Books and Records Demand – Page 3

Chancery Court Partially Grants Books and Records Request

Oct 19 2017

In Mehta v. Kaazing Corporation, C.A. No. 2017-0087-JRS (Del. Ch. Sept. 29, 2017), the Delaware Court of Chancery partially granted and partially denied a plaintiff shareholder’s books and records inspecting demand under Section 220(c) of the Delaware General Corporation Law (“DGCL”). Although valuation of equity is usually a proper purpose, here the shareholder did not identify any reason why his equity needed to be valued, so this purpose was deemed improper. The shareholder’s other purposes, including alleged wrongdoing and mismanagement, were deemed proper notwithstanding the shareholder’s open employment litigation action against the company, but the scope of his requests were limited only to those documents that addressed the crux of those purposes.

IN MERGER-RELATED SUIT, ATTORNEY-CLIENT PRIVILEGE PREVAILED OVER GARNER CHALLENGE

Sep 11 2017

By: Kevin Stichter and Nathan G. Harrill

In Salberg v. Genworth Financial, Inc., C.A. No. 2017-0018-JRS (Del. Ch. July 27, 2017), the Delaware Court of Chancery denied the demand by the plaintiff stockholders (the “Stockholders”) for books and records from defendant Genworth Financial, Inc. (“Genworth”) under Section 220 of the Delaware General Corporation Law. Genworth asserted the attorney-client privilege and the Stockholders sought to invoke the “celebrated” Garner fiduciary exception. While the § 220 demand was made in the context of a pending merger, influential to the ruling was the fact that the requested books and records were relevant to a separate derivative action among the same parties. Although most of the Garner “good cause” factors weighed in favor of an exception to the privilege, the court held that the unique facts and circumstances surrounding the Stockholders’ demand barred them from accessing privileged information that was shielded from discovery in the derivative suit.

Court of Chancery Dismisses Complaint Seeking to Enforce a Stockholder’s Section 220 Demand to Inspect the Books and Records of Fannie Mae on Issue Preclusion Grounds

Jul 24 2017

By: David L. Forney and David Valenti

In Pagliara v. Federal National Mortgage Association, C.A. No. 12105-VCMR (Del. Ch. May 31, 2017) the Court of Chancery dismissed a complaint brought by a preferred stockholder of Federal National Mortgage Association (“Fanny Mae”) seeking to enforce his rights under Section 220 of the Delaware General Corporation Law to obtain documents (“Section 220 Demand”) to investigate certain actions of Fannie Mae on issue preclusion grounds. The Court of Chancery ruled that a prior judgment of the Eastern District of Virginia was preclusive on the dispositive issue of whether Fannie Mae stockholders retained the right to obtain the corporate books and records of Fannie Mae under the Housing and Economic Recovery Act of 2008 (the “HERA”).

Court of Chancery Holds that Stockholder Was Not Bound by Stock Transfer Restrictions that Were Not Noted on Stock Certificates, Because Stockholder Did Not Have Actual Knowledge of Such Restrictions When He Acquired the Stock and Did Not Affirmatively Assent to Such Restrictions Thereafter

Jul 20 2017

By Eric E. Freedman and H. Corinne Smith

In Henry v. Phixios Holdings, Inc., C.A. No. 12504-VCMR (Del. Ch. July 10, 2017), the Court of Chancery, interpreting Section 202 of the Delaware General Corporation Law, found that a stockholder had not forfeited his shares by engaging in activities prohibited by stock transfer restrictions contained in a company stockholder agreement, because the restrictions were not printed on the stock certificate and the stockholder did not have actual knowledge of the restrictions at the time that he acquired the stock, and did not agree to the restrictions thereafter. The Court of Chancery therefore rejected the company’s assertions that the individual was a former stockholder rather than a current stockholder, and ordered the company to produce books and records requested by the individual in his capacity as a stockholder.

Court of Chancery Holds That Shareholder Satisfied Burden of Proof under Section 220 to Show Credible Basis to Infer That Company Misled Shareholders Regarding Biggest Client

Jul 10 2017

By David Forney & Tami Mack

In Elow v. Express Scripts Holding Company, C.A. No.12721-VCMR and Khandhar v. Express Scripts Holding Company, C.A. No. 12734-VCMR (Del. Ch. May 31, 2017), the Court of Chancery held that plaintiff shareholder Clifford Elow’s (“Elow”) demand to inspect certain books and records of Express Scripts Holding Company (the “Company”) met all statutory requirements and stated a proper purpose, while plaintiff (and purported shareholder) Amitkumar Khandhar’s (“Khandhar”) demand did not. Thus, the Court granted Elow’s Section 220 demand subject to a confidentiality agreement and denied Khandhar’s demand.

