Court Opinion

ID: 4176135
Source: CourtListenerOpinion
Date Created: 2017-06-09 15:08:06.010355+00
Date Added: 2024-06-11T14:38:36.313622
License: Public Domain

COURT OF CHANCERY
                                                OF THE
                                         STATE OF DELAWARE
MORGAN T. ZURN
 MASTER IN CHANCERY                                                         LEONARD L. WILLIAMS JUSTICE CENTER
                                                                             500 NORTH KING STREET, SUITE 11400
                                                                               WILMINGTON, DE 19801-3734

                                    Final Report: June 8, 2017
                                   Date Submitted: May 31, 2017

      Donald G. Walker
      Law Offices of Donald G. Walker
      99 Elm Avenue
      Larkspur, CA 94939
      legalfirm@pacbell.net

      Phillip A. Giordano
      Gordon, Fournaris & Mammarella
      1925 Lovering Avenue
      Wilmington, DE 19801

                Re:   Donald Walker v. Cabo Verde Capital, Inc.
                      C.A. No. 11696-MZ

      Dear Counsel and Mr. Walker:

                Pending before me is a motion to dismiss a petition for books and records of

      a corporation. For the reasons that follow, I recommend the Court grant the

      motion. This is my final report.

                Plaintiff Donald Walker holds stock in Cabo Verde Capital Inc. (“the

      Company”). Walker sent the Company a demand letter pursuant to 8 Del. C. § 220

      on October 29, 2015, at which time the Company was incorporated in Delaware. I

      will refer to the Company in its Delaware form as “Cabo Delaware.” Cabo
C.A. No. 11696-MZ
June 8, 2017
Page 2

Delaware merged into Cabo Verde Capital, Inc., a Nevada corporation (“Cabo

Nevada”), effective November 6, 2015, upon the filing of a Certificate of Merger

with the Delaware Secretary of State.1 Cabo Delaware ceased to exist as of

November 6, 2015.

       On November 10, 2015, four days after the merger, Walker filed a pro se

complaint to compel the inspection of Cabo Delaware’s books and records for the

purpose of determining the value of Walker’s stock.2 Walker attempted to serve

Cabo Delaware’s former registered agent on November 19, 2015, and served the

Company via the Delaware Secretary of State on May 5, 2017.3

       The Company, in its only existent form of Cabo Nevada, moved to dismiss

on September 10, 2016, and renewed that motion in part on May 31, 2017, after

Walker served the Company. Cabo Nevada asserts Walker’s complaint should be

1 Def’s Br. Exs. A, B.
2 Docket Item 1, ¶ 2 (“At all times relevant to this action, the Company was and is a Delaware
corporation.”).
3 Docket Item 9. Walker filed an affidavit of service stating he had served Cabo Delaware via its
former registered agent, and represented to the Court in January and April 2016 that he had done
so. Docket Items 11, 15. Cabo Nevada sought dismissal for insufficiency of service. In an April
5, 2017, teleconference, Walker admitted that his attempted service of Cabo Delaware’s former
registered agent, both personally and by mail, was returned to him. Walker explained that he
believes the merger was invalid, so his attempts to serve Cabo Delaware should have been
successful because Cabo Delaware should still exist. Walker indicated he was not inclined to
serve the Company by serving the Secretary of State pursuant to 8 Del. C. § 252(d), because
doing so might waive his argument that the merger was invalid. I instructed Walker that if he
was going to serve the Secretary of State, he should do so within thirty days or risk dismissal.
Walker effected service via Section 252(d) on May 5, 2017. Cabo Nevada withdrew its motion
to dismiss for insufficiency of service.
C.A. No. 11696-MZ
June 8, 2017
Page 3

dismissed for lack of standing because Walker was not a stockholder of Cabo

Delaware when he filed his complaint, due to the merger. The parties briefed Cabo

Nevada’s motion, and I held a teleconference with Walker and Cabo Nevada on

April 5, 2017.

         The issue of whether Walker has standing to bring this action is

jurisdictional.4 A party seeking to invoke the jurisdiction of a court bears the

burden of establishing standing to sue.5 The Court may take judicial notice of

documents on file with the Secretary of State at the motion to dismiss stage.6

         Though Walker has asserted in connection with the motion to dismiss that

the merger was invalid, I presume it is valid for purposes of this Section 220

action. “The scope and purpose of a Section 220 proceeding is narrow.”7 This

Court has declined to enlarge the scope of a Section 220 proceeding to determine

the validity of an underlying merger, assuming instead that the merger was valid.8

