Joe Weingarten v. Monster Worldwide, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JOE WEINGARTEN, )
)
Plaintiff, )
)
v. ) C.A. No. 12931-VCG
)
MONSTER WORLDWIDE, INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: February 20, 2017
Date Decided: February 27, 2017
Peter B. Andrews, Craig J. Springer, David M. Sborz, of ANDREWS & SPRINGER
LLC, Wilmington, Delaware; OF COUNSEL: Randall J. Baron, David T.
Wissbroecker, of ROBBINS GELLER RUDMAN & DOWD LLP, San Diego,
California; Christopher H. Lyons, of ROBBINS GELLER RUDMAN & DOWD
LLP, Nashville, Tennessee; W. Scott Holleman, of JOHNSON & WEAVER, LLP,
New York, New York, Attorneys for Plaintiff.
Srinivas M. Raju, Matthew W. Murphy, of RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; OF COUNSEL: Michael J. McConnell, Walter W.
Davis, Robert A. Watts, of JONES DAY, Atlanta, Georgia, Attorneys for Defendant.
GLASSCOCK, Vice Chancellor
This brief post-trial Memorandum Opinion addresses a discrete issue of law
that appears to be of first impression. 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? That
issue is directly before me here. The parties have made passionate arguments
concerning the policy implications of a decision in their favor, which they find
sufficient to support such a decision. My analysis is simpler; because the
unambiguous language of Section 220(c) compels a finding that a former
stockholder squeezed out in a merger thereafter lacks standing to bring an action
under the Statute, the Plaintiff’s Complaint here must be dismissed. My reasoning
follows.
I. BACKGROUND
Below is an adumbration of the facts sufficient to address the limited issue
described above.
1
A. The Parties
Plaintiff Joe Weingarten is a former stockholder of Monster Worldwide, Inc.1
Defendant Monster Worldwide, Inc. (“Monster” or the “Company”) is a Delaware
corporation with its principal place of business in Weston, Massachusetts.2 Monster
is in the business of providing job placement, career management, and recruitment
and talent management services.3
Randstad Holding nv (“Randstad Parent”) is a company organized under the
laws of the Netherlands that specializes in flexible work and human resources
services.4 Randstad North America, Inc. (“Randstad”) is a Delaware corporation
and a subsidiary of Randstad Parent.5 Merlin Global Acquisition, Inc. is a Delaware
corporation and a wholly owned subsidiary of Randstad (“Merger Sub”).6 Evercore
Group LLC (“Evercore”) served as Monster’s financial advisor in connection with
the sale of Monster.7 None of these entities is a party to this action.
1
See Joint Trial Exhibit (“JX”) 29 at JTX00959 (showing Plaintiff’s ownership of Monster stock
as of October 6, 2016).
2
JX 12 at JTX00377.
3
JX 7 at JTX00268.
4
See JX 7 at JTX00268; JX 12 at JTX00379.
5
JX 12 at JTX00377, JTX00379.
6
JX 42 at JTX01224.
7
JX 12 at JTX00405, JTX00429–431.
2
B. The Merger
On August 8, 2016, Monster, Randstad and Merger Sub entered into an
Agreement and Plan of Merger (the “Merger Agreement”).8 The Merger Agreement
contemplated a transaction under Section 251(h) of the DGCL, in which Merger Sub
would make a cash tender offer to Monster’s stockholders followed by a merger
between Merger Sub and Monster (the “Merger”).9 The Monster Board of Directors
(the “Board”) unanimously approved and recommended the Merger Agreement.10
Pursuant to the Merger Agreement, Randstad, through Merger Sub,
commenced a cash tender offer on September 6, 2016, offering to purchase all of
Monster’s issued and outstanding shares at a purchase price of $3.40 per share (the
“Tender Offer”).11 The Tender Offer and “withdrawal rights in connection
therewith” expired at midnight on October 28, 2016.12 45,973,527 shares were
validly tendered and not withdrawn from the Tender Offer, representing
approximately 51.5% of the outstanding shares.13 Following consummation of the
Tender Offer, on November 1, 2016, Randstad completed its acquisition of Monster
and all of the outstanding Monster stock—excluding shares owned by Randstad,
Merger Sub, Monster, and by stockholders who were entitled to and who validly
8
Id. at JTX00377.
