IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JENNIFER BARNES, ) 

 ) 

Plaintiff, ) 

 ) 

 v. ) C.A. No. 2017-0735-MTZ 

 ) 

SPROUTS FARMERS MARKET, INC., ) 

 ) 

Defendant. ) 

MASTER’S REPORT

Date Submitted: April 5, 2018

Draft Report: May 2, 2018 

Final Report: July 18, 2018

Blake A. Bennett, Esquire, of COOCH AND TAYLOR, P.A., Wilmington, 

Delaware; OF COUNSEL: Brian J. Robbins, Esquire, Felipe J. Arroyo, Esquire, 

and Steven R. Wedeking, Esquire, of ROBBINS ARROYO LLP, San Diego, CA; 

Attorneys for Plaintiff.

S. Mark Hurd, Esquire and Alexandra M. Cumings, Esquire, of MORRIS, 

NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: 

Michael D. Blanchard, Esquire, of MORGAN, LEWIS & BOCKIUS LLP, 

Hartford, CT; Attorneys for Defendant.

ZURN, Master
This case involves a demand to inspect the books and records of a grocery 

store chain that allegedly failed to disclose that it was experiencing significant 

produce deflation at the time of a stock offering. The plaintiff seeks to inspect the 

company’s books and records in order to investigate potential breaches of duty, 

corporate mismanagement, wrongdoing, and unjust enrichment by the company’s 

fiduciaries. The defendant argues the plaintiff is not entitled to inspection because 

she has not shown a credible basis to infer wrongdoing or mismanagement.

In this post-trial final report, I conclude the plaintiff has established a 

credible basis from which a court can infer that wrongdoing or mismanagement 

may have occurred. 

I. Background1

Plaintiff Jennifer Barnes (“Plaintiff”) alleges she is a stockholder of 

Defendant Sprouts Farmers Market, Inc. (“Sprouts”), and has been at all relevant 

times.2

 Sprouts, a Delaware corporation, is a grocery store chain offering fresh, 

natural, and organic food, including fresh produce, bulk foods, vitamins and 

supplements, packaged groceries, meat and seafood, deli, baked goods, dairy 

 

1

 The facts in this report reflect my findings based on the parties’ briefing, appended exhibits, 

and trial on that paper record held on February 23, 2018. I grant the evidence the weight and 

credibility that I find it deserves. Citations to the trial transcript are in the form “Tr. #.” 

Plaintiff’s exhibits, submitted in support of Plaintiff’s pretrial briefs, are cited as “PX #,” and 

Defendant’s exhibits, submitted in support of Defendant’s pretrial briefs, are cited as “DX #.” 

2

 For purposes of this report, the defendant has not disputed Plaintiff’s standing as a stockholder. 
2 

products, frozen foods, beer and wine, natural body care, and household items.3 

Sprouts seeks to distinguish itself by offering fresh, high quality produce at low 

prices, and produce sales generate approximately twenty-five percent of Sprouts’ 

revenue.4

 Sprouts was founded in 2002 and as of November 1, 2017, comprised 

285 stores in fifteen states.5

Nonparty Apollo Global Management is an investment fund that is affiliated 

with and manages funds called AP Sprouts Holdings, LLC and AP Sprouts 

Holdings (Overseas) LP. I refer to all three entities collectively as “Apollo.” 

Nonparty Andrew S. Jhawar (“Jhawar”) is a senior partner of Apollo Global 

Management and the chairman of Sprouts’ board.

6

 

Sprouts held its initial public offering (“IPO”) on August 1, 2013.7

 

Immediately prior to Sprouts’ IPO, Apollo owned over fifty percent of Sprouts’ 

stock.8

 In contemplation of the IPO, Sprouts granted Apollo the right to require 

Sprouts to file up to five registration statements with the SEC for the resale of 

Apollo’s Sprouts stock.9

 After the IPO, Apollo held 44.5% of Sprouts’ stock.10 

 

3 PX E at 5.

4 PX F at 6; PX G at 2; PX H at 24.

5

 PX E at 17. 

