Norberg V. Security Storage Co.: Stretching the Limits of the Doctrine of Acquiescence in Freeze-Out Mergers

Abstract

Pursuant to the doctrine of acquiescence, a stockholder who tenders his shares and accepts the benefits of a transaction may be barred from seeking equitable relief. Thus, if the stockholder is fully informed of all material information relevant to a given transaction, the doctrine of acquiescence may result in an equitable estoppel precluding the stockholder who accepted the benefits of the transaction with knowledge of the alleged inequitable conduct from challenging the transaction. The Delaware Court of Chancery decision in Norberg v. Security Storage Co. (Norberg I) represents the first decision of a Delaware court to apply the affirmative defense of acquiescence to bar a minority stockholder who did not vote in favor of a merger from pursuing a claim for breach of fiduciary duty by a majority stockholder in connection with a freeze-out merger. In so doing, Norberg I also became the first time a Delaware court barred claims of a minority stockholder in a freeze-out merger based on the affirmative defense of acquiescence where the merger was approved by the consent of the majority stockholder without any vote of the minority stockholders; the merger was neither conditioned upon the approval of a majority of the minority stockholders or negotiated by a special committee of directors; the complaint raised an issue of "unfair dealing"; and there was no judicial determination that there were no material misstatements or omissions in the defendants' disclosures relating to the merger. The fact that all of these circumstances were present in Norberg I makes the decision particularly significant.

This article concludes that the mere fact that a fully-informed minority stockholder surrenders his or her stock certificates for the merger consideration following the consummation of a freeze-out merger should not, standing alone, support the application of the affirmative defense of acquiescence. Furthermore, this article highlights the split of authority in the decision of the Delaware Court of Chancery and calls upon the Delaware Supreme Court for a resolution.