Michael Stock v. Sustainable Energy Technologies, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MICHAEL STOCK, )
)
Plaintiff, )
)
v. ) C.A. No. 2023-0109-LM
)
SUSTAINABLE ENERGY )
TECHNOLOGIES, INC., )
)
Defendant. )

FINAL POST-TRIAL REPORT

Final Report: October 30, 2023
Date Submitted: July 28, 2023

Thomas E. Hanson Jr. & William J. Burton, BARNES & THORNBURG LLP,
Wilmington, Delaware; Attorneys for Plaintiff Michael Stock.

Tyler J. Leavengood, POTTER ANDERSON & CORROON LLP, Wilmington,
Delaware; Attorney for Defendant Sustainable Energy Technologies, Inc.

Mitchell, L.
 Defendant Sustainable Energy Technologies, Inc. is a national supplier of

energy storage devices or Power Packs that replace lead acid and lithium-ion

batteries in various markets. The plaintiff, Michael Stock, owns 2.1 million shares

of stock in the defendant company. Plaintiff alleges that since his initial investment

in the company, it has paid its officers excessive compensation while failing to make

significant progress in bringing their alternative battery technology to market. He

blames the excessive compensation arrangement for why the company generated

little to no revenue in 2022—in stark contrast to its projected 2022 revenue of $27.8

million.

To uncover how the company used his investment, investigate further claims

of mismanagement of funds, and value his shares, the Plaintiff sought to inspect

Sustainable Energy Technologies, Inc.’s books and records pursuant to Section 220

of the Delaware General Corporation Law. The company initially offered the

Plaintiff some of the requested records but conditioned the offer on the execution of

a mutually agreeable confidentiality agreement. The Plaintiff failed to execute the

agreement and in turn, the company refused to release the information.

Following the initial demand, the Plaintiff was voted off the company’s board

of directors. He then sought to formalize and legitimize an alleged handshake deal

he had with the defendant company through his own private company for exclusive

distribution rights. The defendant company rejected ever having an agreement.

2
 Having never received any of the earlier requested documents, the Plaintiff

renewed his demand submitting another request. Defendant company never

responded to the second request. On January 30, 2023, Plaintiff filed this complaint.

Following a one-day trial held on July 7, 2023, in New Castle County,

Delaware, the parties submitted post-trial briefing. After reviewing the parties’ post-

trial submissions, trial evidence, pre-trial briefing and supportive memoranda, I find

that Plaintiff has both, stated a proper purpose for inspection under Section 220 and

has met his minimal burden of establishing a credible basis for suspected

wrongdoing under Section 220. However, I do not agree that all the documents

Plaintiff seeks are necessary and essential for Plaintiff’s stated purposes. To that

end, I recommend Plaintiff’s demand be granted with respect to those documents

which are necessary and essential and deny the demand with respect to all others.

This is my final report.

I. BACKGROUND 1
Sustainable Energy Technologies, Inc. (“SETI” or the “Company”), is a

Delaware corporation headquartered in Elkhart, Indiana and offers its patented

1
All facts cited herein are taken from the trial transcript, cited as “Tr. __”; the parties
jointly submitted exhibits list, cited as “JX __”; the parties opening briefs respectively as
“DOB” and “POB”; the Joint Pre-Trial Stipulation and Order, cited as “PTO and filed on
the Docket as (“Docket Item”) D.I. 68; and the parties post-trial briefs respectively as
“PPB” and “DPB”.”
3
Hybrid Graphene Super Capacitor Power PackTM (“Power Pack”) – a substitute for

lead-acid, nickel-cadmium and lithium-ion batteries.2 According to the executive

summary in its business plan, “SETI [] is a national supplier of energy storage

devices or Power Packs that replace lead acid and lithium-ion batteries in various

markets.” 3

SETI is managed by a board of directors not to exceed seven members.4

Pursuant to SETI’s bylaws, the Company “may establish a reasonable compensation

of all directors for services to the corporation … or may delegate such authority to