9
Id. at JTX00377–378; JX 42 at JTX01224.
10
JX 12 at JTX00398.
11
Id. at JTX00377.
12
JX 42 at JTX01224.
13
Id.
3
exercised their appraisal rights—were cancelled and converted into the right to
receive cash.14 The Plaintiff’s stock was among that cancelled.
C. The Plaintiff’s Section 220 Demand to Monster
On October 19, 2016, more than ten weeks after Monster entered into the
Merger Agreement, the Plaintiff sent a letter to Monster’s Board demanding to
inspect books and records (the “Demand Letter”) in order to “determine whether it
is appropriate to pursue litigation against all or some members of the Board” for
alleged wrongdoing in connection with the Merger.15 On October 26, 2016, Monster
rejected the Plaintiff’s demand “in its current form” and expressed its willingness to
discuss the scope of a narrowly tailored production.16 On the same day, the Plaintiff
contacted Monster seeking to arrange a call about a voluntary production.17 The
Plaintiff also stated:
[p]lease also note that, while we obviously disagree with numerous
assertions in your letter, in light of your invitation to discuss production
of documents we will abstain from filing a complaint to compel
compliance with the demand unless and until the parties are unable to
negotiate a resolution. If, as a result, the merger closes before Mr.
Weingarten files a complaint, we expect that the company will refrain
from asserting any argument that Mr. Weingarten lost standing to
inspect documents because the merger closed before he filed his
complaint. If the company will not refrain from making any such
argument, please tell me by 10:00 a.m. Eastern time tomorrow.18
14
Id.
15
JX 29 at JTX00926.
16
JX 38 at JTX01141.
17
JX 43 at JTX01251.
18
Id. (emphasis added).
4
Monster did not respond to the Plaintiff’s e-mail by the deadline imposed;
nonetheless, the Plaintiff did not file a complaint. Ultimately, Monster responded
on Friday, October 28, 2016.19 In its response, Monster refused to agree to “refrain
from asserting any defense available to Monster should a complaint be filed.” 20 At
trial, Plaintiff’s counsel represented that by the time he received Monster’s response
on Friday, it was “too late” to prepare and file a Section 220 complaint before the
Merger closed on the following Tuesday. On November 4, 2016, after the Merger
was consummated, Monster e-mailed the Plaintiff, asserting that, because the
acquisition had closed, “the stated purpose for your Section 220 demand has been
mooted” and that “there is nothing further to discuss.”21 The Plaintiff quickly
responded and stated his position that the closing of the Merger did not extinguish
his standing.22 In addition, the Plaintiff explained to Monster:
[y]ou waived the opportunity to contend otherwise when you waited
until the day the tender offer expired to reply to my email and made
what you are now saying was an illusory promise to produce documents
in order to deter filing of a complaint.23
19
Id.
20
Id.
21
Id. at JTX01250.
22
Id.
23
Id.
5
D. The 220 Action
The Plaintiff filed his Verified Complaint to Compel Inspection of Books and
Records on November 22, 2016 (the “Complaint”) to “determine whether
wrongdoing or mismanagement has taken place such that it would be appropriate to
file claims for breach of fiduciary duty, and to investigate the independence and
disinterestedness of the Company’s directors generally and with respect to the
Company’s acquisition.”24 The Complaint principally alleges two types of
wrongdoing and mismanagement as the basis for the inspection: first, process-
related claims alleging a flawed sales process resulting in an inadequate merger
consideration;25 second, disclosure-related claims alleging Monster’s failure to
disclose potential conflicts of interest of Evercore and Company managers,
Evercore’s financial analysis, and the standstill provisions with other bidders.26 The
Plaintiff seeks fourteen categories of documents from Monster.27 A paper-record
trial in this matter was held on February 20, 2017.
Monster argues that the Complaint should be dismissed for (1) lack of
standing because the Plaintiff was no longer a Monster stockholder following the
Merger, including as of the date he filed the Complaint, and (2) failure to state a
24
Compl. ¶ 1.
25
Id. at ¶¶ 10–15.
26
Id. at ¶ 16.
27
Id. at ¶ 19.
