In In Re GGP, Inc. Stockholder Litigation, 202, 2021 (Del. July 19, 2022), the plaintiffs, former GGP stockholders, alleged that GGP’s directors structured the company’s merger in a way that eviscerated the GGP stockholders’ appraisal rights. Additionally, the plaintiffs alleged that the defendants breached their fiduciary duty of loyalty by failing to provide GGP stockholders with a fair summary of their appraisal rights and not disclosing all relevant material information. The plaintiffs also asserted that Brookfield Property Partners (“Brookfield”) aided and abetted these fiduciary breaches. 

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The structure of the merger did not improperly restrict or eliminate the stockholders’ appraisal rights

The Supreme Court of Delaware explained that, ordinarily, acceptance of merger consideration effects a waiver of the appraisal right. However, in this case, the merger consideration was bifurcated into the Pre-Closing Dividend and the Per-Share Merger Consideration. The Pre-Closing Dividend was payable to supporting and dissenting GGP stockholders alike the day before the transaction closed; whereas, the Per-Share Merger Consideration became payable upon closing. 

The basic principle underlying the appraisal statute, 8 Del. C. § 262, is that an investor makes an election either to accept the merger consideration or to pursue an appraisal. Subsection (a) of the statute provides that appraisal is only available to an eligible stockholder who has neither voted in favor of the merger nor consented thereto in writing. Additionally, subsection (k) explicitly allows stockholders to receive dividends payable before the effective date of the merger. The Court explained that in this case, all qualifying GGP stockholders received the Pre-Closing Dividend; thus, no election on the part of the investors was made. Receiving the Pre-Closing Dividend did not constitute acceptance of the transaction’s terms and did not waive appraisal rights. Therefore, the Court held that the transaction did not improperly eviscerate the appraisal rights of GGP stockholders.  

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Plaintiffs stated a claim that the director defendants violated their fiduciary duty of disclosure with Brookfield’s support

The Court explained that when directors seek stockholder action, such as for the approval of a proposed merger, the directors have a fiduciary duty to fully and fairly disclose all material information within the board’s control. When a stockholder asserts a disclosure violation in such circumstances, the essential inquiry is whether the alleged omission or misrepresentation is material. Information is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote. Where a complaint alleges facts sufficient to support the inference that the disclosure violation was made in bad faith, the alleged violation implicates the duty of loyalty and may not be exculpated. 

The Court found that the disclosures in the proxy were confusing and misleading. The Court explained that in reality, it was the fair value of GGP before the payment of the Pre-Closing Dividend that stockholders were set to part with if they consented to the transaction, and thus they had a right to an appraisal of it. However, the Proxy repeatedly decoupled the appraisal from everything but the Per-Share Merger Consideration. Thus, the Court found it reasonably conceivable that a GGP stockholder, after reading the Proxy, would have concluded that appraisal rights were limited to the fair value of GGP after payment of the Pre-Closing Dividend.

Furthermore, the Court found it was reasonably conceivable that the Proxy’s failure to correctly identify which entity would be subject to appraisal was material to the stockholders. The Proxy’s erroneous statements deprived stockholders of necessary information about the fair value available in an appraisal proceeding and misled stockholders about the operation of section 262(g)’s de minimus condition, which provides that dissenters must represent at least $1 million in consideration provided in the merger.

Therefore, the Court found that, at this stage in the case, it was reasonably conceivable that the director defendants, aided and abetted by Brookfield, committed a knowing violation of the fiduciary duty of disclosure. 

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Disposition

The Court reversed the portion of the Court of Chancery’s judgment that dismissed the plaintiff’s claims that the defendants, aided and abetted by Brookfield, breached their fiduciary duty of loyalty.