Opinion ID: 2441952
Heading Depth: 1
Heading Rank: 8

Heading: Westland Seeks to Compel Inspection of Axcelis' Books and Records

Text: On April 2, 2009, Westland filed a complaint in the Court of Chancery seeking a court-ordered inspection of Axcelis' books and records under 8 Del. C. § 220(c). Westland was required, under Section 220(c), to establish that it was seeking inspection for a proper purpose. [6] Westland claimed that it had stated a proper purpose for its demandnamely, to investigate possible management wrongdoing. [7] Specifically, Westland claimed that the Axcelis Board's rejection of both SHI's acquisition proposals and the directors' resignations tendered as a result of the May 2008 election, established a credible basis from which the court could infer that wrongdoing may have occurred. [8] Westland alleged in its complaint that the Board's rejection of the three directors' tendered resignations established a credible basis to infer that the Board intended to entrench those three directors (and indeed the entire Board) in office. Westland predicated its argument on Blasius Indus. v. Atlas Corp ., [9] which holds that where a corporate board acts for the primary purpose of impeding the exercise of stockholder voting power ... the board bears the heavy burden of demonstrating a compelling justification for such action. [10] Here (Westland argued), the Axcelis Board's decision to reject the tendered director resignations frustrated the shareholder vote, the intent and effect of which was to trigger and implement Axcelis' plurality plus governance policy. Westland claimed that that Board decision was sufficient, without more, to establish a credible inference of wrongdoing, rebuttable only if the Axcelis Board could prove a compelling justification. Westland further alleged that the Board's rejections of SHI's acquisition proposals were defensive measures that created a credible suspicion of wrongdoing ( i.e., board entrenchment) under Unocal Corp. v. Mesa Petroleum Co . [11] After a one day trial, based on a stipulation of uncontested facts, the Court of Chancery dismissed Westland's Section 220 action, holding that Westland had failed to demonstrate a proper purpose for its demand for inspection. Specifically, the Vice Chancellor found that Westland had failed to present any evidence that the Board's refusal to accept the three directors' resignations thwarted the will of the shareholders or impeded their voting franchise. Rather, all the Board did was exercise the discretion conferred by the Axcelis plurality plus governance policy. The Vice Chancellor also found no credible basis from which to infer any possible wrongdoing from the Board's rejection of SHI's two acquisition proposals, because [r]ejecting an acquisition offer, without more, is not [a] `defensive action' under Unocal.  [12] This appeal followed.