The Delaware Court of Chancery recently granted a defendant's motion for summary judgment, denying a books and records inspection, under Section 220 of the Delaware General Corporation Law, because the plaintiff failed to provide a credible basis from which the Court could infer the possibility of ongoing mismanagement. Plaintiff-stockholder, Louisiana Municipal Police Employees' Retirement System, demanded an inspection of books and records of the defendant, Lennar Corporation, one of the nation's largest homebuilders, to inspect compliance relating to labor, tax, and immigration law. As support for the demand, the plaintiff cited newspaper articles targeting the homebuilding industry (among other industries) and describing a nationwide governmental investigation by the Department of Labor ("DOL") into potential employee misclassification violations. The articles also reported that the five largest homebuilders, including Lennar, had received information requests from the DOL. Notwithstanding the support cited by the plaintiffs, the Court explained that a stockholder seeking to inspect the books and records must identify a proper purpose for its demand, and that, although the plaintiff had attempted to state a proper purpose, it failed to provide credible evidence of mismanagement. The Court held that the general news articles about an industry-wide investigation were insufficient to state a proper purpose to inspect a corporation's books and records.
Louisiana Municipal Police Employees' Retirement System v. Lennar Corporation, C.A. 7314-VCG (October 5, 2012)