      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

RAM MEHTA AND NEENA MEHTA,                  )
                                            )
       Plaintiffs,                          )
                                            )
       v.                                   )     C.A. No. 6891-VCL
                                            )
SMURFIT-STONE CONTAINER                     )
CORPORATION, AND ITS OFFICIALS,             )
ROCK-TENN COMPANY, AND ITS                  )
OFFICIALS,                                  )
                                            )
       Defendants.                          )


                           MEMORANDUM OPINION


                         Date Submitted: September 15, 2014
                          Date Decided: October 20, 2014

Ram Mehta and Neena Mehta, Buena Park, California; Pro Se Plaintiffs.

William M. Lafferty, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington,
Delaware; Attorneys for Defendants.


LASTER, Vice Chancellor.
     Plaintiffs Ram Mehta and Neena Mehta owned common stock of Smurfit-Stone

Container Corporation (the ―Company‖ or ―Smurfit-Stone‖). In this lawsuit, they

challenge (i) decisions leading up to the Company’s bankruptcy, along with steps taken in

connection with its exit from bankruptcy, (ii) the Company’s subsequent merger with and

into Rock-Tenn CP, LLC (―Rock-Tenn Sub‖), a wholly owned acquisition subsidiary of

Rock-Tenn Company (―Rock-Tenn Parent‖), and (iii) Rock-Tenn Sub’s failure to provide

them with the merger consideration after their demand for appraisal lapsed. The

defendants have moved to dismiss the complaint for failure to state a claim on which

relief can be granted. The challenges to the stock distribution and the merger are

dismissed, but a claim against Rock-Tenn Sub for failing to provide the Mehtas with their

share of the merger consideration survives.

                         I.     FACTUAL BACKGROUND

      The facts are drawn from the verified amended complaint (the ―Complaint‖) and

the documents it incorporates by reference. Other facts are undisputed or subject to

judicial notice. The plaintiffs, as non-movants, receive the benefit of all reasonable

inferences.

A.    The Bankruptcy Proceeding

      Smurfit-Stone is a Delaware corporation that manufactures paperboard and paper-

based packaging. On January 26, 2009, Smurfit-Stone filed a voluntary petition in

bankruptcy under Chapter 11 of the Bankruptcy Code. By order dated June 21, 2010, the

bankruptcy court approved the Company’s plan of reorganization. In re Smurfit-Stone




                                              1
Container Corp., Case No. 09-10235 (BLS) (Bankr. D. Del. Jun 21, 2010) (ORDER)

[hereinafter ―Confirmation Order‖].

      Under the plan of reorganization, and pursuant to the Confirmation Order,

Smurfit-Stone’s existing shares were cancelled and new shares of common stock were

distributed to the Company’s creditors and stockholders. Creditors received 95.5% of the

new common stock. The common and preferred stockholders split the remainder. As part

of the plan of reorganization, Smurfit-Stone’s new board of directors approved

employment agreements for management that contemplated the payment of bonuses if

Smurfit-Stone engaged in a change-of-control transaction within a specified timeframe.

See In re Smurfit-Stone Container Corp. S’holders Litig., 2011 WL 2028076, at *2 (Del.

Ch. May 24, 2011). Significantly, the Confirmation Order discharged and released all

claims against Smurfit-Stone and its directors relating to the bankruptcy. See

Confirmation Order ¶¶ 51–55.

      The Mehtas owned Smurfit-Stone common stock before the bankruptcy

proceeding. After the reorganization, the Mehtas held 1,486 shares of Smurfit-Stone

common stock.

B.    The Merger With Rock-Tenn

      On January 23, 2011, Smurfit-Stone and Rock-Tenn Parent announced their

intention to merge. The merger agreement called for Smurfit-Stone to merge with and

into Rock-Tenn Sub. Pursuant to the merger, each share of Smurfit-Stone common stock

would be converted into the right to receive $17.50 in cash and .30605 shares of Rock-

Tenn Parent common stock.