6
proper purpose for the demand.28 The Plaintiff responds that Monster is estopped
from challenging the Plaintiff’s standing and that the closing of the Merger did not
affect his standing.29 Furthermore, the Plaintiff argues that he has alleged a credible
basis to suspect wrongdoing worthy of investigation.30 Because I find that the
Plaintiff lacks standing here, I do not reach the question of whether the Plaintiff has
met his burden of alleging a credible basis for the inspection.
II. ANALYSIS
A. Monster is not estopped from raising the issue of standing.
I first briefly turn to the Plaintiff’s attempt to invoke equitable estoppel here.
The Plaintiff points out that he asked Monster to waive lack of standing as a defense,
should he bring this action post-closing, and that he asked Monster to respond to this
request by a time certain. Monster did not respond by this deadline, and the Plaintiff
argues that Monster should consequently be estopped from asserting lack of standing
here. I assume—without deciding—that equitable estoppel, properly invoked, may
preclude my consideration of the Plaintiff’s standing to proceed here. Nonetheless,
I find estoppel inapplicable.
A party generally may be estopped from pursuing a right to which it is
otherwise entitled where equity so requires. This Court applies the doctrine of
28
Def’s Opening Br. 1–2.
29
Pl’s Answering Br. 14–16.
30
Id. at 30.
7
equitable estoppel where a party has, by its conduct, misled another, causing that
other to detrimentally change position, in reliance on the conduct. To invoke
equitable estoppel, the misled party must demonstrate 1) it lacked knowledge or the
means of obtaining knowledge of the truth; 2) it reasonably relied on the conduct of
the party against whom estoppel is sought, and; 3) it detrimentally changed position
based on that reliance.31 Under the facts here, there was no “conduct” by Monster
to rely on. The Plaintiff stated that he “expected” Monster to waive standing as a
defense to an action under Section 220 if the Merger closed, and threatened to bring
suit unless Monster did so by a time certain provided by the Plaintiff. Monster did
not timely reply;32 nonetheless, the Plaintiff did not file suit before the Merger
closed. Under these circumstances, there was no conduct by the party against whom
the estoppel is sought on which the Plaintiff purports to rely, and to the extent it
relied on Monster’s silence, that reliance is not reasonable. I find the doctrine of
equitable estoppel inapplicable, therefore.
I now turn to the issue of standing.
31
E.g. Salem Church Associates v. New Castle County, 2006 WL 2873745, at *12 (Del. Ch. Oct.
6, 2006).
32
Monster’s response—that it would not waive standing—came on the Friday before the merger
closed the following Tuesday; the Plaintiff contends that this response came “too late” for him to
draft and file a complaint pre-closing.
8
B. Section 220 requires that a plaintiff own stock when the Section 220
complaint is filed.
Section 220(a) defines a stockholder as “a holder of record of stock in a stock
corporation, or a person who is the beneficial owner of shares of such stock held
either in a voting trust or by a nominee on behalf of such person.”33
Section 220(b) provides that “[a]ny stockholder, in person or by attorney or
other agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose”
records of her corporation.34 Where the stockholder states such a demand in
compliance with subsection (b), the corporation has five business days to respond.35
If it denies the demand or fails to respond, the Statute provides that the stockholder
may apply to this Court for relief.36
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
33
8 Del. C. § 220(a).
34
Id. § 220(b).
35
Id. § 220(c).
36
Id.
9
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 the corporation to establish that the
inspection such stockholder seeks is for an improper purpose.37
Section 220 codifies what had been a common law right to inspection of
corporate books and records by stockholders.38 The Statute prescribes who may seek
such records, and under what circumstances. The Statute involves a balancing by
the legislature of two valid interests: the interest of a stockholder, as an owner of the
entity, to seek corporate records in pursuit of her interests as a stockholder; and the
interest of the corporation and its fiduciaries in being free of frivolous or vexatious
demands to examine records, and to avoid production of records to individuals
pursuing interests other than those relating to stock ownership. In vindication of
these at times competing interests, the legislature has provided requirements with
which those seeking records must comply in order to invoke the authority of this
37
Id. § 220(c) (emphasis added).
