IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
HIGH RIVER LIMITED )
PARTNERSHIP, ICAHN PARTNERS )
MASTER FUND LP, and ICAHN )
PARTNERS LP, )
)
Plaintiffs, )
)
v. ) C.A. No. 2019-0403-JRS
)
OCCIDENTAL PETROLEUM )
CORPORATION, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: September 20, 2019
Date Decided: November 14, 2019
Stephen E. Jenkins, Esquire, Richard D. Heins, Esquire and Aaron P. Sayers, Esquire
of Ashby & Geddes, Wilmington, Delaware, Attorneys for Plaintiffs.
Gregory P. Williams, Esquire, John D. Hendershot, Esquire, Kevin M. Regan,
Esquire and Andrew Milam, Esquire of Richards, Layton & Finger, P.A.,
Wilmington, Delaware and Kevin J. Orsini, Esquire and Benjamin Gruenstein,
Esquire of Cravath, Swaine & Moore LLP, New York, New York, Attorneys for
Defendant.
SLIGHTS, Vice Chancellor
On May 9, 2019, Defendant, Occidental Petroleum Corporation (or the
“Company”), entered into a merger agreement with Anadarko Petroleum
Corporation. As the transaction essentially involved a merger of equals, Occidental
had to fund a substantial portion of the $55 billion acquisition price with outside
financing. Occidental raised approximately $10 billion through a sale of preferred
stock to Berkshire Hathaway, Inc., and another $8.8 billion through a presale of
Anadarko’s African assets to Total S.A. (“Total”).
Plaintiffs, High River Limited Partnership, Icahn Partners Master Fund LP
and Icahn Partners LP (collectively “the Icahn Parties”), are all affiliates of Carl C.
Icahn (“Icahn”), a prominent activist investor. They began buying Occidental stock
on May 2, 2019, after Occidental’s offer to buy Anadarko and its sale of preferred
stock to Berkshire were announced. The Icahn Parties eventually invested upwards
of $1.5 billion in Occidental stock. They are currently mounting a proxy fight to
replace members of Occidental’s board of directors (the “Board”) with a new slate
of directors they have proposed to Occidental’s stockholders.
Plaintiffs sent a demand letter to Occidental on May 21, 2019 (the “Demand”),
seeking to inspect books and records related to: (1) the Occidental-Anadarko merger;
(2) Occidental’s decision to be a buyer, not a seller, when market conditions for a
sale of the Company appeared to be favorable; and (3) provisions of Occidental’s
governance documents detailing the threshold for calling a special meeting of the
1
stockholders. On May 28, Occidental replied that it was “considering the demand.”
Two days later, Plaintiffs filed this action under 8 Del. C. § 220 (“Section 220”)
seeking to inspect the same documents it had requested in its Demand.
Although they make a cursory argument about the need to investigate
corporate wrongdoing or mismanagement, Plaintiffs freely admit their primary
purpose for demanding to inspect books and records is to aid them in their proxy
contest. They urge the Court to recognize a new, or at least expanded, rule that
would allow a stockholder to inspect books and records relating to targeted, board-
level business decisions that are questionable, but not actionable, when the
stockholder states and then demonstrates that his purpose is to communicate with
other stockholders in furtherance of a potential, bona fide proxy contest.
The law regarding whether a stockholder’s desire to communicate with other
stockholders is a proper purpose to justify inspection is, at best, murky. It may well
be that, in the right case, this court might endorse a rule that would allow a
stockholder to receive books and records relating to questionable, but not actionable,
board-level decisions so that he can communicate with other stockholders in aid of
a potential proxy contest. After carefully considering the evidence and the
arguments of counsel, however, I am satisfied this is not that “right case.”
Accordingly, judgment will be entered for Defendant.