an appropriate committee.”5 Chris Sanders (“Sanders”) is SETI’s CEO. 6 Fred

Solomon (“Solomon”) is a former chairman of the board of directors.7 Sanders and

Solomon are related. 8 Additionally, Sanders is married to SETI’s chief

administrative officer, Tara Brown (“Brown”).9

2
PTO at 8; JX 1; JX 50 at 3.
3
JX 50 at 3.
4
JX 1 at 13.
5
JX 1 at 14-15.
6
PTO at 8.
7
Tr. 13:2-5.
8
Solomon is Sander’s stepfather. PTO at 8.
9
PTO at 9.
4
 Michael Stock (“Plaintiff” or “Stock”) was the founding investor and a former

member of the board of directors of SETI. 10 Prior to his involvement with SETI,

Plaintiff worked in the RV industry in Elkhart, Indiana, where he grew up.11

Eventually, Plaintiff formed a sales and marketing company, MITO12, primarily

serving RV manufacturers in the Elkhart, Indiana market.13 Based on his familiarity

with the area, Plaintiff was uniquely situated in understanding the “beachhead”

markets in Indiana. 14

A. SETI’s Business
Plaintiff’s knowledge about “all of the problems about energy storage in the

RV industry” drew him to SETI and he was eventually put into contact with

Sanders. 15 The same day they connected on the phone, Sanders drove from Fort

Myers, Florida to meet with Plaintiff at his home in Naples, Florida.16 Sanders was

trailering a golf cart equipped with a Power Pack battery. 17

10
Tr. 102:9-14.
11
Tr. 102:5-14.
12
MITO stands for “Mike and Tom.” Tom Fuller is Stock’s business partner. Tr.102:11-
14.
13
JX 50 at 26.
14
Beachhead markets are those most “fruitful” to SETI’s business, which included golf
carts, RVs and the marine industries. Tr. 44:14-15; JX 208.
15
Tr. 104:2-18.
16
Tr. 100:19; 104:16-24.
17
Tr. 104:22-24.
5
 After meeting with Brian Nangle (“Nangle”), SETI’s president, Plaintiff was

convinced that “[Power Packs] [are] a product that could be very useful in the

marketplace.”18

Plaintiff made his initial investment in SETI in December 2019, purchasing

1,000,000 shares for $500,00.00 – fifty cents per share.19 Plaintiff purchased an

additional 1,000,000 shares the following month, in January of 2020.20 From the

time of his first purchase in December 2020 until September 2022, Plaintiff was a

member of the Company’s board of directors.21

Plaintiff maintains that as part of his joining SETI, MITO was to receive an

exclusive distribution agreement to service the “beachhead” market in Elkhart,

Indiana.22 Plaintiff alleges that before his initial investment, Sanders made

representations to him that SETI was “looking for an investor to secure the exclusive

license for the United States” from Dongguan City Gonghe Electronics Co. LTD

(“Gonghe”).23 Stock testified that he agreed, but only for “something in return.”24

18
Tr. 106:23-24.
19
JX 3 at 2.
20
JX 15. Plaintiff subsequently made another 100,000-share purchase from Sanders,
bringing his total to 2,100,000 shares of SETI. PTO at 9; Tr. 114:1-6.
21
PTO at 28.
22
Tr. 157-158.
23
Tr. 108:12-20.
24
Id.
6
Following his investment, Stock said that he and Sanders “shook” on a deal giving

Stock “the Northern Indiana distributorship for the RV, marine, and the markets [he]

work[ed] in.25

B. SETI’s Agreement with Gonghe Electronics

During Plaintiff’s tenure on the board, SETI entered into an Exclusive

Distribution and Business Collaboration Agreement with Gonghe on June 15, 2021

(the “Gonghe Agreement”).26 In the Gonghe Agreement, Gonghe appointed SETI

as its exclusive distributor for its Graphene Supercapacitor Battery Cells and Packs

with integrated Capacitor Management Systems.27 SETI represented its relationship

with Gonghe in its business plan (“Business Plan”).28 The business plan also

references MITO, indicating that they are a “sales partner” and that they are

“responsible for SETI’s marketing, sales, warehousing, and inventory

management.”29 There is no indication that MITO has an exclusive sales distribution

agreement with SETI in the Business Plan.

