden, plaintiffs are Cinerama, Incorporated, a
Arps, Slate, Meagher & Flom, Wilmington, R. beneficial owner of 201,200 shares of
Franklin Balotti of Richards, Layton & Finger, Technicolor common stock, approximately
Wilmington, for Appellee and Cross-Appellants 4.5% of the total issued and outstanding
Technicolor, Inc. common stock, and Cede & Company, the
record owner of the shares of Technicolor
owned beneficially by Cinerama. 1 Cinerama
seeks to proceed to trial on both its appraisal
Judges: Horsey, Moore, and Holland,
remedy and its equitable claim against the
Justices.
several defendants, individual and corporate,
for breach of fiduciary duty occurring in the
merger.
Opinion by: HORSEY [**3] The sole defendant in the appraisal
action is Technicolor, the surviving corporation
of the merger. The several individual and
corporate defendants in the fraud action
Opinion include Technicolor, all but two of the
members of Technicolor's Board of Directors
at the time of the merger, 2 and the chief
[*1183] We accepted this interlocutory appeal
architects of the merger, MAF, Macanfor, and
from the Court of Chancery to address a
Ronald O. Perelman, controlling shareholder
question of first impression in this Court: the
and Chairman of MAF. 3
standing and right of a minority shareholder
who has dissented from a cash-out merger Cinerama instituted its appraisal action
and commenced an appraisal proceeding pursuant to 8 Del. C. § 262 after voting against
under 8 Del. C. § 262 to assert and pursue a the merger. Approximately two years later, in
later-discovered individual claim of fraud in the the course of appraisal discovery, Cinerama
merger through an action for rescissory
damages against the participants for breach of 11 Hereinafter, Cinerama, Incorporated and Cede & Company
fiduciary [**2] duty to the shareholder. This shall be collectively referred to as "Cinerama."
issue arises from a cash-out merger of the 22 The only Technicolor directors not joined were Charles S.
minority shareholders of Technicolor Simone, who allegedly opposed the merger, and William R.
Incorporated ("Technicolor"), a Delaware Frye, by then deceased.
corporation, accomplished by MacAndrews & 33 Perelman was Chairman of the Board and Chief Executive
Forbes Group Incorporated ("MAF") through Officer of MAF. In addition to his position in MAF, he
the merger of its wholly-owned subsidiary, personally owned 38.4% of the common stock of MAF and,
Macanfor Corporation ("Macanfor"), into together with the other officers and directors of MAF,
collectively owned more than 50% of the common stock of
Technicolor, following [*1184] approval by a MAF.
Page 8 of 17
came upon evidence of wrongdoing by should be required to be made immediately

Technicolor management associated with the and not deferred until Cinerama announces
merger. Cinerama then filed in the Court of itself ready for trial.
Chancery its fraud action, charging the above-
described [**4] defendants with conspiracy, We affirm the Chancellor's ruling declining to
fraud, breach of fiduciary duty, and other dismiss Cinerama's fraud action, but we
wrongdoing in the merger. reverse the Court's ruling declining to
consolidate Cinerama's appraisal and [*1185]
Defendants moved to dismiss the fraud action, fraud actions, requiring Cinerama to make a
asserting that Cinerama lacked standing to binding election of remedies before trial. Under
institute a fraud action after electing appraisal the facts as alleged, Cinerama should not be
relief under section 262. Cinerama countered put to an election of such disparate remedies;
by moving the Court for alternative relief: (1) to rather, the actions should be consolidated for
amend its appraisal complaint to include its trial. If Cinerama prevails, the Court will
fraud and unfair dealing claims asserted in its determine the appropriate remedies warranted
fraud action; or (2) to consolidate for discovery by its findings.
and trial its appraisal and its fraud actions.
I
Technicolor opposed both motions, and all
defendants moved to dismiss Cinerama's fraud The issues presented at this stage of the
action on the grounds previously stated. proceedings [**6] are purely legal; thus, only
a brief sketch of the background facts is
By opinion and interlocutory order dated
appropriate, simply to place the legal issues in
January 13, 1987, the Court of Chancery, in an
a factual context. The litigation results from a
unreported decision, denied all three motions.
cash-out merger of MAF's subsidiary,
While the effect of its rulings was to permit
Macanfor, into Technicolor, which purportedly
Cinerama to pursue independently both its
became effective on January 24, 1983,
appraisal and its fraud actions, the Court then
following a special meeting of the shareholders
ruled that Cinerama, after completing
of Technicolor and their approval of the
discovery, would be required to elect which of
proposed merger. Prior to the shareholder vote
its two suits to bring to trial and which suit to
on the merger, the Technicolor directors,
abandon.
purportedly by unanimous vote, waived
Both parties appeal the Court's several rulings. Technicolor's charter requirement mandating a
Cinerama appeals: (1) the Court's denial of its supermajority shareholder vote of 95% to
motions to amend its appraisal action; [**5] effect a merger. The waiver by the directors of
(2) the Court's ruling requiring Cinerama to the supermajority requirements of the
make a binding election before trial between Technicolor charter, along with the merger
its appraisal remedy and its rescissory claim itself, needed the approval of the Technicolor
for damages; and (3) the Court's denial of shareholders before becoming effective. The
Cinerama's motion to consolidate its appraisal amendment to Technicolor's charter and the
and fraud suits. The defendants cross-appeal merger both received more than the required
from the Court's denial of their motion to vote for approval, two-thirds of Technicolor's
dismiss Cinerama's fraud action as barred by outstanding stock, with approximately 82% of
loss of standing through election of its Technicolor's shares being held by
4
appraisal remedy. Defendants also cross- MAF/Macanfor at this time.
appeal from the Court's election of remedy
ruling, contending that Cinerama's election 44 Macanfor purchased 3,534,181 shares of Technicolor
Page 9 of 17
[**7] Cinerama previously rejected Macanfor. As a consequence, Cinerama