2
I. BACKGROUND
I have drawn the facts from the parties’ pre-trial stipulation, evidence admitted
at trial and those matters of which the Court may take judicial notice.1 A half-day
trial was held on September 20, 2019, and oral argument followed the closing of the
evidence. The trial record consists of 53 joint trial exhibits, 72 pages of trial
testimony and one lodged deposition. The following facts were proven by a
preponderance of the competent evidence.2
A. The Parties and Relevant Non-Parties
Plaintiffs, High River, Icahn Partners Master Fund LP and Icahn Partners LP
are all affiliates of Carl Icahn.3 They collectively own approximately 26 million
shares of Occidental stock with a market value of $1.16 billion.4
1
I cite to the Joint Pre-Trial Stipulation and Order as “PTO ¶ __,” the joint trial exhibits as
“JX __,” and the trial transcript as “Tr. __ (witness name).”
2
Kosinski v. GGP, Inc., 214 A.3d 944, 950 (Del. Ch. 2019) (confirming that a stockholder
must prove by a preponderance of the evidence all of the requisite elements of a
Section 220 claim, including proper purpose).
3
JX 2 at 7.
4
See Tr. 12:12–22 (Graziano).
3
Defendant, Occidental, is a Delaware Corporation with headquarters in
Houston, Texas.5 It is a large petroleum and chemicals corporation with extensive
operations in the Permian Basin in West Texas and Eastern New Mexico.6
Non-party, Anadarko, was a petroleum and chemicals corporation that had
extensive drilling operations in the Permian Basin.7
Non-party, Nicholas Graziano, is a portfolio manager at Icahn Capital, an
Icahn controlled entity.8 The Icahn Parties began investing in Occidental at
Graziano’s suggestion.9 Graziano was the sole witness at trial.
Non-party, Berkshire, is a conglomerate controlled by its Chairman and CEO
Warren Buffet.10 Berkshire operates as a holding company whose primary business
is making major capital investments in other companies.11
5
PTO ¶ 1.
6
PTO ¶ 2.
7
PTO ¶ 4.
8
Tr. 6:10–17 (Graziano).
9
Tr. 11:7–13 (Graziano).
10
See Berkshire Hathaway Annual Report (10-K) Feb. 25, 2019.
11
Id.
4
Non-party, Total, is a French oil and gas producer with significant investments
in Africa.12
Non-party, Chevron Corporation, is a “major” American oil and gas
producer.13 In 2018, its operating revenues were $158.9 billion.14
B. Occidental Acquires Anadarko
On April 12, 2019, Chevron announced it had reached an agreement to acquire
Anadarko for approximately $65 per share.15 Prior to Chevron’s bid, Anadarko’s
stock was trading in the mid-$40s.16 Most of the merger consideration was to be
paid in Chevron stock.17 As a much larger company, Chevron was able to structure
its offer with a heavy dose of its stock without triggering fears that the bid would
significantly depress its stock price.18
12
See Press Release, Total, Total Closes the Acquisition of Anadarko’s Shareholding in
Mozambique LNG (Sept. 30, 2019) https://www.total.com/en/media/news/press-
releases/total-closes-acquisition-anadarkos-shareholding-mozambique-lng.
13
Tr. 22:15–16 (Graziano).
14
Chevron Annual Report (10-K) Feb. 22, 2019 at 28.
15
PTO ¶ 9.
16
Tr. 14:2–7 (Graziano).
17
PTO ¶ 9.