6 PX I at 6. 

7 Id. 8 Id. 9 PX J at 9.

10 Id.
3 

Apollo sold a majority of that stock in four registered secondary offerings in

November of 2013, March of 2014, August of 2014, and November of 2014.11 

Apollo sold its remaining 10.4% of Sprouts stock in a fifth and final 

secondary offering (“the Secondary Offering”), which opened on March 6, 2015.12 

The offering documents include a SEC Form S-1 registration statement and a 

prospectus, filed on March 4, 2015.

13 The offering documents were signed by 

numerous officers and directors, including Jhawar as chairman of Sprouts’ board

and as an Apollo vice president.

14 Sprouts disclosed Jhawar’s dual roles in 

connection with the Secondary Offering.15 The Secondary Offering closed on 

March 10, 2015.16 Apollo sold all its remaining shares at $35.30 per share, raising 

nearly $560 million in gross proceeds.17 Apollo was the only investor who sold in 

the Secondary Offering.18

In mid-February 2015, Sprouts began experiencing produce deflation.19 The 

Secondary Offering documents filed on March 4, 2015, did not mention this 

deflation. The Secondary Offering’s registration statement incorporated Sprouts’ 

 

11 PX I at 6.

12 PX I.

13 Id.

14 Id. 15 Id. at 6. 

16 PX K.

17 Id.

18 PX I at 6. 

19 PX L at 3, 8; PX M at 3. 
4 

2014 Annual Report on Form 10-K dated February 26, 2015.20 The 10-K disclosed 

the importance of produce, its volatile pricing, and that volatility’s general impact 

on Sprouts’ business, as follows:

[I]nflation or deflation can impact our business. Food deflation 

could reduce sales growth and earnings, while food inflation, 

combined with reduced consumer spending, could reduce gross profit 

margins.21

... 

Inflation and deflation in the prices of food and other products 

we sell may periodically affect our sales, gross profit and gross 

margin. The short-term impact of inflation and deflation is largely 

dependent on whether or not the effects are passed through to our 

customers, which is subject to competitive market conditions. In the 

first half of fiscal 2012, we experienced produce price deflation, 

which contributed to higher gross margins in our business during that 

period and the full fiscal year.

Food inflation and deflation is affected by a variety of factors 

and our determination of whether to pass on the effects of inflation or 

deflation to our customers is made in conjunction with our overall 

pricing and marketing strategies. Although we may experience 

periodic effects on sales, gross profit and gross margins as a result of 

changing prices, we do not expect the effect of inflation or deflation to 

have a material impact on our ability to execute our long-term 

business strategy.22 

Sprouts’ financial results for the first quarter of 2015, reported on May 7, 

2015, included lower gross profit margins and sales growth slightly below the 

 

20 PX I at 19.

21 PX H at 25.

22 Id. at 61. 
5 

projected guidance level for the quarter.23 Sprouts issued a press release that day 

explaining the lower numbers were “primarily driven by produce tightness due to 

adverse weather conditions and West Coast port strikes that limited product 

availability.”24 On an earnings call that same day, Douglas Sanders (“Sanders”), 

who was then serving as Sprouts’ Chief Executive Officer, President, and Director, 

stated the lower sales growth was “primarily driven by 3 factors”: first, tightness 

in produce quality and supply due to weather and port challenges; “[s]econd, we 

began experiencing accelerating produce deflation in mid-February as supply 

improved, which increased significantly throughout March;” and third, severe 

weather in several markets that negatively impacted sales.25 On that same call, 

Amin N. Maredia (“Maredia”), who was then acting as Chief Financial Officer and 

Treasurer, elaborated on the deflation: “[W]e began seeing in the middle of 

February, acceleration and deflation in the produce area through the end of 

February as well as all the way through March and continuing into April.”26

Two weeks later, at a conference on May 21, 2015, Maredia reiterated 

Sprouts’ experience with price deflation in the first quarter of 2015. He explained:

And in the back half of the quarter, we saw something pretty unusual, 

which we had not seen before, frankly, with the port issues, we started 

to see a tremendous amount of deflation. In February, we saw huge 

 

23 Compare DX D (providing guidance for the first quarter of 2015) with PX N and PX L; see

Ans. ¶ 20.

