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Corporate Law

Delaware Court of Chancery Denies Stockholder Access to Company’s Books, Despite Facial “Proper Purpose”

By Sara E. Bussiere, Bayard PA

In Wilkinson v. A. Schulman, Inc., 2017 WL 5289553 (Del. Ch. Nov. 13, 2017), the Delaware Court of Chancery denied a stockholder of A. Schulman, Inc. (the Company) access to the Company’s books and records, despite the fact that the stockholder stated what appeared to be a “proper purpose” in his initial demand on the Company pursuant to 8 Del. C. § 220 (220 Demand). A stockholder may inspect a company’s books and records if it states a “proper purpose,” which the statute defines as “a purpose reasonably related to such person’s interest as a stockholder.” In Wilkinson, plaintiff’s stated purpose for the 220 Demand was the Company’s decision to accelerate the vesting of the Company’s President and Chief Executive Officer’s stock, and the harm caused to the Company as a result thereof. The Company rejected the 220 Demand. At trial, the Company argued that it properly rejected the Demand because the purposes listed were not the actual reasons for the Demand, and therefore, the plaintiff failed to state a “proper purpose.” In its post-trial opinion, the court agreed. The court found that the purposes listed in the Demand were not the plaintiff’s reasons, but his “entrepreneurial” counsel’s purposes. Because the stockholder plaintiff lacked a proper purpose to inspect the Company’s books and records as required by Section 220, the court held the Company properly rejected the 220 Demand and entered judgment in favor of the Company.

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