Tell me if you have heard this one: a stockholder walks into the Court of Chancery and files a complaint seeking inspection of Company A’s books and records pursuant to 8 Del. C. § 220. While the § 220 action was pending, Company A merges with Company B, thereby terminating the stockholder’s ownership interest in Company A. Does stockholder still have standing to continue his § 220 action?
The Court of Chancery had not heard this one before, characterizing it as an issue of first impression in Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017). The Court concluded that a stockholder who no longer holds stock post-merger lacks standing to pursue a § 220 books and records action.
As is true with most things, timing is everything so here is a chart outlining some of the relevant facts:
|8/8/2016||Monster Worldwide, Inc. (“Monster”) enters into a Plan of Merger with Ranstad Holding nv (“Ranstad”) and Merlin Global Acquisition Inc. (“Merger Sub”).|
|9/6/2016||Randstad’s cash tender offer commences.|
|10/19/2016||Plaintiff sends Monster a demand to inspect books and records.|
|10/26/2016||Monster rejects Plaintiff’s demand but may agree to a narrow production.|
|10/26/2016||Plaintiff responds to Monster’s expression. Among other issues, Plaintiff states he will refrain from filing a complaint while the parties are negotiating a production, but Monster must let Plaintiff know by 10:00 a.m. on 10/27/2016 if Monster will take the position that Plaintiff no longer has standing to assert his § 220 inspection rights if the merger closes before the complaint is filed.|
|10/27/2016, 10:01 a.m.||No response is received from Monster.|
|10/28/2016||Monster responds to Plaintiff’s 10/26/2016 communication. Monster would not commit to what, if any, position it would take.|
|10/28/2016||Tender offer expired at midnight and consummated. 45M+ shares were tendered|
|11/1/2016||The transaction closes: Ranstad acquires Monster. Plaintiff’s shares (not previously tendered) were cancelled and converted to a right to receive cash.|
|11/4/2016||Monster informs Plaintiff that the transaction closing mooted Plaintiff’s § 220 demand.|
|11/4/2016||Plaintiff responds that the closing did not affect his standing to assert his § 220 inspection rights and that Monster waived any contrary argument because it did not respond by 10/27/2016 at 10:00 a.m.|
|11/22/2016||Plaintiff files his Verified Complaint to Compel Inspection of Books and Records per 8 Del. C. § 220.|
Plaintiff argued that Monster was equitably estopped from asserting his lack of standing, because it did not respond by the 10/27/2016 10:00 a.m. deadline. The Court concluded that the doctrine of equitable estoppel did not apply: there was no “conduct” by Monster upon which Plaintiff could rely; Monster did not timely reply; and Plaintiff did not file his complaint before the transaction closed. Reliance on Monster’s silence, the Court concluded, was not reasonable.
Turning next to the statutory language of 8 Del. C. § 220, the Court concluded that the statute’s clear and unambiguous language compelled the conclusion that a stockholder must be a stockholder at the time he files a complaint seeking to assert the inspection rights contained in 8 Del. C. § 220. Specifically, the Court found that 8 Del. C. § 220(c)’s use of the present tense “is” supports the conclusion that Plaintiff must be a stockholder on the date the complaint is filed. On these facts, Plaintiff’s shares were cancelled and converted to a right to cash on November 1, 2016; he filed his complaint 21 days later, on November 22, 2016, at a time when he no longer held his stock. Therefore, Plaintiff lacked standing to proceed with his § 220 action, and the Court dismissed the complaint.