24 PX N.

25 PX L at 3.

26 Id. at 8.
6 

deflation in certain categories, which could not get outside United 

States. And then when the port issue was resolved, we saw a glut of 

product come into the United States, which caused significant 

deflation in that category.27 

The deflation continued. On August 6, 2015, Sprouts announced its results 

for the second quarter of 201528 and held a conference call.29 Sanders, then 

serving as Executive Chairman, noted the growth Sprouts achieved in that quarter 

“was offset by a deflation of nearly 10% in April.”30 Sanders described the 

deflation as “significant” and acknowledged produce deflation “has a greater 

impact on Sprouts due to the high volume of produce we sell.”31 James L. Nielson, 

then serving as President and Chief Operating Officer, stated deflation had not 

subsided like Sprouts had predicted it would.32 And Maredia stated that deflation 

“hurt our comps by nearly 200 basis points in sort of May and June as we sort of 

ended the quarter.”33 

On March 24, 2016, an investor brought a class action lawsuit against 

Sprouts and an array of its officers and directors, including Sanders, Maredia, and 

Jhawar, in Arizona state court (“the Arizona Action”). The complaint in the 

 

27 PX M at 3. I interpret this statement to mean that issues with one or more shipping port(s) 

trapped produce inside the United States and created a glut of produce that could not enter the 

United States, and that both of these phenomena contributed to deflation. 

28 PX O.

29 PX P.

30 Id. at 3.

31 Id.

32 Id. at 9.

33 Id.
7 

Arizona Action (“the Arizona Complaint”) alleges Sprouts violated Section 11 of 

the Securities Act of 1933 by failing to disclose Sprouts was suffering from a 

produce deflation trend at the time of the Secondary Offering.

34 Specifically, the 

Arizona Complaint asserts that at the time of the Secondary Offering, the deflation 

was a known trend required to be disclosed under Item 303 of SEC Regulation SK, 17 C.F.R. § 229.303(a)(3)(ii) (“Item 303”). Item 303 requires a registrant to 

“[d]escribe any known trends or uncertainties that have had or that the registrant 

reasonably expects will have a material favorable or unfavorable impact on net 

sales or revenues or income from continuing operations.” The Arizona Complaint 

relies on the statements Sprouts made about deflation and its effects after the 

Secondary Offering as set forth above, including Sprouts’ May 7, 2015, press 

release; the statements by Sanders and Maredia on the May 7, 2015 earnings call; 

Maredia’s May 21, 2015, statements; and the statements by Sanders and Nielson 

on the August 6, 2015, earnings call.35 Sprouts moved to dismiss the Arizona 

Complaint.

On August 25, 2017, the Arizona court denied Sprouts’ motion to dismiss 

the Section 11 claim.

36 The Arizona court noted it was applying “ordinary notice 

 

34 PX Q.

35 Id., ¶¶ 45-49. 

36 PX R. The Arizona court dismissed other claims against Sprouts under Sections 12 and 15 of 

the Securities Act. Id. at 11. 
8 

pleading” standards, assuming the truth of all well-pleaded factual allegations and 

indulging all reasonable inferences from those facts.37 The Arizona court noted the 

alleged “known trend” of deflation “started a mere 18 days before the offering,” 

and concluded that whether the 18-day produce price deflation was a “known trend 

or simply a periodic price fluctuation is an issue ill-suited to be resolved by a 

motion to dismiss on an undeveloped record.”38 The court reviewed the statements 

by Sprouts’ officers and directors regarding deflation after the Secondary Offering 

under Arizona’s pleading standards and concluded they “could be read to mean 

that Sprouts was aware of a trend” at the time of the Secondary Offering.39 “Read 

liberally, these statements support plaintiff’s claims that the February deflation was 

something more than a periodic price fluctuation.”40 The Arizona court also 

concluded that under motion to dismiss standards, the Arizona Complaint gave fair 

notice of the claim that Sprouts knew of the price deflation “in February.”41 

Accordingly, the Arizona court denied the motion to dismiss the Section 11 claim 

against Sprouts.42

 

