IN THE SUPREME COURT OF THE STATE OF DELAWARE
SOURCEHOV HOLDINGS, INC. §
AND PANGEA ACQUISITIONS, §
INC., §
§ No. 362, 2019
Defendants Below, §
Appellants, § Court Below–Court of Chancery
§ of the State of Delaware
v. §
§ C.A. No. 2018-0280
WESTERN STANDARD, LLC, §
Individually and as Stockholder §
Representative for Former BancTec, §
Inc. Common Stockholders, §
§
Plaintiff Below, §
Appellee. §
Submitted: August 22, 2019
Decided: September 3, 2019
Before VAUGHN, SEITZ, and TRAYNOR, Justices.
ORDER
Upon consideration of the notice of interlocutory appeal, the supplemental
notice of appeal, their exhibits, and the Court of Chancery’s order denying
Defendants’ motion for certification of an interlocutory appeal, it appears to the
Court that:
(1) The defendants below-appellants SourceHOV Holdings, Inc.
(“SourceHOV”) and Pangea Acquisitions, Inc. (“Pangea”) (collectively,
“Defendants”) have petitioned this Court under Supreme Court Rule 42 to accept
an interlocutory appeal from a Court of Chancery decision denying Defendants’
motions to dismiss.1
(2) In 2014, Pangea acquired BancTec, Inc. (“BancTec”) through a
merger of BancTec and a Pangea subsidiary. The merger agreement provides that
contingent consideration, or “earn-out,” will be paid to former BancTec
stockholders in the event Pangea’s controlling stockholder realizes certain returns
from its post-merger Pangea stock. The merger agreement between Pangea and
BancTec designates plaintiff, Western Standard, LLC (“Western Standard”), as the
stockholder representative for BancTec stockholders. Western Standard alleges
that Pangea improperly refused to pay the earn-out owed to former BancTec
stockholders after a merger between SourceHOV—which by then had bought
Pangea in a reverse triangular merger—and Exela Technologies, Inc.
(3) Defendants moved to dismiss Western Standard’s amended complaint
arguing, among other things, that Western Standard failed to state a claim upon
which relief may be granted because the earn-out right was extinguished before
any alleged triggering transaction. Specifically, Defendants argued the earn-out
was moot because it was tied to specific shares of stock that ceased to exist upon
and as a result of a reverse triangular merger between Pangea and SourceHOV.
The Court of Chancery denied the motions, concluding that (i) the shares to which
1
Western Standard, LLC v. SourceHOV Holdings, Inc., 2019 WL 3322406 (Del. Ch. July 24,
2019).
2
the earn-out right allegedly attached did not conclusively cease to exist after the
merger between Pangea and SourceHOV; and (ii) the Pangea-BancTec merger
agreement’s earn-out provision was ambiguous as written.
(4) On August 5, 2019, Defendants asked the Court of Chancery to certify
an interlocutory appeal from the court’s July 24, 2019 opinion and order.
Defendants maintained that the Court of Chancery’s decision decided a substantial
issue of material importance. Defendants further argued that the following Rule
42(b)(iii) factors weighted in favor of granting interlocutory review: the opinion is
in conflict with Delaware case law;2 the opinion relates to the construction of § 251
of Delaware General Corporation Law3 and should be settled promptly by the
Delaware Supreme Court;4 and immediate review of the opinion may terminate the
litigation.5 Western Standard opposed the application.
(5) On August 21, 2019, the Court of Chancery denied Defendants’
application for certification of an interlocutory appeal. The Court of Chancery
found that its opinion had not decided an issue that related to the merits of the case
and, therefore, did not merit interlocutory review. The Court of Chancery also
concluded that the Rule 42(b)(iii) factors did not weigh in favor of certifying an
interlocutory appeal. The court rejected Defendants’ position that its opinion
2
Del. Supr. Ct. R. 42(b)(iii)(B).
3
8 Del. C. § 251.
4
Del. Supr. Ct. R. 42(b)(iii)(C).
5
Del. Supr. Ct. R. 42(b)(iii)(G).
3
conflicts with existing trial court decisions; rather, the court observed that this case
presented unique factual circumstances. The court further found that the opinion
did not purport to construe § 251, noting the court’s conclusions when considering
the motions to dismiss were premised on the language of the agreements among
the parties and Western Standard’s amended complaint. Finally, the court found
that interlocutory review may not terminate the litigation due to the existence of
other outstanding issues in the case. We agree with the Court of Chancery.
(6) Applications for interlocutory review are addressed to the sound
discretion of the Court.6 Giving great weight to the trial court’s thoughtful analysis
and in the exercise of our discretion, this Court has concluded that the application
for interlocutory review does not meet the strict standards for certification under
Supreme Court Rule 42(b). Exceptional circumstances that would merit
interlocutory review of the Court of Chancery’s decision do not exist in this case,7
and the potential benefits of interlocutory review do not outweigh the inefficiency,
disruption, and probable costs caused by an interlocutory appeal.8
6
Del. Supr. Ct. R. 42(d)(v).
7
Del. Supr. Ct. R. 42(b)(ii).
8
Del. Supr. Ct. R. 42(b)(iii).
4
NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is
REFUSED.
BY THE COURT:
/s/ Collins J. Seitz, Jr.
Justice
5
Sourcehov Holdings, Inc. v. Western Standard, LLC
Combined Opinion