Cabo Verde Capital’s Merger Into A Foreign Company Severed Stockholder’s Standing To Bring A Books And Records Action In Delaware Chancery Court

Jul 10 2017

By Holly Hatfield and Max E. Kaplan

By letter report dated June 8, 2017, Master of Chancery Morgan T. Zurn recommended dismissal of the complaint in Walker v. Cabo Verde Capital, Inc., C.A. No. 11696-MZ (Del. Ch. June 8, 2017), finding that the plaintiff lacked standing to compel inspection of a non-extant Delaware company’s books and records. Citing recent developments in Delaware law, the Court held that the plaintiff could not satisfy the “stockholder” prerequisite for filing a Section 220 action because all stockholder interest had been previously extinguished by the company’s merger into a foreign corporation.

Chancery Court Permits Limited Partners’ Claims Against General Partners to Proceed Despite Ongoing Bankruptcy of the Partnership

May 11 2017

By: Scott Waxman and David Noll

On a motion to “’confirm the trial schedule,’” Vice Chancellor Glasscock determined that actions brought by the limited partners of a partnership based upon the general partner’s alleged fraud, self interest and breach of the partnership agreement were direct claims and therefore not subject to a stay pursuant to the partnership’s bankruptcy proceeding. Sehoy Energy LP et al. v. Haven Real Estate Group, LLC et al., C.A. No. 12387-VCG (Del. Ch. April 17, 2017), addressed a situation in which the general partner of a limited partnership (and the person controlling the general partner) used funds of the limited partnership to make investments into the business of a personal friend which ultimately resulted in the bankruptcy of the partnership.

Court of Chancery Holds That A Credible Basis to Infer Wrongdoing by One Director is Sufficient to Satisfy Burden of Proof Under Section 220

May 04 2017

By: Remsen Kinne and Tami Mack

In Rodgers v. Cypress Semiconductor Corporation, C.A. No. 2017-0070-AGB (Del. Ch. April 17, 2017), the Court of Chancery held that shareholder plaintiff T.J. Rodgers (“Rodgers”) had established several proper purposes for his demand to inspect certain books and records of Cypress Semiconductor Corporation (the “Company”), along with a credible basis to infer wrongdoing by at least one of the Company’s directors. The Court granted Rodgers’ Section 220 action and directed the parties to meet and submit an order for production of all responsive documents.

Chancery Court Rejects Stockholder’s Demand for Books and Records

Apr 05 2017

By: Whitney Smith and Kevin Szu-Tu

In Haque v. Tesla Motors, Inc., C.A. No. 12651-VCS (Feb. 2, 2017), Vice Chancellor Slights declined to compel the defendant, Tesla Motors, Inc. (“Tesla”), to produce certain books and records demanded by Plaintiff stockholder in an action brought under Section 220 of the Delaware General Corporate Law (“Section 220”). Applying well settled Delaware law that a stockholder’s right to inspect books and records under Section 220 is broad but not unlimited, Vice Chancellor Slights denied Plaintiff’s demand, ruling that the Plaintiff failed to demonstrate a credible basis from which the Court could infer wrongdoing.

Cut Off from Books and Records: Vice Chancellor Holds Termination of Ownership Rights by Merger Extinguishes Stockholder Standing to Bring Section 220 Action

Mar 14 2017

Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017)

By Joanna Diakos Kordalis and Max E. Kaplan

By memorandum-opinion dated February 27, 2017, Vice Chancellor Glasscock dismissed plaintiff’s Verified Complaint to Compel Inspection of Books and Records in Weingarten v. Monster Worldwide, Inc. after finding plaintiff lacked standing to bring such a claim. Specifically, the Court held that, under Section 220 of the Delaware General Corporation Law, only a current stockholder may bring an action to redress the denial of access to a corporation’s books and records, even if the plaintiff had been a stockholder when initially demanding access.

Catagory:Books and Records Demand