25
Tr. 109:18-24.
26
JX 6.
27
JX 6.
28
JX 50 at 3 (“SETI’s founders and executive team [] secured an Exclusive Sales,
Distribution and Business Collaboration Agreement for the Hybrid Super Capacitor Power
Packs with GongHe Electronics Limited for the US markets.”).
29
JX 50 at 4.
7
 C. SETI’s Private Placement Memorandum

SETI also implemented a Private Placement Memorandum (“PPM”) geared

at enticing investors to put money into SETI’s business.30 Stock alleges the PPM

was misleading in its representations about MITO. 31 The PPM stated that SETI had

“partnered with MITO” and that negotiations had begun between SETI and MITO

“to enter into a contract for leasing, inventory management, marketing, and sales and

distribution services.” 32 The next paragraph in the PPM reveals that “the Company

has entered into an Exclusive Distribution Agreement with Gonghe Electronics.”33

Plaintiff, when pressed, conceded that like the Business Plan, the PPM did not

identify an exclusive distribution agreement between SETI and MITO. 34

D. Management Compensation
On January 25, 2022, William Harrington, another SETI board member,

circulated an email to the SETI board attaching recommendations for compensation

to be considered at a board meeting the following day.35 The compensation

30
JX 51.
31
Tr. 144:5-14.
32
JX 51 at 20; see also JX 51 at 12 (“The Company has partnered with MITO… which
supports the Company with offices, warehousing facilities, inventory management,
research, marketing, and sales and distribution.”) (Emphasis added).
33
Id.
34
Tr. 160-161.
35
JX 69.
8
committee recommended Sanders and Chief Technology Officer David Strumpf

(“Strumpf”) be “granted significantly and timely salary increases”, with Sander’s

salary rising to $500,000 from $360,000.36 Amid obvious concerns about the

increases and SETI’s burn rate, the board, temporarily deferred consideration of

compensation.37

In response to the apparent concerns over compensation, Nangle offered to

“reduce by 70%” his compensation following the January 26 board meeting “until

such time as the planned further raise of [$5,000,000 additional funding was]

complete.”38 Wen Wu, another member of the SETI board and an important liaison

with Chinese based Gonghe for linguistic reasons, resigned from the board following

the compensation talks.39 According to Lyons, Wu “was frustrated that there was

what he believed [was] excessive compensation.” 40

The board readdressed compensation at the April 7, 2022 meeting. 41 The

compensation being paid to Sanders, Solomon, and Brown worried Plaintiff and

36
Id. at 3.
37
JX 75 at 1.
38
JX 75 at 1.
39
Tr. 20:1-15.
40
Tr. 20:9-10.
41
JX 110; Tr. 57:24-58:1.
9
other board members.42 Craig Lyons (“Lyons”), owner of Lyon Legacy Trust and a

member of the SETI board, expressed his concerns regarding compensation at

trial.43 Lyons voted against the compensation committee’s recommendation.44

Nangle and Strumpf, along with Plaintiff, also abstained from the vote. 45 Sanders,

Solomon, and Harrington voted in favor of the compensation committee’s

recommendation.46 Thus, on April 7, 2022, the board approved the compensation

amounts by a vote of three to one, with three abstentions.47

E. Plaintiff’s Demands
Plaintiff served his initial demand for books and records on SETI September

2, 2022 (“First Demand”). 48 In response, Sanders scheduled a board meeting on

42
Tr. 58:23-24.
43
Tr. 54:6-16 (“My concern was…pay ourselves, paying the team, too much. … I was
frustrated that the first thing we did [after raising capital] is go and try and pay people
more.”).
44
Tr. 57:15-16.
45
Tr. 57:21-22.
46
JX 110; Tr. 57:22-24.
47
JX 110; Tr. 57:24-58:1; Tr. 177:9-12. Sanders ultimately stayed at his previous salary
of $360,000 and Plaintiff conceded at trial that he did not vote against the proposed
compensation for Sanders, Solomon, or Brown when their salaries were originally set. See
Tr. 177-181; but see Tr. 181:21-22 (“I always thought the salaries were way too high.
Always.”). Rather, Plaintiff abstained from the vote on Sander’s compensation. JX 110 at
3.
48
JX 171.
10
September 6, 2022, which Plaintiff attended. 49 Sanders initiated the board meeting

“to discuss the [First Demand].”50

The First Demand sought:

