Nelson v. Frank E. Best

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rnn IYU. JAN-12-01 FRI 03:42 PM COURT STATE CHANCERY OF THE OF DELAWARE OF f?o. BOX 581 January 11, 2001 A. Cilchrist Sparks, JIL Alan J, Stone David .I, Tel&s Men-is, Nichols, Arsht & Tunnel %OPGilOWN, tkAWARB lw47 TCLEPH~NE (302) 856-5424 b S3Mllf (302) 8CG~?51 R. Bruce McNcw Taylor & McNew LLP 371 I Kemett Pike, Suite 210 Greenville, DE 19807 r.0. Hex 1347 Wilmington, DE 19599-134 7 AWsun v. 13n/1k E. Best, hrc., CA. No. 16329. Respondents motion to sever, if granted, would sever petitioners claims for appraisal against F+ank 13. Best, Inc. ( FEB ), Best Universal Lock Co. ( BUL ), and Best Lock Corporation ( BLC ) into three scpmle actions. Since this Court has decided several matters with regard lo this action as well as the fiduciary duty action, which sllarc the same set of operative facts, I will not outline those facts again here, Rather, I will respond directly to each of respondents three main arguments in support of their motion to sever. PHX NU, JAN-12-01 FRI 03:42 PM ra UJI J First, respondents argue that this Court must sever the claims because petitioners, fo mcr shareholders of PEH, BUL, and HLC, arc engaged in litigalion in which there are clear, direct and serious conflicts of interest between the former shareholders [of thcsc corporations]. They specifically argue that one clear conflict between the three SharChOlder groups arises from the fact that each of the shareholder groups has an important linaucial interest in whether 11% C ourt determines that a control premium is appropriate, and if so, how that amount is established and at which corporate level it shouId be placed. 2 They also note that petitioners attorneys did not adequately inform their clients of this conflict or secure their waiver of it and, thus, have not complied with Rule I.7 of the Delaware Lawyer s Rules of Professional Conduct, which requires attorney disclosure and client waiver of potential conflicts of intcrcst, Respondents may indeed bc correct that pciitioners attomcys have failed to disclose adequately to their clients the potential conflicts of jntcrcst that may arise, for example, if the Court employs a control premium as part of the valuation of one of the three conlpiuks. Such a failure, while it may be the basis for disciplinary action or a later malpractice claim against petitioners attorneys, does not prevent this Court from appraising FEB, HUI,, and BLC in a single civil action. Defs. Opening Br. in Support ofils Motion to Sever Appraisal Claims, at 3. D&L Reply Dr. in Support of its Motion to Sever Appraisal Claims, at 1. 2 JAN-12-01 FRI 03:43 PM PHX NU. r, ULtl J Second, respondents argue that neither $ 262 of the DGCL nor Court of Chancery Rules 20(n) and 21 permit this Court to combine the appraisals of three sep;1ratc Delaware corporations into a sin& civil action. I cannot agree with this argument, While $ 262 does not contemplate combining the appraisal of more than one company into a single civil action, it does not, by its terms, prevent it. Similarly, nothing in the plain language of Rules 20(a) or 21 suggests that this Court cannot appraise three companies in 3 single civil action. Moreover, this Court, In C~valiw Oil Carp, v. Hrrtnctt,3 conducted a single trial of four statutory appraisal actions involving two scpxate but related Delaware corporationsyY4 Thus, it is clear to mc that this Court has the authority to combine the appraisals of I;EB, BTJL, and 131X into a single civil action, Third, and finally, respondents argue that the appraisal of these three scparatc Delaware corporations in a single civil action would frustrate I<espondcnts right LO scttlc the appraisal claims of single group of shareholders of 13-33, BUI,, or BLC. This is simply not true. As correctly pointed out by the petitioners, in a statutory appraisal, each person who demands an appraisal has the individual right to agree to accept or reject a settlement offer. Moreover, no one 3 Del. Ch., C.A. No. 7959, Jacobs, V.C. (Feb. 22, 1986), a/f d, DeI. Supr., 564 A.2d I137 (1989). 4Scs id,, slip op. at 1. I)&. Opening Er. in Support of its Motion to Sever Appraisal Claims, at 4, 3 JAN-12-01 FRI 03~44 PM rm IYU, pctilioncr can require any other petitioner to also settle his or her claim. Thus, I can not see how appraising the value of thcsc three corporations in a single civil action would frustrate Ihc respondents right to settle the appraisal claims of a single shareholder or a group of shareholders. According, I deny the respondents motion to sever. In light of the above ruling, 1 deny pctitioncrs motion to file a sur-reply brief in this nlatter, 1 also deny respondents motion for a protective order, as no good reason exists Tar discovery not to proceed in the appraisal action at this time. IT IS SO ORDIXED. Very tsuly yours, #iii!LiJU~ William B. Chandler III WBCX1:meg oc: XC: Register in Chancery Vice Chancellors Law I,ibraries 4

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