Shearman & Sterling LLP | M&A Litigation Blog | M&A Litigation | Books and Records
M&A Litigation
This links to the home page
M&A Litigation
FILTERS
  • Delaware Court Of Chancery Grants Shareholder’s Post-Merger Books And Records Demand, Finding “Credible Basis” To Investigate Merger Process
     
    09/04/2019

    On August 28, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery granted a shareholder’s demand under 8 Del. C. § 220 to inspect the books and records of defendant GGP Inc. for the purpose of investigating potential mismanagement.  Kosinski v. GGP Inc., C.A. No. 2018-0540 (Del. Ch. Aug. 28, 2019).  Plaintiff’s demand stemmed from a merger in which defendant, a real estate company, was acquired by Brookfield Property Partners L.P., another real estate company that owned approximately one third of defendant’s common stock at the time.  Plaintiff contended that the buyer had been defendant’s de facto controlling shareholder and the procedural protections necessary for deferential review of a merger process involving a controller—under Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”)—had not been implemented.  Following trial, the Court granted plaintiff’s Section 220 demand, holding that where procedural protections are absent, “it is possible that the transaction was not at arm’s length,” and finding that plaintiff had demonstrated facts that established a “credible basis” to investigate potential breaches of fiduciary duty.  But the Court noted that it was making an “exceptionally modest point” and not announcing a rule that noncompliance with MFW procedural protections “automatically supplies a credible basis.”
  • Delaware Supreme Court Clarifies That Section 220 Books And Records Demands Are Not Subject To A Presumption Of Confidentiality
     
    08/13/2019

    On August 7, 2019, in a decision authored by Justice Gary F. Traynor, the Delaware Supreme Court concluded that books and records produced to a stockholder under Section 220 of the Delaware General Corporation Law are not subject to a presumption of confidentiality.  Tiger v. Boast Apparel, Inc., C.A. No. 23, 2019 (Del. Aug. 7, 2019).  In this case, the Delaware Court of Chancery referenced such a presumption when it issued an order requiring the stockholder to keep such records confidential indefinitely.  The Delaware Supreme Court affirmed the indefinite confidentiality order as “within the range of reasonableness … given the facts and circumstances of this case.”  But the Court expressly clarified that there is no such presumption of confidentiality and the Court of Chancery must instead “assess and compare benefits and harms when determining the initial degree and duration of confidentiality” in connection with a Section 220 demand.
  • Delaware Court Of Chancery Grants Books And Records Request Arising From Caremark Claims Related To Facebook User Privacy
     
    06/11/2019

    On May 30, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery granted a stockholder demand to inspect Facebook’s books and records in connection with their Caremark claims arising from alleged data privacy breaches.  In re Facebook, Inc. Section 220 Litig., C.A. No. 2018-0661-JRS (Del. Ch. May 30, 2019).  The Court concluded that, as a matter of law, it would be improper to assess the merits of plaintiffs’ Caremark claims in the context of a books-and-records demand and ruled that plaintiffs met the minimum burden of proof under Section 220 of the Delaware General Corporation Law (“Section 220”), noting that this standard was more easily met where, as here, the underlying claims allege the failure to prevent corporate violations of law, rather than challenging routine business operations.
  • Delaware Court Of Chancery Finds A Circumstantial Connection To Negative Corporate Developments Insufficient To Trigger Inspection Rights Under Section 220
     
    03/05/2019

    On February 12, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a books and records demand of a mattress company’s (the “Company”) stockholder in connection with the termination of the Company’s contract with its largest customer and related litigation. Hoeller v. Tempur Sealy Int’l Inc., C.A. No. 2018-0336-JRS (Del. Ch. Feb. 12, 2019). Plaintiff sought the records pursuant to Delaware General Corporation Law Section 220, 8 Del. C. § 220, purportedly to investigate breaches of fiduciary duty by the board. Attempting to articulate his justification, plaintiff relied on what the Court referred to as a “where there’s smoke there’s fire syllogism” in plaintiff’s contention that such a significant customer does not “just leave” in the absence of board culpability. Rejecting the request, the Court held that a “smoke then fire circumstantial connection” does not provide the “credible basis” to suspect wrongdoing that is required to entitle a stockholder to inspect a corporation’s books and records.
     