(a) Any and all records pertaining to [Plaintiff’s] investment in
SETI including but not limited to: i. Shareholder agreements; ii.
Marketing materials; iii. All emails pertaining to [Plaintiff’s]
investment; iv. Bank records; v. Correspondence of any kind and in any
form; vi. Any written agreement related to or pertaining to the
investment of [Plaintiff] in SETI.
(b) Any and all records pertaining to SETI’s Investment in
MTPV, including but not limited to: i. Shareholder agreements; ii.
Marketing materials; iii. All emails pertaining to [Plaintiff’s]
investment; iv. Bank records; v. Correspondence of any kind and in any
form; vi. Any written agreement related to or pertaining to the
investment of [Plaintiff] in SETI.
(c) Excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of
Directors while acting in the place of the Board of Directors on behalf
of the corporation, minutes of any meeting of the shareholders, and
records of action taken by the shareholder or Board of Directors without
a meeting from January 2020 through July 2022.
(d) Accounting records of the corporation covering the period of
January 2020 through July 2022;
(e) The records of shareholders;
(f) Any other books and records;
(g) The Corporation’s Articles or restated Articles of
Incorporation and all amendments to them currently in effect;
(h) The Corporation’s Bylaws or restated Bylaws and all
amendments to them currently in effect;
(i) Resolutions adopted by the Corporation’s Board of Directors
in January 2020 through July 2022 creating one or more classes or
series of shares and fixing the relative rights, preferences, and

49
JX 172 at 2; JX 173.
50
Id.
11
 limitations, if shares issued pursuant to those resolutions are
outstanding;
(j) The minutes of all shareholders meetings and records of all
actions taken by shareholders without a meeting in January 2020
through July 2022;
(k) All written communications to all shareholders generally or
all shareholders of a class or series in January 2020 through July 2022,
including financial statements furnished under Delaware Statutes;
(l) A list of the names and business street address of the
Corporation’s current Directors and Officers;
(m) The Corporation’s most recent annual report delivered to the
Department of State under Delaware law; and
(n) All records of the Corporation, including all records
reflecting all activity in January 2020 through July 2022.” 51

According to the First Demand, Plaintiff’s purpose for requesting the

documents was “for [Plaintiff] to determine the financial status of [SETI] as well as

the activity of the Corporation from January 2020 through July 2022.” 52

In response to the First Demand, SETI confirmed its willingness to turn over

certain documents. 53 Namely, SETI would turn over (1) any restatements or

amendments to SETI’s incorporating documents or bylaws, (2) employment

agreements, (3) 2021 and 2022 financial statements, (4) any promissory notes for

which there is an amount due, (5) a stockholder list, and (6) the final versions of all

written consents and minutes of any meetings of stockholders or directors. 54

51
JX 171 at 4.
52
JX 171 at 5.
53
JX 204.
54
JX 204 at 1-2.
12
 SETI also proposed a confidentiality agreement to Plaintiff. Stock did not

execute the confidentiality agreement and seemed at trial to be unsure of why it was

never done.55 Nevertheless, Plaintiff did not receive any documents from SETI in

response to his First Demand.

Following Plaintiff’s First Demand, the board voted to remove Plaintiff as a

board member. He was officially removed from the board on September 16, 2022.56

The same day, Plaintiff’s counsel forwarded SETI’s counsel a letter formally

demanding that SETI and MITO formalize their distribution agreement.57 SETI’s

counsel responded stating that “SETI not only refuses to provide a draft of such a

document, but it vehemently denies that any such distribution rights were offered to

MITO or [Plaintiff].”58

Plaintiff made another demand for books and records on January 9, 2023 (the

“Demand”).59 Plaintiff’s Demand requested different documents, seeking:

1. All notices, minutes, consents and resolutions of the Board, and any
Board committees, related to the Company's distributorship
relationships, investor solicitations, Mr. Stock's termination and/or
the use of investor funds from January 1, 2020, to the present;