38
See, e.g., Saito v. McKesson HBOC, Inc., 806 A.2d 113, 116 (Del. 2002); Cochran v. Penn-
Beaver Oil Co., 143 A. 257 (Del. 1926).
10
Court to order records produced. One set of these requirements involves demand on
the entity; to have standing to proceed in this Court under Section 220, a stockholder
must have made a demand on the corporation for the records she seeks, in which
demand—if a beneficial owner—she must state under oath, and provide and adopt
documentary evidence, that she is a stockholder. This ensures that only stockholders
may make a demand, which is a prerequisite to standing to bring suit under the
Statute. I presume that the Plaintiff complied with this requirement, which is set out
in subsection (b) of the Statute.39
Fulfilling the demand requirement of subsection (b) is necessary, but not
sufficient, to proceed here, however. Where, as here, a stockholder has complied
with subsection (b) and demand is refused by the corporation, 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.40 It is the latter requirement that the Plaintiff failed to meet
here.
39
See 8 Del. C. § 220(b).
40
See 8 Del. C. § 220(c). Where the records sought are other than the stock list or ledger, the
subsection also requires that the stockholder establish a proper purpose. Id.
11
My purpose in statutory construction must be to give effect to the expressed
intent of the legislators.41 Where no ambiguity exists, the plain meaning of the
language employed dictates construction.42 Only where more than one reasonable
interpretation exists may I employ secondary rules of construction.43 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.
The Plaintiff provides policy arguments, explaining why this requirement is
not optimal, in his view. Those arguments are misplaced—in view of the plain
language employed, they are for the General Assembly, not this Court. What the
Plaintiff has not demonstrated is that the language employed is ambiguous, or that
its enforcement renders the Statute internally inconsistent or absurd. The Plaintiff
also points to two cases, Cutlip v. CBA Int’l, Inc. I44 and Deephaven Risk Arb
Trading Ltd. v. UnitedGlobalCom, Inc.,45 as instructive. Those matters involved
stockholders who lost their stock via merger during the pendency of actions under
41
See, e.g., Chase Alexa, LLC v. Kent County Levy Court, 991 A.2d 1148, 1151 (Del. 2010).
42
Id.
43
Id.
44
1995 WL 694422 (Del. Ch. Oct. 27, 1995).
45
2005 WL 1713067 (Del. Ch. July 13, 2005).
12
Section 220. Under those facts, this Court found that the mergers, despite depriving
the plaintiffs of their stock, did not require dismissal or deprive those plaintiffs of
standing going forward. The Plaintiff here commends the logic of those cases to me,
as applicable to this matter. However, Cutlip and Deephaven involved stockholders
who had complied with the standing requirements of Section 220(c) at issue here; at
the time suit was filed, they were stockholders.46 As then Vice Chancellor Steele
found in explaining his reasoning in Cutlip, “at the time they brought the action, [the
plaintiffs] did have standing. They were record owners at that time.”47 I find Cutlip
and Deephaven inapposite.
III. CONCLUSION
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. An Order accompanies this Memorandum Opinion.
46
A reasonable argument could be made that the directive that a plaintiff “first establish” that she
is a stockholder before receiving relief under Section 220(c) is ambiguous as to whether
stockholder status must obtain at the time of relief as well as the time of filing; this is the issue
addressed in Cutlip and Deephaven. Nevertheless, such ambiguity cannot assist the Plaintiff here,
because the construction of Section 220(c) that he urges—interpreting the statutory language to
require only a showing of stock ownership in the past—is not a reasonable reading of the statutory
language.
47
Cutlip, 1995 WL 694422, at *2.
13
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JOE WEINGARTEN, )
)
Plaintiff, )
)
v. ) C.A. No. 12931-VCG
)
MONSTER WORLDWIDE, INC., )
)
Defendant. )
ORDER
AND NOW, this 27th day of February, 2017,
The Court having considered Plaintiff’s Complaint, and having determined
that the Plaintiff lacks standing under Section 220 of the Delaware General
Corporation Law for the reasons set forth in the Memorandum Opinion dated
February 27, 2017, IT IS HEREBY ORDERED that Plaintiff’s Complaint is
DISMISSED.
SO ORDERED:
/s/ Sam Glasscock III
Vice Chancellor
14