Court Opinion

ID: 4644808
Source: CourtListenerOpinion
Date Created: 2020-12-18 23:02:20.772057+00
Date Added: 2024-06-11T08:00:47.958642
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
                            )
ALEXANDRIA VENTURE          )
INVESTMENTS, LLC and        )
ALEXANDRIA EQUITIES NO. 7,  )
LLC,                        )
                            )
              Plaintiffs,   )
                            )
     v.                     )    C.A. No. 2020-0593-PAF
                            )
VERSEAU THERAPEUTICS, INC., )
                            )
              Defendant.    )
                            )

                         MEMORANDUM OPINION

                       Date Submitted: October 1, 2020
                       Date Decided: December 18, 2020

Raymond J. DiCamillo, Megan E. O’Connor, RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; Luke Cadigan, COOLEY LLP, Boston,
Massachusetts; Patrick Gunn, COOLEY LLP, San Francisco, California; Attorneys
for Plaintiffs Alexandria Venture Investments, LLC and Alexandria Equities No. 7,
LLC.

David J. Teklits, Thomas P. Will, MORRIS, NICHOLS, ARSHT, & TUNNELL
LLP, Wilmington, Delaware; Attorneys for Defendant Verseau Therapeutics, Inc.

FIORAVANTI, Vice Chancellor
       Plaintiffs Alexandria Venture Investments, LLC (“Alexandria Venture”) and

Alexandria Equities No. 7, LLC (“Alexandria Equities” and together with

Alexandria Venture, “Alexandria”) seek an order to compel inspection of books and

records of Verseau Therapeutics, Inc. (“Verseau” or the “Company”) pursuant to

Section 220 of the Delaware General Corporation Law (“DGCL”). Alexandria aims

to investigate, among other things, whether Verseau’s directors violated their

fiduciary duties when they rejected a financing proposal from Alexandria. In this

post-trial Opinion, I conclude that Alexandria is entitled to inspect some, but not all,

of the categories of books and records sought in the demand.

I.     BACKGROUND

       The facts recited in this Opinion are the Court’s findings based on the

testimony and documentary evidence presented at a half-day trial on October 1,

2020. The record includes stipulations of fact contained in the parties’ Pretrial

Stipulation and Order (“PTO”), the 62 trial exhibits, and deposition testimony from

one witness, Aaron Jacobson.1 The following facts were either uncontested or have

been proven by a preponderance of the evidence.

1
  Citations in the form “Tr.” refer to the trial transcript. Citations in the form “JX” refer to
trial exhibits with pinpoint citations to the last three digits of the relevant Bates number.
Citations in the form “Dep.” refer to the Jacobson deposition transcript.

                                               2
          A.    The Parties

          Verseau is a privately held Delaware corporation founded in 2017 to develop

immunotherapies to treat cancer. During relevant events and at least until June 30,

2020, Verseau’s board of directors (the “Board”) consisted of seven individuals:

Christine Bunt, George Golumbeski, Zhenping Zhu, Jong Chang, Wen Chen, Bob

Langer, and Daniel Anderson. 2 Bunt was Verseau’s Chief Executive Officer during

that same time period.3 Golumbeski is the chairman of the Board, having previously

served as Executive Vice President of Business Development at Celgene

Corporation (“Celgene”), a biotechnology company.4 Golumbeski initially joined

Verseau as an advisor in 2018, and he continued to provide consulting services to

Verseau after joining the Board in 2019.5 Golumbeski owns approximately 1% of

Verseau’s stock on a fully diluted basis.6        Zhu is affiliated with 3SBio Inc.

(“3SBio”), a biotechnology company based in China, where he serves as President

of Research & Development and Chief Scientific Officer.7 3SBio owns 11.8% of

the Company’s stock.8 Chang is the founder and chairman of InHarv Partners Ltd.

2
    Pretrial Stipulation and Order (“PTO”) ¶ 7.
3
    Id. ¶ 8.
4
    JX 14.
5
    Id.
6
    Tr. 72:12–17.
7
    JX 4 at ‘095–96.
8
    JX 62.

                                              3
(“InHarv”), a venture capital firm, 9 which owns 24.4% of the Company’s stock.10

Langer and Anderson are co-founders of Verseau.11

          Plaintiffs are venture capital firms and preferred stockholders of Verseau.12

Together, Plaintiffs own 5.1% of the Company’s stock.13 Joel Marcus is the

Executive Chairman of Alexandria Real Estate Equities, Inc., which is the managing

member of Alexandria Venture and ultimate managing member of Alexandria

Equities. 14 Aaron Jacobson is Senior Vice President and Venture Counsel of

Alexandria Real Estate Equities, Inc. 15

          Marcus frequently attended Board meetings as one of Alexandria’s Board

observers. 16 At its March 13, 2020 meeting, the Board “expressed support for adding

Marcus to the Board subject to receipt of the requisite stockholder consents.” 17 The

Company subsequently informed its preferred stockholders of the Board’s decision

9
    Id. at ‘095.
10
   JX 62. The stock ownership reported for Golumbeski, S3Bio, InHarv, and Alexandria
is on a fully diluted basis. Id.
11
     PTO ¶ 7.
12
  PTO ¶¶ 4–5. One or more representatives of Alexandria typically attend Board meetings.
See JX 51 at ‘952, ‘958; JX 40 at ‘901, ‘909.
13
     JX 62.
14
     PTO ¶ 9.
15
     PTO ¶ 11.
16
     JX 51 at ‘952, ‘958; JX 40 at ‘901, ‘909.
17
     JX 40 at ‘903.

                                                 4
to add Marcus as a director.18 The Company told stockholders that Marcus would

become a director after the stockholders agreed to expand the Board, a voting

agreement was amended, and the Board formally elected Marcus.19 There is no

evidence in the record that any of those events occurred, and I find that they did not.

           B.   Recent Hires at Verseau

           After Golumbeski joined the Board, Verseau hired three former Celgene

employees into senior positions. In November 2019, Verseau hired Tim Smith,

Celgene’s former Executive Director of Business Development, as Verseau’s new

Chief Business Officer. 20 In February 2020, Verseau hired Alise Reicin, Celgene’s

former President of Global Clinical Development, as Veseau’s new Chief Medical

Officer.21 Verseau hired another former Celgene employee as a senior advisor that

same month. 22 Smith’s time at Celgene overlapped with Golumbeski’s, 23 but there

is no evidence in the record indicating that Golumbeski had directly worked with

Smith.24 Reicin did not overlap with Golumbeski while at Celgene. 25

18
     JX 1 at ‘093.
19
     Id. at ‘093–94.
20
     JX 59.
21
     JX 53.
22
     JX 52.
23
     See JX 58, 59.
24
     Dep. 22:5–23:18.
25
     Id.