18
Chevron’s market capitalization was approximately $200 billion immediately before the
proposed merger, with the merger price being $33 billion. Y CHARTS
https://ycharts.com/companies/CVX/market_cap (last visited Oct. 18, 2019). Stock-only
transactions often risk depressing the value of the acquiring company’s stock, but this risk
is lessened when the acquiring company is significantly larger than the target. See Avi
5
Occidental had previously made a bid for Anadarko at a higher price, but the
bid was rejected.19 On April 24, 2019, Occidental proposed to acquire Anadarko for
$76 per share.20 Anadarko stockholders would receive $38 cash and 0.6094 shares
of Occidental stock for each share of Anadarko stock.21 On May 5, Occidental
revised its proposal to $59 per share cash and 0.2939 shares of Occidental stock
per share of Anadarko.22
After Chevron did not exercise its matching rights, on May 9, Anadarko
terminated the Chevron Merger Agreement and paid the $1 billion termination fee
owed to Chevron under that agreement.23 Occidental and Anadarko then entered
into a Merger Agreement whereby Occidental would acquire Anadarko for a
notional price of $76 per share on the terms of Occidental’s May 5 offer. The final
Salzman, Chevron Actually Wins by ‘Losing’ the Contest to Buy Anadarko Petroleum,
BARRON’S (May 9, 2019), https://www.barrons.com/articles/chevron-anadarko-
occidental-mergers-51557430645; Alfred Rappaport and Mark L. Sirower, Stock or Cash?
The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions, HARV. BUS. REV.
https://hbr.org/1999/11/stock-or-cash-the-trade-offs-for-buyers-and-sellers-in-mergers-
and-acquisitions (last visited Oct. 18, 2019) (noting in stock transactions the selling
shareholders take more risk than in cash transactions).
19
Tr. 10:15–19 (Graziano).
20
PTO ¶ 10.
21
Id.
22
PTO ¶ 17.
23
PTO ¶ 19.
6
$38 billion deal price at closing reflected a $72.34 per share value.24 Before
Occidental’s bid was made public, Occidental’s market capitalization was only
slightly larger than Anadarko’s.25 Because shares issued as part of the offer
constituted less than 20% of Occidental’s float, a vote of the Occidental stockholders
was not required to approve the transaction.26
C. Occidental Finances the Acquisition
As noted, a significant portion of the merger consideration was to be in cash.
Accordingly, Occidental needed financing to fund the transaction. On April 30,
2019, Occidental announced it had raised $10 billion in an offering of preferred
shares to Berkshire.27 The preferred shares pay an annual cash dividend of 8% and
are senior to Occidental’s common stock, but junior to its debt securities.28 Rather
than paying a cash dividend, Occidental has the option to make dividend payments
24
Jennifer Hiller, Anadarko shareholders go for the cash in $38 billion Occidental buyout,
REUTERS (Aug. 8, 2019), https://www.reuters.com/article/us-anadarko-petrol-m-a-
vote/anadarko-shareholders-go-for-the-cash-in-38-billion-occidental-buyout-
idUSKCN1UY22M.
25
JX 17 at 3; JX 2 at 2.
26
JX 7 at 13; PTO ¶ 18.
27
JX 7 at 14.
28
JX 8 at 90; Tr. 30:9–17 (Graziano). Because the preferred shares are structured as equity,
the dividends paid to Berkshire are not tax deductible, unlike interest payments on debt.
Tr. 30:2–6.
7
in additional preferred shares at a rate of 9%.29 At the time the sale to Berkshire was
announced, Occidental’s debt was yielding between 3% and 4% and its common
stock was yielding approximately 5%.30
Berkshire also acquired warrants to purchase 80 million common shares of
Occidental stock with an exercise price of $62.50 per share.31 If converted, these
shares would represent approximately 10% of Occidental’s outstanding stock.32
Using the Black-Scholes option pricing method, Plaintiffs value these warrants at
$1.2 billion.33 Plaintiffs argue Berkshire fleeced Occidental because Occidental
could have found much cheaper financing elsewhere had it bothered to look.34
In response, Occidental points to evidence that very few, if any, other lenders could
have promptly agreed to provide such a large block of financing with no syndication
contingencies or demand risks.35
29
Tr. 31:12–15 (Graziano).
30
Tr. 30:9–17 (Graziano).
31
JX 8 at 90.
32
Tr. 30:22–24 (Graziano).
33
Tr. 31:16–32:9 (Graziano).
34
Tr. 32:21–35:8 (Graziano).
