Unfair Shipwreck Merger Is Unwound by Chancery Court

The wreck of a slave ship captured during the “golden age” of Atlantic piracy was the subject of an improper merger in 2018, a Delaware judge ruled Friday, ordering the merger unwound and restoring 49% ownership to minority shareholders.

In a colorful opinion detailing decades of bitter history between the parties, Vice Chancellor Nathan Cook of the Delaware Court of Chancery said the merger was unfair and replaced the parties’ pre-merger positions in the enterprise that owns whatever treasure has been or will be uncovered.

Cook noted that before approving the merger, the defendants never met with the board, rejected the advice of a valuation expert, didn’t bring in a financial adviser, wasn’t approved by a special committee and wasn’t conditioned on an independent vote by disinterested minority stockholders.

“I conclude, then—as Defendants’ conduct makes eminently clear—that Defendants acted in a manner that was wholly devoid of any meaningful attempt to employ a fair process,” Cook wrote. “Indeed, it is frankly difficult to think of even a single act Defendants took that might suggest they intended anything other than for the process here to be manifestly unfair.”

The case stems from the wreck of the Whydah Gally, a slave ship captured by pirate “Black Sam” Bellamy that sank in a 1717 storm off Cape Cod, Mass. It was discovered by underwater explorer Barry Clifford in 1982.

A lawsuit painted Clifford and Robert Lazier, his late partner at Maritime Explorations Inc., as swashbucklers who breached their fiduciary duties for decades and manipulated a 2018 merger of their various Whydah-related entities to sideline minority shareholders.

Clifford testified at trial in early 2023 that salvage operations and efforts to display the wreck’s artifacts never proved lucrative, or even self-sustaining, and the merger intended to streamline operations and benefit stockholders who volunteered services to keep things afloat through many years of financial hardship. He admitted that the record-keeping never met professional standards, and office flooding and the deaths of Lazier and other associates left gaps in the records available, Clifford’s attorneys have argued.

A shareholder who filed the lawsuit, Paul Buddenhagen, argued Clifford failed to prove his claims that he put up personal resources to keep Maritime Explorations going when it lacked outside funding. Maritime Explorations hired Buddenhagen as a management consultant in the early 1990s, and Clifford’s attorneys have said his lawsuit was prompted by personal animosities.

The parties disputed the value of the wreck’s artifacts, including coins that Clifford considered “trinkets” valued around $25 each, while Buddenhagen believed each was worth $10,000. They also disagreed over how much money was generated by current museum exhibitions in Massachusetts. Plans to create large museum projects in Boston and Tampa, Fla., failed amid criticism over Whydah’s role in the Atlantic slave trade before Bellamy seized it.

Buddenhagen is represented by Duane Morris LLP. Clifford and Lazier’s estate are represented by Heyman Enerio Gattuso & Hirzel LLP.

The case is Buddenhagen v. Clifford, Del. Ch., No. 2019-0258, opinion 5/10/24Buddenhagen v. Clifford, Del. Ch., No. 2019-0258