In a case of first impression in Delaware, the Chancery Court dismissed a former shareholder’s books and records complaint for lack of standing. Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG (Del. Ch. Feb. 27, 2017). In Weingarten, the plaintiff shareholder held shares of Monster on August 8, 2016, when Monster entered into a merger agreement with a third party. The merger included a tender offer for all of Monster’s outstanding shares. On October 19, 2016, plaintiff’s counsel sent a Section 220 books and records demand to Monster in order “to determine whether it is appropriate to pursue litigation against all or some members of the Board for alleged wrongdoing in connection with the Merger.” On October 26, 2016, Monster rejected the demand, but expressed a willingness to negotiate “a narrowly tailored production.” On that same day, plaintiff’s counsel sent another letter expressing his expectation “that the company will refrain from asserting any argument that Mr. Weingarten lost standing to inspect documents because the merger closed before he filed his complaint.” Monster did not respond until October 28, 2016, saying that it would not waive any defense. Before any production of documents, on November 1, 2016, the merger closed and plaintiff’s Monster shares were cancelled. Monster then wrote to plaintiff’s counsel and said that the demand for books and records was “moot” because the plaintiff no longer held any shares. The plaintiff ultimately filed his lawsuit on November 22, 2016, and defendants moved to dismiss because, among other reasons, the plaintiff lacked standing.
The Chancery Court agreed with defendants, and rejected the application of an equitable estoppel defense based on Monster’s October 26, 2006 letter. In interpreting Delaware’s books and records statute, the court concluded that the “plain language” of that statute has a two-pronged requirement for standing: first, a current shareholder must make a formal demand, and second, at the time suit is filed, the demanding party must be a shareholder. Because the plaintiff in Weingarten no longer held shares, he lacked standing to pursue his complaint. This case creates an important precedent for any company that receives a books and records demand shortly before a cash tender merger is set to close.