35
JX 40 at 1.
8
Five days after the preferred stock sale, Occidental agreed to pre-sell
Anadarko’s Africa assets to Total for $8.8 billion.36 The proceeds of the sale were
applied to cover a part of the cash consideration for the Anadarko acquisition and to
“fast-track[ ] the divestiture plan previously described by Occidental, delivering on
the majority of the $10 to $15 billion of planned asset sales.”37 Plaintiffs contend
the fire sale price of $8.8 billion was woefully inadequate.38 Occidental later issued
$13 billion of new debt yielding 3% as further financing for the Anadarko
purchase.39
D. Plaintiffs’ Consent Solicitation
On June 26, 2019, Plaintiffs and other Icahn associated entities filed
preliminary proxy materials. They attempted to obtain requests from the record
holders of 20% of Occidental’s common stock—the threshold by which they could
require the Occidental Board to set a record date for a consent solicitation. 40 The
Icahn Parties intend to solicit written consents to elect four directors nominated by
Icahn entities, change Occidental’s bylaws and effect other changes to Occidental’s
36
JX 42 at 1.
37
Id.
38
Tr. 55:13–58:8 (Graziano).
39
JX 19 at 7.
40
Tr. 39:3–13 (Graziano).
9
consent solicitation process.41 Occidental is vigorously contesting all of the Icahn
Parties’ proposals.42
E. Procedural History
On May 21, 2019, Plaintiffs sent their Demand to Occidental seeking to
inspect certain books and records related to the Anadarko merger and provisions of
Occidental’s governance documents.43 On May 28, Occidental responded that it was
“considering the demand.”44 Plaintiffs filed their Verified Complaint two days
later.45
Plaintiffs demand to inspect any documents: (1) provided to the Board about
the Berkshire preferred stock transaction; (2) provided to the Board about the sale of
Anadarko’s assets to Total; (3) provided to the Board regarding the effect fluctuating
oil and gas prices would have on Occidental, including projections and forecasts;
(4) provided to the Board concerning any consideration given to selling Occidental’s
assets, or the Company as a whole; and (5) concerning whether the Board intends to
comply with the stockholder proposal, adopted at Occidental’s annual meeting, that
41
JX 28 at 2–5, 9.
42
JX 32.
43
JX 2, Ex. A.
44
JX 3 at 1
45
JX 2.
10
seeks to lower the threshold to call a special meeting from 25% stockholder approval
to 15%.46
II. ANALYSIS
Section 220 is an “important part of the corporate governance landscape in
Delaware[,]” but “it would invite mischief to open corporate management to
indiscriminate fishing expeditions.”47 In order to inspect books and records under
Section 220, therefore, a plaintiff must have a proper purpose.48 In the typical case
where a stockholder seeks to inspect books and records to investigate corporate
wrongdoing, the stockholder must demonstrate a credible basis to suspect that
mismanagement or wrongdoing has occurred before the corporation will be
compelled to allow inspection.49 When a plaintiff has demonstrated a credible basis
to suspect wrongdoing, this court has allowed the plaintiff to use acquired books and
46
JX 2 at 23–24. Defendants have already provided Plaintiffs with the documents in
request (5), leaving only the first four as live requests. See JX 52–53.
47
Sec. First Corp. v. U.S. Die Casting and Dev. Co., 687 A.2d 563, 571 (Del. 1997).
See also Melzer v. CNET Networks, Inc., 934 A.2d 912, 917 (Del. Ch. 2007) (noting that
Section 220 “does not permit unfettered access” to books and records).
48
Sec. First Corp., 687 A.2d at 566–67.
49
See Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 118 (Del. 2006) (“We reaffirm
the well-established law of Delaware that stockholders seeking inspection under
section 220 must present some evidence to suggest a credible basis from which a court can
infer that mismanagement, waste or wrongdoing may have occurred.”) (quotations
omitted).