55
See Tr. 238-240; Tr. 240:14-15 (Stock testified that he “had no problem [signing] a
confidentiality agreement.”).
56
Tr. 226:22-227:4.
57
JX 183.
58
JX 185.
59
JX 208.
13
2. The Company's articles of incorporation and bylaws, including any
amendments thereto;
3. All employment agreements between the Company and any officers
or other employees of the Company from January 1, 2020, to the
present;
4. All documents and communications related to any bonus or other
compensation received by any officers or other employees, or third
parties (including Company counsel, Don Weinbren) of the
Company from January 1, 2020 to the present;
5. All documents and communications related to Mr. Stock's
investment in the Company, including any shareholder or other
agreements, marketing materials and/or bank records;
6. All documents and communications related to MITO serving as a
distributor for the Company or any offer for MITO to so serve;
7. All documents and communications related to Mr. Stock's service
on the Company's Board;
8. All documents and communications related to the PPM and
Business Plan, including any divergence from the plans stated
therein;
9. All documents and communications related to the Company's
agreement with Gonghe Electronics, including any defaults
thereunder.
10. All communications and agreements with existing or potential
investors in the Company;
11. True and full information regarding the status of the business and
financial condition of the Company, including the development of
its Power Packs and other key products;
12. Full and proper ledgers, other books of account, and records of all
receipts and disbursements, other financial activities, and the
internal affairs of the Company for 2020, 2021 and 2022 YTD;
13. Audited and/or unaudited financial statements, including a balance
sheet, a statement of income and loss, a statement of cash flow,
along with accompanying footnotes, and any semi-annual reports,
for the Company for 2020, 2021 and 2022 YTD;
14. Copies of the Company's federal, state and local income tax returns
for the years 2020 and 2021;
15. A current list of the name and last known business, residence and/or
mailing address of each stockholder of the Company; and

14
 16. The names and contact information for each officer and director of
the Company, including his or her date of appointment or
election.”60

II. PROCEDURAL POSTURE

Plaintiff filed this action pursuant to 8 Del. C. § 220 on January 30, 2023,

seeking to inspect SETI’s books and records.61 SETI answered the complaint on

February 22, 2023.62 Following SETI’s answer, both parties moved to compel

discovery from each other.63 Prior to hearing arguments on the motions, this case

was reassigned to me by the Chancellor. 64 On May 23, 2023, I heard oral arguments

on the motions to compel, denying Plaintiff’s motion and granting in part the

Company’s.65 Following a one day trial in Wilmington, Delaware on July 7, 2023,66

the parties submitted post-trial briefing.67

60
JX 208.
61
D.I. 1.
62
D.I. 10.
63
D.I. 20, 22.
64
D.I. 42.
65
D.I. 50-51.
66
D.I. 71.
67
D.I. 74, 75.
15
III. LEGAL STANDARD

Section 220 “provides stockholders with a qualified right to inspect corporate

books and records.”68 To obtain books and records, “a stockholder must satisfy the

statute’s form and manner requirements.” 69 Plaintiff must demonstrate by “a

preponderance of the evidence, a proper purpose entitling [him] to inspection of

every item sought.”70 He must also prove by a preponderance of the evidence that

“each category of books and records is essential to accomplishment of the

[Plaintiff]’s articulate purpose for inspection.” 71 Lastly, “a plaintiff who proves all

of these may be limited in its use of any information where the information is

confidential and release would harm the company.”72

A. Plaintiff’s Purposes
A stockholder’s proper purpose is the supreme factor in determining whether

they are entitled to inspection of the corporation’s book and records. 73 Section 220

68
Simeon v. Walt Disney Co., 2023 WL 4208481, at *18 (Del. Ch. June 27, 2023); 8 Del.
C. § 220.
69
Disney, 2023 WL 4208481 at *18; 8 Del C. § 220(b).
70
Thomas & Betts Corp. v. Leviton Mfg. Co., Inc., 681 A.2d 1026, 1028 (Del. 1996).
71
Disney at *18; Lebanon Cnty. Emps.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL
132752, at *6 (Del. Ch. Jan. 13, 2020), aff'd, 243 A.3d 417 (Del. 2020); Thomas & Betts,
681 A.2d at 1035.
72
Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 816 (Del. Ch. 2007); CM & M
Grp., Inc. v. Carroll, 453 A.2d 788, 792 (Del. 1982).
73
Ceridian Corp., 923 A.2d at 817; CM & M Grp., 453 A.2d at 792.
16
defines a proper purpose as one “reasonably related to such person's interest as a

stockholder.” 74 Courts have refused to order inspection where “the shareholder is

shown to have possession of all the information that is requested, or where the

request is made out of sheer curiosity, unrelated to any legitimate interest of the

stockholder, or where the sole purpose of the inspection is to harass the

corporation.”75 “It is settled law in Delaware that valuation of one's shares is a

proper purpose for the inspection of corporate books and records. Furthermore, once

a proper purpose is established, any secondary purpose or ulterior motive is

irrelevant.”76

When a corporation denies a demand on the basis that the Plaintiff requested

inspection under “false pretenses”, the corporate defendant bears the burden to prove

it.77 This fact intensive inquiry can be more complex than it appears, and in practice,