                                           2
       Over the next two months, stockholders pursued litigation in Delaware and Illinois

challenging the adequacy of the merger consideration. After the Illinois cases were stayed

in favor of the consolidated Delaware action, this court denied the stockholder plaintiffs’

application for a preliminary injunction. See Smurfit-Stone S’holders Litig., 2011 WL

2028076, at *1. The merger closed on May 27, 2011. The Delaware action was later

settled, and this court approved the settlement by order dated February 2, 2012 (the

―Settlement Order‖). The Settlement Order certified the Delaware action as a class action,

granted the defendants broad releases covering all possible claims arising out of or

relating to the merger, and dismissed the Delaware litigation with prejudice.

C.     The Appraisal Demand

       Through their broker, TD Ameritrade, the Mehtas made a timely demand for

appraisal. Because they demanded appraisal, the Mehtas did not receive the merger

consideration after the merger closed on May 27, 2011.

       The Mehtas never filed a petition for appraisal. No other stockholder filed an

appraisal petition either. The 120-day time period—during which at least one stockholder

must file an appraisal petition for an appraisal proceeding to move forward—came and

went on September 24, 2011.

       The Mehtas withdrew their demand for appraisal in writing on March 16, 2012,

long after the time for filing an appraisal petition had run. From that point on, the Mehtas

communicated repeatedly with TD Ameritrade, the defendants, this court, and others

about the withdrawal of their appraisal rights. They consistently represented that they no




                                             3
longer wanted to pursue an appraisal proceeding and that they wanted to receive the

merger consideration.

       TD Ameritrade attempted unsuccessfully to obtain the merger consideration for

the Mehtas. TD Ameritrade eventually told the Mehtas that they would have to deal

directly with Rock-Tenn Parent and Rock-Tenn Sub to obtain the merger consideration.

       Even though no stockholder had filed an appraisal petition, the Rock-Tenn entities

took the positions that (i) the Mehtas only could receive the merger consideration if they

withdrew their demand for appraisal, (ii) the Mehtas only could withdraw their demand

for appraisal with Rock-Tenn Sub’s consent, and (iii) to receive Rock-Tenn Sub’s

consent, the Mehtas had to agree to a broader settlement, the details of which are not

relevant here. Because the Mehtas did not agree to any of the Rock-Tenn entities’

settlement proposals, Rock-Tenn Sub never provided the Mehtas with the merger

consideration.

D.     This Litigation

       The Mehtas filed this action on September 23, 2011. In substance, the Complaint

alleged claims for breach of fiduciary duty against the past and present directors of

Smurfit-Stone and the Rock-Tenn entities. The Complaint did not assert a claim for

appraisal.

       After the Complaint was filed, the action languished for nearly a year. By letter

dated September 5, 2012, the court inquired as to whether the matter should be dismissed

for lack of prosecution pursuant to Rule 41(e). After receiving correspondence from the

Mehtas, the court informed them that the Complaint would be dismissed for lack of


                                            4
prosecution if not served by October 31, 2012. The Mehtas filed an amended complaint

and served it on the defendants.

       On November 11, 2012, the defendants filed a two-page motion to dismiss

pursuant to Rule 12(b)(6) and Rule 23.1. The motion to dismiss indicated that the

substance of the defendants’ arguments would be fleshed out in an opening brief to be

filed later. The action again became inert.

       By letter dated January 7, 2014, the court inquired as to whether the matter now

should be dismissed for lack of prosecution pursuant to Rule 41(e). After receiving

correspondence from the Mehtas, the court held a status conference on April 17 during

which it directed the parties to brief the motion to dismiss. They did, and the court

conducted a hearing on the motion on September 15.

                              II.     LEGAL ANALYSIS

       The defendants seek to dismiss the Complaint for failing to state a claim on which

relief can be granted. See Ch. Ct. R. 12(b)(6). In a Delaware state court, the pleading

requirements for purposes of a Rule 12(b)(6) motion ―are minimal.‖ Cent. Mortg. Co. v.

Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 536 (Del. 2011).