11
records to mount a proxy contest.50 But neither the parties nor the Court have found
any Delaware decision where Chancery has compelled a company to allow
inspection of books and records when the stockholder’s only stated purpose for
inspection is a desire to communicate with other stockholders in furtherance of a
potential proxy contest.51
A. Proper Purpose
By the time of trial, Plaintiffs had proffered two purposes in support of their
inspection demand. First, they maintained that their intent to mount a proxy contest
following the Anadarko acquisition, and related Berkshire preferred stock offering
and Total asset sale, is a proper purpose that justifies inspection of board-level
documents relating to those transactions in order to enhance the quality of their
communications with fellow stockholders.52 Recognizing this presents a novel
application of Section 220, they argue in the alternative that they have established a
50
See id. at 119–20 (“Stockholders may use information about corporate mismanagement,
waste or wrongdoing in several ways. For example, they may . . . mount a proxy fight to
elect new directors.”) (quoting Saito v. McKesson HBOC, Inc., 806 A.2d 113, 117
(Del. 2002)).
51
See Post-Trial Oral Arg. (“OA”) 81–87, 104; Pls.’ Opening Pre-Trial Br. (“OB”) 37
(noting “stare decisis might prevent this Court from focusing on materiality [to a proxy
fight] rather than mismanagement . . .”); Def.’s Answering Pre-Trial Br. (“AB”) 14–18
(discussing cases suggesting a stockholder seeking to investigate management decision-
making must always articulate a credible basis to infer wrongdoing).
52
OB 34–35.
12
credible basis to infer corporate mismanagement or wrongdoing.53 I address the
proffered mismanagement/wrongdoing purpose first since that purpose fits crisply
within existing Section 220 jurisprudence. Finding that purpose unsupported by the
trial record, I turn to Plaintiffs’ argument that their desire to communicate with
stockholders regarding the Anadarko transaction (and related transactions) justifies
an order compelling the Company to allow inspection of substantial transaction-
related documents.
1. Plaintiffs Have Failed to Demonstrate a Credible Basis to Infer
Mismanagement
While “credible basis” is the lowest burden of proof recognized in our law, it
still requires a plaintiff to provide some evidence of wrongdoing.54 Mere
disagreement with a business decision is not enough.55 Plaintiffs have not met that
low burden here. They have not alleged, much less proven, that the Occidental
Board was conflicted, disloyal or in some way interested in the transactions at issue.
They also do not allege, nor have they proven, that the Occidental Board acted in
bad faith.56
53
OB 37.
54
Hoeller v. Tempur Sealy Int’l, Inc., 2019 WL 551318, at *7 (Del. Ch. Feb. 12, 2019).
55
Deephaven Risk Arb. Trading Ltd. v. UnitedGlobalCom, Inc., 2005 WL 1713067, at *8
(Del. Ch. July 13, 2005).
56
In a letter sent after trial, Plaintiffs suggest the Occidental directors engaged in “knowing
intentional breaches of fiduciary duty.” D.I. 35. No such allegations appear in the
13
Instead, Plaintiffs’ allegations of mismanagement appear to be nothing more
than disagreements with how Occidental’s directors exercised their business
judgment. They think the Anadarko purchase, Berkshire preferred stock sale and
Total asset sale were bad deals.57 But disagreeing with a board’s business judgment,
without more, is not enough to provide a credible basis to infer mismanagement.58
Plaintiffs’ disagreements with the Board’s deal making prowess do not establish a
credible basis to infer mismanagement or wrongdoing.59
operative Complaint. In fact, Plaintiffs explicitly denied making such allegations in their
pre-trial brief. OB 7. Plaintiffs’ abrupt, unexplained change in position, after the case has
been submitted, will not be countenanced.
