Opinion ID: 2556088
Heading Depth: 4
Heading Rank: 1

Heading: Beiser v. PMC-Sierra

Text: Beiser v. PMC-Sierra , Inc., [48] implicated the first circumstance. There, the stockholder-plaintiff was the named lead plaintiff in a federal derivative action that claimed improper stock option backdating. [49] The defendants moved to dismiss the complaint under FRCP 23.1 for failure to plead demand futility. [50] The California Federal Court's dismissal order granted the plaintiff leave to amend, and thereafter the plaintiff filed a first amended complaint. [51] The defendants moved to dismiss. Again, the California Federal Court ruled that the plaintiff had failed adequately to plead demand futility, but granted the plaintiff leave to amend one final time. [52] The plaintiff then filed a second amended complaint in the federal derivative action. Only thereafter did he initiate a Section 220 proceeding in Delaware. [53] At the time the plaintiff in Beiser filed his Delaware Section 220 action, his second amended federal derivative complaint was still pending, but the California Federal Court had not granted him leave to further amend that complaint. The Court of Chancery concluded, therefore, that the Beiser plaintiff lacked a proper purpose, because the most obvious end use (to aid in filing a subsequent action) [was] no longer available. [54] The only purpose for the plaintiff's Section 220 action, the court found, was to access corporate books and records that would not have been available through discovery in the federal action. [55] Circumventing a federal discovery stay, the Court of Chancery concluded, did not constitute a proper purpose for a Section 220 action. Beiser is inapposite. At the time King brought his Section 220 action, the California Federal Court had granted King leave to amend his federal derivative complaint. In Beiser, no leave to amend had been granted, so any Section 220 inspection would have been an empty exercise.