The Delaware Court of Chancery recently found that a shareholder’s demand for books and records was time-barred, as the alleged basis for a derivative action occurred nearly seven years ago and thus was well beyond any statute of limitations. In 2008, plaintiffs brought a federal securities class action against Monster Beverage Corporation based on alleged insider trading in 2006 and 2007. Anastasia Wolst, who held Monster common stock since 1999, did not join the class action, but did join a contemporaneous derivative action based on the same underlying claims. The securities class action recently settled, and the derivative action ultimately failed for inability to establish demand futility. In 2012, Wolst made an unsuccessful demand on Monster’s board to bring litigation regarding the alleged insider trading. In 2013, she asked to inspect Monster’s books and records concerning the board’s rejection of her litigation demand. The court found Wolst’s books and records demand lacked a proper purpose since the basis for her anticipated derivative claim—the insider trading allegations—occurred nearly seven years ago, well beyond the presumptive three-year statute of limitations. In particular, the court found that Wolst’s delay in making her demand was unreasonable in light of her participation in the earlier derivative action and constructive knowledge of the purported insider trading. Notably, the court considered whether the pendency of the securities class action tolled the statute of limitations and the period for evaluating the laches defense against Wolst’s derivative claims. The court declined to extend to Wolst’s case the tolling principle articulated in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), which protects stockholders’ direct, as opposed to derivative, claims.
Wolst v. Monster Bev. Corp., C.A. No. 9154-VCN (Del. Ch. Oct. 3, 2014).