                                          5
           C.    Negotiation of the Term Sheet

           In March 2020, Verseau needed cash, particularly to weather the global

pandemic. Verseau and Alexandria, an existing Verseau stockholder, then began

discussing bridge financing. On April 25, Alexandria sent to Verseau a non-binding

term sheet that generally provided for Alexandria to lead a financing round of $30

million in convertible notes.26 Among other terms, the proposal provided investors

a 2.0x return on investment in the event of a change in control. It also gave

Alexandria the right to designate a director to serve on the Board and specified

Marcus as Alexandria’s initial director designee. Bunt sent Verseau’s response a

week later, stating that the proposal was generally “a fair balance for the

company.”27 Verseau pushed back, however, on a few provisions, two of which are

pertinent to this Opinion. 28

           First, the Company resisted terms giving Alexandria significant power over

Verseau’s relationship with 3SBio, where Zhu was an officer.            Verseau had

partnered with 3SBio on one recent project and anticipated partnering with 3SBio

on a second project within the next year. 29 Alexandria’s initial proposal required

approval by Alexandria’s designated Board member for any related-party

26
     JX 5.
27
     See JX 6.
28
     Id.
29
     Id.

                                            6
transaction with a value of $50,000 or more.30 Verseau was concerned that this

provision would jeopardize the Company’s plans to partner with 3SBio, and it

countered with terms expressly permitting the Company to allocate funds for the

anticipated second partnership with 3SBio. 31 Alexandria balked, warning that “the

company should be mindful of the amount of Chinese investment and control of

technology.” 32 After further negotiation, the final version of the term sheet required

approval from holders of 67% of the notes, including one holder of at least $5

million, before Verseau could enter into related-party transactions. 33 Alexandria

admitted that this term would essentially give Alexandria veto power over any

transactions between Verseau and 3SBio.34

         The second and most controversial provision prohibited the Company from

compensating non-founder directors with cash. 35 Verseau generally agreed to this

term, but it sought an exception that would have allowed the Company to continue

compensating Golumbeski in cash for his consulting services. 36 Bunt stressed to

30
   JX 5 at ‘036 (requiring approval of a majority of the Board, including Alexandria’s
designated director, to enter into “any transaction with any director, officer or employee of
the Company of any ‘associate’ . . . of any such person”).
31
     JX 6 at ‘077.
32
     JX 8.
33
     JX 29.
34
     Tr. at 33–34.
35
     JX 5 at ‘035.
36
     JX 6 at ‘076.

                                             7
Jacobson that Verseau pays Golumbeski $75,000 per year plus expenses, which she

considered to be modest in relation to the value he added to the Company.37 In an

email to Marcus, Bunt warned that “we would [lose] most likely our Chairman at

Verseau in acceptance of such a provision,” which would be detrimental to the

Company because Golumbeski “added tremendous value” and his involvement on

the Board was “a very good situation.”38 According to Bunt, Alexandria’s proposed

restriction on Golumbeski’s cash compensation was “a board issue” to which at least

two other directors—Verseau co-founders Langer and Anderson—objected.39

           Alexandria refused to budge. Marcus told Bunt that “[w]e are firm on this

and [will not] change.” 40 Internally, Marcus directed Jacobson to offer Golumbeski

equity compensation instead of cash, and if Golumbeski would not agree, then “we

[will not] lead the note[,] period.” 41 According to Jacobson, when the Company

presented this offer to Golumbeski, “he gave them a flat no.” 42 The Company then

offered to defer Golumbeski’s cash payments and let them accrue until the next

financing round, but Alexandria promptly rejected that counteroffer. 43 The parties

37
     JX 14 at ‘997.
38
     JX 26 at ‘962.
39
     Id.
40
     JX 10 at ‘733–34; JX 19.
41
     JX 19 at ‘540.
42
     Id. at ‘541.
43
     Id.

                                           8
reached an impasse, with Alexandria describing this provision as “the last sticking

point.”44

           On May 18, 2020, Alexandria delivered the final version of the term sheet (the

“Term Sheet”) to Verseau, demanding “a yes or no on the entire Term Sheet by 5pm

pdt on Friday [May 22].”45 The Term Sheet prohibited cash compensation to non-

founder directors and further required Verseau to terminate any existing cash

payments. 46

           On May 22, 2020, prior to the deadline, Bunt signed the Term Sheet on behalf

of Verseau.47 Although it was executed, the Term Sheet expressly permitted either

party to propose different terms or unilaterally terminate all negotiations “without

any liability whatsoever to the other party.” 48         Verseau and Alexandria both

understood that the Term Sheet required Board approval.49

           D.    The Board Rejects the Term Sheet

           At a June 4, 2020 meeting (the “June 4 Meeting”), the Board discussed the

Term Sheet and other potential financing alternatives. The Board package from the

44
     Id.
45
     JX 27 at ‘063.
46
     JX 32.
47
     Id.
48
     Id.
49
     See JX 41 at ‘648; JX 39 at ‘642.

                                              9
meeting contained a copy of the Term Sheet but no other documents regarding the

proposed financing. 50 The Board discussed the Term Sheet in a closed session that

excluded Bunt and Marcus.51 According to the unsigned minutes of the June 4

Meeting, the Board concluded that

           the Alexandria term sheet in its current form was not in the best interest
           of the Company based on several factors, including the economic return
           to investors in the event of a change of control transaction, approval
           rights of the investors in regards to certain types of strategic
           transactions and Board-level decisions, and other terms which the
           Board determined were not within typical market parameters.52

The minutes also reflect that “Mr. Chang from [InHarv] stated that his firm was

working on a bridge financing proposal that he believed would be more attractive to

Verseau than the Alexandria proposal.” 53 After further discussion, “and with Mr.

Golumbeski refraining from expressing his view,” the other directors unanimously

agreed not to continue discussions with Alexandria and to await a proposal from

InHarv. 54

           Verseau did not immediately inform Alexandria that the Board had rejected

the Term Sheet. On June 11, 2020, Alexandria sent an email to Bunt, requesting

50
     JX 40.
51
     JX 56 at ‘027.
52
     Id.
53
     Id.
54
     Id.

                                              10
details about the Board’s consideration of the Term Sheet.55 Bunt responded by

referring Alexandria to Verseau’s outside counsel. 56 On June 16, 2020, Verseau’s

outside counsel informed Alexandria by email that the Board had rejected the Term

Sheet at the June 4 Meeting and decided to pursue alternative financing options.57

The next day, Alexandria’s outside counsel requested more information about the

Board’s executive-session rejection of the Term Sheet. Alexandria’s letter raised

“concern[s] that Board members did not discharge their duty of care or act in the

best interests of Verseau and its stockholders” in rejecting the Term Sheet.58

Alexandria urged the Board to reconsider its decision or continue discussions with

Alexandria.

