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2-19 BBC Acquisition v. Durr-Fillauer Medical
Ⅰ. Fact
The plaintiff, BBC Acquisition Corp. (Hereinafter, BBC), is a wholly-owned subsidiary of Bergen Brunswig Corporation (Hereinafter, B), formed to implement B's bid to acquire, the defendant, Durr-Fillauer Medical, Inc. (Hereinafter, D). D had earlier entered into an agreement with another suitor, Cardinal Distribution, Inc. (Hereinafter, C), for C to acquire D. Upon learning of the C transaction, B decided to launch a competing bid to acquire D. B, through BBC, made a formal written demand on July 7, 1992, pursuant to § 220, to inspect D's shareholder list and certain of its books and records. D never formally responded to BBC's books and records demand or to BBC's reiteration of that demand in subsequent correspondence. On July 16, 1992, BBC filed this action. After BBC submitted its § 220 demand, B's Chairman wrote letters to D, but D rebuffed B's overtures, and D and C entered into a revised merger agreement wherein D's stockholders will receive increased consideration in the stock-for-stock merger. BBC elected to prosecute § 220 action. Thereafter, the parties engaged in the expedited discovery and submitted pretrial briefs, and the matter was tried on August 6, 1992.
Ⅱ. Issue
Whether the validity of a proper purpose by BBC established under 8 Del.C. § 220 is an issue.
Ⅲ. Rule
8 Del.C. § 220 stated that a stockholder is entitled to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom.
8 Del.C. § 220(b) stated that where the stockholder seeks to inspect the corporation's books and records other than its stock ledger or stock list, he must first establish
(1) That he has complied with the provisions of [§ 220] respecting the form and manner of making demand for inspection of such documents; and
(2) That the inspection he seeks is for a proper purpose. 8 Del.C. § 220(c).
Ⅳ. Application
In general, shareholders have the right to inspect a corporation's articles of incorporation and bylaws. In this case, D contends that BBC is not entitled to inspect those documents because (i) BBC has not established that it has made a proper demand under oath (ii) BBC did not establish its status as a stockholder of record, since the certificate for 100 D shares was issued to "MILN Corporation", and BBC failed to prove that MILN and BBC are one and the same entity.
Although it has been customary for BBC shareholders to establish the demand's authenticity by calling as a trial witness the person who executed the demand, what may be customary is not necessarily legally mandated. In this case, BBC's witness was a BBC corporate officer, insofar as D disputes the genuineness of the notarization, BBC's demand is self-authenticating. In addition, BBC introduced into evidence an officially-filed certificate which established that MILN Corporation had changed its name to BBC Acquisition Corp. Thus, so long as other competent evidence is presented to establish that a statutorily proper demand was made, the testimony of the signatory is not a sine qua non.
D contends that (iv) insofar as it is claimed that the requested inspection is needed to value BBC's shares since D is a public company and publicly-filed information is sufficient and (vi) in any event, no inspection should be ordered unless and until BBC increases its offering price to a level such as would impose upon D's board of directors a fiduciary duty to permit inspection, as the "fiduciary out" clause in the D-C agreement contemplates.
But the documents were needed by C to determine D's value and the price C was willing to pay to acquire D. Also, D's President and Chief Operating Officer conceded that C needed those documents for that purpose. Thus, D cannot argue that those same documents are not necessary for a competitive bidder or that BBC must be relegated to inspecting publicly-filed documents when C was not so limited. Because the shareholders' right to inspection can only be taken away by statutory enactment. Accordingly, whatever relevance the D-C agreement might have in determining BBC's right to discover that information in the companion plenary action, in this summary proceeding under § 220, D could not be permitted to interpose its agreement with C to abridge BBC's entitlement. Because BBC is a business competitor, that fact alone does not defeat the statutory right of inspection.
D asserts that a confidentiality agreement will not afford it sufficient protection.
It is not necessary to resolve that dispute at this time, because it relates only to the scope of the inspection. That issue arises only if the shareholder is first found to be entitled to inspection. Thus, if BBC were found to be otherwise entitled to inspect the requested documents, that defense would pose no obstacle.
In this case, BBC argued that each of the purposes enumerated in its demand is an independent, proper purpose of stature equal to the others. But BBC has one primary purpose for inspecting the nonpublic information previously furnished to C to place a value on D so that BBC can consider whether to increase its offering price and, if so, by how much. Also, BBC's other stated purposes are clearly secondary and subordinate. However, BBC's primary purpose is not one reasonably related to BBC's interest as a shareholder and is therefore not a proper purpose within the meaning of § 220. Because the relevant correspondence made it clear that BBC needs the requested nonpublic documents to determine what D is worth, at least to BBC.
BBC contends that even if valuing D is found to be BBC's primary purpose, it is still proper under § 220 because its purpose is to value BBC's stock interest in D which relates to an investor's interest as a shareholder.
But BBC is not seeking to value its 100 shares of D, but D as a whole. Also, it relates only to BBC's status as a bidder for D, not to its status as a D stockholder. Because Section 220 is intended to serve shareholders whose need for inspection is truly related to their stock interest. Therefore, BBC is not such a stockholder, BBC is not entitled to that relief in a proceeding under 8 Del.C. § 220
Ⅴ. Conclusion
The judgment was entered in favor of D.
Ⅵ. Comment
The right of inspection is not absolute, and must always be balanced with other interests in play.
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