Delaware Court of Chancery Grants Stockholder’s Post-Merger Request to Review Company’s Books and Records under DGCL § 220

By Scott E. Waxman and Frank J. Mazzucco

In Kosinski v. GGP Inc., C.A. No. 2018-0540-KSJM (Del. Ch. Aug. 28, 2019), the Delaware Court of Chancery (the “Court”) granted a stockholder’s request, following a merger, to review a company’s books and records under Section 220 of the Delaware General Corporation Law (“DGCL”).

In late 2017, GGP Inc. (“GGP” or the “Company”) began merger discussions with a stockholder that owned 34% of GGP’s outstanding common shares.  The Company formed a special committee to evaluate the proposed combination and, in 2018, the merger closed.  Following consummation of the transaction, Randy Kosinski (the “Plaintiff”), another stockholder of GGP, sought to investigate potential wrongdoing in connection with the merger by attempting to review the Company’s books and records under DGCL § 220.  GGP rejected this demand for access, and so the Plaintiff filed a lawsuit to enforce his inspection rights.

Under DGCL § 220, a stockholder is entitled to inspect a company’s books and records if he demonstrates by a preponderance of the evidence that he: (i) is a stockholder of the company, (ii) has made a written demand on the company, and (iii) has a proper purpose for making such demand.  If a stockholder meets this burden, it is then necessary to establish that “each category of the books and records requested is essential and sufficient to [his] stated purpose.”

In granting the Plaintiff’s right to access the Company’s books and records under DGCL § 220, the Court rejected each argument put forward by GGP.  First, GGP contended that the Plaintiff’s purposes in making the demand were driven by his attorneys, rather than his own personal intentions.  The Court rejected this argument, noting that the evidence “reflects that Plaintiff’s stated purposes were his own and that Plaintiff has been meaningfully involved in seeking books and records.”  The Court further found that the Plaintiff’s deposition testimony established that he was sincerely pursuing the Company’s books and records in connection with the merger and possessed a clear understanding of the facts and goals relevant to each purpose (e.g., the failure of GGP’s special committee to be wholly disinterested).  According to the Court, that the Plaintiff sought and accepted the advice of counsel “is to his credit, not his detriment.”

Second, the Court declined to agree with GGP’s argument that the Plaintiff’s stated purposes were improper. In this regard, the Court found to be credible the three purposes articulated by the Plaintiff in connection with his demand under DGCL § 220: (i) investigation of potential breaches of fiduciary duty in connection with the merger, (ii) investigation of director disinterestedness related to the merger, and (iii) valuation of [the Plaintiff’s] GGP shares.  The Court held that the Plaintiff had established sufficient facts surrounding the specifics of the merger, and in particular the special committee’s actions, to create a credible basis to infer the possibility of wrongdoing and cast doubt on certain directors’ disinterestedness and independence.

Third, in rejecting GGP’s contention that the categories of documents sought by the Plaintiff were not necessary and essential to his enumerated purposes, the Court concluded that the Plaintiff was indeed entitled to books and records “that are essential, but no more than are sufficient, for Plaintiff to achieve his purposes.” Finally, the Court noted that its decision did not address the scope of inspection or whether the documents sought should be subject to confidentiality restrictions.

Kosinski v. GGP

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