           The Board reconsidered the Term Sheet at a special meeting on June 29, 2020

(the “June 29 Meeting”). According to the unsigned minutes of that meeting,

Golumbeski and Chang were excluded from the Board’s discussion of the Term

Sheet.59 The remaining directors unanimously rejected the Term Sheet, resolving

that it was not in the best interest of the Company’s stockholders. The minutes also

reflect the resignations of two significant participants in Verseau’s negotiations with

55
     JX 45 at ‘032.
56
     Id.
57
     JX 45 at ‘031.
58
     JX 46 at ‘045.
59
     JX 56 at ‘017–18.

                                            11
Alexandria over the Term Sheet: Bunt as CEO and as a director, and Bob Crane as

Verseau’s Chief Financial Officer. The record does not indicate the circumstances

of or motivations for those resignations. As before, Verseau did not initially tell

Alexandria about the June 29 Meeting.

         E.    Alexandria’s Inspection Demands

         On July 1, 2020, still unaware of the June 29 Meeting, Alexandria sent to

Verseau a written demand to inspect books and records pursuant to Section 220 of

the DGCL (the “Demand”).60 The Demand stated that Alexandria sought to

investigate whether Board members failed to discharge their duty of care or to act in

the best interests of stockholders in the directors’ consideration of the Term Sheet

and “Alternative Financing Options.”61 The Demand listed seven categories of

books and records related to its purpose.

         Verseau rejected the Demand. 62 In its July 2, 2020 rejection letter, Verseau

revealed to Alexandria that the Board met again on June 29 to reconsider the Term

Sheet. The response stated that Golumbuski and one other director (later determined

to be Chang) recused themselves and that following “a deliberate and lengthy

60
     JX 47.
61
   The Demand defined “Alternative Financing Options” as “any existing alternative
financing options available to the Company as of May 22, 2020 or thereafter.” Id.
62
     JX 48.

                                            12
discussion” the Board unanimously rejected Alexandria’s proposal.63 The rejection

letter further accused Alexandria of using its status as a stockholder to obtain “inside

information as to how [the] board assessed its offer and what alternatives the board

may be considering or preferring to its offer.” 64 Verseau asserted that Alexandria’s

“primary interest [was] as a ‘bidder,’” not a stockholder.65 Despite rejecting the

Demand, Verseau invited Alexandria to make an improved offer.

           On July 9, 2020, Alexandria delivered a supplemental inspection demand (the

“Supplemental Demand” and together with the Demand, the “Demands”). 66 The

Supplemental Demand articulated additional areas of concern to bolster

Alexandria’s suspicions of wrongdoing, including potential conflicts attributable to

Golumbeski and Zhu, foreign investment in the Company, and the Company’s

treatment of Marcus, who had been excluded from the June 29 Meeting even though

he thought he was a Board member. The Supplemental Demand added seven more

categories of books and records to the scope of the inspection demanded. Verseau

did not reply to the Supplemental Demand, and Alexandria filed the Verified

Complaint to compel inspection of books and records on July 17, 2020.

63
     Id. at 4.
64
     Id. at 3.
65
     Id.
66
     JX 49.

                                            13
         On July 21, 2020, the Company provided three documents to Alexandria: (1)

unsigned minutes from the June 4 Meeting; (2) unsigned minutes from the June 29

Meeting; and (3) a term sheet between the Company and InHarv, which was signed

by the Company but not InHarv (the “InHarv Proposal”).67

         The InHarv Proposal is dated July 16, 2020 and reflects that the Company

signed it on July 20, 2020.68 The InHarv Proposal contained many of the same terms

as the previously rejected Term Sheet, but differs in several material respects. First,

it provides for a 1.5x return on investment in the event of a change-of-control

transaction, as opposed to the Term Sheet, which provided for a 2.0x return. Second,

the InHarv Proposal did not provide for board representation. Third, there were no

restrictions on related-party transactions. Fourth, there were no limits on cash

compensation to directors. Like the Term Sheet, the InHarv Proposal was non-

binding, allowed the parties to propose different terms, and could be unilaterally

terminated by either side without liability to the other party. As of the date of trial,

there was no indication that the InHarv Proposal or any other alternative financing

transaction had been consummated.

67
     JX 56.
68
  The InHarv Proposal is signed by Smith, who is identified as the Company’s President
and Chief Business Officer. Id. at ‘012–15.

                                          14
           Alexandria remained unsatisfied with Verseau’s limited production, and

Alexandria pursued inspection of each category of books and records identified in

its Demands. Verseau did not produce any additional books and records, and the

case proceeded to a half-day trial on a paper record on October 1, 2020.

II.        LEGAL ANALYSIS

           To obtain an order compelling inspection of books and records under Section

220, a plaintiff must establish by a preponderance of the evidence that it: (1) is a

stockholder of the corporation, (2) has complied with the statute’s technical

requirements, and (3) has a proper purpose for conducting inspection. 69 If the

plaintiff meets these requirements, then it must prove, again by a preponderance of

the evidence, that each category of books and records requested is necessary to

accomplish that proper purpose.70 Verseau does not dispute Alexandria’s status as

a stockholder or the Demands’ technical statutory compliance. Instead, Verseau

contends that Alexandria has not established a proper purpose and that the books and

records requested are not necessary to satisfy Alexandria’s stated purposes.

69
  Lebanon Cty. Empls.' Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *6
(Del. Ch. Jan. 13, 2020), aff'd, 2020 WL 7266362 (Del. Dec. 10, 2020).
70
     Id.