Macanfor's tender offer of $ 23 per share for its alleges in its fraud action that Technicolor's
shares and voted against the merger. Several shareholder vote was legally insufficient to
days before the merger's effective date, approval of the merger, causing the merger to
Cinerama made demand upon Technicolor for be "void" ab initio. 5
appraisal of their shares pursuant to 8 Del. C.
§ 262(d)(1), and later within the required 120 As a result of the Simone deposition and other
days Cinerama commenced its appraisal facts learned in the course [**9] of discovery
action under 8 Del. C. § 262(e), requesting the in the appraisal action, Cinerama filed a
Court of Chancery to determine the fair value second suit in the Court of Chancery [*1186]
of their Technicolor holdings. Cinerama in January 1986, alleging fraud in the merger
alleges that it did not then seek to enjoin or and unfair dealing on the part of defendants.
otherwise attack the merger because it relied As noted, Cinerama's fraud action charges
on Technicolor's representations made in Technicolor and the other defendants with
connection with the tender offer and multiple acts of wrongdoing and breaches of
accompanying merger and, thus, had no basis fiduciary duty in the merger, including: waste
for believing that any claim lay against of assets, self-dealing, intentional and
defendants for fraud or unfair dealing in negligent misrepresentation, unfair dealing,
connection with the merger. After filing its accepting a grossly unfair price for Technicolor
appraisal action in March 1983, the Court of stock, and carrying out an unlawful merger in
Chancery, in June 1983, entered an order violation of Technicolor's certificate of
declaring that Cinerama had perfected its incorporation. Through its fraud action,
appraisal rights and was entitled to then Cinerama seeks a judgment rescinding the
proceed with pretrial discovery pursuant to 8 merger or, alternatively, an award of rescissory
Del. C. § 262(g) and (h). damages and damages for all losses resulting
from defendants' wrongdoing. Prior to
Document discovery was essentially answering, all of the defendants, in March
completed by Cinerama in mid-1985; 1986, moved to dismiss Cinerama's fraud
thereafter, Cinerama began deposing the action on grounds previously outlined -- that
various Technicolor officers [**8] and Cinerama, having elected to file an appraisal
directors. In the course of those depositions, petition, could not simultaneously pursue a
Cinerama discovered facts that suggested fraud action arising out of the same merger.
fraud, illegality, and unfair dealing by
Technicolor and the MAF and Macanfor In April 1986, Cinerama filed its previously
architects of the merger. Specifically, described alternate motions, to amend and
Cinerama, in December 1985, discovered in enlarge its appraisal petition to include the
deposing Charles S. Simone, a former director [**10] same allegations of fraud and unfair
of Technicolor, that Simone had not voted with dealing contained in its fraud action or to
the other directors in purportedly waiving the consolidate the two actions. Following the
95% supermajority shareholder vote Court of Chancery's rulings denying the
requirement of Technicolor's charter and had
opposed and voted against the merger with 5 In absence of a waiver by the unanimous vote of the Board
5
of Directors, since 95% of the issued and outstanding shares

pursuant to a tender offer for all of Technicolor's outstanding were not recorded as voting in favor of the merger at the
common stock at a price of $ 23 per share, which, when January 24, 1983, shareholder meeting and MAF/Macanfor
combined with the 220,000 shares previously acquired, gave held less than 95% of the issued and outstanding shares,
MAF/Macanfor control of approximately 82% of Technicolor's Cinerama alleges that the merger was not permitted under the
stock. terms of Technicolor's certificate of incorporation.
Page 10 of 17
respective parties' motions and cross-motions, legislative remedy intended to provide

