T.J. Rodgers v. Cypress Semiconductor Corporation
CA 2017-0070-AGB
| Del. Ch. | Apr 17, 2017Background
- T.J. Rodgers founded Cypress Semiconductor, owned ~2.35% of stock, resigned as CEO in April 2016 and from the board in August 2016 after the board appointed Hassane El‑Khoury as CEO and Ray Bingham as a newly created "Executive Chairman."
- Bingham received substantial compensation as Executive Chairman and was identified in a Nov. 3, 2016 press release as a "Founding Partner" of Canyon Bridge, a private equity firm with Chinese funding that pursued semiconductor acquisitions.
- Rodgers privately and then publicly raised concerns that Bingham’s dual roles created conflicts of interest and potentially violated Cypress’ Code of Business Conduct and Ethics (which prohibits simultaneous employment without company approval and requires disclosure of conflicting interests).
- On Jan. 19, 2017 Rodgers served a Section 220 demand seeking board materials and stocklists to investigate mismanagement, board composition, and possible breaches of fiduciary duty; Cypress produced stocklist materials conditionally but refused other categories, prompting Rodgers to sue on Jan. 30, 2017.
- Rodgers later initiated a proxy contest to nominate two directors; the court found his demand and the proxy contest were parallel but that the demand was not primarily a tactical or improper device.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rodgers established a "proper purpose" under 8 Del. C. § 220 to inspect non‑stocklist books and records | Rodgers argued he had a proper purpose to investigate possible wrongdoing by Bingham (conflict of interest, Code violations) and to communicate with stockholders and pursue corrective measures | Cypress argued Rodgers failed to show a credible basis of wrongdoing, and that exculpatory charter provisions require a showing of non‑exculpated breaches by the board | Court held Rodgers met the Seinfeld "credible basis" standard to infer possible wrongdoing by Bingham and thus established a proper purpose |
| Whether Rodgers’ motives were genuine or primarily improper (personal vendetta / proxy tactic) | Rodgers said demand aimed to investigate and, if appropriate, seek board engagement or other corrective measures; proxy contest followed refusal to provide records | Cypress asserted the demand was driven by revenge and to aid Rodgers’ proxy contest | Court found Rodgers’ testimony credible and did not conclude the demand was primarily improper; parallel proxy contest did not defeat Section 220 relief |
| Scope of documents subject to production (categories 1–9) and time period | Rodgers sought documents provided to board members and certain senior management (including CFO), limited to Jan 1, 2016–present; sought notes and communications as requested | Cypress argued production should be limited to documents provided to directors only and objected to expanding to communications not expressly requested | Court ordered production of documents "provided to" board members and the CFO for categories 1–9 (Jan 1, 2016 to present); did not permit expansion to all communications beyond the Demand except that category 7’s notes of discussions (including e‑mails) must be produced if relevant and essential |
| Confidentiality and use of produced materials (including in proxy contest) | Rodgers did not seek unfettered public use; asked for records to inform stockholder communications and decision‑making | Cypress sought confidentiality protections and limited use in proxy solicitation | Court required production subject to a reasonable confidentiality order (Disney), permitting parties to seek relief from restrictions only upon a heavy showing |
Key Cases Cited
- CM & M Gp., Inc. v. Carroll, 453 A.2d 788 (Del. 1982) (Section 220 burden and relevance of proper purpose)
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (stockholder must show a credible basis to infer possible mismanagement for Section 220)
- Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810 (Del. Ch. 2007) (defendant may show a demand’s stated purpose is not the actual predominant purpose)
- Disney v. Walt Disney Co., 857 A.2d 444 (Del. 2004) (production under Section 220 typically conditioned on confidentiality; heavy burden to permit disclosure for proxy solicitations)
- Espinoza v. Hewlett‑Packard Co., 32 A.3d 365 (Del. 2011) (documents sought must be essential to the stockholder’s articulated Section 220 purpose)