Hariton v. Arco Electronics, Inc.

Martin Hariton (plaintiff) owned stock in Arco Electronics, Inc. (Arco) (defendant), a Delaware corporation. Arco sold all its tangible and intangible assets (including its name) to Loral Electronics Corporation (Loral) in exchange for Loral shares. As part of the deal, (1) Loral paid all Arco’s debts, (2) Arco dissolved itself and distributed the Loral shares to Arco’s shareholders on a pro rata (i.e., proportional) basis, (3) Arco called a shareholders’ meeting to authorize and approve the transaction, and (4) Arco stopped doing business except as necessary to liquidate and dissolve itself. Hariton sued Arco, claiming, among other things, that although the parties characterized the Arco-Loral transaction as an asset sale pursuant to Delaware Corporation Law § 271, it substantively was a de facto merger that was governed by Delaware’s separate requirements for mergers, which would have provided Hariton with appraisal rights for his Arco shares. Thus, Hariton contended, the transaction was unlawful. Per Hariton, appraisal rights were important to him because otherwise, he would be forced to accept an investment in Loral, a company in which he did not choose to invest. Arco moved for summary judgment, arguing that the transaction properly was structured as an asset sale that complied with Delaware law governing asset sales. Hariton did not dispute that the transaction complied with the law governing asset sales.