Delaware Vice Chancellor Holds Termination of Ownership Rights by Merger Extinguishes Stockholder Standing to Bring Section 220 Action
Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017)
By memorandum-opinion dated February 27, 2017, Vice Chancellor Glasscock dismissed plaintiff’s Verified Complaint to Compel Inspection of Books and Records in Weingarten v. Monster Worldwide, Inc. after finding plaintiff lacked standing to bring such a claim. Specifically, the Court held that, under Section 220 of the Delaware General Corporation Law, only a current stockholder may bring an action to redress the denial of access to a corporation’s books and records, even if the plaintiff had been a stockholder when initially demanding access.
On August 8, 2016, defendant Monster Worldwide, Inc. entered into a merger agreement with Randstad North America, Inc. and its subsidiary whereby Randstad would purchase Monster through a two-step cash tender offer pursuant to D.G.C.L. § 251(h). This merger, once completed, would effectively terminate the ownership rights of all Monster stockholders not party to the merger, including the plaintiff, Joe Weingarten.
Prior to completion of the merger, plaintiff sent a letter to Monster’s Board demanding to inspect Monster’s books and records to “determine whether it is appropriate to pursue litigation” against the Board in connection with the merger. The Board rejected this initial demand, but the parties proceeded to negotiate a voluntary production. During these negotiations, plaintiff stated in an email that, unless Monster indicated otherwise by the following day, “we expect that the company will refrain from asserting any argument that Mr. Weingaren lost standing” to compel inspection following completion of the merger. (Emphasis in original). Monster did not reply by the stated deadline. Once the merger was fully consummated on November 1, 2016, the Board ended negotiations on the basis that plaintiff’s demand was “mooted.”
Plaintiff filed his complaint on November 22, 2016. Following a paper-record trial, Monster argued the complaint should be dismissed because plaintiff (1) lacked standing and (2) failed to state a proper purpose for the demand. Plaintiff in turn argued that Monster should be estopped from challenging standing and, regardless, the merger’s completion did not affect his standing.
The Court sided with Monster on both points raised by plaintiff. First, as the Court observed, the defense of equitable estoppel is available only where a party reasonably relies on the conduct of the other party to its detriment. Here, plaintiff could not identify an affirmative action by Monster on which it relied in failing to timely bring its action. Further, the Court found plaintiff’s reliance on Monster’s silence in the face of a waiver demand insufficiently reasonable to justify estoppel.
Second, ruling on a matter of first impression, the Court held Section 220(c)’s unambiguous language permits only current stockholders to bring actions to compel inspection. Under this subsection, any stockholder that seeks to compel inspection of a corporation’s books and records must “first establish that . . . [s]uch stockholder is a stockholder.” (Emphasis in original). According to the Court, the use of the present tense “is” when defining this condition precedent for bringing an inspection action plainly requires the plaintiff be a stockholder at the time of filing. Had the legislature intended ownership at the time of the demand to suffice, it would have said so. Here, because plaintiff could not “first establish” that he was a stockholder at the time the action was filed, he lacked standing to proceed and the matter was dismissed.