                                            15
           A.    Proper Purpose

           A stockholder of a Delaware corporation may inspect the corporation’s books

and records for “any proper purpose.”71 A proper purpose “mean[s] a purpose

reasonably related to such person’s interest as a stockholder.”72 A purpose is not

proper if it is made solely to harass the corporation or where it is adverse to the best

interests of the corporation. 73 Once the court has found that the stockholder’s

primary purpose is proper, any secondary or ulterior purposes is irrelevant.74 The

court may, however, take into account an ulterior purpose when considering the

permitted scope of inspection.75

           A common proper purpose is “to investigate allegedly improper transactions

and mismanagement.” 76          A stockholder seeking to inspect books and for

mismanagement “must show, by a preponderance of the evidence, a credible basis

from which the court can infer there is ‘possible mismanagement as would warrant

71
     8 Del. C. § 220(b).
72
     Id.
73
     CM & M Grp., Inc. v. Carroll, 453 A.2d 788, 792 (Del. 1982).
74
  AmerisourceBergen Corp. v. Lebanon Cty. Emps.' Ret. Fund, __ A.3d ___, 2020 WL
7266362, at *4 (Del. Dec. 10, 2020).
75
  Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 167 (Del. Ch.
1987) (“Plaintiff's ulterior purpose will, however, be taken into account in determining the
scope of the relief to which [Plaintiff] would be entitled.”); see also Henshaw v. Am.
Cement Corp., 252 A.2d 125 (Del. Ch. 1969).
76
  Woods Tr. of Avery L. Woods Tr. v. Sahara Enterprises, Inc., 238 A.3d 879, 889 (Del.
Ch. 2020).

                                            16
further investigation.’” 77 This standard is “the lowest possible burden of proof,” and

it is far below the burden of proof necessary to show that any actionable wrongdoing

actually occurred.78

          In the Demand, Alexandria’s stated purpose is to evaluate whether any

breaches of fiduciary duty occurred, including whether “Board members did not

discharge their duty of care or act in the best interests of Verseau and its

stockholders” when they rejected the Term Sheet. The Supplemental Demand

identifies additional “concerns” about Golumbeski’s influence over personnel

decisions, 3SBio’s relationship with the Company, and the Company’s “conflicting

messages” regarding Marcus’s status as a Board member.79

          Alexandria’s pretrial brief slices its sole stated purpose—to investigate

possible breaches of fiduciary duty—into five separate purposes, which include the

“concerns” from the Supplemental Demand. 80 This Opinion addresses the issues

concerning the Term Sheet collectively, followed by the remaining areas of

requested inspection.

77
  AmerisourceBergen, 2020 WL 7266362, at *5 (quoting Sec. First Corp. v. U.S. Die
Casting & Dev. Co., 687 A.2d 563, 568 (Del. 1997)).
78
     Id. See also Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117, 118 (Del. 2006).
79
   JX 49 at 3. Alexandria did not identify its concern about Marcus’s Board membership
in the Pretrial Stipulation and Order as one of its purposes. PTO ¶ 28.
80
     Plaintiffs’ Pretrial Brief (“Pls.’ Br.”) 29.

                                                    17
                1.       Rejection of the Term Sheet

         Alexandria seeks to evaluate “whether Board members discharged their duty

of care and acted in the best interests of Verseau and its stockholders” when the

Board considered and rejected the Term Sheet. 81 A plaintiff seeking books and

records to investigate whether a corporate board breached its duty of care must

establish a credible basis to suspect that the board acted with gross negligence. 82

“Mere disagreement with a business decision is not enough” to establish that credible

basis. 83 Furthermore, “a poorly formulated or executed negotiation strategy, without

more, does not a gross negligence claim make.”84

         Alexandria alleges that the Board might have breached its duty of care in

rejecting the Term Sheet, because Verseau needed financing and the Board did not

have any other then-existing financing proposals.85 Indeed, the Board believed that

the Company’s current cash position would only carry it to early 2021.86 Alexandria

further notes that, as of trial, the Company still had not indicated whether it had

obtained needed financing.

81
     PTO ¶ 28(a).
82
     Hoeller v. Tempur Sealy Int'l, Inc., 2019 WL 551318, at *10 (Del. Ch. Feb. 12, 2019).
83
  High River Ltd. P'ship v. Occidental Petroleum Corp., 2019 WL 6040285, at *5 (Del.
Ch. Nov. 14, 2019).
84
     Hoeller, 2019 WL 551318, at *10.
85
     See Pls.’ Br. 32–33.
86
     JX 42 at ‘098–99.

                                             18
         Verseau insists that Alexandria is merely suggesting a disagreement with the

Board’s business decision.87 But, regardless of whether the rejection of the Term

Sheet was “within the ambit of reasonable Board determinations,” there may still be

a credible basis to suspect wrongdoing if Alexandria “sufficiently portrays [the

Board’s determination] as infected and spurred by self-interest and conflicts among

decision-makers and their advisors.”88 Alexandria attempts to make that portrayal

here by focusing on three directors in particular.

         Alexandria first points to Golumbeski. Alexandria maintains that the Board

may have rejected the Term Sheet because the provision prohibiting cash

compensation to non-founder directors would have adversely affected Golumbeski.

Golumbeski participated in the June 4 Meeting, where the Term Sheet was first

discussed, although the draft minutes state that he refrained from expressing his view

and did not vote on whether to accept the Term Sheet.89 Even prior to that meeting,

other members of the Board, including directors who had worked closely with

Golumbeski and had cultivated “a lot of respect” for him, were purportedly

concerned that he might walk away from the Company if it accepted Alexandria’s

87
  See AmerisourceBergen, 2020 WL 7266362, at *4 (“[M]ere disagreement with a
business decision will fail to establish a proper purpose.”).
88
  Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp., 2019 WL 479082, at *11
(Del. Ch. Jan. 25, 2019), aff'd, 237 A.3d 818 (Del. 2020).
89
     JX 56 at ‘027.

                                          19
restrictive proposal. 90 Alexandria contends that it is conceivable that Golumbeski

influenced other directors to reject the Term Sheet out of a self-interested motivation

to preserve his cash compensation rather than in the interests of the Company’s

stockholders.

          Alexandria next argues that Zhu was conflicted because of the Term Sheet’s

limitation on related-party transactions, which essentially would have given

Alexandria a veto right over Verseau’s ability to partner with 3SBio. Zhu, a 3SBio

executive, attended both the June 4 and June 29 Meetings and voted with the Board

in rejecting the Term Sheet. 91

          Alexandria contends that Chang was also conflicted because he proposed a

potential alternative financing proposal from his investment firm, InHarv, at the June

4 Meeting.92 Although Chang recused himself from the June 29 Meeting, he

participated in the consideration of the Term Sheet at the June 4 Meeting and voted

to reject the Term Sheet.93

          Alexandria also points to the resignations of Bunt and Crane—two senior

officers involved in the Term Sheet negotiations on behalf of the Company—which

are noted in the minutes from the June 29 Meeting, as additional evidence supporting

90
     JX 26 at ‘962.
91
     JX 56 at ‘018, ‘027.
92
     Pls.’ Br. 35.
93
     JX 56 at ‘027.

                                          20
Alexandria’s suspicions of potential fiduciary duty breaches in connection with

rejection of the Term Sheet. 94

          Verseau maintains that Alexandria has not established a credible basis to infer

wrongdoing because “Plaintiffs do not, and cannot, contest . . . that each of the

decisions at issue was made by a Verseau Board consisting of a majority of

independent and disinterested directors.”95 Verseau’s argument cannot carry the

day. As this Court observed in Khanna v. Covad Communications Group, Inc., 2004

WL 187274 (Del. Ch. Jan. 23, 2004),

          [the company] argues that various transactions were approved by a
          majority of directors whose independence and disinterestedness are not
          fairly questioned by [Plaintiff]. Instead of contesting whether [Plaintiff]
          has a credible basis for believing that corporate wrongdoing occurred,
          [the company] attempts to debate whether [Plaintiff] will ultimately
          prevail. A Section 220 action is not the proper forum for litigating a
          breach of fiduciary duty case.