the parties secured leave to file this shareholders dissenting from a merger on
interlocutory appeal. grounds of inadequacy of the offering price
with a judicial determination of the intrinsic
On March 26, 1987, this Court accepted worth (fair value) of their shareholdings.
Cinerama's interlocutory appeal as well as Weinberger, 457 A.2d at 714; Kaye v.
defendants' interlocutory cross-appeal. After Pantone, Inc., Del. Ch., 395 A.2d 369, 374-75
the parties briefed the interlocutory appeal in (1978) (describing an appraisal remedy as
this Court, and only shortly before argument, "entirely a creature of statute"; "the sole issue
the parties stipulated that all depositions taken raised by an action seeking an appraisal
in the appraisal action be admissible in the should be the value of the dissenting
fraud action, subject to limitations on the use stockholder's stock"). [**12] HN3[ ] Value
of Simone's deposition and the right of was traditionally arrived at by determining "the
Technicolor to further depose him. true or intrinsic value" of the shareholders'
Additionally, Technicolor agreed to produce for proportionate interest in the company, value
Cinerama's inspection all relevant financial on a going-concern rather than a liquidated
statements from January 1, 1985 to the basis. See Universal City Studios, Inc. v.
present. Francis I. duPont & Co., Del. Supr., 334 A.2d
II 216 (1975); Tri-Continental Corp. v. Battye,
Del.Supr., 31 Del. Ch. 523, 74 A.2d 71, 72
For the first time, this Court addresses the (1950).
standing and right of a shareholder dissenting
from a cash-out merger to pursue under Weinberger broadens or liberalizes HN4[ ]
Delaware law both an appraisal remedy under the process for determining the "fair value" of
8 Del. C. § 262 and a subsequent individual the company's outstanding shares by including
action for rescissory damages based on a all generally accepted techniques of [*1187]
later-discovered claim of fraud in the merger. valuation used in the financial community,
The disparate nature of the two causes [**11] thereby supplementing the previously
of action has been previously addressed by employed rigid or stylized approach to
this Court in Weinberger v. UOP, Inc., Del. valuation. n77 See 457 A.2d at 712-13.
Supr., 457 A.2d 701 (1983), and in Rabkin v. Weinberger directs that this "liberalized
Philip A. Hunt Chem. Corp., Del. Supr., 498 approach" to appraisal shall be used to
A.2d 1099 (1985). In each case, we stated that determine the value of a cashed-out minority's
HN1[ ] a statutory appraisal proceeding under share interest on the day of the merger,
section 262 and a rescissory suit for fraud, reflecting all relevant information regarding the
misrepresentation, self-dealing and other company and its shares. Id. at 713. This
actionable wrongs violative of "entire fairness" includes information concerning future events
6
to minority shareholders serve different not arising solely "from the accomplishment or
purposes and are designed to provide
different, and not interchangeable, remedies.
77 This court in Weinberger overruled the exclusive us of the
so-called "Delaware Block" or weighted average method of
HN2[ ] An appraisal proceeding is a limited determining value per share. See 457 A.2d at 712-13. We
once again recognize that such a structured and mechanistic
procedure is outmoded, with statutory appraisal requiring
66 In Weinberger we recognized that "[the] concept of fairness consideration of all relevant factors involving the value of the
has two basic aspects: fair dealing and fair price." 457 A.2d at company. See Tri-Continental Corp. v. Battye, Del. Ch., 66
711. A.2d 910, 917-18 (1949); 8 Del. C. § 262(h)
Page 11 of 17
expectation of the merger," 8 Del. C. § 262(h), (emphasis added).

