![handle is hein.journals/txjbus3 and id is 1 raw text is:
BULLE TIN
OF THE SECTION ON CORPORATION, BANKING & BUSINESS LAW
VOLUME 3 FEBRUARY, 1964 NUMBER 1
RECENT DEVELOPMENTS
By SPENCER LErrs of Houston
Corporations - Right to Assert Privilege for Communications with Counsel. Certiorari in
the Radiant Burners case, reported in the January, July and November, 1963 issues, has been denied
by the United States Supreme Court.
Radiant Burners, Inc. v. American Gas Association, 32 Law Week 3205.
Corporations - De Facto Merger. In two recent cases, Delaware courts have rejected the
de facto merger doctrine, under which different kinds of corporate combinations may be treated
as mergers and successfully attacked because no provision is made for appraisal rights. In the first
case, Hariton v. Arco Electronics, Inc., 188 A.2d 123 (Del. Sup. Ct. 1963), Arco Electronics, Inc.
agreed to sell all of its assets to Loral Electronics Corporation for stock in the latter corporation,
and also to liquidate to its shareholders all of the stock received from Loral. Plaintiff, in seeking to
block the transaction, argued that the agreement to liquidate, which deprived the shareholders of
the selling corporation of the right to elect whether the corporation would survive as a holding
company, changed the agreement from a simple sale of assets into a de facto merger. He then argued
that since no notice was given of appraisal rights, the vote on the proposed transaction could not
be valid. The court held to the contrary, however, stating: We now hold that the re-organization
here accomplished through [a sale of assets] . . . and a mandatory plan of dissolution is legal.
In the two leading cases in which the de facto merger doctrine has been recognized in other
states there were indications that the method chosen for combining the corporations was a planned
evasion of appraisal rights both under the merger statutes and under the applicable sale-of-assets
statute. See Farris v. Glen Alden Corporation, 143 A.2d 25, (Pa. Sup. Ct. 1958) and Applestein v.
United Board and Carton Corporation, 159 A.2d 146 (N.J. Super. Ct. 1960). The Delaware sale-of-
assets statute (Delaware Corporation Law Sec. 271) does not grant appraisal rights either to share-
holders of the selling corporation or to those of the purchasing corporation. Thus, the court could
have applied the de facto merger doctrine only by totally ignoring the provisions of the sale-of-assets
statute.
The Hariton case has been followed in a more recent case, Orzerk v. Engelhart, 195 A.2d 375
(Del. Sup. Ct. 1963), which might have proven difficult in a case of first impression. In this case,
an inactive airplane company, Bellanca Corporation, purchased all of the capital stock of seven
different corporations, each engaged in the egg business, and, as part of a predetermined plan,
merged its seven new subsidiaries into itself under Section 253 of the Delaware Corporation Law.
Section 253 provides that a parent and wholly-owned subsidiary may merge without giving rise to
any appraisal rights. The plaintiff apparently argued a step transaction theory that the purchase
of stock and merger were broken down into two steps solely for the purpose of avoiding the appraisal
provisions of the Delaware statutes dealing with mergers of independent corporations. In rejecting
this contention, the Delaware Supreme Court reiterated its position, earlier stated in the Hariton
case, that actions taken in accordance with different sections of [the Delaware Corporation Law] . . .
are acts of independent legal significance even though the end result may be the same under different
sections. The application of this principle where it appears that the indirect method employed for
consummating the transaction probably was chosen solely for evasive purposes, indicates that the
de facto merger doctrine has no place in Delaware law.](ViewImageLocal?handle=hein.journals/txjbus3&div=1&collection=&method=preview&ext=.png&size=3)
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