Pro se plaintiffs, Ram and Neena Mehta (the “Mehtas”), owned common stock of defendant Smurfit-Stone Container Corporation (“Smurfit”), which, after reorganizing in a Chapter 11 bankruptcy, merged with a wholly-owned acquisition subsidiary of Rock-Tenn Company (“Rock-Tenn Sub” and “Rock-Tenn Parent”, respectively). The Mehtas challenged (i) decisions leading to Smurfit’s bankruptcy, (ii) the merger with Rock-Tenn Sub, and (iii) Rock-Tenn Sub’s failure to pay the Mehtas the merger consideration from the Rock-Tenn Sub/Smurfit merger. The defendants moved to dismiss the Mehtas’ claims for failure to state a claim, and Vice Chancellor Laster granted the defendants’ motion with respect to claims (i) and (ii); however, claim (iii) survives, with the caveat that the Mehtas are not entitled to indirect or consequential damages.
On June 21, 2010, Smurfit emerged from a Chapter 11 bankruptcy, having cancelled and re-issued 95% of its stock to its former creditors and the remainder to its shareholders, including the Mehtas who owned 1,486 shares after the reorganization. Less than six months later, Smurfit and Rock-Tenn Parent announced their plans for a merger for cash and Rock-Tenn Parent stock consideration. The Mehtas timely filed a demand for appraisal, and the merger was subsequently consummated. However, the Mehtas eventually withdrew their demand and never filed a petition for appraisal. The Mehtas did not receive any merger consideration.
V.C. Laster noted that the Mehtas’ first claim failed to state a claim because the bankruptcy order affirmatively released any claims against Smurfit and its directors related to the bankruptcy. The Mehtas’ second claim was also dismissed because, (a) for direct claims, the Mehtas’ lost their standing in the merger and a settlement order arising from other merger litigation released any such direct claims, and (b) for derivative claims, conclusory allegations of fraud are insufficient to state a proper claim.
However, V.C. Laster permitted the Mehtas’ third claim to survive because the “operative event” that obligated Rock-Tenn Sub to pay the merger consideration to the Mehtas occurred when no petitions for appraisal were filed during the 120-day period following the closing of the merger, as provided in Section 262(e) of the Delaware General Corporation Law. At the close of that period, Rock-Tenn Sub was required to pay the Mehtas and because it did not, the Mehtas stated a claim to recover their merger consideration, either through a possible breach of contract claim, or under the doctrine of unjust enrichment. The Mehtas contended that they suffered other, consequential damages, including a margin call by their broker, as a result of Rock-Tenn Sub’s failure to pay the merger consideration, but the court concluded that whether the Mehtas eventually recover through a breach of contract or unjust enrichment theory, they would only be entitled to the unpaid merger consideration plus prejudgment interest.