Manti Holdings: Delaware Supreme Court permits advance waiver of appraisal rights

Quarterly Corporate / M&A Decisions update series

In Manti Holdings, the Delaware Supreme Court affirmed a decision that a corporation can enforce an advance waiver of appraisal rights against its stockholders. In a stockholders agreement, the petitioners agreed to “refrain from the exercise of appraisal rights....” The Delaware Supreme Court concluded that both the Delaware General Corporation Law (DGCL) and public policy permitted an ex ante waiver of appraisal rights in a stockholder agreement specifically (as opposed to in a company’s charter or bylaws), finding that the DGCL is a “broad enabling act” that “allows immense freedom for businesses to adopt the most appropriate terms for … their enterprise.” The court also found that the agreement the petitioners signed did, in fact, waive their appraisal rights, even though the language did not use the word “waive.” One justice dissented, concluding that appraisal rights cannot be waived generally and that the specific agreement here was not a valid waiver.

In 2008, Authentix, Inc. entered into a transaction pursuant to which it became a wholly owned subsidiary of Authentix Company, Inc. As part of that transaction, all stockholders, including the petitioners, entered into a stockholders agreement (the Stockholders Agreement). One provision of the Stockholders Agreement provided that the stockholders would “refrain from the exercise of appraisal rights . . .” (the Refrain Obligation).

In 2017, Authentix merged with a third-party entity (the Merger). In connection with the Merger, the petitioners’ stock was cancelled and converted into a right to receive merger consideration pursuant to a waterfall provision. Based on the application of the waterfall provision, however, the petitioners received little to no compensation. As a result, the petitioners sent appraisal demands to Authentix and subsequently filed a petition for appraisal against Authentix (the Petition). The Court of Chancery granted Authentix’s partial motion for summary judgment, finding that the petitioners waived their appraisal rights under the Stockholders Agreement. The petitioners sought reargument, which was denied, and the Court of Chancery then issued a final decision to address fee-shifting issues. Both sides subsequently appealed to the Delaware Supreme Court.

On appeal, the Delaware Supreme Court affirmed the lower court’s opinion in its entirety. First, the Delaware Supreme Court agreed that the petitioners had waived their appraisal rights. The court rejected the petitioners’ arguments that: (1) the Refrain Obligation was not triggered because the petitioners’ common stock was being treated differently from certain preferred stock; (2) the termination provision in the Stockholders Agreement extinguished all provisions, including the Refrain Obligation; and (3) Authentix could not enforce the Stockholders Agreement because it was not an intended beneficiary. The court also found that the use of the word “refrain” did not undermine the validity of the waiver because “refrain” made sense in the context of the Stockholders Agreement generally and the Refrain Obligation specifically.

Second, the Delaware Supreme Court found neither the DGCL nor public policy prohibited a corporation’s enforcement of a waiver of appraisal rights against its own stockholders. The court considered several arguments. Notably, the court rejected the petitioners’ argument that a waiver of appraisal rights, if any, had to be in the corporation’s certificate of incorporation, per DGCL 151(a), because it was a “limitation[] or restriction[]” on stock. The court found instead that the Refrain Obligation was not a restriction on stock, but a “personal obligation[]” to which the petitioners agreed. The court did not address here the additional question of whether an ex ante waiver in a charter or bylaws also would operate as a waiver. The Delaware Supreme Court also rejected the argument that Section 262(a)’s use of “shall” prevents appraisal rights from being waived, finding instead that even mandatory rights can be waived by agreement under Delaware law.

Third, the Delaware Supreme Court agreed that the petitioners had an equitable interest in the merger consideration and that Authentix was not entitled to pre-judgment interest on an award of attorneys’ fees.

One justice dissented, finding that the Refrain Obligation was ambiguous because it used “refrain” rather than “waive;” that such a waiver should occur in a certificate of incorporation or bylaws, if at all; and that mandatory rights, like appraisal, should not be subject to waiver.


Authored by Ryan M. Philp and Allison M. Wuertz.

David Michaeli
New York
Allison Wuertz
New York
Jon Talotta
Global Co-Lead
Northern Virginia
William Regan
New York


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