Manichaean Capital, LLC v. Exela Technologies, Inc.

251 A.3d 694 (2021)

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Nature of the Case

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Facts

In order to stop 'nuisance blocking,' where a single stockholder could withhold consent to a merger in order to extract hold-up consideration, the Delaware General Assembly created a statutory right of appraisal as a means to quash the minority's blocking right while also addressing the nonconsensual taking of the stockholders' property. On July 12, 2017, Source merged with Ex-Sigma LLC and Ex-Sigma Merger Sub, Inc., in a transaction whereby each share of Source common stock was converted into a right to receive one membership unit of Ex-Sigma LLC. The creation of Ex-Sigma and subsequent conversion of stock was a preliminary step to effectuate the merger of Source into SourceHOV Merger Sub, with Source emerging as the surviving entity. The Merger made Sourcean an indirect subsidiary of Quinpario Acquisition Corp. 2, which was later renamed D. Ps expressly dissented and filed an appraisal action. The Court, in large measure, adopted Ps' fair value evidence and appraised the fair value of their shares in Source at the time of the Merger at $4,591 per share. Ps' stake was valued at $57,684,471 plus interest, significantly above the consideration they would have received in the Merger. Source appealed and lost. Ps sent a demand letter to Source requesting immediate payment of the Appraisal Judgment. None of that judgment had been paid. The court entered a charging order against Source's interests in its subsidiaries to facilitate the payment of the judgment. The judgment remains unsatisfied. Ps seek to hold D and its subsidiaries liable under two theories: (1) given the abuse of corporate form by D and its subsidiaries, principally through fraudulent maneuvers, the Court should pierce the Source corporate veil upwards to reach D and downwards to reach Source's solvent subsidiaries so that Ps can enforce their charging order against these entities; and (2) given that D now holds a 100% stake in Source but has refused to pay all Source stockholders for their share of the company, the Court should determine that D was unjustly enriched and order it to pay Ps restitution in the amount of the appraisal judgment plus interest. Ps' well-pled allegations suggest that D engaged in a transaction for the purpose of preventing funds that would otherwise flow from Source's subsidiaries directly to Source to flow instead directly to D, thereby leaving the judgment debtor unable to satisfy Ps' appraisal judgment. The charging order requires any money flowing through Source first to be paid to the judgment creditors, including Ps, D's participation in a scheme to deprive Source of those funds has conceivably rendered the charging order worthless parchment. It is reasonably conceivable that Source's subsidiaries knowingly participated in the wrongful scheme, such that the Ps' prayer for relief in the form of reverse veil-piercing (i.e., piercing Source's corporate veil to reach downwards to its wholly owned subsidiaries) is likewise appropriate.