Opinion ID: 2556088
Heading Depth: 4
Heading Rank: 2

Heading: West Coast Management Capital v. Carrier Access Corp.

Text: West Coast Management & Capital, LLC v. Carrier Access Corp. [56] illustrates a second circumstance where a stockholder-plaintiff was found to lack a proper purpose for seeking Section 220 relief. There, the plaintiffs first filed a plenary derivative action in the United States District Court for the District of Colorado (Colorado plenary court), claiming breach of fiduciary duty in conducting illegal insider sales of corporate (Carrier) stock. [57] The defendants moved to dismiss the complaint for failure adequately to plead demand futility under FRCP 23.1. [58] In response, the plaintiffs specifically sought leave from the Colorado plenary court to replead demand futility in the event their complaint was dismissed. [59] The Colorado plenary court dismissed the complaint without prejudice, but specifically denied the plaintiffs' request for leave to amend. [60] Thereafter, the plaintiffs brought a Section 220 action in Delaware seeking to inspect the corporation's (Carrier's) books and records. Denying relief, the Court of Chancery held that the plaintiffs lacked a proper purpose, because it was clear that [the plaintiffs'] sole purpose for investigating claims of wrongdoing [was] to obtain additional information to replead demand futility in order to pursue a second derivative suit. [61] Because the Colorado plenary court had dismissed the complaint without leave to amend, the plaintiffs were found estopped from relitigating demand futility in the plenary derivative action. [62] As thus precluded, the plaintiffs lacked a proper purpose under Section 220. [63] Like Beiser, West Coast is inapposite, because in this case, King was specifically granted leave to amend his dismissed complaint.