“difficult to establish.” 78 Where an alternative purpose exists, a stockholder need

only show that the purpose is secondary to its primary purpose which is indeed

74
8 Del. C. § 220(b).
75
CM & M Grp., 453 A.2d at 792.
76
Woods Trustee of Avery L. Woods Trust v. Sahara Enterprises, Inc., 238 A.3d 879, 892
(Del. Ch. July 22, 2020) (quoting Radwick Pty., Ltd. v. Medical, Inc., 1984 WL 8264, at
*1 (Del. Ch. Nov. 7, 1984).
77
Ceridian Corp., 923 A.2d at 817.
78
Id.
17
proper.79 A stockholder will not lose its statutory right of inspection, even if the

secondary purpose is improper for the sake of the statute.80

Here, Plaintiff’s demand seeks inspection of books and records for the

following reasons:

1. To value his interest in the Company;
2. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with certain
statements or misstatements in the Company's October 23, 2021
Private Placement Memorandum ("PPM") and/or Business Plan
regarding the status of the Company's relationship with MITO
Corporation ("MITO"); investigate possible wrongdoing or
mismanagement related to the PPM and Business Plan’s
representations, director and officer compensation, alleged self-
dealing, deviation from the PPM and Business Plan, delay in
developing the Power Pack, and to facilitate communications with
other stockholders.
3. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with the removal of
Mr. Stock as a director of the Company;
4. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with self-dealing
transactions and the diversion of corporate assets for the payment
of, among other things, inflated salaries and compensation to
Company officers and employees;
5. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with the Company's
communications, and lack of communications, with existing and
potential investors;
6. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with the Company's
divergence from its business plan as described in the PPM;

79
Id.
80
Id. (citing Sutherland v. Dardanelle Timber Co., 2006 WL 1451531, at *8 (Del.Ch.)
18
 7. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with the Company's
potential impending breach of its Exclusive Distribution and
Business Collaboration Agreement with Dongguan City Gonghe
Electronics Co. Ltd. ("Gonghe Electronics");
8. To investigate possible wrongdoing or mismanagement by the
Company's officers and directors in connection with the delay and
failure to complete development of its alternative energy Power
Packs and other key products; and
9. To facilitate communications with other stockholders concerning
the matters identified in paragraphs 1 through 8 above.81

“Delaware law does not require that a stockholder establish both a purpose for

seeking an inspection and an end to which the fruits of the inspection will be put.”82

However, if a stockholder does say what he will do with it, “then a court can take

those uses into account.”83 Here, the Plaintiff has identified their purposes and what

they plan to do, so I will consider their use where appropriate.

Although the Plaintiff identified nine purposes in his demand, the purposes

can be curtailed to identify three separate primary purposes for his request. First, he

seeks to value his shares in SETI. Second, Plaintiff seeks to investigate possible

wrongdoing and mismanagement. Finally, Plaintiff wishes to communicate with

other shareholders.

81
JX 208.
82
Sahara Enterprises, Inc., 238 A.3d at 891.
83
Amerisourcebergen, 2020 WL 132752, at *13.
19
 1. Valuing Shares

Plaintiff has proven by a preponderance of the evidence that he seeks to value

his shares in SETI. According to Plaintiff, his “number one” reason for seeking to

inspect books are records was because he had “a lot of money in [SETI]” as its

“founding investor.”84 Additionally, Plaintiff was concerned about the rapid

increase in share value. 85 That is, Plaintiff – an initial investor at fifty cents per

share—was troubled that the share price increased to $5.00 per share within a year.86

SETI does not refute that Plaintiff’s purposes are proper, but rather, they argue

that “Plaintiff’s stated purposes are pretextual.”87 They contend that where Plaintiff

seeks to investigate misleading statements in the PPM and Business Plan regarding