Id. at *6. In AmerisourceBergen Corp. v. Lebanon County Employees’ Retirement

Fund, the Delaware Supreme Court recently reaffirmed that, except in one

circumstance not pertinent here, the Court of Chancery should “defer the

consideration of defenses that do not directly bear on the stockholder’s inspection

rights, but only on the likelihood that the stockholder might prevail in another

94
     Pls.’ Br. 37.
95
     Defendant’s Pretrial Brief (“Def’s. Br.”) 27.

                                               21
action.”96 A stockholder can obtain books and records if it establishes a credible

basis from which the Court can infer possible mismanagement or wrongdoing, such

as a conflicted transaction, and “[t]he stockholder need not demonstrate that the

alleged mismanagement or wrongdoing is actionable.” 97

         In challenging Alexandria’s purposes, Verseau relies upon cases that found

no credible basis to infer wrongdoing. In each of those cases, there was no evidence

of a conflict of interest. For example, in High River Ltd. Partnership v. Occidental

Petroleum Corp., 2019 WL 6040285 (Del. Ch. Nov. 14, 2019), the court found no

credible basis of suspected wrongdoing after the board made what the plaintiffs

thought were bad deals, because nothing in the record suggested that there was any

conflict of interest. According to the Court, “[the plaintiffs] have not alleged, much

less proven, that the [board] was conflicted, disloyal or in some way interested in the

transactions at issue.” Id. at *5; see also Hoeller v. Tempur Sealy Int'l, Inc., 2019

WL 551318, at *9 (Del. Ch. Feb. 12, 2019) (“Plaintiff also failed to present any

evidence even remotely suggesting that [the company’s] fiduciaries were motivated

by self-interest.”). In City of Westland Police & Fire Retirement System. v. Axcelis

96
  AmerisourceBergen Corp. v. Lebanon Cty. Empls.’ Ret. Fund, __ A.3d ___, 2020 WL
7266362, at *14 (Del. Dec. 10, 2020); see also id. at *13 (“[A] Section 220 proceeding ‘is
not the time for a merits assessment of Plaintiffs’ potential claims against [the
corporation’s] fiduciaries.’” (citing In re Facebook, Inc. Section 220 Litig., 2019 WL
2320842, at *2 (Del. Ch. May 30, 2019)).
97
     AmerisourceBergen, 2020 WL 7266362, at *13.

                                           22
Technologies, Inc., 1 A.3d 281 (Del. 2010), the alleged conflicts related to

motivations of entrenchment rather than third-party allegiances. The Supreme Court

affirmed this Court’s finding that there was “no support in the record of any

entrenchment motive,” concluding that “the record provides no credible basis to

infer that the Board’s rejections of the [acquisition] proposals . . . were other than

good faith business decisions.” Id. at 288.

         Verseau next argues that Alexandria cannot infer wrongdoing from the

Board’s decision to reject, rather than accept, a proposed offer. 98 In response,

Alexandria relies heavily upon Paraflon Investments, Ltd. v. Linkable Networks,

Inc., 2020 WL 1655947, (Del. Ch. Apr. 3, 2020). There, the plaintiff sought to

investigate, among other issues, the board’s failure to enforce a term sheet that would

have provided financing when the company was within months of insolvency. The

company said that it rejected the financing because the terms were too onerous. The

plaintiff argued, however, that the rejection of the term sheet was really a concession

to the financing counterparty, which had a representative on the board. In granting

inspection, the Court found a credible basis to infer that the counterparty’s presence

on the board may have improperly influenced the directors to “elevate[] [the

counterparty’s] interests over the Company’s.”99 As in Paraflon, the Verseau Board

98
     Tr. 74–75.
99
     Paraflon, 2020 WL 1655947, at *5.

                                          23
rejected proposed financing when it was facing a short cash runway, and Alexandria

argues that the rejection could have resulted from prioritization of InHarv’s,

3SBio’s, or Golumbeski’s interests (or a combination thereof) rather than Verseau’s

interests. In Paraflon, the alleged interestedness of just one director was sufficient

to establish a credible basis to suspect potential wrongdoing. 100

         There are two noteworthy distinctions between this case and Paraflon. First,

the conduct at issue in Paraflon had reached a conclusion. The company did not

receive a financial infusion, it ran out of cash six months later, and its assets were

sold for “pennies on the dollar.”101 The stockholder sought to investigate whether

the board’s refusal to enforce the term sheet caused the company’s demise. Thus,

there was no longer the prospect of a new lender coming forward to keep the

company afloat. Second, and somewhat related, the plaintiff stockholder in Paraflon

was not the counterparty to the proposed investment term sheet.

         Unlike in Paraflon, the situation here is, or at least at the time of trial was,

more fluid. Verseau may still obtain a funding source. There is also a seeming risk

that Alexandria could be using its inspection rights to advance its interest as a

counterparty to a transaction—either by using the information to obtain an unfair

100
   See also Everett v. Hollywood Park, Inc., 1996 WL 32171, at *5 (Del. Ch. Jan. 19,
1996).
101
      Paraflon, 2020 WL 1655947, at *1.