which, if made public, can affect the current
value of the shares and "which are known or To summarize, HN7[ ] in a section 262
susceptible [**13] of proof as of the date of appraisal action the only litigable issue is the
the merger . . . ." 457 A.2d at 713; 8 Del. C. § determination of the value of the appraisal
262(h). 8 petitioners' shares on the date of the merger,
the only party defendant is the surviving
[**14] HN5[ ] In contrast to appraisal, entire corporation and the only relief available is a
fairness -- fair price and fair dealing -- is the judgment against the surviving corporation for
focal point against which the merger the fair value of the dissenters' shares. In
transaction and consideration arrived at can be contrast, HN8[ ] a fraud action asserting
measured. See Rabkin, 498 A.2d at 1106 [**15] fair dealing and fair price claims affords
(unfair dealing claims, based on breaches of an expansive remedy and is brought against
the duties of loyalty and care, raise "issues the alleged wrongdoers to provide whatever
which an appraisal cannot address"); relief the facts of a particular case may require.
Weinberger, 457 A.2d at 714 ("[the] appraisal In evaluating claims involving violations of
remedy . . . may not be adequate in certain entire fairness, the trial court may include in its
cases, particularly where fraud, relief any damages sustained by the
misrepresentation, self-dealing, deliberate shareholders. See Rabkin, 498 A.2d at 1107;
waste of corporate assets, or gross and Weinberger, 457 A.2d at 713. HN9[ ] In a
palpable overreaching are involved"). It is fraud claim, the approach to determining relief
important to emphasize that HN6[ ] "the test may be the same as that employed in
for fairness is not a bifurcated one as between determining fair value under 8 Del. C. § 262. 9
fair dealing and price. All aspects of the issue However, an appraisal action may not provide
must be examined as a whole since the a complete remedy for unfair dealing or fraud
question is one of fairness." Id. at 711 because a damage award in a fraud [*1188]
action may include "rescissory damages if the
[trier of fact] considers them susceptible of
88 Information and insight not communicated to the market proof and a remedy appropriate to all issues of
may not be reflected in stock prices; thus, minority
shareholders being cashed out may be deprived of part of the
fairness before him." Weinberger, 457 A.2d at
true investment value of their shares. See generally R. Clark, 714. Weinberger and Rabkin make this clear
Corporate Law 507 (1986); Fama, Efficient Capital Markets: A distinction in terms of the relief available in a
Review of Theory and Empirical Work, 25 J.Fin. 383 (1970). section 262 action as opposed to a fraud in the
The issue we are addressing is not the manipulation of the
transaction, see Rabkin, 498 A.2d at 1104-05 , nor the
merger suit.
suppression or misstatement of material information by
insiders defrauding the market, see Basic Inc. v. Levinson,
III
485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988).
Instead, we recognize that the majority may have insight into [**16] A.
their company's future based primarily on bits and pieces of
nonmaterial information that have value as a totality. See
Clark, supra at 508. It is this information that, if available in a
statutory appraisal proceeding, the Court of Chancery must 99 This Court in Weinberger recognized that "[in] this breach of
evaluate to determine if future earnings will affect the fair value fiduciary duty case, the Chancellor perceived that the
of shares on the day of the merger. See 8 Del. C. § 262(h). To approach to valuation was the same as that in an appraisal
obtain this information the appraisal petitioner must be proceeding." 457 A.2d at 712. Although this Court overruled
permitted to conduct a "detailed investigation into the facts that the exclusivity of the method used by the Chancellor, we did
is warranted by the acute conflict of interest and the potential not reverse the Chancellor's decision to use the appraisal
for investor harm that is inherent in freezeout transactions." valuation approach for cases involving breaches of fiduciary
Clark, supra at 508. duties.
Page 12 of 17
derivative claim for injury to the corporate

