Operating Engineers Construction Industry and Miscellaneous Pension Fund v. Pioneer Natural Resources Company
C.A. No. 2024-0101-SEM
COURT OF CHANCERY OF THE STATE OF DELAWARE
July 28, 2025
KATHALEEN ST. JUDE MCCORMICK, CHANCELLOR
LEONARD L. WILLIAMS JUSTICE CENTER, 500 N. KING STREET, SUITE 11400, WILMINGTON, DELAWARE 19801-3734
Michael J. Barry
Christine M. Mackintosh
Rebecca A. Musarra
William G. Passannante II
Demetrius M. Davis
GRANT & EISENHOFER P.A.
123 S. Justison Street, 7th Floor
Wilmington, DE 19801
David J. Teklits
MORRIS, NICHOLS, ARSHT
& TUNNELL LLP
1201 N. Market Street
Wilmington, DE 19899
Re: Operating Engineers Construction Industry and Miscellaneous Pension Fund v. Pioneer Natural Resources Company, C.A. No. 2024-0101-SEM
Dear Counsel:
This letter opinion resolves Plaintiff‘s exceptions to Senior Magistrate Molina‘s Final Report dated January 16, 2025 (the “Final Report“).1
I. BACKGROUND
I have reviewed this matter de novo, as I must,2 but I adopt Senior Magistrate Molina‘s clear and thorough statement of the factual background.3 The abbreviated version of the facts is that Scott Sheffield founded Defendant Pioneer Natural Resources in the late 1990s and was its CEO through 2023.4 Pioneer was a Delaware
Before the acquisition, Plaintiff Operating Engineers Construction Industry and Miscellaneous Pension Fund beneficially owned Pioneer stock.10 In response to the announcement of the transaction, Plaintiff served a demand to inspect Pioneer‘s books and records pursuant to
Plaintiff‘s theory of possible wrongdoing is that Sheffield misled the Pioneer Board of Directors in connection with its consideration of the merger. Pioneer had
In response to the
Plaintiff filed this action in advance of the stockholder vote to preserve standing.18 After Pioneer‘s initial production, Plaintiff continued to seek emails and text messages between Sheffield and ExxonMobil‘s CEO and Executive Chair, Darren
At trial, in addition to pointing out Sheffield‘s possible conflicts and leading role in the merger negotiations, Plaintiff relied on a May 2, 2024 FTC Consent Order to bolster its bid for emails and texts. According to the FTC complaint, Sheffield had “campaigned to organize anticompetitive coordinated output reductions between and among U.S. crude oil producers, and others, including the Organization of Petroleum Exporting Countries (‘OPEC‘).”20 The FTC asserted that Sheffield‘s “sustained and long-running strategy to coordinate output reductions” included his use of “text messages” to “discuss [] crude oil market dynamics, pricing, and output.”21
In her Final Report, Senior Magistrate Molina ruled in favor of Pioneer. She concluded that Plaintiff had failed to adequately allege a credible basis for possible wrongdoing.22 She further concluded that Plaintiff had failed to demonstrate that requested emails and text messages were necessary and essential, even if Plaintiff had carried its burden to demonstrate a proper purpose.23
II. ANALYSIS
On exceptions, Plaintiff argues that the Senior Magistrate erred by concluding that Plaintiff failed to meet the credible basis requirement. Plaintiff also argues that the Senior Magistrate erred in setting the scope of inspection.
Plaintiff has met the credible basis requirement, in my view. A plaintiff must demonstrate a credible basis to investigate possible wrongdoing, but the Delaware Supreme Court described that standard as the “lowest possible burden of proof.”26 To meet it, a stockholder need not prove that the wrongdoing “actually occurred”27 nor show that wrongdoing is even “probable.”28 Any such requirement “would completely undermine the purpose of
Although Plaintiff has met the credible basis requirement, it is not entitled to additional documents, because I reach the same conclusion as the Senior Magistrate as to scope.
Because this action was filed before the General Assembly amended
Under the prior regime, “[w]hen tailoring the production order, the court must balance the interests of the stockholder and the corporation.”33 Delaware courts struck this balance by limiting a stockholder-plaintiff‘s inspection to those records “essential and sufficient” to his stated purpose and by placing the burden of proof on
In the taxonomy of books and records, there are “Formal Board Materials,” “Informal Board Materials,” and “Officer-Level Materials.”36 The scope of stockholder inspection is typically limited to Formal Board Materials. As the Delaware Supreme Court has explained, where “a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a
But a stockholder can inspect Informal Board Materials and Officer-Level Materials if the stockholder “demonstrate[s] a need for broader inspection.”38 A
Here, Plaintiff has failed to identify the foothold needed to inspect beyond the Formal Board Materials. Plaintiff contends that Sheffield “withheld key information from the Board,” but Plaintiff does not specify what that key information might be.40 Plaintiff suggests that Sheffield had developed a “pattern” of discussing material price terms with Woods without the Board‘s permission, pointing to the Consent Order as a reason to be suspicious of his use of text messages.41 But a fiduciary‘s allegedly ill-advised texts sent in one context does not entitle a stockholder to inspect that fiduciary‘s text for all purposes.
As the Senior Magistrate observed, the produced Board materials are extensive.42 The mere possibility that some additional details might exist in informal communications does not render those documents “necessary and essential” to
III. CONCLUSION
I overrule Plaintiff‘s exceptions and adopt the Magistrate‘s Final Report.
Sincerely,
/s/ Kathaleen St. Jude McCormick
Chancellor
cc: All counsel of record (by File & ServeXpress)