37 Id. at 4.

38 Id. at 7, 8. 

39 Id. at 9.

40 Id.

41 Id. at 9-10. 

42 Id. at 11. 
9 

The case pending in this Court began when Plaintiff sent Sprouts an undated

demand for books and records that Sprouts received on March 1, 2017.43 

Plaintiff’s stated purpose “is to investigate potential breaches of duty, corporate 

mismanagement, wrongdoing, and unjust enrichment by fiduciaries of [Sprouts], 

including Sprouts’ Board.”44 Plaintiff states that upon reviewing the demanded 

records, she may seek an audience with Sprouts’ board of directors or pursue 

litigation.45 

Sprouts rejected Plaintiff’s demand for books and records by letter dated 

March 17, 2017, arguing Plaintiff lacked a proper purpose.46 On October 17, 2017, 

Plaintiff filed a verified complaint under 8 Del. C. § 220. When Plaintiff filed this 

action, Sprouts’ stock traded at approximately $18.60 per share.47 Sprouts 

answered the complaint on November 6, 2017. 

The parties stipulated the proceedings would be bifurcated into two stages: 

a first stage, on the issue of whether Plaintiff has shown a proper purpose, to be 

adjudicated on a paper record; and a potential second stage for conferring and 

potential adjudication on production of documents. The first stage went to trial on 

February 28, 2018. On April 4 and 5, 2018, the parties submitted requested 

 

43 PX A; PX B.

44 PX A at 1.

45 Id.

46 See PX C. 

47 Pl.’s Decl. of Blake Bennett ¶ 3.
10 

supplemental briefing. I issued a draft report on May 2, 2018. Sprouts took 

exception, and the parties briefed those exceptions. This is my final report. 

II. Analysis

Under Section 220 of the Delaware General Corporation Law, stockholders 

of a Delaware corporation have the right to inspect the books and records of a 

company for any proper purpose.48 A proper purpose includes “a purpose 

reasonably related to such person’s interest as a stockholder.”49 “[A] stockholder 

has the burden of proof to demonstrate a proper purpose by a preponderance of the 

evidence.”50

“It is well established that a stockholder’s desire to investigate wrongdoing 

or mismanagement constitutes a ‘proper purpose.’”51 The stockholder is not, 

however, “required to prove by a preponderance of the evidence that waste and 

[mis]management are actually occurring.”52 Instead, a plaintiff who seeks to 

investigate wrongdoing or mismanagement must show “‘some evidence’ to suggest 

a ‘credible basis’ from which a court can infer that mismanagement, waste or 

wrongdoing may have occurred.”53 The “‘credible basis’ standard sets the lowest 

 

48 8 Del. C. § 220. 

49 8 Del. C. § 220(b). 

50 Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del. 2006). 

51 Id.

52 Id. at 123 (quoting Thomas & Betts Corp. v. Leviton Mfg. Co. Inc., 681 A.2d 1026, 1031 (Del. 

1996)). 