57
See Tr. 13:21–15:14; 21:11–29:14 (Graziano) (objecting to the terms and process of the
Anadarko purchase); Tr. 29:15–37:5 (detailing problems with the Berkshire preferred
financing); Tr. 37:6–38:12; 45:1–17 (describing concerns with the sale of Anadarko’s
Africa assets to Total);
58
See Marathon P’rs, L.P. v. M&F Worldwide Corp., 2004 WL 1728604, at *4 (Del. Ch.
July 30, 2004) (“When a business judgment forms the basis of a request for books and
records, a stockholder must show a credible basis for an inference that management
suffered from some self-interest or failed to exercise due care in a particular decision.”).
59
This is especially so when a company, like Occidental, has a provision in its charter per
8 Del. C. § 102(b)(7) exculpating directors for duty of care violations. See Se. Pa. Trans.
Auth. v. Abbvie, Inc., 2015 WL 1753033, at *13 (Del. Ch. Apr. 15, 2015) (holding that
when a company’s “Section 102(b)(7) exculpatory provision serves as a bar to stockholders
recovering for certain director liability in litigation,” a stockholder’s inspection demand
under Section 220 must “target non-exculpated corporate wrongdoing”).
14
2. Plaintiffs’ Proposed Proxy Fight Standard
Perhaps recognizing the weakness of their mismanagement argument,
Plaintiffs ask this Court to recognize a new rule entitling stockholders to inspect
documents under Section 220 if they can show a credible basis that the information
sought would be material in the prosecution of a proxy contest.60 According to
Plaintiffs, our case law focuses on the contours of the inspection right in the context
of investigating mismanagement because those are the cases where Section 220 is
most frequently invoked.61 They point to a number of additional “proper purposes”
Delaware courts have identified, and urge this Court to add their proposed proxy
contest rule to the list.62
60
OB 35; OA 86.
61
Pls.’ Reply Pre-Trial Br. (“RB”) 8.
62
See RB 9. The Folk treatise provides an excellent summary of the various proper
purposes a stockholder might proffer in support of an inspection demand:
A stockholder may state a “proper purpose” when he seeks to investigate
allegedly improper transactions or mismanagement; to clarify an
unexplained discrepancy in the corporation's financial statements regarding
assets; to investigate the possibility of an improper transfer of assets out of
the corporation; to ascertain the value of his stock; to aid litigation he has
instituted and to contact other stockholders regarding litigation and invite
their association with him in the case; “[t]o inform fellow shareholders of
one’s view concerning the wisdom or fairness, from the point of view of the
shareholders, of a proposed recapitalization and to encourage fellow
shareholders to seek appraisal”; “to discuss corporate finances and
management’s inadequacies, and then, depending on the responses,
determine stockholder sentiment for either a change in management or a sale
pursuant to a tender offer”; to inquire into the independence, good faith, and
due care of a special committee formed to consider a demand to institute
15
Plaintiffs rely on two cases to support the propriety of their proffered purpose.
The first, Tactron, Inc. v. KDI Corporation,63 involved an inspection demand where
stockholders sought books and records that would provide logistical assistance in
mounting a proxy contest, specifically:
information relating to record dates, quorums, number of directors,
amendments, procedures for the solicitation of written consents of
stockholders and other provisions in connection with the solicitation of
written consents or proxies for the execution of written consents from
the holders of the outstanding voting securities of KDI to be used to
remove at least a majority of the present members of the board of
directors of KDI. . . .64
derivative litigation; to communicate with other stockholders regarding a
tender offer; to communicate with other shareholders in order to effectuate
changes in management policies; to investigate the stockholder’s possible
entitlement to oversubscription privileges in connection with a rights
offering; to determine an individual’s suitability to serve as a director; to
obtain names and addresses of stockholders for a contemplated proxy
solicitation; to inspect documents related to a “market check” on the terms
of financing that may have been influenced by an interested party; to obtain
particularized facts needed to adequately allege demand futility after the
corporation had admitted engaging in backdating stock options; or to
investigate a private corporation’s “serial failure to convene annual
stockholder meetings.”
