238 A.3d 904
Del. Ch.2020Background
- JUUL Labs, Inc. is a Delaware corporation with its principal executive office in California; former employee Daniel Grove exercised options and acquired shares.
- Grove executed an Acceptance Agreement, a Grant Agreement and an Exercise Agreement; the Grant and Exercise agreements contain waivers of “Inspection Rights” defined by reference to Delaware DGCL § 220.
- Grove demanded inspection under California Corporations Code § 1601 (because JUUL’s principal executive office is in CA); JUUL filed in Delaware Chancery seeking declarations that Delaware law governs, that Grove waived inspection rights, and to enjoin Grove’s California action.
- JUUL also points to amended Investors’ Rights Agreements (7th → 9th) that purport to make contractual information rights exclusive for certain defined “Holders.”
- The parties cross-moved for judgment on the pleadings; the Court held Grove was not contractually barred from invoking California law but, under the internal affairs doctrine, Delaware law governs inspection rights and the company’s exclusive-forum provision requires adjudication in Delaware Chancery; Grove has not yet made a Section 220 demand in Delaware, so the court did not decide whether Grove waived rights under Delaware law.
Issues
| Issue | Plaintiff's Argument (JUUL) | Defendant's Argument (Grove) | Held |
|---|---|---|---|
| Whether the Grant and Exercise Agreements waived Grove’s inspection rights | Waivers in Grant/Exercise eliminate all inspection rights, including claims under CA §1601 | Waivers reference DGCL §220 only; cannot be read to waive unrelated statutory rights like §1601; ambiguous language construed against drafter | Waiver language is limited to §220 and does not reach §1601; any ambiguity construed against JUUL |
| Whether the Investor Agreements waive Grove’s inspection rights | Investor Agreements make contractual rights the sole and exclusive route to access books and thus bar extra-contractual claims (including §1601) | Grove is not a defined “Holder” under the Investor Agreements and thus is not bound by their waiver | Investor provisions are broad enough to cover §1601, but they apply only to defined Holders; Grove is not a Holder, so they do not bind him |
| Whether Grove may seek inspection under California law despite JUUL’s Delaware incorporation (internal affairs doctrine) | JUUL: internal affairs (including stockholder inspection rights) are governed by law of state of incorporation (Delaware); CA §1601 cannot be invoked to override DGCL §220 | Grove: CA statute applies to foreign corporations with principal executive office in CA; he may invoke §1601 in CA courts | Inspection rights are core internal affairs; Delaware law governs Grove’s inspection rights; he cannot pursue §1601 as the basis for relief |
| Whether JUUL’s certificate-of-incorporation forum-selection clause requires suit in Delaware Chancery | Certificate’s exclusive forum clause covers actions governed by the internal affairs doctrine and claims under the DGCL; Grove must litigate in Delaware Chancery | Grove filed in CA (Superior Court); he argues CA may adjudicate his §1601 claim | The certificate’s exclusive-forum clause applies; enforcement actions regarding internal affairs must be brought in Delaware Chancery; Grove has not yet made a Delaware §220 demand, so waiver under Delaware not decided |
Key Cases Cited
- Edgar v. MITE Corp., 457 U.S. 624 (U.S. 1982) (articulates internal affairs doctrine rationale)
- CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69 (U.S. 1987) (state authority to regulate domestic corporations)
- McDermott Inc. v. Lewis, 531 A.2d 206 (Del. 1987) (Fourteenth Amendment and Full Faith & Credit considerations for internal affairs)
- VantagePoint Venture P'rs 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005) (internal affairs doctrine governs relationships among corporation, directors, officers, shareholders)
- Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020) (stockholder inspection rights are core internal-affairs matters)
- Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117 (Del. 2006) (Section 220 jurisprudence balancing stockholder access and corporate burdens)
- Kortum v. Webasto Sunroofs, Inc., 769 A.2d 113 (Del. Ch. 2000) (statutory rights cannot be waived absent a clear and affirmative expression)