53 Id. at 118. 
11 

possible burden of proof.”54 The credible basis standard can be satisfied through 

“documents, logic, testimony or otherwise.”55

Plaintiff seeks Sprouts’ books and records for the purpose of investigating 

potential wrongdoing, including potential breaches of fiduciary duty. She claims 

this Court can infer that Sprouts’ directors and officers engaged in wrongdoing by

failing to disclose that produce deflation was harming Sprouts at the time of the 

Secondary Offering. Plaintiff argues Sprouts’ managers’ statements in the spring 

and summer of 2015, that “we began seeing” “huge” and “significant” deflation in 

February 2015, allow the Court to infer Sprouts’ fiduciaries knowingly failed to 

disclose Sprouts was experiencing material deflation at the time of the March 4 

Secondary Offering.56 Plaintiff also argues an inference of wrongdoing is 

supported by the significance of produce and its volatile pricing to Sprouts’ 

business, the fact that Apollo orchestrated the Secondary Offering for its own 

benefit, and by Jhawar’s dual roles as an Apollo senior partner and chairman of 

Sprouts’ board. Plaintiff concludes the Secondary Offering documents violate the 

Securities Act of 1933 under Item 303 by “fail[ing] to disclose a known trend in 

 

54 Id. at 123. 

55 Id.

56 See PX L at 3; PX L at 8; PX M at 3.
12 

the deflation of the price of produce and the deleterious effect on Sprouts that this 

deflation would cause.”57 

Sprouts interprets Sprouts’ statements in the spring and summer of 2015 as 

backward-looking descriptors of past conditions, which fail to show Sprouts’ 

management had contemporaneous knowledge of those conditions at the time of 

the Secondary Offering. Sprouts notes that pricing data necessarily trails the 

occurrence of pricing fluctuation.58 Sprouts also argues that the use of the pronoun 

“we” does not identify (and therefore incriminate) officers or directors, but rather, 

refers to the company as a whole. Sprouts concludes Plaintiff failed to meet her 

burden because she fails to demonstrate Sprouts’ directors or officers knew Sprouts 

was experiencing the deflation that began in mid-February when they signed the 

Secondary Offering documents dated March 4. Sprouts further contends Plaintiff 

has failed to show Sprouts’ fiduciaries knew, or could even predict, the deflation 

would harm Sprouts. Sprouts also argues that neither Apollo’s presence on the 

board, nor its role in arranging the Secondary Offering, supports an inference of 

wrongdoing because the other Sprouts officers and directors, who were unaffiliated 

with Apollo, would have had to engage in wrongdoing to benefit Apollo against 

 

57 Compl. ¶ 3. This Court cannot determine whether false disclosures violated federal securities 

law, but it can conclude that those disclosures constitute credible evidence of possible 

wrongdoing and mismanagement. Somerville S. Trust v. USV Partners, LLC, 2002 WL 

1832830, at *6 (Del. Ch. Aug. 2, 2002). 

58 DX G, H (noting government pricing reports provide preliminary pricing data after one 

month). 
13 

common sense and logic. Sprouts argues that the two-week deflationary period 

prior to the Secondary Offering cannot, as a matter of law, constitute a “trend” 

under Item 303. Sprouts uses the elements of a breach of duty of disclosure claim 

under Malone v. Brincat to frame its arguments.59

Before considering Sprouts’ arguments, I must first determine whether they 

are premature merits-based defenses, or whether they strike at the evidence and 

logic Plaintiff offers as a basis for inferring possible wrongdoing.60 This Court has 

repeatedly stated that a Section 220 proceeding does not warrant a trial on the 

merits of underlying claims.61 Indeed, “the Delaware Supreme Court has made it 

clear that the public policy of this State is to encourage stockholders to utilize 

Section 220 before filing a derivative action ... in order to meet the heightened 

 

59 722 A.2d 5 (Del. 1998). 

60 This issue was the focus of the parties’ briefing on Sprouts’ exceptions to my draft report.

61 E.g., Lavin v. W. Corp., 2017 WL 6728702, at *1 (Del. Ch. Dec. 29, 2017) (“Any contrary 

finding would invite defendants improperly to draw the court into adjudicating merits defenses to 

potential underlying claims in order to defeat otherwise properly supported Section 220 

demands.”); Okla. Firefighters Pension & Ret. Sys. v. Citigroup Inc., 2014 WL 5351345, at *6 