  • Delaware Supreme Court Grants Stockholder’s Section 220 Demand As To Certain Email, And Grants Requested Exceptions To Jurisdictional Use Restriction
     
    02/05/2019

    On January 29, 2019, in a decision authored by Chief Justice Leo E. Strine Jr., the Supreme Court of Delaware unanimously granted a stockholder petitioner’s demand under Delaware General Corporation Law Section 220, 8 Del. C. § 220, to inspect the books and records of respondent Palantir Technologies Inc. for the purpose of investigating potential mismanagement and breaches of fiduciary duty.  KT4 Partners LLC v. Palantir Techs. Inc., C.A. No. 281-2018 (Del. Jan. 29, 2019).  Previously, the Delaware Court of Chancery had issued a post-trial opinion partially granting petitioner’s demand for books and records, but denying access to email and ruling that information secured in the action could not be used in litigation outside of the Delaware Court of Chancery.  Reversing in part on appeal, the Supreme Court held that respondent—which allegedly conducted board-level business electronically and did not maintain traditional board records—was required to produce certain email and granted petitioner’s request for certain exceptions to the jurisdictional use restriction.
    CATEGORY: Books and Records
  • Delaware Court of Chancery Grants Section 220 Demand By Director And Former CEO For Documents Related To His Ouster From The Company
     
    01/29/2019

    On January 15, 2019, Chancellor Andre G. Bouchard of the Delaware Court of Chancery granted a former director’s petition under 8 Del. C. § 220, demanding that Papa John’s International Inc. (the “Company”) hand over various documents, including text messages and personal emails among board members, pertaining to plaintiff’s removal as a director and ouster as CEO of the Company.  Schnatter v. Papa John’s Int’l Inc., C.A. No. 2018-0542 (Del. Ch. Jan. 15, 2019).  Following allegedly racially tinged commentary on an earning’s call, plaintiff was asked to step down as CEO and later resigned as chairman of the board and was terminated as spokesman.  In granting the 220 demand, the Court rejected the Company’s arguments that the demand was personally motivated and was not reasonably related to plaintiff’s position as a director of the Company.
    CATEGORY: Books and Records
  • District Of Delaware Finds Successful Section 220 Action Tolled Claims For Alleged Mismanagement
     
    09/17/2018

    On September 4, 2018, Judge Leonard P. Stark of the United States District Court for District of Delaware ruled that a shareholder’s separate Section 220 action for books and records tolled claims against the managing shareholder.  Norman v. Elkin, C.A. No. 06-005-LPS (D. Del. Sept. 4, 2018).  Plaintiff, the only minority shareholder of U.S. Mobilecomm, Inc. (“USM”), brought various contract, fraud, and breach of fiduciary duty claims against USM’s majority shareholder—who managed the affairs of the company—in connection with the sale of company assets and the subsequent distributions of the proceeds.  Explaining that there is “no hard and fast rule” under Delaware law for determining whether a Section 220 action tolls a statute of limitations, the Court considered various factors and held that plaintiff met its burden to demonstrate that tolling should apply.  In particular, the Court highlighted that the Section 220 action sought to investigate possible mismanagement related to the asset sales and distributions of proceeds and the claims subsequently advanced “were related to that information.”
    CATEGORY: Books and Records
  • Delaware Court Of Chancery Grants Minority Stockholder’s Section 220 Demand As To Emails But Denies Access To Merger-Related Drafts
     
    08/07/2018

    On July 30, 2018, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery partially granted a Section 220 demand for the books and records of Globalstar, Inc. brought by the company’s largest minority stockholder, Mudrick Capital Management, L.P.  Mudrick Cap. Mgmt, L.P. v. Globalstar, Inc., C.A. No. 2018-0351-TMR (Del. Ch. July 30, 2018).  The demand arose in the context of a pending merger between Globalstar and Thermo Acquisitions, Inc., an entity controlled by Globalstar’s CEO and controlling stockholder.  The parties did not dispute that Mudrick Capital’s demand was based on several proper purposes in connection with evaluating certain aspects of the merger and Globalstar agreed to produce various categories of documents.  Resolving remaining disputes about the scope of the production, however, the Court held that emails were subject to production, but denied the demand for draft board minutes and other draft materials.
    CATEGORY: Books and Records
  • Delaware Court Of Chancery Rejects Challenge To Books And Records Demand, Holding That Evidence From Qui Tam Action Demonstrated “Credible Basis” From Which To Infer Wrongdoing
     