Whether Cinerama's Subsequent Fraud Action entity should not be confused with the right of
Is Foreclosed by its Original Election of An a former shareholder claimant to assert a
Appraisal Remedy timely filed private cause of action premised
upon a claim of unfair dealing, illegality, or
Applying these principles to the record before fraud. No one would assert that a former
us, we find the Chancellor was clearly correct owner suing for loss of property through
in refusing to dismiss Cinerama's fraud action. deception or fraud has lost standing to right
Given the distinctive nature of the remedies the wrong that arguably caused the owner to
available to a cashed-out shareholder, the relinquish ownership or possession of the
Chancellor properly declined to find Cinerama property.
to lack standing to pursue its fraud claim. To
rule that Cinerama, having elected to pursue [**18] The Chancellor correctly equated the
an appraisal remedy under section 262, right of a shareholder who loses share
without apparent knowledge of a claim of fraud membership through misrepresentation,
in the merger, was foreclosed from asserting a conspiracy, fraud, or breach of fiduciary duty to
later-discovered claim of fraud in the merger, seek redress with the right of a shareholder
would have been clearly contrary to the who dissents from a merger and seeks
teachings of Weinberger and Rabkin. appraisal of his shares to seek redress after
discovery of allegedly wrongful conduct.
Defendants' reliance upon Dofflemyer v. W.F. Fairness and consistency require equal
Hall Printing Co., D.Del., 558 F. Supp. 372 recourse for a former shareholder who accepts
(1983), and Braasch v. Goldschmidt, Del.Ch., a cash-out offer in ignorance of a later-
41 Del. Ch. 519, 199 A.2d 760 (1964), is discovered claim against management for
misplaced. Dofflemyer and Braasch are breach of fiduciary duty and a shareholder who
decisions that were based on the doctrine that, discovers such a claim after electing appraisal
by demanding appraisal, a former shareholder rights.
elects "to withdraw from the corporate
enterprise and take the value of his stock," Moreover, policy considerations militate
and, as a result, is divested of the rights against foreclosing a shareholder electing
appertaining to his shares. Southern appraisal rights from later bringing a fraud
Production [**17] Co. v. Sabath, Del. Supr., action based on after-discovered wrongdoing
32 Del. Ch. 497, 87 A.2d 128, 134 (1952). in the merger. Experience has shown that the
Dofflemyer, Braasch, and Southern derive great majority of minority [*1189]
from Taormina v. Taormina Corp., Del.Ch., 32
Del. Ch. 18, 78 A.2d 473 (1951), a shareholder a whole that depletes or destroys corporate assets and
reduces the value of the corporation's stock gives rise to
derivative suit representing application of a derivative action; a breach of an individual
Court of Chancery Rule 23.1. As the Trial shareholder's 'membership' contract or some other
Court recognized, HN10[ ] procedural interference with the rights that are traditionally viewed as
requirements of standing developed to control incident to the individual's ownership of stock gives rise to
a non-derivative, or direct, action by the injured
derivative actions have no relevance to shareholder or shareholders.
individual shareholder suits claiming a private
wrong. 1010 HN11[ ] Standing to pursue a D. Block, N. Barton & S. Radin, The Business Judgment Rule:
Fiduciary Duties of Corporate Directors and Officers at 216
(1987) (citing W. Cary & M. Eisenberg, Cases and Materials
1010 The fundamental distinction between derivative and
on Corporations 897 (5th ed. 1980); H. Henn & J. Alexander,
individual claims is well established:
Laws of Corporations and Other Business & Enterprises §
Generally speaking, a wrong to the incorporated group as 360, at 1048 (3d ed. 1983)).
Page 13 of 17
shareholders in a freeze-out merger accept the Cinerama to pursue both a statutory appraisal
cash-out consideration, notwithstanding the remedy and its fraud action; therefore, the
possible existence of a claim of unfair dealing, defendants' cross-appeal, asserting that
due to the risks of litigation. See Joseph v. Cinerama lacked standing to pursue its fraud
Shell Oil Co., Del.Ch., 498 A.2d 1117, 1122 action, fails.
(1985). With the majority of the minority
shareholders tendering their shares, only B.
shareholders pursuing [**19] discovery
during an appraisal proceeding are likely to
Whether Cinerama May Assert in its Appraisal
acquire the relevant information needed to
Proceeding its Claim of Fraud in the Merger
pursue a fraud action if such information
exists. Such shareholders, however, would not The Court of Chancery correctly denied
have any financial incentive to communicate Cinerama's motion to amend and enlarge its
their discovered claim of wrongdoing in the appraisal action to include its claim for
merger to the shareholders who tendered their rescissory relief for conspiracy, illegality, fraud,
shares for the consideration offered by the and breach of fiduciary duty. As previously
majority and, by tendering, have standing to noted, HN12[ ] statutory appraisal is limited to
file suit. Thus, to bar those seeking appraisal "the payment of fair value of the shares . . . by
from asserting a later-discovered fraud claim the surviving or resulting corporation." 8 Del.
may effectively immunize a controlling C. § 262(i). A determination of fair value does
shareholder from answering to a fraud claim. not involve an inquiry into claims of
wrongdoing in the merger. See Felder v.
Defendants assert that it is inconsistent (or
Anderson, Clayton & Co., Del.Ch., 39 Del. Ch.
unfair) to permit both the fraud action and the
76, 159 A.2d [**21] 278 (1960); see also
appraisal action to proceed simultaneously.
Weiss, Balancing Interest in Cash-Out
This argument is misguided. Cinerama is not
Mergers: The Promise of Weinberger v. UOP,
seeking (nor would our courts permit)
Inc., 8 Del. J. Corp. L. 1, 8-9 (1983). In
inconsistent remedial relief, but rather is simply
contrast, in a fraud action seeking monetary
pleading alternative causes of action. In the
relief for unfair dealing, the focus of the suit is
instant case, the merger occurred. If the
whether wrongdoing can be established, see
merger was properly consummated, then 8
Weinberger, 457 A.2d at 714. Hence, the
Del. C. § 262 affords Cinerama a claim for the
necessary party defendants in a "fraud in the
fair value of its Technicolor shares. See Felder
merger" action are the alleged wrongdoers
v. Anderson, Clayton & Co., Del.Ch., 39 Del.
because it is they who arguably caused the
Ch. 76, 159 A.2d 278 (1960). If the merger
injury and should pay any damage award. To
was not lawfully effected, Cinerama should
permit Cinerama to amend its statutory
[**20] be entitled to recover rescissory
appraisal action to include its fraud claims
damages, rendering the appraisal action moot.
would impermissibly broaden the legislative
Based upon the appraisal/fraud distinctions remedy. It would also fail to bring before the
found in Weinberger and Rabkin, policy Court the necessary parties for the fashioning
concerns, and considerations of equity, as a of any appropriate relief for a fraud.
matter of law we affirm the Court of Chancery's
ruling denying defendant's motion to dismiss Finally, HN13[ ] to judicially expand an
Cinerama's fraud action. Under the record appraisal proceeding to include unfair dealing
before us, the Chancellor properly allowed claims would likely create unforeseeable
administrative and procedural problems for
Page 14 of 17
litigants and the courts. In most cases only a election to dissent and seek a judicial
small proportion of shareholders will have determination of the fair value of its shares."
perfected appraisal rights and thus have However, the Court incorrectly perceived that
access to the expanded appraisal remedy. a shareholder in Cinerama's position then
See Joseph v. Shell Oil Co., 498 A.2d at 1122; came under a "duty to choose" between the
see also Rabkin, 498 A.2d at 1107; 8 Del. C. § legislative conferred right to recover fair value
[**22] § 262(d). If shareholders are permitted for its shares and its equitable action for
to litigate fraud claims in appraisal rescissory relief. The Court stated:
proceedings, shareholders not seeking It does not follow from that conclusion,
appraisal would be required to litigate "entire however, that a shareholder once he or
fairness" claims identical to the claims litigated she discovers facts giving rise to a litigable
by shareholders with perfected appraisal claim of fraud in the merger, is relieved
[*1190] rights but through separate actions. from the duty to choose whether to accept
This would create a substantial risk of the fact of the merger and exercise his
inconsistent judgments and raise issues of statutory right to a judicial determination of
collateral estoppel. See Coca-Cola Co. v. a fair price or whether to attack the validity
Pepsi-Cola Co., Del. Super., 36 Del. 124, 172 of the merger itself and seek to have it set
A. 260 (1934), cited in Blonder-Tongue Lab., aside or be awarded other equitable relief.
Inc. v. University of Ill. Found., 402 U.S. 313, Obviously these forms of relief are
