Berger v. Pubco: What does Pubco tell us about how Glassman has been interpreted?

Pubco is the most important statement from Delaware on fiduciary review in short form mergers since Glassman (decided by the Delaware Supreme Court in 2001) -- it’s interesting that eight years have gone by without a meaningful revisiting by Delaware’s highest court of the open issues therein, but that’s for another day.

Certainly, Glassman left room for valid disagreement about the continuing relevance of fiduciary review in short form mergers. Nevertheless, as I argued in The Business Lawyer in 2007 (see Freezeout Doctrine: Going Private at the Intersection of the the Market and the Law), the conclusion that Glassman killed off fiduciary review in short form mergers was greatly exaggerated. Glassman plainly asserted the continuing relevance of the fiduciary duty of disclosure (FDD) in these transactions.

Commentators and litigators reading too quickly might reasonably have concluded that controllers need no longer “fear” fiduciary review in these deals. Most dramatically, Glassman states: “absent fraud or illegality, the only recourse for a minority stockholder who is dissatisfied with the merger consideration is appraisal.” (Perhaps this explains why the controller in Pubco was so brazen in withholding relevant information from the minority holders?) But squaring Pubco with Glassman, a breach of the fiduciary duty of disclosure may count as “fraud” and “illegality” sufficient to alter the remedial landscape in short form mergers (both as misrepresentations or omissions of material information).  

Indeed, reading Glassman carefully, Pubco’s result, and  the continued vitality of fiduciary review in short form mergers was expressly foretold in the former’s assertion that “the duty of full disclosure remains in [this] context.” (To leave no doubt, the Supreme Court further elaborated: “Where the only choice for the minority stockholders is whether to accept the merger consideration or seek appraisal, they must be given all the factual information that is material to that decision.”) Hence, in Pubco, the Supreme Court did not have to revivify defunct fiduciary doctrine or reassert the continuing relevance of fiduciary review in short form mergers; that was undisputed.

Furthermore, Glassman’s survey of thirty years of ambivalent and confused precedents addressing fiduciary duties in cash out mergers suggested a hard won, rather than hard and fast narrowing of equitable review in short form mergers. (Note that it was only in 1959 that the Delaware Supreme Court affirmed that minorities could be eliminated for cash in short form mergers.)  In addition, though Glassman contends its result was dictated by the “eminent domain” regime effected by the legislature under §253, there’s no doubt that Delaware’s equity courts have been willing to go beyond the formal dictates of the Delaware General Corporate Law “as necessary.” As they frequently remind us, corporate actions “may be lawful and yet inequitable” -- hence subject to judicial intervention. Even the judicially created "quasi-appraisal remedy" represents a judicially crafted departure from the letter of the law. 

On the matter of remedies, Glassman “relegated” valuation disputes in short form mergers to the “quasi-appraisal” process. But, again, the adjective “quasi” matters here, because several of the technical hurdles which make statutory appraisals unfeasible for minorities are rejected in these quasi-appraisal proceedings -- thank goodness. More on remedies below, but even in Glassman, the court appears to have noted the paradox it was creating: what to do about an adjudged fiduciary disclosure breach in a short form merger, where the court appears, to some extent, to have circumscribed the availability of a fiduciary remedy. This paradox implicit in Glassman resurfaced in Pubco, and shapes much of the decision.