    03/06/2018

    On February 28, 2018, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery granted stockholders’ Section 220 demand to inspect the books and records of UnitedHealth Group Inc. (“UnitedHealth”) in order to investigate allegedly fraudulent Medicare billing practices.  In re UnitedHealth Group, Inc. Sec. 220 Litig., C.A. No. 2017-0681-TMR (Del. Ch. Feb. 28 2018).  The Court held that plaintiffs could rely on evidence cited by the government in a qui tam complaint against UnitedHealth to demonstrate a “credible basis” from which to infer wrongdoing or mismanagement so as to justify authorizing the Section 220 demand in part. 

    Read more
    CATEGORY: Books and Records
  • Delaware Supreme Court Affirms Dismissal Of Stockholder Derivative Claims On Issue Preclusion Grounds Based On A Demand-Futility Dismissal Of A Prior Derivative Suit, Holding That The Application Of Issue Preclusion Does Not Violate Federal Due Process 
     
    01/30/2018

    ​On January 25, 2018, the Supreme Court of Delaware ruled that the Court of Chancery’s  dismissal on issue preclusion grounds of the derivative claims of stockholder plaintiffs against the directors of Wal-Mart Stores, Inc. (“Wal-Mart”)—after a parallel derivative suit in federal court was dismissed for failure to allege demand futility—did not violate plaintiffs’ due process rights.  In re Wal-Mart Stores Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Jan. 25, 2018).  In affirming the dismissal, the Delaware Supreme Court declined to adopt the recommendation of the Delaware Court of Chancery to adopt a rule refusing to give preclusive effect to other courts’ decisions on demand futility on federal due process grounds.

    Read more
  • Delaware Court Of Chancery Grants Books And Records Demand, Holding That Corwin Is Irrelevant To Section 220 Proceedings
     
    01/10/2018

    On December 29, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery granted a stockholder’s demand to inspect books and records related to the acquisition of West Corporation (“West”)  by Apollo Global Management (“Apollo”), pursuant to 8 Del. C. § 220.  Lavin v. West Corp., C.A. No. 2017-0547-JRS (Del. Ch. Dec. 29, 2017).  The Court found that plaintiff established a valid primary purpose for seeking inspection of the materials:  to investigate whether West’s directors and officers breached their fiduciary duties under Revlon by approving the sale of West to Apollo when other bids indicated that a sale of West’s various business segments to different purchasers may have yielded greater value for West stockholders.  Plaintiff alleged that the Apollo transaction was preferred because West’s CEO, directors, and financial advisor would receive greater compensation for a whole-company sale than a segmented sale.  Importantly, the Court rejected West’s argument that Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015), precluded a § 220 demand because any possible breaches of fiduciary duties that plaintiff sought to investigate were cleansed by stockholder approval of the Apollo acquisition.  

    Read more
  • Finding No Credible Basis For Inferring Wrongdoing, Delaware Court Of Chancery Denies Demand for Books And Records Concerning Alleged Related-Party Transactions
     
    12/12/2017

    On December 5, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a motion for reargument concerning the Court’s rejection of a shareholder’s demand to inspect documents pertaining to alleged related-party transactions pursuant to 8 Del. C. § 220.  Silverberg v. ATC Healthcare, Inc. C.A. No. 2017-0242-JRS (Del. Ch. Dec. 5, 2017).  After a trial, the Court had rejected the request of plaintiff—a shareholder in ATC Healthcare, Inc. (“ATC”)—for books and records from ATC concerning alleged related-party transactions with Travel Healthcare Solutions, LLC (“Travel Healthcare”), an entity allegedly affiliated with ATC’s controlling shareholders.  Denying plaintiff’s motion to reargue, the Court held that a change in contractual terms favorable to the related party “is not enough on its own to establish a credible basis of wrongdoing; something more is needed.” 