323 n.9, 91 S. Ct. 1434, 28 L. Ed. 2d 788 inconsistent and at some point one must
(1971). choose between them.
On the several grounds stated, we conclude Without defining the origins of this perceived
that the Court of Chancery did not abuse its "duty," the Court found this duty to be a basis
discretion in denying Cinerama's motion to for rejecting [**24] Cinerama's argument that
amend its appraisal action. See Ct.Ch.R. 15; Weinberger had "expressly approved" joinder
see also Bokat v. Getty Oil Co., Del.Supr., 262 of a section 262 action and a suit for
A.2d 246 (1970). rescissory damages for breach of fiduciary
duty or fraud in the underlying merger. In the
C.
Court's view, such a reading of Weinberger
would "destroy the distinctive nature of an
appraisal action and would . . . result in an
Whether Cinerama Should Be Put to an unwieldy form of action."
Election of Remedies before Trial or Both
We know of no general substantive or
Claims Should Be Consolidated for Trial
procedural law that should require Cinerama to
On this issue we find the Court of Chancery to be put to a binding election before trial
have erred. Cinerama's motion to consolidate, between its statutory right to receive fair value
for purpose of trial as well as discovery, its for its shares and an opportunity to litigate its
fraud and appraisal actions should have been fair dealing claims. The "duty" that the Court
granted. No rule of law required the Court was alluding to implicates the doctrine of
[**23] to put Cinerama to an election of election of remedies, but the doctrine has no
remedies before judgment. As we have found, application in this case. HN14[ ] "Broadly
the Court properly concluded that Cinerama speaking, an election of remedies is the
was "not precluded from bringing an action to voluntary choice by a party to an actin of one
set aside the merger by reason of its earlier or more co-existing, but necessarily
Page 15 of 17
inconsistent and repugnant remedial rights the defendants is not found, and the merger
growing out of the same known facts . . . ." was properly authorized, then Cinerama will be
Hannigan v. Italo-Petroleum Corp., Del.Super., entitled to collect the fair value of its
37 Del. 180, 181 A. 4, 5 (1935) (emphasis Technicolor shares pursuant to statutory
added); see also 25 Am.Jur.2d Election of appraisal and its fraud action will be
Remedies §§ 1-3 (1966); 28 C.J.S. Election of dismissed. Under either scenario, Cinerama
Remedies § 1 (1941). However, the alternative will be limited to a single recovery judgment.
causes here pursued by Cinerama, of statutory
appraisal and fraud in the merger, [**25] are Cinerama, therefore, is entitled to proceed
not inconsistent or repugnant claims for relief simultaneously with its statutory and equitable
arising out of the same known facts. claims for relief. What Cinerama may not do,
however, is recover duplicative judgments or
HN15[ ] An appraisal proceeding and an obtain double recovery. Since the doctrine of
equitable action for rescissory damages (for election of remedies has no application to this
illegality or other wrongdoing in extinguishing case, it necessarily follows that the Court of
minority shareholder interests) do not involve Chancery committed discretionary error in
the assertion of inconsistent rights. The denying Cinerama's motion to consolidate and,
appraisal action seeks the enforcement of a thus, Cinerama's appraisal and fraud actions
statutory right that is different and distinct from should be consolidated for trial as well as
the alleged wrong sought to be redressed by discovery purposes. See La Chemise Lacoste
Cinerama's fraud action. The remedies, though v. Alligator Co., D.Del., 60 F.R.D. [**27] 164,
very different, are not inconsistent or 175 (1973); American Employers' Ins. Co. v.
repugnant because one remedy is premised King Resources Co., 10th Cir., 545 F.2d 1265,
on a state of facts that is the alternative to, 1269 (1976). 1111
rather [*1191] than the converse of, the state
of facts that forms the basis for recovery under Consolidation of the actions is also necessary
the other remedy. Cf. Farmers Bank of the to put Cinerama in a position equivalent to the
State of Delaware v. Dickey, Del.Super., 58 position it would arguably be in had
Del. 354, 209 A.2d 752, 754 (1965). HN16[ ] defendants
1212
exercised "complete candor"
The election of remedies doctrine has no [**28] in disclosing all material information
application to litigation where the remedies
sought "are for the enforcement of different 11 Decisions interpreting the Federal Rules of Civil
11
and distinct rights or the redress of different Procedure are usually of great persuasive weight in the
construction of parallel Delaware rules, see Canaday v.
and distinct wrongs." 25 Am.Jur.2d Election of Superior Court, Del.Supr., 49 Del. 456, 119 A.2d 347, 352
Remedies § 10, at 653 (1966). (1955); however, such decisions are not actually binding upon
Delaware courts. See Fusco v. Dauphin, Del.Super., 45 Del.
Cinerama should not have been barred from 499, 75 A.2d 701, 702 (1950).
proceeding to trial on its alternate claims for 1212 In defining "complete candor," this Court recognized that
relief. During the consolidated [**26] it is the responsibility of the Court of Chancery to:
proceeding, if it is determined that the merger examine what information defendants had and to
should not have occurred due to fraud, breach measure it against what they gave to the minority
of fiduciary duty, or other wrongdoing on the stockholders, in a context in which 'complete candor' is
part of the defendants, then Cinerama's required. In other words, the limited function of the Court
was to determine whether defendants had disclosed all
appraisal action will be rendered moot and information in their possession germane to the
Cinerama will be entitled to receive rescissory transaction in issue. And by 'germane' we mean, for
damages. If such wrongdoing on the part of present purposes, information such as a reasonable
shareholder would consider important in deciding
Page 16 of 17
associated with the merger to the minority consolidation to the extent it is based upon the
shareholders. Had Cinerama known at the assertion that the fraud action and the
time of the merger what it arguably learned appraisal action involve widely separate
through discovery, it is reasonable to assume stages of trial preparation. The stipulation
that Cinerama would have first brought suit to provides that all depositions taken in the
enjoin the merger, 1313 and if unsuccessful, appraisal action shall be admissible in the
Cinerama could still have perfected its fraud action, subject to limitations on the use
appraisal rights. of Charles Simone's deposition and the right of
the defendants to further depose Mr. Simone.
To require Cinerama to make a binding Additionally, Technicolor agreed to produce for
election of remedies no later than the time that Cinerama's inspection all relevant financial
it announced itself to be ready for trial would statements from January 1, 1985 to the
deprive Cinerama of a cause of action it would present. Such an agreement significantly
have possessed had management made a full undercuts Technicolor's position against
disclosure of all material information prior to consolidation and the Court's ruling against
the merger, as mandated by Weinberger. See consolidation. Moreover, it appears that much
457 A.2d at 710. HN17[ ] Assuming the of the evidence not covered by the stipulation
defendants failed to exercise "complete that will be presented by Cinerama concerning
candor" with the minority shareholders, the valuation under appraisal will be the same
minority should not be placed in a worse evidence presented during the fraud action.
position than if management had acted with Hence, HN18[ ] consolidation of the two
"complete candor." See Bershad v. Curtiss- actions should result in convenience and
Wright Corp., Del. [*1192] Supr., 535 A.2d economy in the administration of both actions.
840 (1987). Thus, we hold that Cinerama See Court of Chancery Rule 42(a). 1414
should be permitted to exercise its appraisal
rights while seeking rescissory damages in a [**30] Although the Court of Chancery
consolidated action, subject to the limitation of correctly recognized the need to limit collateral
a single recovery judgment. attacks on cash-out mergers, it failed to
account for the economy and procedural
We also note that the parties by their conduct fairness that will result from the consolidation
after docketing this appeal demonstrated the of the two actions. Thus, the ruling of the Court
feasibility and desirability of consolidation. The requiring Cinerama to make an election of
parties' September stipulation [**29] largely remedies before trial and implicitly denying its
moots Technicolor's argument against motion to consolidate must be reversed.
whether to sell or retain stock.
Cinerama will be permitted to consolidate its
appraisal and its fraud actions for discovery as
***
well as trial pursuant to Court of Chancery
. . . Completeness, not adequacy, is both the norm and Rule 42(a).
the mandate under present circumstances.
Weinberger, 457 A.2d at 710 (quoting Lynch v. Vickers

