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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 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.

On October 29, 2015, plaintiff Donald Walker sent a letter to Cabo Verde Capital, Inc.—a Delaware company in which Walker held stock (“Cabo Delaware”)—demanding inspection of its books and records pursuant to 8 Del. C. § 220.  One week later, on November 6, 2015, Cabo Delaware completed a merger into a Nevada corporation of the same name (“Cabo Nevada”).  Upon merging, the Delaware entity ceased to exist.

Four days after the merger, on November 10, 2015, Walker filed this action to compel the inspection of Cabo Delaware’s books and records.  Cabo Nevada moved to dismiss, arguing Walker lacked standing to bring the action because he was no longer a stockholder of Cabo Delaware at the time of filing.

The Court agreed with the defendant.  As recently held by Vice Chancellor Glasscock in Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017), a plaintiff hoping to pursue a Section 220 action must “first establish” that she “is” a stockholder at the time of filing her complaint.  If a stockholder makes a proper demand under Section 220, but a merger thereafter terminates the stockholder’s ownership interest in the company, the now-former stockholder cannot subsequently file a complaint to compel inspection.

Here, because Walker filed his complaint after Cabo Delaware ceased to exist—along with all ownership interest therein—the Court concluded that Walker lacked standing to pursue a Section 220 action and his complaint should be dismissed.

Walker v. Cabo Verde Capital, Inc., C.A. No. 11696-MZ (Del. Ch. June 8, 2017)

Copyright 2020 K & L GatesNational Law Review, Volume VII, Number 191
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About this Author

Holly D. Hatfield, KL Gates, Merger Acquisitions Lawyer, Debt Equity Financing Attorney
Partner

Ms. Hatfield is a partner in the firm’s Corporate/M&A practice group and is based in New York. She represents clients in mergers and acquisitions, joint ventures and other business relationships, and related debt and equity financings. Her practice involves clients and matters across the United States, as well as international work, with particular experience in Canada and Europe. Ms. Hatfield’s industry experience is broad, and includes energy, heavy construction, and pulp and paper and other manufacturing. She also has experience in acquiring and disposing of...

212-536-4045
Max Kaplan, KL Gates Law Firm, Complex Litigation Attorney
Associate

Max Kaplan is an associate in the firm’s New York office practicing in the Commercial Disputes practice group. Mr. Kaplan has represented both individuals and corporate clients in an array of matters, including contract disputes, securities fraud actions, environmental regulations enforcement proceedings, and various pro bono matters. His experience includes civil jury trials, international arbitration, securities class-actions, landlord-tenant litigation, attorneys’ fees mediation, civil rights litigation, and appellate practice.

212-536-3943
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