Edward P. Welch, Robert S. Saunders, and Jennifer C. Voss, Folk on the Delaware General
Corporation Law, § 220.05[A] (Wolters Kluwer Law & Business, 2019 ed.) (citations
omitted).
63
1985 WL 44694 (Del. Ch. Jan. 10, 1985).
64
Id. at *1.
16
Then-Vice Chancellor Berger granted plaintiffs’ request for documents, noting that
the demand implicated considerations similar to when a stockholder seeks to inspect
books and records to value stock:
“[b]y statute, a proper purpose is one reasonably related to such
person’s interest as a stockholder. It seems clear that Tactron’s purpose
satisfies this requirement . . . . In cases where inspection is sought to
value one’s stock, our courts consistently have limited the extent of that
inspection to those records which are essential and sufficient to
accomplish the stated purpose. I see no reason why that standard should
not apply here, where the demand is not related to any allegation of
mismanagement.65
While Plaintiffs read Tactron as supporting their broad inspection demand, it
is difficult to miss that the court there was addressing a very narrow demand for
purely logistical information. The plaintiffs in Tactron were not seeking information
to sway the votes of stockholders in a proxy contest; they were seeking information
about how to reach stockholders to share information they already had in their
possession.66 As the Tactron court correctly noted, plaintiffs’ request was much
more like a Section 220(b)(1) request to inspect a stock list than a Section 220(b)(2)
request to inspect a broader set of books and records to investigate suspected
65
Id. (quotations and citations omitted).
66
Id.
17
wrongdoing.67 Indeed, the Tactron plaintiffs also sought board minutes in their
demand and that request was denied.68
The documents Plaintiffs seek here are not merely logistical; they are, instead,
the journal of the Board’s decision-making with respect to all aspects of the
Anadarko transaction.69 Plaintiffs hope to use these documents to show Occidental’s
stockholders that the Board botched multiple decisions in connection with the
Anadarko merger not just to conduct, but to win, a proxy contest. In this sense, it is
difficult to distinguish Plaintiffs’ purpose from a more typical purpose to investigate
suspected mismanagement or wrongdoing. Tactron does not help Plaintiffs, at least
not with respect to their demand to inspect books and records regarding board-level
decision making.
Plaintiffs next cite then-Master LeGrow’s report in High River Ltd.
Partnership v. Forest Labs., Inc.70 as support for their proffered purpose. Forest
67
Id.
68
Id. at *2.
69
JX 2 at 23. As noted, the purely “logistical” documents in request Number 5 have
already been provided to Plaintiffs.
70
C.A. No. 7663-ML (Del. Ch. July 27, 2012) (TRANSCRIPT). Forest Labs involved six
categories of document requests. One request related to “logistics,” analogous to the
Tactron documents, and three exclusively related to alleged mismanagement. Id. at 20–
26, 35–36. Two other categories allegedly implicated plaintiff’s purposes both to
investigate mismanagement and mount a proxy contest, but the request to inspect those
documents was denied. Id. at 26–32.
18
Labs also involved Icahn affiliates running a proxy contest.71 As part of a proxy
contest run the year before, plaintiffs had negotiated corporate governance
concessions from the incumbent directors.72 As they prepared for a new proxy
contest, the plaintiffs sought documents that would reveal whether those concessions
had been fulfilled.73 They argued Section 220 was a proper tool to secure documents
under the circumstances since, without documents, plaintiffs and stockholders would
have no means to confirm that the Company had made governance reforms as
promised.74
The court directed the company to produce the requested documents and, in
doing so, stated, “[a] stockholder states a proper purpose by demonstrating that they
are engaged or are imminently about to be engaged in a proxy contest.”75 Apparently
conscious of the need to identify a limiting principle, the court looked to “the case
law that animates Section 220[]” and determined that any documents requested must
be “essential and sufficient” to the stated purpose of mounting the proxy contest.76
71
Id. at 6–8.
72
Id. at 33–35.
73
Id.