    Read more
  • Delaware Court Of Chancery Rejects Books-And-Records Demand Driven By Entrepreneurial Counsel 
     
    11/21/2017

    On November 13, 2017, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery rejected a stockholder’s demand to inspect books and records of A. Shulman, Inc. (the “Company”) under Delaware General Corporation Law Section 220.  Wilkinson v. A Schulman, Inc., C.A. No. 2017-0138-VCL (Del. Ch. Nov. 13, 2017).  The Court explained that a stockholder who lacks a “proper purpose” and has “only minor and non-substantive involvement” in the demand process is not entitled to inspect books and records.  

    Read more
    CATEGORY: Books and Records
  • Delaware Court Of Chancery Imposes Incorporation-By-Reference Condition On Section 220 Production, Consistent With Other Recent Decisions
     
    10/17/2017

    On October 12, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery agreed to impose an “incorporation-by-reference” condition on any production by Universal Health Services, Inc. (“UHS”) in response to a books-and-records demand under Delaware General Corporation Law Section 220.  City of Cambridge Ret. Sys. v. Universal Health Serv., Inc., C.A. No. 2017-0322-SG (Del. Ch. Oct. 12, 2017).  In so disposing of the action to compel production brought by the UHS stockholder who made the Section 220 demand (The City of Cambridge Retirement System (“City of Cambridge”)), the Court explained that the interests of judicial and litigants’ economy outweighed whatever concern might exist that a company would manipulate “the universe of documents produced” to attempt to frustrate a later-filed derivative action. 

    Read more
    CATEGORY: Books and Records
  • Delaware Chancery Court Holds Garner Fiduciary Exception Does Not Justify Compelled Production Of Privileged Documents Relevant To A Derivative Litigation In Response To A Section 220 Demand Brought By The Same Plaintiffs
     
    08/08/2017

    On July 27, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery found that stockholder plaintiffs had not satisfied their burden of showing “good cause” under the Garner fiduciary exception to the attorney-client privilege doctrine to require defendant Genworth Financial, Inc. (“Genworth”) to produce privileged communications in response to a books and records demand.  Salberg v. Genworth Fin., Inc., C.A. No. 2017-0018-JRS (Del. Ch. July 27, 2017).  The demand under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, sought documents relating to the same plaintiffs’ claims in a separate derivative action against Genworth’s directors and officers.  The Court held that the Garner exception did not require Genworth to produce the privileged communications during the pendency of the derivative action, because the communications related to the “bona fides” of plaintiffs’ claims in that action.

    Read more
  • Third Circuit Holds That Statutes Of Limitation May Be Tolled By Books-And-Records Demands Under Delaware Law Despite Inquiry Notice To Plaintiff Of Wrongdoing
     
    07/18/2017

    On June 13, 2017, Chief Judge Smith of the United States Court of Appeals for the Third Circuit reversed in part the District Court’s dismissal of claims for breach of contract as untimely.  Norman v. Elkin, No. 16-1924 (3d Cir. June 13, 2017).  The Third Circuit found that plaintiff’s argument that his books-and-records demand tolled the relevant statute of limitations was not categorically barred by a finding that plaintiff had “inquiry notice” of defendant’s wrongdoing at the time he filed the demand.  The Court vacated dismissal of the contract claims and remanded them to the District Court with instructions to determine whether plaintiff’s books-and-records demand tolled the statute of limitations and, if so, whether the claims were timely. 

    Read more
    CATEGORY: Books and Records
  • Delaware Chancery Court Issues Opinion Offering Rare Interpretation Of Stock Transfer Restriction Provision, Delaware General Corporation Law Section 202   
     
    07/18/2017

    On July 10, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery found plaintiff was not bound by stock transfer restrictions under which the company had sought to revoke his ownership and was therefore entitled to inspect the books and records of a company in which he held stock.  Henry v. Phixios Holdings, Inc., C.A. No. 12504-VCMR (Del. Ch. Jul. 10, 2017).  The opinion is one of few offering substantive guidance regarding Delaware General Corporation Law (“DGCL”) Section 202, 8 Del. C. § 202, a provision governing stock transfer restrictions.  Applying the statute, the Court held that “in order for a stockholder to be bound by stock transfer restrictions that are not ‘noted conspicuously on the certificate or certificates representing the security,’ he must have actual knowledge of the restrictions before he acquires the stock” or “affirmatively assent[] to the restrictions, either by voting to approve the restrictions or by agreeing to the restrictions.”

