Opinion ID: 2156563
Heading Depth: 1
Heading Rank: 6

Heading: Mays' Document Production

Text: While this action was pending in the Court of Chancery, the parties agreed to the production of documents in the possession of both Weinstein and Weinstein's wholly-owned operating subsidiaries. There was only one issue before the Court of Chancery: was Orloff entitled to Mays' documents that were in the possession and control of Mays? Orloff represented to the Court of Chancery that his purpose for seeking inspection of those Mays documents was to value his shares [in Weinstein] and to be able to provide due diligence material to a prospective purchaser of those shares. Orloff also represented that he and members of his immediate family had now entered into an agreement to sell approximately 90% of their shares to a third party, JW Acquisition, LLC (JWA), subject to due diligence; and that Orloff needed the Mays documents to help JWA understand the value of Mays' real estate assets in connection with its due diligence regarding its purchase of Orloff's shares in Weinstein. In response, Weinstein took the position that absent consent of the Mays board, it has no ability to cause the production of documents by Mays. According to Weinstein, Mays is a public company with an independent board of directors and it was for the Mays board to determine whether Mays' documents may be inspected by Orloff. In short, Weinstein argued, it does not exercise control of the affairs of Mays in any practical or realistic sense, and consequently, Mays cannot be a subsidiary of Weinstein under section 220(a)(3). The Court of Chancery ruled that Orloff was entitled to inspect Mays' detailed records for the purpose of valuing his Weinstein shares for sale to a third party. The Court of Chancery ordered Weinstein to cause Mays to produce the documents that Orloff had requested: So, the necessary finding is that Weinstein Enterprises exercises control over the affairs of J.W. Mays directly or indirectly. . . . [I]ssuing an order under this section directed to Weinstein Enterprises requiring it to produce documents from J.W. Mays could present some awkward issues for Weinstein Enterprises, but I'm satisfied that either the powers of this Court [of Chancery] to issue process for the purpose of influencing its judgments, or, if necessary, rights that Weinstein Enterprises possesses under New York law to seek books and records from J.W. Mays is sufficient to  or would be sufficient to secure compliance with an order under this section. In denying Weinstein's motion for reargument, the Court of Chancery stated: If anything, further examination of the statute on further reflection leads me to believe that while the act is not perfectly drafted, it quite plainly contemplated situations in which a subsidiary at issue would be a less than a wholly owned subsidiary and also a subsidiary that wouldn't be regarded in the law as merely an alter ego of the parent. While I fully understand that it raises all kinds of complications and introduces into 220 actions issues that perhaps we are not used to addressing, I believe that was the intention of the General Assembly when it amended the statute. That may prove to be unworkable. . . . I am quite clear that the statute was intended to confer on this Court the power to enter an order that requires the production of Mays documents. Now, I say that recognizing that as a practical matter Weinstein may not be able to cause Mays to produce the documents without taking extraordinary steps. Although Weinstein may not be able to, I think the Court has the power to do so by issuing another process. Weinstein notified Mays of the Court of Chancery's ruling.