       When considering a defendant's motion to dismiss, a trial court should
       accept all well-pleaded factual allegations in the Complaint as true, accept
       even vague allegations in the Complaint as ―well-pleaded‖ if they provide
       the defendant notice of the claim, draw all reasonable inferences in favor of
       the plaintiff, and deny the motion unless the plaintiff could not recover
       under any reasonably conceivable set of circumstances susceptible of proof.




                                              5
Id. (footnote omitted). The operative test in a Delaware state court is one of ―reasonable

conceivability.‖ Id. at 537 (footnote and internal quotation marks omitted). This standard

asks whether there is a ―possibility‖ of recovery. Id. at 537 n.13.

       Because the plaintiffs have proceeded as pro se litigants, the allegations of the

Complaint ―may be held to a somewhat less stringent technical standard than formal

pleadings drafted by lawyers.‖ Vick v. Haller, 522 A.2d 865, 1987 WL 36716, at *1 (Del.

Mar. 2, 1987) (ORDER). To ensure that a pro se plaintiff receives a full and fair hearing,

a court has discretion to ―look to the underlying substance‖ of a pro se pleading. Sloan v.

Segal, 2008 WL 81513, at *7 (Del. Ch. Jan. 3, 2008) (Strine, V.C.); see Jackson v.

Unemployment Ins. Appeal Bd., 1986 WL 11546, at *2 (Del. Super. Sept. 24, 1986)

(extrapolating claim of due process violation from complaint consisting of exhibits and

two sentences of ―argument‖). The Complaint still must state a claim on which relief can

be granted, but the court will not fault a pro se plaintiff for neglecting to use proper legal

terms or for failing to frame allegations in customary fashion.

A.     Claims Relating To The Bankruptcy Proceeding

       The Complaint alleges that Smurfit-Stone’s directors and officers mismanaged the

Company in breach of their fiduciary duties, leading to its bankruptcy. The Complaint

then challenges the distribution of 95.5% of the common stock of the reorganized entity

to its creditors, which the Complaint contends was unfair to pre-bankruptcy stockholders.

The Complaint objects to the grants of stock options and restricted stock that were made

to the reorganized entity’s directors and officers, and the Complaint alleges that the

reorganized entity’s officers lined their own pockets by entering into employment


                                              6
agreements that provided for change-of-control benefits, then seeking out a change-of-

control transaction. The Confirmation Order released all of these claims, so they fail to

state a claim on which relief can be granted.

       The Confirmation Order provided that ―all distributions and rights afforded under

the Plan [of Reorganization]. . . shall be . . . in exchange for, and in complete satisfaction,

settlement, discharge and release of, all Claims and any other obligations, suits . . . or

liabilities of any nature whatsoever . . . relating to any of the Debtors . . . .‖ Confirmation

Order ¶ 51. The existence of a bankruptcy court confirmation order approving a plan of

reorganization and releasing claims requires the dismissal of a later pleading that attempts

to litigate those claims. Agostino v. Hicks, 845 A.2d 1110, 1117 (Del. Ch. 2004). To the

extent the Complaint attacks events leading up to the bankruptcy, the substance of the

bankruptcy proceeding, or the results of the plan of reorganization, the Complaint is

dismissed.

B.     Claims Relating To The Merger

       The Complaint next alleges that the directors and officers of Smurfit-Stone

breached their fiduciary duties by agreeing to a merger with Rock-Tenn Parent and Rock-

Tenn Sub, then causing Smurfit-Stone to merge with and into Rock-Tenn Sub. A

combination of doctrines defeats the breach of fiduciary duty claims relating to the

merger, which fail to state a claim on which relief can be granted.




                                                7
       As a preliminary matter, the breach of fiduciary duty theories advanced in the

Complaint conceivably could be framed as either direct claims or derivative claims.1

Assuming the breach of fiduciary duty claims are derivative, then the Mehtas cannot

press them because they lost standing in the merger. See Lewis v. Ward, 852 A.2d 896,

901 (Del. 2004). The Complaint’s generalized and conclusory assertions of fraud on the

part of the directors are insufficient to bring the Complaint within any of the exceptions

to the continuous ownership requirement. See Arkansas Teacher, 75 A.3d at 894–95

(describing the fraud exception to the standing rule); Lewis, 852 A.2d at 905. Assuming

the breach of fiduciary duty claims are direct, then the Settlement Order released them.