SETI’s relationship with MITO, his actual purpose is to seek revenge on SETI for

not memorializing an exclusive distribution agreement. 88

84
Tr. 143:16-22.
85
Tr. 143:19-21.
86
Tr. 143:19-21 (“And that’s highly unusual, especially when you have a company that’s
not producing any products, selling any products, and getting any revenue”); Tr. 231:9-
14(“…and you go from $1 to $5 within a year, it’s hard for me to get my head around
that.”).
87
DOB at 19.
88
Id.
20
 SETI argues that Plaintiff’s true purpose is to seek information regarding

SETI refusing to enter into an exclusive distribution agreement with MITO.89 But

Plaintiff credibly conceded at trial that he was not interested in pursuing an exclusive

distribution agreement any longer. 90 It follows, then, that if Plaintiff’s company is

not partnering with SETI in any more formal way, and he is no longer a member of

their board, that his remaining interest in the company relates to his role as a

stockholder. Accordingly, the Company has not proven that Plaintiff’s valuation

purpose is not his primary purpose and Plaintiff is therefore entitled to books and

records essential to valuing his shares in SETI.

2. Investigating wrongdoing
“It is well established that a stockholder’s desire to investigate wrongdoing or

mismanagement is a ‘proper purpose.’”91 Plaintiff “cannot satisfy this burden

merely by expressing a suspicion of wrongdoing or a disagreement with a business

decision.”92 Rather, "[t]o protect the corporation from indiscriminate fishing

expeditions and from demands grounded in nothing more than curiosity, [a] mere

statement of a purpose to investigate possible general mismanagement, without

89
DOB at 26-27.
90
See Tr. 170:2-4; 229:6-12.
91
Seinfeld v. Verizon Comm., Inc., 909 A.2d 117, 121 (Del. 2006).
92
Disney, 2023 WL 4208481 at n.128.
21
more, will not entitle a shareholder to broad § 220 inspection relief.”93 However,

“[a] stockholder is “not required to prove by a preponderance of the evidence that

waste and [mis]management are actually occurring. Stockholders need only show,

by a preponderance of the evidence, a credible basis from which the Court of

Chancery can infer there is possible mismanagement that would warrant further

investigation.”94 That burden may be established through “documents, logic,

testimony or otherwise, that there are legitimate issues of wrongdoing.”95

Delaware caselaw is instructive when determining what constitutes some

credible evidence for the standard. In Deephaven Risk Arb Trading Ltd. v.

UnitedGlobalCom, Inc. the company released inconsistent press releases which

appeared to contain false or misleading information, in conjunction with additional

circumstances, Vice Chancellor Parsons found the press releases sufficient to “infer

that wrongdoing may have occurred.”96 Additionally, in Marmon v. Arbinet-

Thexchange, Inc., the stockholder received information of “pervasive

mismanagement” from a member of the board. 97 Unable to offer the testimony by

93
Amerisourcebergen, 2020 WL 132752, at *8 (internal quotation marks omitted).
94
Verizon, 909 A.2d at 123 (internal quotation marks omitted).
95
Id.
96
2005 WL 1713067, (Del. Ch.).
97
2004 WL 936512, at *2 (Del. Ch.).
22
the source of his information at trial, the stockholder avoided violating the rule

against hearsay by not offering the information as proof of the matters asserted, but

instead as credible evidence to support a finding that issues of mismanagement were

present within the company.98

Plaintiff claims potential mismanagement at SETI can be linked to Power

Pack’s lack of development, divergence from and misrepresentations in the PPM

and Business Plan, communications (or lack thereof) with potential investors, self-

dealing transactions, significant raises in share prices, and unreasonable

compensation packages paid to board members as evidence of wrongdoing.99 SETI

responds by attacking Plaintiff’s ability to prove the compensation increases were

invalid—Plaintiff’s failure to provide expert testimony on the subject.