                                            24
advantage in submitting a new bid or using the information to commence litigation

to enforce the Term Sheet as a counterparty. While these are legitimate concerns,

they are not sufficient to defeat Alexandria’s stated purpose as a stockholder in this

case.102 To be sure, Verseau’s letter rejecting the Demand asserted that Alexandria’s

primary interest in seeking inspection was as a bidder, not a stockholder.103 But

Verseau did not press that theory at trial and did not assert an improper ulterior

purpose defense in this action, which would have required Verseau to make a

difficult, fact-intensive showing. 104

         To some extent, Alexandria’s evidentiary support for the alleged director

conflicts has a bit of a rabbit-in-the-hat quality to it. Two of the three asserted

director conflicts arising from rejection of the Term Sheet were Alexandria’s own

creations. Golumbeski’s alleged conflict arose from Alexandria’s insistence that no

cash compensation could be paid to non-founder directors. Zhu’s alleged conflict

102
   Jacobson testified that Alexandria has no further interest in negotiating a new financing
deal with the Company. Dep. 103:20–105:13. Even if it did, the Court can fashion an
order to protect the Company’s interests. See 8 Del. C. § 220(c) (“The Court may, in its
discretion, prescribe any limitations or conditions with reference to the inspection, or award
such other or further relief as the Court may deem just and proper.”). See also Radwick
Pty., Ltd v. Med., Inc, 1984 WL 8264, at *3 (Del. Ch. Nov. 7, 1984) (“[I]nspection rights
may be limited where production of certain documents would be adverse to the interests of
the corporation.”).
103
      JX 48 at 3.
104
   A corporate defendant may resist a books and records demand if it can demonstrate that
the stockholder’s stated purpose is not its actual purpose for inspection. Pershing Square,
L.P. v. Ceridian Corp., 923 A.2d 810, 817 (Del. Ch. 2007). To do so, the corporation
essentially must show that “the plaintiff pursued its claim under false pretenses.” Id.

                                             25
was created by Alexandria’s demand for an effective veto right over related-party

transactions.

      Despite these concerns, however, there is other evidence to support

Alexandria’s purpose. First, the Company was in need of a financial infusion, and

it appeared at the time of the Board’s initial consideration of the Term Sheet that no

other source was available. Second, after much negotiation, the Company’s CEO

signed and agreed to present to the Board a term sheet, albeit non-binding, which

included the provisions that gave rise to the potential director conflicts. Third,

Chang’s representation of InHarv’s sudden interest in making a financing proposal

arose at the time of the Board’s June 4 rejection of the Term Sheet. Fourth, the

Board’s second rejection of the Term Sheet at the June 29 Meeting appears to

coincide with the resignations of the Company’s CEO and CFO, both of whom were

directly involved in negotiating the Term Sheet. Viewed in context and in its totality,

the evidence, both direct and circumstantial, satisfies the very low threshold

necessary to establish a credible basis to suspect that the directors may have favored

the interests of certain directors or their affiliates over the Company’s interests in

rejecting the Term Sheet.

                2.   Golumbeski’s Alleged Self-Interested Conduct

      Beyond the Term Sheet and the Board’s consideration of financing

alternatives, Alexandria seeks to investigate whether Golumbeski acted out of self

                                          26
interest by making or influencing decisions regarding Company personnel and

commercial arrangements. Alexandria requests books and records concerning hiring

decisions that have occurred since Golumbeski joined the Board. Golumbeski was

the Executive Vice President of Business Development at Celgene for several years

prior to joining Verseau’s Board in 2019.105 Since then, Verseau has hired three

former Celgene employees into senior positions.106               Alexandria argues that

Golumbeski has been trying to increase his influence and control over Verseau107

and points to the resignations of the CEO and CFO at the end of June 2020 and the

elevation of Smith (a former Celgene employee) to President and Chief Business

Officer of Verseau.108

          In cases where this Court has found a credible basis to infer wrongdoing from

a fiduciary’s hiring decisions, the decisions involved potential malfeasance, such as

an officer’s concealing material information from a board’s hiring committee 109 or

the board’s approving an excessive compensation package.110 Mere disagreement

105
      JX 14.
106
      Supra section I.B.
107
      Pls.’ Br. 37.
108
      JX 56 at 12.
109
      See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 780 (Del. Ch. 2016).
110
      See In re Walt Disney Co. Derivative Litig., 825 A.2d 275, 279 (Del. Ch. 2003).

                                              27
with who Verseau hires, however, does not create a credible basis to suspect

potential wrongdoing. 111

         Alexandria has not presented evidence that Golumbeski has received or would

receive improper benefits from the hiring of former Celgene employees. Nor is there

evidence to reasonably infer that the hiring decisions were not aligned with the

interests of Verseau or its stockholders. For these reasons, Alexandria has not stated

a proper purpose to inspect records concerning Golumbeski’s role in hiring decisions

or recommendations.

                3.     Zhu’s Alleged Self-Interested Conduct

         Alexandria seeks to evaluate whether Zhu may have been motivated by self-

interest in his consideration of “other Verseau business.” Alexandria does not

explain what “other Verseau business” entails, and it does not even hint of Zhu’s

having engaged in any wrongdoing. Presumably, Alexandria’s targeting of Zhu is

grounded in its general statement of concern during Term Sheet negotiations over

Verseau doing business in China. 112 This request falls squarely into the category of

“[m]ere curiosity or desire for a fishing expedition [which] will not suffice” to permit

inspection.113

111
   AmerisourceBergen, 2020 WL 7266362, at *4 (“[M]ere disagreement with a business
decision will fail to establish a proper purpose.”).
112
      JX 8.
113
      Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 568 (Del. 1997).

                                             28
              4.     Marcus’s Membership on the Board

       Alexandria’s final purpose is to evaluate the Board’s process for nominating

and appointing Marcus to the Board.           Alexandria has not presented evidence

establishing a credible basis from which I can infer wrongdoing regarding Marcus’s

purported membership on the Board. 114 The Board’s forward-looking statements

that Marcus would become a director if additional approvals were secured, even

coupled with Marcus’s belief that he was a director, do not create an inference that

Board members acted out of self-interest, in bad faith, or in breach of fiduciary duty.

If Alexandria or Marcus believes that Marcus was duly appointed to the Board, the

appropriate avenue for relief is through an action under DGCL Section 225, which

is a separate summary proceeding.115

       Nevertheless, the Term Sheet expressly provided that Marcus would be

Alexandria’s initial Board designee if the Term Sheet was approved. Thus, to the

extent that Marcus’s service as a prospective director was considered or discussed

114
   Verseau makes a credible argument that Alexandria waived this purported purpose by
not expressly including it in the Pretrial Order and Stipulation. Tr. 88–89; see PTO ¶ 28
(omitting any reference to Marcus’s purported director status as among the purposes of
inspection). Because I find that this is not a proper purpose, I need not address the waiver
argument.
115
   8 Del. C. § 225(a) (allowing the Court of Chancery, upon application of any stockholder
or director whose title to office is contested, to determine the validity of any appointment
or removal of any director or officer of a corporation). There is also no evidence that
Marcus sought to inspect books and records in his capacity as a director under DGCL
§220(d), which further undermines Alexandria’s assertion that Marcus considered himself
to be a director of Verseau.