74
Id. at 11.
75
Id. at 14.
76
Id.
19
Forest Labs presented a distinct factual context, and the court there was
careful to limit its ruling to the case sub judice.77 In doing so, the court observed
that the law in this area is unsettled and could use some clarity. I agree. But this
case is not the vehicle to provide that clarity. Where, as here, the documents sought
by Plaintiffs relate to a dispute with management about substantive business
decisions, pleading an imminent proxy contest is not enough to earn access to broad
sets of books and records relating to the details of questionable transactions,
particularly when the board’s decision-making is subject to the business judgment
rule, and the facts of record reveal that Plaintiffs already have what they need to
fulfill their stated purpose.
B. The Documents Sought are Not “Necessary and Essential” to the Proxy
Fight
When the court in Forest Labs decided that the plaintiffs there had articulated
a proper purpose, it turned to the well-settled limiting principle embedded within
Section 220 that stockholders are entitled to inspect only those documents that are
77
Id. at 3 (“Frankly, I think this case presents some—some interesting issues . . . . And I
think that the law could use some development in this area outside of transcript rulings.
But the nature of proxy contests is such that the parties deserve a prompt ruling. And—
and so I’ve—I’ve let that interest outweigh whatever interest I might have in saying, you
know, for a larger audience what I think the law is here . . . .”). The fact the court offered
its ruling from the Bench further reflects that the court intended to decide a particular
dispute, not to advance a new, definitive Section 220 standard. See, e.g., In re Columbia
Pipeline Gp., Inc., 2018 WL 4182207, at * 4 (Del. Ch. Aug. 30, 2018) (noting the generally
fact-specific nature of transcript rulings) Kalisman v. Friedman, 2013 WL 1668205, at *7
(Del. Ch. Apr. 17, 2013) (same).
20
“necessary, essential and sufficient” to their stated purpose.78 Applying that limiting
principle here, I am satisfied that Plaintiffs have failed to demonstrate that the broad
set of books and records they have requested are necessary and essential.
Plaintiffs’ inspection demand relates to a series of closely-tied transactions
that were widely publicized.79 Occidental stockholders know the transactions well.80
It is difficult to discern how a fishing expedition into the boardroom is necessary and
essential to advance Plaintiffs’ purpose to raise concerns with their fellow
shareholders about the wisdom of the Board’s decisions to engage in these
transactions.81 Indeed, Plaintiffs have already made their assessment of the Board’s
decision-making and have found it wanting.82
Likewise, if Plaintiffs think the Board should have considered in the past, or
should consider in the future, a sale of the Company, they do not need records from
78
Forest Labs, C.A. No. 7663-ML at 14; BBC Acquisition Corp. v. Durr-Fillauer Med.
Inc., 623 A.2d 85, 88 (Del. Ch. 1992).
79
See generally JX 18; JX 20; JX 22; JX 24–27; JX 34–35 (news articles in prominent
publications describing the transactions surrounding and including the merger).
80
The merger was front-page news in the business press. Id.
81
See Seinfeld, 909 A.2d at 122 (noting that fishing expeditions do not benefit the
corporation).
82
See Tr. 29:15–35:22 (Graziano) (comparing the terms of the Berkshire preferred sale to
a later public sale of Occidental debt); Tr. 55:5–58:18 (discussing how the Plaintiffs
believed the process leading to the sale to Total was faulty).
21
the Company to make that case.83 Simply stated, Plaintiffs have not demonstrated
in this record how documents reflecting whether the Board has or has not considered
a sale of the Company are necessary and essential to advance their proxy contest.
III. CONCLUSION
For the foregoing reasons, judgment is entered in favor of Defendant,
Occidental.
IT IS SO ORDERED.
83
See Tr.47:9–48:19; JX 4 (“Graziano Dep.”) 123:24–128:7 (expressing why, in Plaintiffs’
view, the Company should have been (and perhaps still should be) put up for sale).
22