Opinion ID: 2198532
Heading Depth: 2
Heading Rank: 1

Heading: The Standing Limitation

Text: By statute, stockholders who bring derivative suits must allege that they were stockholders of the corporation at the time of the transaction of which such stockholder complains.... [8] The Court of Chancery decided that this limitation on Saito's ability to maintain a derivative suit controlled the scope of his inspection rights. As a result, the court held that Saito was effectively limited to examining conduct of McKesson and McKesson HBOC's boards following the negotiation and public announcement of the merger agreement. [9] Although we recognize that there may be some interplay between the two statutes, we do not read § 327 as defining the temporal scope of a stockholder's inspection rights under § 220. The books and records statute requires that a stockholder's purpose be one that is reasonably related to his or her interest as a stockholder. The standing statute, § 327, bars a stockholder from bringing a derivative action unless the stockholder owned the corporation's stock at the time of the alleged wrong. If a stockholder wanted to investigate alleged wrongdoing that substantially predated his or her stock ownership, there could be a question as to whether the stockholder's purpose was reasonably related to his or her interest as a stockholder, especially if the stockholder's only purpose was to institute derivative litigation. But stockholders may use information about corporate mismanagement in other ways, as well. They may seek an audience with the board to discuss proposed reforms or, failing in that, they may prepare a stockholder resolution for the next annual meeting, or mount a proxy fight to elect new directors. None of those activities would be prohibited by § 327. Even where a stockholder's only purpose is to gather information for a derivative suit, the date of his or her stock purchase should not be used as an automatic cut-off date in a § 220 action. First, the potential derivative claim may involve a continuing wrong that both predates and postdates the stockholder's purchase date. In such a case, books and records from the inception of the alleged wrongdoing could be necessary and essential to the stockholder's purpose. Second, the alleged post-purchase date wrongs may have their foundation in events that transpired earlier. In this case, for example, Saito wants to investigate McKesson's apparent failure to learn of HBOC's accounting irregularities until months after the merger was consummated. Due diligence documents generated before the merger agreement was signed may be essential to that investigation. In sum, the date on which a stockholder first acquired the corporation's stock does not control the scope of records available under § 220. If activities that occurred before the purchase date are reasonably related to the stockholder's interest as a stockholder, then the stockholder should be given access to records necessary to an understanding of those activities. [10]