Energy Corp., Del.Supr., 383 A.2d 278, 281 (1977)); see 1414 Court of Chancery Rule 42(a) provides:
also Bershad v. Curtiss-Wright Corp., Del.Supr., 535 A.2d 840
(1987). HN19[ ] (a) Consolidation. When actions involving a
common question of law or fact are pending before the Court,
1313 At this late date, there is a strong reluctance to "unwind" a it may order a joint hearing or trial of any or all the matters in
merger. See, e.g., Weinberger, 457 A.2d at 714 ; Updyke issue in the actions; it may order all the actions consolidated;
Assocs. v. Wellington Management Co., Del.Ch., C.A. No. and it may make such orders concerning proceedings therein
6298, Brown, V.C. (Feb. 3, 1982). as may tend to avoid unnecessary costs or delay.
Page 17 of 17
IV
The Court is aware that consolidation of these End of Document
two actions may lead to certain procedural

difficulties because the remedy available under
entire fairness is broader than the scope of
valuation permitted under 8 Del. C. § 262. In
addition to perfecting statutory appraisal,
shareholders may systematically file fraud
actions as a method of seeking a larger
recovery and thereby cause unnecessary
litigation. However, a party who brings an
unmeritorious suit asserting violations of entire
fairness may be held liable for the costs of the
litigation arising therefrom. Given the degree of
sophistication our courts have in such matters,
the financial risks [**31] associated with filing
an unmeritorious claim are high. See Spr. Ct.
R. 20(f), 33; Ct. Ch. R. 11. We recognize that
we place a sizeable burden upon the Court of
Chancery, but to hold otherwise would
produce a result that would encourage
withholding of material information by a
majority shareholder to the minority
shareholders' detriment.
Accordingly, the judgment of the Court of

