(Article from Securities Law Alert, March 2017)
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On February 27, 2017, in a case of first impression, the Delaware Chancery Court held that a plaintiff seeking corporate books and records in an action brought pursuant to Section 220 of the Delaware General Corporation Law must be a stockholder at the time the complaint is filed.
Weingarten v. Monster Worldwide, 2017 WL 752179 (Del. Ch. 2017) (Glasscock, V.C.). The court found “the unambiguous language of Section 220(c) compels a finding that a former stockholder squeezed out in a merger thereafter lacks standing to bring an action under the [s]tatute.”
The Delaware Chancery Court explained that pursuant to Section 220(b), a stockholder has the right, “upon written demand,” to inspect the corporation’s business records “for any proper purpose.”
Id. (quoting 8
Del. C. § 220(b)). If “a stockholder has complied with subsection (b) and demand is refused by the corporation,” a stockholder may then bring suit “to the extent she has complied with subsection (c) of Section 220.” The court stated that subsection (c) “requires a stockholder seeking records to ‘first establish’ . . . that she ‘has’ complied with the demand requirement of subsection (b), and . . . that she ‘is’ a stockholder.”
Id. (quoting 8
Del. C. § 220(c)). The Chancery Court found that “[b]y requiring that a plaintiff under Section 220 . . . demonstrate both that [the plaintiff] ‘has’—past tense—complied with the demand requirement, and that [the plaintiff] ‘is’—present tense—a stockholder, the legislature has made clear that only those who are stockholders at the time of filing have standing” to bring suit under Section 220.