Walker did not attack or question the merger in his Complaint. To the contrary, he

admitted in a January 14, 2016, status letter to the Court that “the Defendant

moved its offices out of Delaware and merged itself into a Nevada subsidiary.” 9

4   IBM Corp. v. Comdisco, Inc., 602 A.2d 74, 77 n.5 (Del. Ch. 1991).
5   Dover Historical Soc’y v. City of Dover Planning Comm’n, 838 A.2d 1103, 1109 (Del. 2003).
6   In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268, 1270 (Del. Ch. 1995).
7   Cutlip v. CBA Int’l, Inc., 1995 WL 694422, at *1 (Del. Ch. Oct. 27, 1995) (citing cases).
8   Id. at *2, *2 n.2, *3.
9   Docket Item 11.
C.A. No. 11696-MZ
June 8, 2017
Page 4

Accordingly, “I do not, and need not, consider the purpose, legality or timing of

the merger.”10

         Cabo Nevada’s November 6, 2015, certificate of merger provides that Cabo

Delaware merged into Cabo Nevada effective as of the date of filing, and that Cabo

Nevada was the surviving corporation. Walker held stock in Cabo Delaware when

he sent his demand letter on October 29, 2015, but did not when he filed his

complaint on November 10, 2015, due to the intervening merger.

         Vice Chancellor Glasscock recently resolved the precise standing issue

before me:

         Must a plaintiff seeking corporate records under Section 220 of the
         Delaware General Corporation Law be a stockholder at the time she
         files her complaint, in order to have standing to pursue the action? If a
         stockholder makes a proper demand under Section 220, and a merger
         thereafter terminates the stockholder’s ownership interest in the
         corporation, does the now-former stockholder have standing to bring a
         complaint for corporate records?11

In Weingarten, the plaintiff held stock in the defendant company prior to the

merger, but the merger cancelled that plaintiff’s stock and converted it into the

right to receive cash.12 As in this case, the plaintiff sent a demand letter before the

10   See Cutlip, 1995 WL 694422 at *3.
11   Weingarten v. Monster Worldwide, Inc., 2017 WL 752179, at *1 (Del. Ch. Feb. 27, 2017).
12   Id.
C.A. No. 11696-MZ
June 8, 2017
Page 5

merger was consummated and filed suit afterwards. The defendant argued the

complaint should be dismissed for lack of standing.

         The conclusion in Weingarten is straightforward and dispositive. I cannot

improve on its language or tailor it more precisely to the issue in this case, so I will

quote:

         Section 220(c) provides, in relevant part, that

               If the corporation, or an officer or agent thereof, refuses to
               permit an inspection sought by a stockholder or attorney or
               other agent acting for the stockholder pursuant to subsection (b)
               of this section or does not reply to the demand within 5
               business days after the demand has been made, the stockholder
               may apply to the Court of Chancery for an order to compel such
               inspection. The Court of Chancery is hereby vested with
               exclusive jurisdiction to determine whether or not the person
               seeking inspection is entitled to the inspection sought.... Where
               the stockholder seeks to inspect the corporation's books and
               records, other than its stock ledger or list of stockholders, such
               stockholder shall first establish that:

               (1) Such stockholder is a stockholder;

               (2) Such stockholder has complied with this section respecting
                   the form and manner of making demand for inspection of
                   such documents; and

               (3) The inspection such stockholder seeks is for a proper
                   purpose.

               Where the stockholder seeks to inspect the corporation's stock
               ledger or list of stockholders and establishes that such
               stockholder is a stockholder and has complied with this section
               respecting the form and manner of making demand for
               inspection of such documents, the burden of proof shall be upon
C.A. No. 11696-MZ
June 8, 2017
Page 6

                  the corporation to establish that the inspection such stockholder
                  seeks is for an improper purpose.

                 … [A] stockholder may proceed in this Court to the extent she
          has complied with subsection (c) of Section 220. That subsection
          requires a stockholder seeking records to “first establish” 1) that she
          “has” complied with the demand requirement of subsection (b), and 2)
          that she “is” a stockholder. It is the latter requirement that the Plaintiff
          failed to meet here.

                 … The language of Section 220(c) is plain and unambiguous.
          By requiring that a plaintiff under Section 220, to seek relief from this
          Court, demonstrate both that it “has”—past tense—complied with the
          demand requirement, and that it “is”—present tense—a stockholder,
          the legislature has made clear that only those who are stockholders at
          the time of filing have standing to invoke this Court's assistance under
          Section 220.

                  …

                 Because the Plaintiff cannot “first establish” that he was a
          stockholder at the time this action under Section 220(c) was filed, he
          lacks standing to proceed, and the matter must be dismissed.13

          For the foregoing reasons, I recommend the Court grant the defendant’s

motion to dismiss. This is a final report pursuant to Chancery Rule 144.

                                                 Respectfully,

                                          /s/ Morgan T. Zurn
                                         Master in Chancery

13   Id. at *4-6 (internal citations omitted).