COURT OF CHANCERY OF THE STATE OF DELAWARE

J OHN W. N OBLE 417 S OUTH S TATE S TREET V ICE C HANCELLOR D OVER , D ELAWARE 19901 T ELEPHONE : (302) 739

- 4397 F ACSIMILE : (302) 739

- 6179
October 3, 2014

Blake A. Bennett, Esquire Gregory V. Varallo , Esquire Cooch and Taylor, P.A. Richards, Layton & Finger, P.A. 1000 West Street, 10th Floor 920 North King Street Wilmington, DE 19801 Wilmington, DE 19801
Re: Wolst v. Monster Beverage Corporation C.A. No. 915 4

- VCN Date Submitted: June 13, 2014
Dear Counsel : Plaintiff Anastasia Wolst (“Wolst”) has owned common stock of Defendant Monster Beverage Corporation (“Monster”) continuously since 1999. During 2006 and 2007, with the benefit of nonpublic informatio n about Monster’s finances and business prospects, certain insiders alleged ly sold Monster common stock. That conduct resulted in federal securities class litigation filed in September 2008

. 1 The

1 Am. Pre

- Trial Stip. & Order (“Pretrial Stip.”) ¶ 6. Wolst, because of the lack of any trading activities during the pertinent timeframe, was not a member of the class. See Pretrial Stip. ¶ 5.Wolst v. Monster Beverage Corporation

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parties to the federal securities class action entered int o a settlement agreement in April 2014. 2 In October 2008, other shareholders brought a derivative action regarding the trading activities. Wolst eventually joined in that effort . Because of an inability to establish demand futility, th e derivative a ction failed. Disappointed with that outcome, Wolst, in February 2012, made a demand on Monster’s board of directors to bring litigation related to the alleged insider trading of 2006 and 2007. In response to her demand, Monster’s board appointed a Spe cial Committee . As a result of the Special Committee ’s investigation, her demand for litigation was rejected. The Special Committee did not provide a written report, and Wolst did not abandon her concerns about those trading
activities. In March 2013, W olst sent a letter to Monster seeking to inspect certain of
its books and records in accordance with 8 Del. C. § 220. 3 She identified her purposes for inspection as: (1) “ [ e ] valuating the B oard’s refusal to act on [her]

2 Monster’s in surers committed to pay the $16,250,000 settlement. JX 52; Pret rial Stip. ¶ 14. 3 JX 44; Pretrial Stip. ¶ 5 6

.Wolst v. Monster Beverage Corporation

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litigation demand and whether that refusal constituted a reasonable and good

- faith
exercise of the B oard’s business judgment” and (2) “[ e ] valuating the process by
which the B oard decided to refuse to act on [her] litigation demand.” 4 Wolst concedes that her ultimate goal in purs u ing her bo oks and records request is “to determine whether there is a basis to bring a derivative suit” based on the “wrongs alleged in” the earlier derivative action. 5 Thus, the “end game” here for Wolst is the filing of another derivative action. Wolst has not o ffered any other purpose,
and no other purpose is apparent. This matter was tried on a paper record, and this letter opinion sets forth the Court’s findings of fact (essentially uncontested) and its conclusions of law (vigorously debated).
A s tock holder invoking her rights under Section 220 must demonstrate a “proper purpose” for the inspection. A proper purpose is one “ reasonably related to [the stock holder ’ s] interest as a stockholder.” 6 Monster argues that Wolst does not have a proper purpose because the derivative claims that she wants to bring

4 JX 44; Pretrial Stip. ¶ 58. 5 JX 59 at 109, 119; Pretrial Stip. ¶ 58. 6 8 Del. C. § 220(b).Wolst v. Monster Beverage Corporation

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would be time

- barred. 7 Wolst seeks to assess whether the Special Committee’s investigation was wrongful or improper in order to develop a basis for avoiding the consequences of Monster’s rejection of her dema nd that litigation be brought to remedy the trading activities. Her purpose is to advance her derivative claims, which would be a proper purpose unless the time

- bar defense defeats it.
A potentially viable affirmative defense to an anticipated deriva tive claim will not necessarily defeat a books and records effort. 8 Sometimes developing the
record to withstand possible affirmative defenses requires more effort than is practicable for a books and records action. Sometimes conduct that cannot be
chall enged because of a time

- bar defense can , nevertheless, inform consideration
of other potentially wrongful conduct that is not yet time

- barred. There is , however, “the possibility that, in a specific factual setting, a time bar defense . . .
would eviscera te any showing that might otherwise be made in an effort to establish a proper shareholder purpose.” 9 The challenged trading activities

7 Monster do es not dispute that her purpose would b e proper if the eventual derivative claims could be filed timely. 8 See, e.g. , Amalgamated Bank v. UICI , 2005 WL 1377432, at *2 (Del. Ch. June 2, 2005). 9 Id. at * 2 n.14.Wolst v. Monster Beverage Corporation