                                            29
as part of the Board’s decision to reject the Term Sheet, it is a proper subject for

inspection.

         B.     Scope of Inspection

         Having concluded that Alexandria has established a proper purpose to inspect

Verseau’s books and records, the Court must next determine which books and

records Alexandria is entitled to inspect. The Demands state that Alexandria seeks

“[t]o evaluate whether any fiduciary breaches have occurred.” 116            Alexandria’s

pretrial brief argues that it is entitled to “‘enough information to effectively address

the problem, [including] through derivative litigation.’”117 “[W]hen a books and

records action is brought with the goal of evaluating a possible derivative suit, the

books and records that satisfy the action are those that are required to prepare a well-

pleaded complaint.” 118 Therefore, Alexandria should be afforded the opportunity to

inspect documents that would enable it to draft a well-pleaded complaint for any

subsequent derivative litigation.

116
      JX 49 at 2.
117
   Pls.’ Br. 45 (alteration in original) (quoting Saito v. McKesson HBOC, Inc. 806 A.2d
113, 115 (Del. 2002).
118
    Kaufman v. CA, Inc., 905 A.2d 749, 753 (Del. Ch. 2006); see also Saito, 806 A.2d at
115. “[W]here a § 220 claim is based on alleged corporate wrongdoing, and assuming the
allegation is meritorious, the stockholder should be given enough information to effectively
address the problem, either through derivative litigation or through direct contact with the
corporation's directors and/or stockholders.”).

                                            30
         On the other hand, a Section 220 demand “does not open the door to the wide

ranging discovery” like a well-pleaded complaint would. 119 “The inspection should

stop at the quantum of information that the court deems ‘sufficient’ to accomplish

the plaintiff's stated purpose.”120 The burden of proof is always on the party seeking

inspection to establish that each category of the books and records requested is

sufficient for the stockholder’s stated purpose.121

          “[T]he court's duty to closely examine any Section 220 demand” 122 does not

eliminate the expectations that the stockholder will make good-faith demands “with

reasonable particularity”123 and that the company will “provide [certain] documents

voluntarily without forcing stockholders to litigate over them.” 124 If the parties have

not “meaningfully conferred concerning the scope of production necessary and

essential to meet Plaintiff's purposes,” then the Court is justified in sending the

119
   Saito, 806 A.2d at 114; see also Kaufman, 905 A.2d at 754 (“Section 220 is not meant
as a replacement for discovery under Rule 34.”).
120
   Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 788 (Del. Ch. 2016); see also KT4
Partners LLC v. Palantir Techs. Inc., 203 A.3d 738, 752 (Del. 2019) (“[T]he court must
give the petitioner everything that is ‘essential,’ but stop at what is ‘sufficient.’”).
121
      Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).
122
      Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d 156, 164 (Del. Ch. 2006).
123
      In re Plains All Am. Pipeline, L.P., 2017 WL 6016570, at *4 (Del. Ch. Aug. 8, 2017).
124
      Pettry v. Gilead Sciences, Inc., 2020 WL 6870461, at *24 (Del. Ch. Nov. 24, 2020).

                                              31
parties back to the negotiating table. 125 The Court, of course, retains jurisdiction to

ultimately resolve any remaining disputes.

         Alexandria’s books and records demand reads like a discovery request in a

plenary action.126 For example, the first request seeks to inspect “[a]ll written or

electronic documents or other records relating to Defendant’s consideration, if any,

of the Term Sheet and any Alternative Financing Option including, without

limitation, copies of all minutes of Board meetings discussing or considering the

Term Sheet or Alternative Financing Options, notes taken of said discussions or

consideration, and any emails or texts by Defendant’s officers, directors, agents or

advisors relating to said discussion or consideration.”127 Alexandria makes similarly

expansive demands for “[a]ll written or electronic documents or other records

relating to any actions taken by Defendant, if any, and the reasons for said actions,

with respect to the Term Sheet or Alternative Financing Options” and for “[a]ll

written or electronic or other records relating to the information provided to the

Board or to individual directors about the Term Sheet or Alternative Financing

125
      Kosinski v. GGP Inc., 214 A.3d 944, 957–58 (Del. Ch. 2019).
126
    See, e.g., Lavin v. W. Corp., 2017 WL 6728702, at *14 (Del. Ch. Dec. 29, 2017)
(describing a demand that sought, for example, “all books and records provided to or
referred by the individuals who drafted the [Proxy]” as “land[ing] with the precision of
buckshot”).
127
      PTO ¶ 29(a).

                                            32
Options.” 128 These broad-ranging requests do not demonstrate a sufficient effort by

Alexandria to describe with reasonable particularity the documents it wishes to

inspect. At trial, Alexandria did not dispute Verseau’s assertion that Alexandria did

nothing to try to narrow the scope of its requests.129

                 1.      Formal Board Materials

          “The starting point (and often the ending point) for an adequate inspection

will be board-level documents that formally evidence the directors’ deliberations

and decisions and comprise the materials that the directors formally received and

considered (the “Formal Board Materials”). A corporation should be able to collect

and provide its Formal Board Materials promptly and with minimal burden.” 130 To

that end, the Company has produced only three traditional, non-electronic

documents: the unsigned minutes of the June 4 Meeting and June 29 Meeting, and

the InHarv Proposal signed only by the Company. That is not, however, the universe

of documents that Alexandria possesses concerning the Term Sheet. Through its

Board observers, Alexandria has received numerous Board materials, including

meeting agendas, board packages, and meeting minutes. Those materials included

the agenda and board package for the June 4 Meeting.

128
      Id. ¶ 29(b)–(c).
129
      Tr. 65:18–67:20.
130
  Lebanon Cty. Empls.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *24
(Del. Ch. Jan. 13, 2020), aff'd, __ A.3d ___, 2020 WL 7266362 (Del. Dec. 10, 2020).

