In the recent decision of Kosinski v. GGP, Inc., C.A. No. 2018-0540-KSJM (Del. Ch. Aug. 29, 2019), the Delaware Court of Chancery granted a stockholder’s books and records demand under Section 220 of the Delaware General Corporation Law (“DGCL”) to inspect the books and records of defendant GGP Inc. (“GGP”) in order to investigate potential mismanagement in connection with the merger of defendant corporation.
Through the merger, GGP, a real estate company, was acquired by another real estate company owning roughly one-third of GGP’s common stock. Plaintiff asserted the buyer was GGP’s de facto controlling shareholder, and that the procedural protections required pursuant to Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) for deferential review of a merger process involving a controller had not been adequately implemented.
GGP argued that plaintiff’s stated purposes were generated by his lawyer, and were not his own, because plaintiff originally retained counsel in order to challenge the merger, not to inspect the company’s books and records. The Court rejected this argument (distinguishing Wilkinson v. A. Schulman Inc., 2017 WL 5289553 (Del. Ch. Nov. 13, 2017), summarized here), and held that plaintiff’s deposition demonstrated that he was motivated to inspect the documents, and was apprised of the demand contents along with the circumstances of the merger.
GGP also argued that plaintiff’s stated purposes for inspection were improper. Plaintiff sought books and records: (i) to investigate potential breaches of fiduciary duty and director disinterestedness in connection with the merger and (ii) to obtain corporate records to value his shares. As to the former purpose, although GGP had established a special committee to negotiate the merger, the Court found that plaintiff pointed to facts suggesting that the special committee failed to obtain a fair price and that its members potentially were interested or lacked independence. As to the latter, the Court held that plaintiff may seek corporate records to further inform his valuation of his stock at the time of the merger, even though plaintiff already had some information concerning value.
The Court granted plaintiff’s Section 220 demand, holding that where procedural protections are absent, the transaction may not have been at arm’s length, and finding that plaintiff had demonstrated facts that established a “credible basis” to investigate potential breaches of fiduciary duty.
In granting the Section 220 demand, the Court nonetheless noted that it was making an “exceptionally modest point” and not announcing a rule that noncompliance with MFW procedural protections “automatically supplies a credible basis.” Slip op. at 17. In other words, plaintiff stockholders seeking inspection of corporate books and records may need to do more than simply show the company’s failure to comply with the procedural protections under Kahn v. M&F Worldwide Corp.