Mehta v. Westrock Co.

• Court: Supreme Court of Delaware
• Decided: September 20, 2021
• Docket: 54, 2021
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

RAM MEHTA and NEENA § METHA, § No. 54, 2021 § Plaintiffs Below, § Court Below: Court of Chancery Appellants, § of the State of Delaware § v. § § C.A. No. 2020-0496-PAF WESTROCK CO. and its officials, § SMURFIT-STONE CONTAINER § CORPORATION and its officials, § ROCK-TENN COMPANY and its § officials, § § Defendants Below, § Appellants. §

Submitted: August 6, 2021 Decided: September 20, 2021

Before VALIHURA, VAUGHN, and TRAYNOR, Justices.

ORDER

After consideration of the briefs and the record on appeal, it appears to the

Court that:

(1) The appellants, Ram and Neena Mehta, challenge a decision of the

Court of Chancery that granted the appellees’ motion to dismiss their complaint. On

January 26, 2009, Smurfit-Stone Container Corporation filed for bankruptcy, and on

June 21, 2010, the bankruptcy court approved a plan of reorganization. Before

Smurfit-Stone filed for bankruptcy, the Mehtas held 170,082 shares of the company’s common stock (the “old shares”). Under the bankruptcy plan, the

Mehtas’ old shares were cancelled and the Mehtas received approximately 1,486

shares of common stock in the reorganized Smurfit-Stone (the “new shares”). The

bankruptcy plan contemplated that the holders of the old shares might receive

additional distributions under certain circumstances; in order to facilitate any future

pro rata distribution that might occur, The Depository Trust Company created

escrow positions for the holders of the old shares, equal to the number of the old

shares that they owned. Thus, the Mehtas were credited with 170,082 escrow shares.

(2) On January 23, 2011, Smurfit-Stone announced that it would merge

with Rock-Tenn Company. Holders of the new shares would receive a mixture of

cash and shares of Rock-Tenn common stock in the merger. The merger was the

subject of stockholder litigation that challenged the adequacy of the merger

consideration to the Smurfit-Stone stockholders. On February 2, 2012, the Court of

Chancery entered a final order and judgment that certified the stockholders as a class,

approved a settlement of the litigation, dismissed the litigation with prejudice, and

granted the defendants broad releases.

(3) The Mehtas declined the merger consideration and sought appraisal, but

they never perfected their appraisal rights by filing a petition for appraisal in the

Court of Chancery. The merger closed on May 27, 2011. On September 23, 2011,

the Mehtas filed an action in the Court of Chancery asserting claims for breach of

2 fiduciary duty against the past and present directors of Smurfit-Stone and Rock-

Tenn. The complaint alleged wrongdoing leading up to Smurfit-Stone’s bankruptcy,

challenged the merger with Rock-Tenn, and asserted that the Mehtas had not been

paid the merger consideration after their appraisal demand lapsed.1 The Court of

Chancery dismissed the claims relating to the bankruptcy and the merger but

determined that the Mehtas had stated a claim for nonpayment of the merger

consideration. The parties ultimately settled that litigation, as memorialized in a

settlement agreement and release dated November 15, 2014.

(4) In 2015, Rock-Tenn merged with MeadWestvaco Corporation, and the

combined entity was named WestRock Company. In November 2018, the Mehtas

informed WestRock that they had not received distributions on their Smurfit-Stone

escrow shares. WestRock explained that any possibility for distributions ended after

the 2011 merger between Smurfit-Stone and Rock-Tenn. On June 22, 2020, the

Mehtas filed an action in the Court of Chancery, in which they claimed that Smurfit-

Stone, Rock-Tenn, and WestRock “committed fraud and embezzlement of money”

against the Mehtas by “not doing final distribution for [the Mehtas’] escrow stocks

in the amount of $1,333,442.88.”

(5) The defendants moved to dismiss the Mehtas’ complaint. After

briefing, the court held a hearing on the motion to dismiss on February 8, 2021. At

1 Mehta v. Smurfit-Stone Container Corp., 2014 WL 5438534 (Del. Ch. Oct. 20, 2014). 3 the conclusion of the hearing, the Court of Chancery granted the motion to dismiss

in a bench ruling. The court held that because the complaint sought compensatory,

monetary damages and the Mehtas did not identify any statute that conferred subject

matter jurisdiction over the action, the court lacked subject matter jurisdiction unless

the complaint stated an equitable claim. The court then considered whether the

complaint stated a claim for equitable fraud and concluded that it did not.

Specifically, the court held that the complaint did not allege any representation of

material fact that could form the basis for a claim of equitable fraud; did not allege

that anyone promised the Mehtas that there would actually be a follow-on

distribution on the escrow shares; did not allege with particularity who made

statements to the Mehtas regarding the escrow shares, what that person’s intent was,

and whether that person had a fiduciary relationship with the Mehtas; and did not

claim that a distribution was made on the escrow shares that the Mehtas did not

receive.2 The court further found that even if the complaint had stated a claim, it

was barred by the releases contained in the bankruptcy confirmation, the settlement

of the stockholder litigation, and the Mehtas’ settlement of their prior litigation in

the Court of Chancery.

(6) We conclude that the Court of Chancery’s judgment should be affirmed

2 See generally Zirn v. VLI Corp., 681 A.2d 1050, 1060-61 (Del. 1996) (stating the elements of common-law and equitable fraud). 4 on the basis of its February 8, 2021, bench ruling. The fact that the court ruled from

the bench does not suggest that the court ruled in a “prejudicial manner,” as the

Mehtas suggest on appeal, but rather that the court was well prepared by the time of

the hearing on the motion to dismiss. Moreover, the Mehtas argue on appeal that $2

billion remained to be distributed to Smurfit-Stone’s common stockholders under

the bankruptcy plan. As the Court of Chancery correctly held, that claim is subject

to the exclusive jurisdiction of the bankruptcy court.3

NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of

Chancery is AFFIRMED.

BY THE COURT:

/s/ James T. Vaughn, Jr. Justice

3 See Appendix to Appellees’ Answering Brief, at B367. 5