Law Updates

In Matter of First Impression, Delaware Chancery Court Holds that a Former Stockholder Squeezed Out in a Merger Lacks Standing to Bring a Section 220 Action

Joe Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. February 27, 2017). Court of Chancery of the State of Delaware. View pdf

(March 13, 2017) Matthew S. Sarna, Law Clerk.

For more information, contact Stephen S. McCloskey

In Joe Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. February 27, 2017), the Delaware Chancery Court found that the unambiguous language of DGCL § 220(c) compelled a finding that Mr. Weingarten (“Plaintiff”) lacked standing to bring an action under § 220 because he was not a stockholder at the time of filing.

Plaintiff was formerly a stockholder of Monster Worldwide, Inc., a Delaware corporation in the business of providing job placement, career management, and recruitment and talent management services (“Monster”). On August 8, 2016, Monster and Randstad North America, Inc., (“Randstad”) entered into a merger agreement. The agreement contemplated a tender offer transaction followed by a merger between Randstad’s merger sub and Monster. On November 1, 2016, following the consummation of the tender offer, Plaintiff’s stock was cancelled and converted into the right to receive cash.

On October 19, 2016, Plaintiff sent a demand letter, under § 220, to Monster’s board to inspect their books and records in order to determine whether there were grounds to pursue litigation against all or some members of the board for alleged wrongdoing in connection with the merger. A week later, the board rejected Plaintiff’s demand. Later that day, Plaintiff emailed Monster, stating in relevant part, “If… the merger closes before Plaintiff files a [220] complaint, we expect that the company will refrain from asserting any argument that Plaintiff lost standing to inspect documents because the merger closed before he filed his complaint.” The email further requested a response by 10:00 A.M. the next morning. However, no response was provided until October 28, 2016. After the merger was officially consummated, Monster emailed Plaintiff, stating, “The stated purpose for your Section 220 demand has been mooted… there is nothing further to discuss.”

When Plaintiff eventually filed his 220 complaint with the court on November 22, 2016, he alleged several counts of wrongdoing in connection with the merger. In response, Monster argued that the complaint should be dismissed because Plaintiff no longer had standing to bring the action and for failure to state a proper purpose for the demand. Because the Chancery Court found in favor of Monster as to the standing argument, the Court did not need to reach the question of proper purpose.

The Court began its analysis by breezing through Plaintiff’s attempt to invoke the doctrine of equitable estoppel. The Court explained that, because Plaintiff did not file suit before the merger closed, “there was no conduct by the party against whom the estoppel is sought on which Plaintiff purport[ed] to rely.”

Moving on to the issue of standing, the Court first laid out the relevant portions of DGCL § 220. “Any stockholder, in person or by attorney, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose,” records of her corporation. 8 Del. C. § 220(b). If the corporation denies the demand or fails to respond, the stockholder may apply to the court for relief. Id. at § 220(c). “Where the stockholder seeks to inspect the corporation’s books and records… such stockholder shall first establish that: (1) Such stockholder is a stockholder; (2) Such stockholder has complied with this section respecting the form and manner of making demand for inspection of such documents; and (3) The inspection such stockholder seeks is for a proper purpose. Id.

Plaintiff failed to meet subsection (1). Under the canons of statutory interpretation, the plain meaning of the language employed dictates construction where there is no ambiguity. See, e.g., Chase Alexa LLC v. Kent County Levy Court, 991 A.2d 1148, 1151 (Del. 2010). Through this construction, the Court found that the legislature made it clear that only those who are stockholders at the time of filing have standing to invoke the court’s assistance under § 220.

Further, the Court found Plaintiff’s attempt to analogize two cases, Cutlip v. CBA Int’l, Inc. I and Deephaven Risk Arb Trading Ltd. V. UnitedGlobalCom, Inc., inapplicable to the facts at hand. The Court explained that those cases involved stockholders who lost their stock via a merger during the pendency of actions under § 220; at the time of filing, the plaintiffs did have standing. In this case however, Plaintiff’s stockholder status had been terminated prior to the filing of the complaint.

Accordingly, because Plaintiff could not “first establish” that he was a stockholder at the time the § 220(c) action was filed, he lacked standing to proceed.