Arkansas Teacher, 75 A.3d at 897. To the extent the Complaint attacks events leading up

to the merger or the substance of the merger, it is dismissed.

C.     The Failure To Provide The Mehtas With The Merger Consideration

       Finally, the Mehtas argue that the defendants conspired with TD Ameritrade to

withhold the merger consideration from the Mehtas. TD Ameritrade is not a party to the

case, so this decision does not address the allegations against that firm. Focusing on the

defendants in this litigation, the Mehtas’ real grievance is that even though they long ago


       1
         Compare Arkansas Teacher Ret. Sys. v. Countrywide Fin. Corp., 75 A.3d 888,
896 (Del. 2013) (―[P]re-merger fraudulent conduct [that] makes a merger inevitable . . .
gives rise to a direct claim that can survive the merger . . . .‖), and Parnes v. Bally
Entertainment Corp., 722 A.2d 1243, 1245 (Del. 1999) (holding that stockholders could
assert direct claims challenging merger where CEO allegedly breached his duty of loyalty
by requiring acquirer to give him side-payments as a condition of any deal) with Kramer
v. Western Pac. Indus., 546 A.2d 348, 352 (Del. 1988) (holding that breach of fiduciary
duty claims challenging side-payments in the form of stock option grants and severance
payments triggered by a merger were derivative, not direct).


                                             8
withdrew their demand for appraisal, Rock-Tenn Sub (the surviving corporation in the

merger) still has not provided them with the merger consideration. Although the Mehtas

have not framed a theory using recognizable legal concepts, they have a claim against

Rock-Tenn Sub for failure to provide them with the merger consideration.

       The operative event giving rise to Rock-Tenn Sub’s obligation to provide the

Mehtas with the merger consideration was not their attempted withdrawal of their

appraisal demand, but rather the failure of any stockholder to file a petition for appraisal

within 120 days after the effective time of the merger. Once that deadline passed, the

right to appraisal lapsed for all stockholders who had demanded appraisal, triggering an

obligation on the part of the surviving corporation to pay them the merger consideration.

Because Rock-Tenn Sub has never paid the Mehtas the merger consideration, they have a

claim to recover it.

       Section 262(d)(1) of the Delaware General Corporation Law provides that a

stockholder who wishes to pursue appraisal must make a timely written demand therefor.

8 Del. C. § 262(d)(1). The demand is necessary to perfect a stockholder’s right to

appraisal, but it is not sufficient to prevent the right from lapsing. A stockholder’s right to

appraisal can lapse, even after the demand has been made, if the stockholder votes in

favor of the merger giving rise to appraisal rights or accepts the merger consideration.

See Jesse A. Finkelstein & John D. Hendershot, Appraisal Rights in Mergers and

Consolidations, 38-5th C.P.S. §§ IV(H)(3), at A-26 n.145 (BNA) (collecting cases).

Within the first 60 days after the effective time, a stockholder also can withdraw its

demand for appraisal unilaterally, without the corporation’s consent, causing the right to


                                              9
appraisal to lapse. 8 Del. C. § 262(e). After the first 60 days, a stockholder only can

withdraw an appraisal demand with consent of the corporation. Id. § 262(k); see also

Dofflemyer v. W.F. Hall Printing Co., 432 A.2d 1198, 1201 (Del. 1981).

       Section 262(e) establishes a final requirement which, if not met, causes all

stockholders who have demanded appraisal to lose their appraisal rights. Section 262(e)

requires that an appraisal petition be filed within 120 days of the merger. 8 Del. C. §

262(e). If an appraisal petition is not filed on time, then all appraisal rights lapse.

Finkelstein & Hendershot, supra, 38-5th C.P.S. § IV(H)(3), at A-27. The 120-day time

period for the filing of an appraisal petition provides the surviving corporation with

certainty regarding its exposure to an appraisal proceeding. If an appraisal petition is not

timely filed, then the corporation can pay out the merger consideration to the putatively

dissenting stockholders.

