In Weingarten v. Monster Worldwide, Inc., No. 12931-VCG, 2017 BL 59636 (Del. Ch. Feb. 27, 2017), the Court of Chancery of Delaware granted Monster Worldwide, Inc.’s (Monster) motion to dismiss Joe Weingarten’s (Plaintiff) complaint seeking to inspect the books and records of Monster Worldwide, Inc.  The court dismissed Plaintiff’s complaint, finding that Plaintiff lacked standing to bring an action under Section 220(c) of the Delaware General Corporation Law as a former stockholder subsequent to a merger.

On August 8, 2016, Monster, a company “providing job placement, career management, and recruitment and talent management services” entered into a Merger Agreement (“Merger”). On October 19, 2016, Plaintiff sent a letter to Monster’s board demanding to inspect books and records to determine whether he should pursue litigation against all or some directors for alleged wrongdoing in connection with the Merger.

Monster rejected the demand although not until after the deadline provided by Plaintiff. On November 4, 2016, Monster finalized the Merger and Plaintiff’s stock was cancelled. Plaintiff filed a complaint on November 22, 2016 (“Complaint”) seeking to inspect the books and records of Monster.  Plaintiff alleged as a basis for the inspection two types of wrongdoing and mismanagement:  1) process-related claims alleging a flawed sales process resulting in an inadequate merger consideration; and 2) disclosure-related claims alleging Monster’s failure to disclose potential conflict of interest of Monsters managers.

Monster sought dismissal alleging that because Plaintiff had ceased to be a shareholder as a result of the merger, Plaintiff lacked standing to inspect the documents. 

The court found that Monster was not estopped from raising the issue of standing.  To invoke equitable estoppel, the party must demonstrate 1) it lacked knowledge or the means of obtaining knowledge of the truth; 2) it reasonably relied on the conduct of the party against whom estoppel is sought; and 3) it detrimentally changed position based on that reliance. The court found that Monster had not engaged in the required “conduct.”  Plaintiff informed Monster that he “expected” the company to waive the standing defense due to the delayed response to his request.  Monster, however, never responded.  Reliance on silence was not, the court concluded, “reasonable.” 

In determining the standing issue, the court looked to Section 220(b).  The Section provided that “any stockholder, in person or by attorney or other agent, 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 the corporation.  In the event of a failure to respond within 5 days, Section 220(c) provided a right to bring an action in the Court of Chancery for relief. To be eligible to do so, however, the person had to, among other things, be a stockholder.

The court concluded that, as a result of the merger, the Plaintiff was not a shareholder.  Under the plain language of the statute, he lacked standing.

The language of Section 220(c) is plain and unambiguous. By requiring that a plaintiff under Section 220, to seek relief from this Court, demonstrate both that it “has”—past tense—complied with the demand requirement, and that it “is”—present tense—a stockholder, the legislature has made clear that only those who are stockholders at the time of filing have standing to invoke this Court's assistance under Section 220. 

Because Plaintiff could not establish he was a stockholder at the time this action was filed, he lacked standing, and therefore the Court dismissed the matter.

The primary materials for this case may be found on the DU Corporate Governance website.