(Del. Ch. Sept. 30, 2014) [hereinafter Citigroup] (“Although Citigroup disclaims any effort to 

turn this proceeding into a trial on the merits of Plaintiffs possible derivative claims, Citigroup 

essentially seeks that result by implying that Plaintiff must have specific, tangible evidence that 

Citigroup’s Board or senior management was complicit in the fraud at Banamex. That argument 

ignores the inferences that this Court can—and must—draw under the credible basis standard, 

and would discourage the very behavior this Court has sought to encourage among would-be 

derivative or class plaintiffs.”); La. Mun. Police Emps.’ Ret. Sys. v. Countrywide Fin. Corp., 

2007 WL 2896540, at *12 (Del. Ch. Oct. 2, 2007) [hereinafter Countrywide] (rejecting, in a 

Section 220 proceeding, an argument that no springloading ever occurred because “by raising 

such a defense, Countrywide seeks to litigate the ultimate issue in a possible future derivative 

suit that might eventually be filed by [Plaintiff]. This is neither the time nor the procedural 

setting to address that issue.”). 
14 

pleading requirements ... applicable to such actions.”62 “Delaware courts 

generally do not evaluate the viability of the demand based on the likelihood that 

the stockholder will succeed in a plenary action.”63 In a books and records action, 

this Court considers only those arguments from a defendant that inform whether 

the plaintiff’s evidence provides a credible basis for the Court infer possible issues 

of wrongdoing.64

In Countrywide, the Court parsed the defendant’s arguments into those it 

could consider in determining whether the plaintiff had established a credible basis 

from which a court could infer wrongdoing, and those it could not consider 

because they went to whether wrongdoing actually occurred.65 In that case, the 

plaintiff presented an expert who had developed a statistical model that he believed 

indicated, with statistical significance, that some type of option manipulation may 

have occurred.66 The defendant presented its own expert, who presented two 

counterarguments: a critique of the plaintiff’s expert’s methodology, and 

affirmative evidence seeking to prove that springloading was not possible in that

case and therefore could not constitute a credible basis to infer possible 

wrongdoing.67 The Court entertained the first argument, describing it as 

 

62 Freund v. Lucent Techs., 2003 WL 139766, at *4 (Del. Ch. 2003) (emphasis added).

63 Lavin, 2017 WL 6728702, at *9. 

64 Countrywide, 2007 WL 2896540, at *12. 

65 See id.

66 Id.

67 Id. at *7. 
15 

undercutting the testimony and analysis of the plaintiff’s expert, but ultimately 

concluded the plaintiff’s expert’s analysis was not so fundamentally flawed as to 

be rejected.68 The Court rejected the defendant’s evidence that springloading 

could not have occurred, because that evidence went to the issue of whether 

wrongdoing actually occurred, not whether the plaintiff’s analysis provided a 

credible basis to infer possible wrongdoing.69

In determining whether Plaintiff has established a credible basis from which 

the Court could infer possible wrongdoing, I will consider Sprouts’ argument that 

the managers’ statements are not fairly read to indicate they had contemporaneous 

knowledge of deflation conditions at the time of the Secondary Offering. This is 

akin to Countrywide’s attack on the plaintiff’s expert’s methodology. Sprouts’ 

argument hinges on the meaning of the managers’ phrases, such as “we began 

seeing” and “we saw.” Sprouts and Plaintiff disagree on to whom “we” refers, and 

what level and timing of knowledge is imputed by “began seeing.” 

As Sprouts points out, Plaintiff’s interpretation, under which “we” refers to 

the managers and “began seeing” imputes personal knowledge to the managers at 

least as of the Secondary Offering, is not ironclad. But at this stage it does not 

need to be: the statements, together with the rest of Plaintiff’s allegations, need 

 

68 Id. at *11-12.

69 Id. at *12. 
16 

only provide some evidence from which I can infer that wrongdoing possibly 

occurred. Sprouts’ countervailing interpretation does not convince me to reject 

Plaintiff’s. I conclude a court could interpret the statements as Plaintiff does, and 

infer possible wrongdoing. 