       In this case, the merger closed on May 27, 2011. The 120-day mark came and

went on September 24, 2011, without anyone filing an appraisal petition. At that point,

the appraisal rights of all stockholders who demanded appraisal lapsed. The Mehtas and

any other stockholders who demanded appraisal became entitled to the merger

consideration from Rock-Tenn Sub, and Rock-Tenn Sub could pay out the merger

consideration without fear that an appraisal petition might be filed later and somehow

resurrect the appraisal claims. The Mehtas, however, were never provided with the

merger consideration.

       Understandably given their status as pro se litigants, the Mehtas have not framed a

claim for the merger consideration in traditional legal terms, but it can be conceptualized


                                            10
in at least two ways. One way to frame the legal theory would be as a breach of contract

claim. The certificate of incorporation is a ―contract between a Delaware corporation and

its stockholders.‖ Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 955

(Del. Ch. 2013) (citing Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1188 (Del.

2010)). ―It is elementary that [the Delaware General Corporation Law’s] provisions are

written into every corporate charter.‖ Federal United Corp. v. Havender, 11 A.2d 331,

333 (Del. 1940). The corporate contract between the Mehtas and Smurfit-Stone included

the provisions of Section 262, which call for stockholders who demanded appraisal to

receive the merger consideration when no appraisal petition is timely filed. Rock-Tenn

Sub breached the corporate contract by failing to pay the merger consideration when it

came due.

       As an alternative to a breach of contract framework, the claim can be conceived of

as one for unjust enrichment. Unjust enrichment is ―the unjust retention of a benefit to the

loss of another, or the retention of money or property of another against the fundamental

principles of justice or equity and good conscience.‖ Fleer Corp. v. Topps Chewing Gum,

Inc., 539 A.2d 1060, 1062 (Del. 1988) (internal quotation marks omitted). ―The elements

of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a relation

between the enrichment and impoverishment, (4) the absence of justification, and (5) the

absence of a remedy provided by law.‖ Nemec v. Shrader, 991 A.2d 1120, 1130 (Del.

2010). Rock-Tenn Sub’s retention of the merger consideration meets each element. The

failure to pay the merger consideration enriches Rock-Tenn Sub while impoverishing the

Mehtas, with a direct relationship between the two. Once no one filed an appraisal


                                            11
petition and any demands for appraisal lapsed, there was no justification for Rock-Tenn

Sub’s retention of the benefit. If the claim is not conceptualized as a contractual violation,

then there is an absence of a remedy at law, creating a gap for the doctrine of unjust

enrichment to fill.

       It is not necessary at this point to determine authoritatively whether the claim is

best treated as one for breach of contract, unjust enrichment, or some other legal theory.

It is sufficient at this point that the Mehtas have a claim against Rock-Tenn Sub for

retaining the merger consideration.

D.     The Scope Of The Remedy

       In seeking damages, the Mehtas have not limited themselves to amounts tied to the

merger consideration. They also seek consequential damages for harm they suffered

because the defendants failed to pay them the merger consideration in time for the

Mehtas to capitalize on the depressed real estate market that persisted in the aftermath of

the Great Recession. They argue that because they did not receive the merger

consideration promptly, they could not purchase the home they wanted in a desirable

school district. They also argue that when their account was not credited with the merger

consideration, they received a margin call from TD Ameritrade and had to sell other

stocks at a disadvantageous time. The Mehtas cannot recover these categories of

damages.

       As discussed in the preceding section, the sole surviving claim can be regarded as

a claim for breach of the Smurfit-Stone corporate charter. Under principles of contract

law, the categories of damages that the Complaint identifies are consequential damages,


                                             12
defined as damages that ―do not flow directly or immediately‖ from the breach. Pharm.

Prod. Dev., Inc. v. TVM Life Sci. Ventures VI, L.P., 2011 WL 549163, at *6 (Del. Ch.

