Topic: Books and Records Demand

CHANCERY COURT GRANTS CERTAIN BOOKS AND RECORDS DEMANDS BY MINORITY STOCKHOLDER RELATED TO A MERGER AND VALUATION OF UNDERLYING ASSETS

By: Jessica Pearlman and Adam Heyd

In Mudrick Capital Management, L.P. v. Globalstar, Inc., C.A. No. 218-0351-TMR (Del. Ch. July 30, 2018), plaintiff Mudrick Capital Management L.P. (“Mudrick Capital”), a minority stockholder of defendant Globalstar, Inc. (the “Company”), brought a demand under Section 220 of the Delaware General Corporate Law (“Section 220”) to inspect certain communications and documents relating to the Company’s proposed merger with Thermo Acquisitions, Inc. (“Thermo”).  The Delaware Court of Chancery granted Mudrick Capital’s demand for certain emails, communications and valuation materials relating to the merger, and denied Mudrick Capital’s demand for certain internal draft materials.

Read More

Manager is Entitled to Books and Records in Capacity as Manager, and as a Member Under the LLC Agreement, Despite Assertion of Improper Purpose

By: Scott E. Waxman and Douglas A. Logan

In William T. Obeid v. Gemini Real Estate Advisors, LLC, et al., (C.A. No. 2017-0510-JTL (Del. Ch. June 5, 2018)) the Court ruled the manager of a limited liability company had an essentially unfettered right to access the books and records of the company.

Read More

Chancery Court Limits Access to Books and Records Based on Stockholder’s Failure to State Purpose in Section 220 Demand

By: James S. Bruce and Taylor B. Bartholomew

In KT4 Partners LLC v. Palantir Technologies, Inc., C.A. No. 2017-0177-JRS (Del. Ch. Feb. 22, 2018), in a post-trial ruling, the Delaware Court of Chancery granted a stockholder limited rights to inspect a corporation’s books and records related to the stated purpose of investigating possible wrongdoing, but the Court denied the stockholder’s request to obtain other books and records related to the purpose of valuing its shares because its initial demand did not explicitly state a valuation purpose.

Read More

Chancery Court Finds Credible Basis for Demand to Inspect Books and Records of UnitedHealth in connection with Possible Medicare Overbilling

By: David Forney and Joshua Haft

In In re UnitedHealth Group, Inc. Section 220 Litigation, Consolidated C.A. No. 2017-0681-TMR (Ch. Ct February 28, 2018) certain stockholders (“Plaintiffs”) of UnitedHealth Group, Inc. (“UnitedHealth”) sent a books and records inspection demand to UnitedHealth relying on a complaint in a type of whistleblower (qui tam) action alleging that UnitedHealth engaged in improper Medicare billing, United States ex rel. Poehling v. UnitedHealth Group, Inc. (the “Qui Tam Action”).  The Qui Tam Action was based in part on a 5-year investigation by the US Department of Justice (“DOJ”) and included depositions of 20 of UnitedHealth’s employees and production by UnitedHealth of over 600,000 documents. Plaintiffs made their demand in order to investigate mismanagement or misconduct, possible breaches of fiduciary duties and the independence and disinterestedness of the board. UnitedHealth rejected the demand and a trial was held on January 9, 2018.  UnitedHealth argued that Plaintiffs were not entitled to inspection of books and records because they lacked a credible basis to infer wrongdoing or mismanagement based on the Qui Tam Action and because the alleged activities of UnitedHealth were not illegal.  The Court found that Plaintiffs’ demand stated a proper purpose and a credible basis from which a court could infer mismanagement or wrongdoing.

Read More

Court of Chancery Compels Production of Some, but not all, Books and Records for Plaintiff’s Permitted Purposes

By Scott Waxman and Ernest Simons

In Aloha Power Company, LLC v. Regenesis Power, LLC, the Court of Chancery granted in part and denied in part plaintiff’s action to compel inspection and production of certain books and records pursuant to provisions in the defendant’s operating agreement and the Delaware Limited Liability Company Act.  The Court held that the operating agreement expressly required production of certain books and records without demand for inspection and determined whether there existed a proper purpose for inspection for the remaining demanded books and records.

Read More

Court of Chancery Holds That Corwin Defense Is Not Appropriate for the Limited Scope and Purpose of a Books and Records Action Under Section 220

By: David Forney and Tami Mack

In Lavin v. West Corporation, C.A. No. 2017-0547-JRS (Del. Ch. December 29, 2017), the Court of Chancery held that stockholder plaintiff Mark Lavin (“Lavin”) had adequately demonstrated a credible basis from which the Court could infer that wrongdoing had occurred regarding the merger of West Corporation (the “Company”) and Apollo Global Management (“Apollo”) in support of Lavin’s Section 220 demand for inspection, and that a Corwin defense (that the transaction at issue was approved by a majority of disinterested and informed stockholders) is not a bar to an otherwise properly supported Section 220 demand for inspection.

Read More

Chancery Court Partially Grants Books and Records Request

By David Forney and Jonathan Miner

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.

Read More

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

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.

Read More

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

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”).

Read More

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

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.

Read More

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

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.

Read More

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

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.

Read More

Copyright © 2017, K&L Gates LLP. All Rights Reserved.