In my view, the rest of Sprouts’ arguments are merits defenses, akin to the

arguments that wrongdoing could not have occurred that were dismissed in 

Countrywide. Sprouts offers its own affirmative evidence in the form of 

government pricing data to attempt to show that its managers could not have had 

contemporaneous knowledge of deflation at the time of the Secondary Offering. 

Sprouts further argues its managers could not have predicted that deflation would 

continue or harm Sprouts. Finally, Sprouts argues its managers would not have 

made an inadequate disclosure to benefit Apollo. 

All of these arguments go to whether or not wrongdoing actually occurred: if 

the managers did not and could not have known about the deflation and its future 

effects, they cannot have committed wrongdoing in failing to disclose it. Sprouts’ 

argument that Plaintiff failed to show Sprouts’ managers knew about the deflation 

and its effects, and that the managers intended to misinform, also resembles the 

merits-based argument discarded in Citigroup: “that a stockholder must have 

specific and concrete evidence of possible wrongdoing or mismanagement by the 

board or senior management before the Court may permit a Section 220 
17 

inspection.”70 Sprouts even aligns these arguments with the elements of a duty of 

disclosure claim under Malone v. Brincat.

71 The inquiry is not whether Plaintiff 

has shown a credible basis to infer all the elements of a specific claim, but rather, 

general wrongdoing.72 I conclude Sprouts’ arguments as to what the managers 

could or would have known, predicted, or done, are premature merits-based 

arguments. 

Even if I accepted Sprouts’ merits-based arguments as attacks on the 

evidentiary support and logic underpinning Plaintiff’s credible basis theory, 

Plaintiff’s low burden of proof would compel the same result. Plaintiff need only 

provide some evidence to allow an inference of possible wrongdoing. In my view, 

the managers’ statements interpreted as Plaintiff suggests, made in the context of 

incredible deflation in an area essential to Sprouts’ business, and in the context of 

Apollo’s presence on the board, allows such an inference. Connecting the dots 

Plaintiff offers sketches out wrongdoing. That sketch might be more complete 

with additional dots, such as the managers’ prediction that the deflation would 

continue and be material, or the managers’ motivation to aid Apollo in the 

 

70 See 2014 WL 5351345, at *6. 

71 Def. Op. Br. on Exceptions at 3 (citing Malone v. Brincat, 722 A.2d 5 (Del. 1998)). 

72 The distinction between a specific claim and general wrongdoing is particularly meaningful in 

this case, where the claim used to define the alleged wrongdoing was identified by the defendant, 

not the plaintiff.
18 

Secondary Offering and intent to misinform. But I can connect the dots Plaintiff 

did offer, so I conclude Plaintiff has met her low burden.

Finally, I address Plaintiff’s reliance on the Arizona court’s denial of the 

motion to dismiss the Arizona Complaint, which was based on the same allegations 

and evidence presented in this case. The parties agree that a shareholder seeking 

books and records fails to state a credible basis for the Court to infer wrongdoing 

when the plaintiff relies solely on the fact that others have sued the company.73 

The parties also agree that in this Court’s recent decision in In re UnitedHealth 

Group, Inc. Section 220 Litigation, the Court reviewed the plaintiff’s proffered 

evidence of wrongdoing without regard for a different court’s denial of a motion to 

dismiss based on the same evidence and allegations.74 Taking instruction from 

UnitedHealth, the Arizona court’s denial of the motion to dismiss does not alter

my conclusion in this case. 

 

73 See Graulich v. Dell, 2011 WL 1843813, at *5 n.49 (Del. Ch. May 16, 2011). 

74 2018 WL 1110849, at *7 n.91 (Del. Ch. Feb. 28, 2018). 
19 

III. Conclusion

For the foregoing reasons, I recommend the Court find Plaintiff has 

demonstrated a proper purpose for her demand for Sprouts’ books and records. 

This is a final report pursuant to Court of Chancery Rule 144. 

Respectfully,

/s/ Morgan T. Zurn

Master in Chancery