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occurred in 2006 and 2007. Wolst does not identify any more recent potentially wrongful conduct that could provide a b asis for a derivative action. Without some elaboration upon what she would do with the requested books and records in her capacity as a stockholder, the burden of producing books and records that
Section 220 imposes upon the corporation should be avoided in this instance. In sum, consideration of a time

- bar de f ense to the contemplated derivative action is appropriate in this “specific factual setting.” 10
The last of the events serving as the basis for Wolst’s anticipated derivative
action occurred almost seven years ago , well beyond the presumptive three

- year limit of 10 Del. C. § 8106 , the analogous statu te of limitations . Although equity is not strictly bound to a statute of limitations in this context , the three

- year period is
a start in the Court’s l aches analysis. Wolst argues that Monster has failed to satisfy the laches requirements of both unreasonable delay and prejudice. 11
However, delay of seven years is unreasonable , especially since Wolst had constructive knowledge of the events by late 2007 and participated in a related

10 See Graulich v. Dell Inc. , 2011 WL 1843813, at *6 (Del. Ch. May 16, 2011). 11 See, e.g. , Roseton OL, LLC v. Dynegy Hldgs., Inc. , 2011 WL 3275965, at *7 (Del. Ch. July 29, 2011).Wolst v. Monster Beverage Corporation

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derivative action. Although Monster has not itemized how it would be prejudice d , delay for which Wolst is responsible is presumptively prejudicial under the
circumstances because of fading memories and the protracted distrac ti ons divert ing management’s attention from the needs of the corporation. The passage of seven years from events which were the subject of other timely litigation would unjustifiably prejudice Monster

. 12 Thus, Wolst’s derivative claims would be time

- barr ed unless the pendency
of the federal securities class action is a basis for tolling the statute of limitations
and the period for evaluating the laches defense

. Wolst relies upon the principle that the filing of a class action generally tolls the running of the statute of limitations for all potential class members. 13 In the class action structure, the putative class representatives who file the action do so not only for themselves, but also for all similarly situated persons. Those similarly situated pe rsons are entitled to rely upon the actions of their putative representatives. Otherwise, potential class

12 Even if it is assumed that the period during which Wolst has attempted to exercise her rights under Section 220 may be excluded from the Court’s time

- bar ari thmetic, the relevant period still exceeds five years , more than enough time for her to have exercised any right to bring a derivative action. 13 See Am. Pipe & Constr. Co. v. Utah , 414 U.S. 538 (19 7 4 ); Dubroff v. Wren Hldgs., LLC , 2011 WL 5137175 (Del. Ch. Oct. 28, 2011).Wolst v. Monster Beverage Corporation

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member s would be under pressure to file their own actions in order to avoid having
their individual claims time

- barred in the event that the initial class representative s
decide to abandon their efforts. It does not appear that the class action concept of tolling has been extended to derivative actions. 14 It is true, as Wolst points out, that derivative actions purportedly brought to recover a corpora tion’s losses from violations of federal securities laws and the resulting litigation are frequently stayed pending resolution of the foundational securities litigation. Until the outcome of the securities litigation is known, the scope of the harm suffer ed by the corporation is uncertain . Yet just b ecause prudent case management may support a stay of a derivative action in a similar context, it does not follow that the statute of
limitations ceases to run for every interested party . More specifically, t he class action tolling doctrine has only been applied for the benefit of potential class
members. Wolst was not a member of the class in the federal securities litigation
and thus is not entitled to the benefits accruing to the class. In short, the Cour t
declines to extend the rationale of American Pipe , which protect s stockholders’

14 Cf. Krinsk v. Fund Asset Mgmt., Inc. , 1986 WL 205, at *3 (S.D.N.Y. May 9, 1986).Wolst v. Monster Beverage Corporation

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direct claims , to derivative claims that stockholders might assert on behalf of the corporation. In summary, Wolst “has articulated no stated purpose other than to investiga te wrongdoing in order to bring [her derivative] suit against [Monster ’s insiders who traded on nonpublic information ], and [Wolst] is time

- barred from bringing th a t suit.” 15 Accordingly, because the derivative action contemplated by
Wolst would be time

- ba rred and because no other purpose has been identified , she has failed to prove a proper purpose, an essential element of her case under 8 Del.
C. § 220 . J udgment is entered in favor of Monster. 16
IT IS SO ORDERED. Very truly yours,
/s/ John W. Noble JWN/cap cc: Register in Chancery

- K

15 Graulich , 2011 WL 1843813, at *6. 16 The parties shall bear their own costs. Wolst had a proper purpose, but for the time

- bar aspect of her action. Wheth er the American Pipe doctrine should be extended in these circumstances was a question not free of doubt.