Chancery denying defendants' motion to
dismiss Cinerama's fraud action is AFFIRMED
and defendants' cross-appeal (asserting
Cinerama's loss of standing) fails. The
judgment denying Cinerama's motion to
amend its appraisal action is AFFIRMED. The
judgment requiring Cinerama to make an
election of remedies (implicitly denying
Cinerama's motion to consolidate its appraisal
and fraud actions) is REVERSED, and
defendants' cross-appeal (requiring an earlier
election by Cinerama) necessarily falls. The
causes are REMANDED, with directions that
Cinerama be permitted to consolidate its two
pending actions for further discovery and trial.
***
Affirmed in part, reversed in part, and

remanded.

1988 Cede Co V Technicolor Inc 542 A2d 1182

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1988 Cede Co V Technicolor Inc 542 A2d 1182

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Cede & Co. v. Technicolor

Business & Corporate

Outcome Governments > Legislation > Statutory

Mergers & Acquisitions Law > General Business & Corporate

Business & Corporate

Business & Corporate Misrepresentation > General Overview

Business & Corporate Statutory appraisal is limited to the payment of

Torts > Business Torts > Fraud &

Broadly speaking, an election of remedies is Business & Corporate

Del. Ch. Ct. R. 42(a) provides that when

Counsel: Gary J. Greenberg (argued), Of majority of Technicolor's shareholders.

came upon evidence of wrongdoing by should be required to be made immediately

[**7] Cinerama previously rejected Macanfor. As a consequence, Cinerama

of Directors, since 95% of the issued and outstanding shares

respective parties' motions and cross-motions, legislative remedy intended to provide

expectation of the merger," 8 Del. C. § 262(h), (emphasis added).

derivative claim for injury to the corporate

Weinberger, 457 A.2d at 710 (quoting Lynch v. Vickers

The Court is aware that consolidation of these End of Document

two actions may lead to certain procedural

Accordingly, the judgment of the Court of

Affirmed in part, reversed in part, and

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