    Read more
    CATEGORY: Books and Records
  • Former CEO Granted Right To Inspect Books And Records Of Company After Demonstrating At Trial A “Credible Basis” To Infer Potential Wrongdoing By Board Chairman
     
    04/25/2017

    On April 17, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery ruled, in a post-trial decision, that defendant Cypress Semiconductor Corporation (“Cypress”) must allow plaintiff and former Cypress CEO, T.J. Rodgers, to inspect certain books and records of Cypress pursuant to Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220.  Rodgers v. Cypress Semiconductor Corp., C.A. No. 0070-AGB (Del. Ch. Apr. 17, 2017).  Chancellor Bouchard found that Rodgers, who made the demand in his capacity as a stockholder, sufficiently established a valid primary purpose for seeking inspection of the materials:  to investigate potential wrongdoing by Ray Bingham, the Executive Chairman of the Board.

    Read more
  • Delaware Chancery Court Holds That Former Stockholder Lacks Standing To Bring Section 220 Action For Inspection Of Books And Records
     
    03/07/2017

    On February 27, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed for lack of standing a lawsuit for inspection of corporate books and records brought by a former stockholder squeezed out in a two-step merger.  Weingarten v. Monster Worldwide Inc., C.A. No. 12931-VCG, 2017 WL 752179 (Del. Ch. Feb. 27, 2017).  As noted by the Court, this case presented an issue of first impression:  whether a plaintiff seeking corporate records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, must be a stockholder at the time the complaint is filed.  Based on the language of the statute, the Court held that the former stockholder lacked standing to bring a Section 220 action because he no longer owned shares following the merger.

    Read more
  • Delaware Supreme Court Affirms Dismissal For Pleading Inadequacy When Plaintiffs Could Have Demanded Books And Records To Develop Facts
     
    11/21/2016

    On November 16, 2016, the Delaware Supreme Court affirmed a Delaware Court of Chancery decision by Vice Chancellor Sam Glasscock III that dismissed derivative and direct claims against two board members of Premium of America, LLC (“Premium”) and an affiliate.  Joseph Penar Family Trust v. Adams, No. 250-2016 (Del. Nov. 16, 2016), aff’g, C.A. No. 10441 (Del. Ch. Apr. 28, 2016).  Plaintiffs—members of Premium, a Delaware limited liability company (“LLC”)—had alleged that defendants misappropriated funds when liquidating the company’s assets in breach of their fiduciary duties.  The Supreme Court held that the Chancery Court “correctly determined that the appellants’ failure to allege in a non-conclusory fashion the circumstances of the alleged misappropriation required dismissal of the amended complaint.”  

    Read more
    CATEGORY: Books and Records
  • Delaware Chancery Court Rejects Books And Records Demand Concerning Board’s Alleged Failure To Properly Account For U.S. Tax Liabilities On Foreign Earnings
     
    09/12/2016

    On August 31, 2016, Judge Abigail LeGrow, sitting by designation on the Delaware Court of Chancery, held that Pfizer, Inc. (“Pfizer”) did not need to make its books and records available for inspection to a shareholder purportedly investigating whether the board breached its fiduciary duties by failing to comply with applicable accounting standards.  Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., C.A. No. 10425-JL (Del. Ch. Aug. 31, 2016).  In rejecting this shareholder demand pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), the Court found that the shareholder had not shown any “credible basis to infer mismanagement or wrongdoing by the board.”

    Read more
  • Delaware Court of Chancery Finds Suit against Lululemon Chairman and Board Is Precluded by Previous Dismissal of New York Lawsuit
     
    06/20/2016

    On June 15, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a derivative action against current and former directors of Lululemon Athletica, Inc., finding that plaintiffs’ claims were precluded by a previous dismissal of similar allegations in a New York based action.  Laborers District Council Constr. Indus. Pension Fund v. Bensoussan et al., C.A. No. 11293-CB (Del. Ch. June 14, 2016).

    Read More