Feb. 16, 2011); 24 WILLISTON ON CONTRACTS § 64:12 (4th ed. 2012). A plaintiff only

can recover consequential damages if they were foreseeable at the time of contracting.

Pharm. Prod., 2011 WL 549163, at *6; see RESTATEMENT (SECOND) OF CONTRACTS §

351(1) (1981) (―Damages are not recoverable for loss that the party in breach did not

have reason to foresee. . . .‖). In this case, there is no reasonably conceivable basis on

which Rock-Tenn Sub might have perceived that its failure to pay the merger

consideration after the Mehtas’ appraisal rights lapsed would result in damages based on

the Mehtas’ inability to buy their desired home or TD Ameritrade’s imposition of a

margin call. ―The law does not . . . promote speculative damages at the [defendant’s]

expense.‖ Ryan v. Tad’s Enterprises, Inc., 709 A.2d 682, 689 (Del. Ch. 1996) (internal

quotation marks omitted).

      If the remaining claim is considered as one for unjust enrichment, the Mehtas

cannot recover these types of damages either. The most likely measure for damages under

an unjust enrichment claim would be the amount by which Rock-Tenn Sub was unjustly

enriched. See Delaware Express Shuttle, Inc. v. Older, 2002 WL 31458243, at *15 (Del.

Ch. Oct. 23, 2002) (―The Defendants’ profits . . . are the correct measure of their unjust

enrichment and of Delaware Express’ damages.‖); see also Pike Creek Prof'l Ctr. v. E.

Elec. & Heating, Inc., 540 A.2d 1088, 1988 WL 32028, at *2 (Del. Apr. 5, 1988)

(ORDER) (affirming award of damages based on amount by which defendant was

unjustly enriched). The defendants were not unjustly enriched by an amount that


                                           13
incorporates amounts attributable to the TD Ameritrade margin call or the Mehtas’

inability to buy their desired home.

       The challenge of determining a more specific damages figure can be deferred until

a later stage of the case, recognizing that the amount of damages that the Mehtas can

recover is complicated by the fact that the merger consideration comprised a mixture of

cash and stock. The remedy for Rock-Tenn Sub’s failure to pay the cash portion is

relatively straightforward: damages equal to the amount of the cash portion plus an award

of pre-and post-judgment interest running from September 25, 2011, the day after the

120-day filing period ran, until the date of payment. See Brandywine Smyrna, Inc. v.

Millennium Builders, LLC, 34 A.3d 482, 486 (Del. 2011) (―[P]rejudgment interest in

Delaware cases is awarded as a matter of right . . . .‖).

       The remedy for Rock-Tenn Sub’s failure to provide the stock portion is more

difficult and will require input from the parties if this case reaches the remedial stage.

One method would be to convert the stock component into a cash value based on the

trading price of the shares on the date when payment was due and bring that amount

forward with interest. Another method would be to award the value of the shares at the

time of judgment, including intervening splits and dividends. Both of these approaches,

however, select arbitrary points for valuing the shares. A third possibility would be to

recognize that if the Mehtas had received the stock component when it was due, they

would have had the ability to sell at a time of their own choosing during the period after

September 25, 2011, until the date of judgment. In other situations where a party has a

right to sell and the defendant has foreclosed the plaintiff from exercising that right, the


                                              14
law awards the plaintiff the highest intermediate value of the shares. See Duncan v.

TheraTx, 775 A.2d 1019, 1023 (Del. 2001); Paradee v. Paradee, 2010 WL 3959604, at

*13 (Del. Ch. 2010); Am. Gen. Corp. v. Continental Airlines Corp., 622 A.2d 1, 10 (Del.

Ch. 1992).

      These and other remedial issues can be confronted at a later time. This decision

holds only that the Mehtas are not entitled to recover speculative, consequential damages

based on their inability to buy a home in a more desirable neighborhood or due to TD

Ameritrade’s margin call.

                               III.     CONCLUSION

      Except for the claim for non-payment of merger consideration, this action is

dismissed. To the extent the Complaint seeks damages not resulting directly from the

failure to pay the merger consideration, the Complaint is dismissed.




                                           15
