Mark Lavin v. West Corporation, CA 2017-0547-JRS

Background

West Corp. ran a formal sale process (2016–May 2017) and signed a merger agreement with Apollo for $23.50/share; stockholders approved the deal (~99.8% of votes cast) and the merger closed later in 2017.
Shareholder Mark Lavin served a Section 220 demand (July 19, 2017) seeking documents to investigate alleged wrongdoing in the sale process and the independence/disinterestedness of directors; West refused as overbroad and lacking a proper purpose.
Key factual allegations supporting Lavin’s demand: (i) multiple bidders made sizable offers for individual West business segments (suggesting a potentially more valuable break-up sale); (ii) private equity sponsors TH Lee and Quadrangle retained contractual director-designation rights and were liquidating positions; (iii) management and directors (including CEO Barker) had significant deal-related compensation (golden parachutes); (iv) Centerview had a contingent fee that could create conflicts.
Lavin filed a Verified Complaint to compel inspection; the court tried the Section 220 action on a paper record and applied the low “credible basis” standard for inspection demands.
The Court of Chancery held that Lavin met the Section 220 credible-basis threshold to infer possible breaches of fiduciary duties (including Revlon-related concerns and conflicts) and ordered production, but narrowly tailored the scope and time period (Jan 1, 2016–July 26, 2017).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Corwin bars Section 220 inspection by cleansing alleged fiduciary breaches because disinterested, informed stockholders approved the merger	Lavin argued he needs documents to plead around a future Corwin defense and to determine whether the vote was fully informed or coerced	West argued Corwin applies now: a fully informed, uncoerced vote by disinterested stockholders triggers business-judgment rule and defeats inspection seeking process-related proof	Court: Corwin does not bar a properly supported Section 220 demand; refusing inspection on Corwin grounds would improperly require merits-stage adjudication in a summary inspection proceeding
Whether Lavin showed a "credible basis" to suspect wrongdoing to justify inspection	Lavin relied on evidence of segment bids, board/PE sponsor ties, management deal incentives, and advisor contingent fees as “some evidence” of conflicted process favoring a whole-company sale	West contended Lavin’s claims were speculative and that public disclosures (Proxy) demonstrate a fair, informed process	Court: Lavin met the low Section 220 credible-basis standard — presented sufficient evidence to infer possible Revlon/conflict-driven misconduct and to investigate director independence
Whether investigating director independence is a proper purpose under §220	Lavin sought documents (disclosure questionnaires, communications) to test whether PE sponsors effectively controlled the board	West argued independence claims were waived or insufficient	Court: Investigating director independence is a proper purpose; Lavin showed a credible basis to question whether TH Lee/Quadrangle controlled half the board
Scope and tailoring of production	Lavin sought broad categories (13 categories) of documents to pursue his purposes and to prepare potential litigation	West argued the request was overbroad and sought irrelevant/materially cumulative items	Court: Ordered targeted production limited to documents "necessary and essential" to Lavin’s purposes (sum-of-the-parts analyses, indications of interest/offers, relevant board minutes, communications between key executives/directors and bidders/advisors, and materials on director independence) for Jan 1, 2016–July 26, 2017

Key Cases Cited

Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (stockholder vote can invoke business-judgment review when fully informed and uncoerced)
Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117 (Del. 2006) (credible-basis standard for §220; inspection to investigate wrongdoing is a proper purpose)
Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026 (Del. 1996) (§220 requires each category requested be necessary and sufficient to stated purpose)
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. 2016) (ordering targeted electronic document production in §220; investigating director relationships and independence can be proper)
In re El Paso Corp. S'holder Litig., 41 A.3d 432 (Del. Ch. 2012) (board’s failure to consider break-up value can be relevant to Revlon duties)
In re Netsmart Tech., Inc. S'holder Litig., 924 A.2d 171 (Del. Ch. 2007) (evidence that board steered process consistent with directors’ incentives supports breach of fiduciary duty claims)