                                           33
         Alexandria also possesses documents evidencing the parties’ negotiations

over the Term Sheet, including the emails, phone calls, and counterproposals

exchanged between Verseau and Alexandria. The trial record also reflects that Bunt

and Crane were candid with Marcus and Jacobson throughout the negotiations in

describing the Company’s concerns about certain provisions in the Term Sheet. 131

         Considering the documents already in Alexandria’s possession, Alexandria is

entitled to inspect, subject to any assertion of attorney-client privilege or attorney

work product, any agenda or materials distributed to the Board in connection with

the June 4 and June 29 Meetings, to the extent they have not been produced, and any

financing agreement entered into by the Company since May 22, 2020. In addition,

Alexandria is entitled to inspect the document or documents that contain the terms

of Golumbeski’s consulting arrangement with the Company (and any amendments

thereto) and any director questionnaires or similar Company files that reflect the

relationships among the directors, to the extent Verseau maintains such records. 132

131
      See JX 6, 9, 12, 17, 19, 23, 26, 27, 57.
132
    Yahoo, 132 A.3d at 785 (“[T]he Delaware Supreme Court has indicated that a plaintiff
could obtain ‘a file of the disclosure questionnaires for the board’ or similar materials that
could ‘provide more detail about the thickness of the relationship[s]’ in the boardroom.”
(citing Del. Cty. Empls. Ret. Fund v. Sanchez, 124 A.3d 1017, 1024 (Del. 2015)).

                                                 34
                 2.     Other Books and Records

          Alexandria seeks not only Formal Board Materials but also electronic

documents, including emails and text messages.133 In Palantir, the Delaware

Supreme Court addressed the circumstances under which electronic documents must

be produced in response to a books and records demand:

          If a corporation has traditional, non-electronic documents sufficient to
          satisfy the petitioner’s needs, the corporation should not have to
          produce electronic documents. But when a petitioner . . . reasonably
          identifies the documents it needs and provides a basis for the court to
          infer that those documents likely exist in the form of electronic mail,
          the respondent corporation cannot insist on a production order that
          excludes emails even if they are in fact the only responsive corporate
          documents that exist and are therefore by definition necessary. 134

          Verseau resists the production of emails, arguing that the Formal Board

Materials already provided to Alexandria are sufficient to satisfy Alexandria’s stated

purposes. Alexandria disagrees and insists that it needs electronic communications

because the produced documents “are sparse and raise more questions than they

answer.” 135

          Under Palantir, to obtain electronic documents, Alexandria must “provide[]

a basis for the court to infer that those [additionally demanded] documents likely

133
      See, e.g., PTO ¶ 29(a).
134
      Palantir, 203 A.3d at 756.
135
      Pls.’ Br. 44, 46, 47, 51.

                                            35
exist in the form of electronic mail.”136 Alexandria primarily points to the “sparse”

Board materials previously produced, which omit discussions that should have

occurred, in Alexandria’s view, between the Board and Verseau’s officers or

advisors.

      The existence of formal Board minutes does not eliminate the possibility that

informal board deliberations occurred via email communications among the Board

members in advance of the formal Board meetings. But despite having Board

observers, Alexandria has not provided evidence that Verseau’s Board informally

conducts or conducted corporate business via email and text messages. This lack of

evidence was not necessarily for lack of trying. Alexandria’s interrogatories directly

asked whether Board members engaged in electronic communication regarding the

Term Sheet, but Verseau objected to the interrogatory as overbroad and answered

136
    Palantir, 203 A.3d at 756; see also id. (“KT4 also submitted evidence that Palantir had
conducted other corporate business informally, including over email in connection with the
September 2016 Amendments.”); Mudrick Capital Mgmt., L.P. v. Globalstar, Inc., 2018
WL 3625680, at *9 (Del. Ch. July 30, 2018) (“Mudrick Capital has adequately shown that
(1) the produced documents do not allow it to adequately address the stated purposes, and
(2) the produced documents also suggest that other documents exist, including emails, that
address the crux of the stated purposes and are unavailable from another source.”); Bucks
Cty. Empls. Ret. Fund v. CBS Corp., 2019 WL 6311106, at *9 (Del. Ch. Nov. 25, 2019)
(“Plaintiff has demonstrated that Redstone, the Viacom board and the CBS Board
communicated by means of text messages and emails regarding company business and
there is an absence of board-level materials relating to this narrow topic.”); Yahoo, 132
A.3d at 795 (“The record provides reason to believe that there are additional books and
records beyond the Board–Level Materials that are essential to Amalgamated's inspection.
. . . That seems particularly true for events in January 2014, where the official record of
Committee involvement is decidedly sparse.”).

                                            36
only vaguely that “communications by individuals using a Company email account

are located on the Company’s servers.” 137

            As the Delaware Supreme Court recently held, the Court of Chancery may

defer judgment on the inspection of documents beyond Formal Board Materials if

the record is not sufficiently developed to determine the necessity of those

documents.138 In AmerisourceBergen, this Court ordered the production of Formal

Board Materials and deferred its decision on whether the plaintiff was entitled to

inspect additional books and records. Vice Chancellor Laster recognized that

determining the necessity of any category of documents is a fact-intensive inquiry,

but that the defendant had “created an additional obstacle to conducting the inquiry

when it refused to disclose in discovery the types and custodians of the records it

maintains.”139 The Court granted the plaintiff further discovery into the existence of

additional records and instructed the parties to confer on a final order of inspection.

If no agreement could be reached, the plaintiff was permitted to return and ask the

Court to compel production of necessary books and records. The Supreme Court

affirmed the trial court’s decision as within its discretionary power:

            We understand the court to have found that the Plaintiffs were entitled
            to the Formal Board Materials and to have reserved judgment, subject

137
      JX 54 at 9, 11–12.
138
   AmerisourceBergen Corp. v. Lebanon Cty. Empls.’ Ret. Fund, __ A.3d ___, 2020 WL
7266362, at *14 (Del. Dec. 10, 2020).
139
      Id.

                                              37
            to additional discovery, as to the Informal Board Materials and the
            Officer-Level Documents. Seen in that light, the court’s ruling is a
            discovery ruling in an ongoing proceeding and thus within the court’s
            discretion. But even if the ruling were to be viewed as the court’s post-
            trial remedial order, the ruling is still within the court’s discretion. 140

            Similarly, I find it appropriate to defer judgment on whether Alexandria is

entitled to inspect documents beyond Formal Board Materials. In my view, the

parties have not meaningfully conferred on scope, and Verseau has resisted

providing information as to the existence of relevant electronic communications.

The parties are directed to meet and confer as to whether the Board informally

considered, via email or text message, the Term Sheet or the InHarv Proposal in

advance of the June 4 or June 29 Meetings, and to confer on the final order of

inspection. If the parties are unable to agree, then the parties are directed to submit

letters of no more than ten pages setting out their respective positions on a form of

final order.

III.        CONCLUSION

            For the foregoing reasons, Verseau shall produce the documents specified

herein and the parties shall confer on the final order of inspection, as directed.

            IT IS SO ORDERED.

140
      Id.

                                                38