214 A.3d 944
Del. Ch.2019Background
- GGP Inc., a publicly traded REIT, entered a merger with Brookfield (which owned ~34% and had the right to appoint three directors) that closed August 28, 2018. A Special Committee negotiated the deal and unanimously recommended it.
- Stockholder Randy Kosinski (12,000 shares) objected to the merger price and, through counsel, served a Section 220 demand (July 2018) seeking books and records to investigate possible fiduciary breaches, director disinterestedness, and to value his shares.
- GGP refused the demand; Kosinski filed a Section 220 action to compel inspection. Trial occurred June 5, 2019.
- GGP argued Kosinski’s demand was lawyer-driven, lacked a credible basis to investigate wrongdoing, and sought documents not necessary and essential to his purposes.
- Court found Kosinski: (1) is a stockholder with a valid written demand; (2) articulated his own, proper purposes; and (3) presented a credible basis to investigate potential wrongdoing and director conflicts, entitling him to inspect documents necessary and essential to those purposes.
- The opinion did not resolve the precise scope of production or confidentiality; the parties were ordered to meet-and-confer and notify the court if they cannot agree.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kosinski’s stated purposes were his own or lawyer-driven | Kosinski reviewed and understood the demand; he was actively involved and sincere in pursuing inspection to investigate value, breaches, and director conflicts | GGP said the demand mirrored counsel’s objectives and Kosinski merely lent his name (citing Wilkinson) | Court held Kosinski’s purposes were his own; deposition showed understanding and engagement, unlike Wilkinson-style sham demands |
| Whether Kosinski had a proper purpose to investigate wrongdoing | He had a proper stockholder interest: to investigate possible breaches, conflicts and to value shares, supported by market and advisor materials and board relationships | GGP contended lack of credible basis and that absence of MFW protections alone is insufficient to justify investigation | Court applied the low "credible basis" standard and found Kosinski presented some evidence (controller influence, Special Committee ties, valuation analyst/Goldman materials) to warrant inspection |
| Whether alleged Special Committee conflicts/disinterestedness justified inquiry | Kosinski pointed to committee members’ ties (former RBC CFO, overlapping Ernst & Young employments) and potential benefits to financiers | GGP minimized these ties and argued insufficient basis | Court held inquiry into director disinterestedness is a proper Section 220 purpose and Kosinski met the minimal standard to investigate |
| Whether requested documents are necessary and essential to Kosinski’s purposes | Kosinski sought records he said were essential to determine process, independence, price-setting and valuation | GGP argued the documents were unnecessary and premature (and could be obtained in plenary discovery) | Court held Kosinski is entitled to documents that are "necessary and essential" to his proper purposes, but left scope and confidentiality to the parties to confer or submit briefs if no agreement |
Key Cases Cited
- Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (describes controller-transaction procedural protections that can trigger deferential review)
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (articulates the Section 220 "credible basis" standard for investigating wrongdoing)
- Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026 (Del. 1996) (Section 220 burden and ‘‘necessary and essential’’ standard discussion)
- Beam v. Stewart, 845 A.2d 1040 (Del. 2004) (directs stockholders to use Section 220 before filing plenary fiduciary-duty claims)
- Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264 (Del. 2014) (discusses when records meet the "necessary and essential" threshold)
- Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. 2016) (recognizes Section 220 purpose to investigate director disinterestedness and independence)