SETI, like many start-ups, utterly failed to achieve the revenue it originally

projected in 2022. 100 But SETI’s projections were based on commitments from

customers who relied on their advertised business plan and PPM—plans they

ultimately abandoned. 101 Although Plaintiff admitted at trial that SETI never used

98
Id. at *4.
99
Compl. ⁋⁋ 9-29.
100
Compl. at ⁋ 24.
101
Under its “Go to Market Strategy” section, SETI’s business plan states: “SETI has a
sales & distribution agreement with MITO, Inc…MITO has a national dealer distribution

23
the word “exclusive, ” Plaintiff’s contention that diversion from the plans—absent

adequate explanation from the company—is enough to wonder what happened. 102

Plaintiff also suspects wrongdoing due to self-dealing transactions. At trial,

both Lyons and Plaintiff testified that while the company was actively seeking

funding to meet certain funding goals, Sanders sold his personal shares to them

explaining that he was experiencing personal money issues.103 In December of 2020,

Stock made his initial investment of $500,000 for 1 million shares at $0.50 per

share. 104 Between then and January 25, 2021, Stock purchased an additional 100,000

shares at the increased price of $1 per share from Sanders, personally, stating that

Sanders told Stock it would “really help [him] out.” 105 Stock then purchased an

additional 1 million shares directly from the Company at $0.50 per share for

network that services two beachhead markets targeted by SETI…MITO will service the
$4.7B battery replacement market through its national distribution network.” JX 50 at 20;
The PPM identifies MITO as a “Sales and Distribution Partner.” JX 51 at 12; Potential
investors were given the business plan and PPM as a part of SETI’s presentation; Tr.
124:15-19; Distribution was an important consideration relative to the success of the
company; Tr. 28:17-Tr. 29; Although Plaintiff’s briefing focuses on SETI’s refusal to
adhere to his suggestion and expertise, I am in no way questioning the complicated business
decisions of the managers of the Company.
102
See Tr. 124-125; 144; Tr. 160-161; See generally Tr. 44-46.
103
Tr. 15:1-24; Tr. 16:1-17; Tr. 113:15-24; Tr. 114:1-5; JX 14.
104
JX 3.
105
Tr. 13:15-24; Tr. 14:1-5; JX 14.
24
$500,000 on January 27, 2021 106 —in at a total of $1.1 million. Subsequently in

July or August of 2021, Lyons also purchased stock directly from Sanders. 107 Lyons

purchased 100,000 shares, at yet-another increased price of $2.50 per share, paying

Sanders personally $250,000. 108

Board compensation is another reason Plaintiff suspects mismanagement or

wrongdoing. SETI’s board continued to express concerns about compensation.109

Lyons testified that board compensation was also a concern for him. 110 He thought

that the compensated board members should be taking less compensation to show

investors of their commitment and instead be incentivized by their own

investment.111 He was “frustrated that the first thing [they] did [was] go and try and

pay people more”112 “[E]ven though [they] raised the minimum amount of the

106
JX 15.
107
Tr. 16:10-15.
108
Tr. 16:10-15.
109
Tr. 145:7-13.
110
Tr. 27:13-20 (I was a little -- I was a lot taken aback at the option table. Right before I
invested, it looked like the company had authorized I think a $10 million option pool and
then immediately granted the bulk of those options, probably 8 million option shares,
mostly to insiders, to themselves, to the folks that were there. And I was surprised at that.
I didn't understand why you would do that.).
111
Tr.31: 15-24; Tr. 32:1-4.; Tr. 54:4-21.
112
Tr. 54:15-16.
25
round,”113 he didn’t think the Company was “swimming in free cash.” 114 Although

the board followed the recommendations of the compensation committee, mostly

interested board members voted for the salary increases—Fred Solomon, Chris

Sanders, and Bill Harrington.115 The Company argues that Plaintiff provided no

expert evidence to refute the compensation committee’s figures which were based

on comparable salaries. 116

Given the state of the company, I find that Plaintiff has shown, by a

preponderance of the evidence, a credible basis from which to suspect wrongdoing

and mismanagement. The constant raise in stock prices, the increases in salary

despite any forward progress in production or sales, the self-dealing transactions

with the CEO, and the deviations from the original business and marketing plans

without suggesting viable alternatives, together, logically meet the very minimal

credible basis standard required to survive for suspicion of wrongdoing and

mismanagement.

113
Tr. 54:12-13.
114
Tr. 54:14.
115
JX 110. Chris Sanders received an increase of $40,000 immediately and then an
additional $100,000 with additional capital raises overtime. Fred Solomon was adjusted
down $50,000 from $150,000. The committee recognized that he should have received an
increase of $50,000 from $150k to $200k, but because he decreased his work hours by
50%, he received an adjusted salary of $100,000, in consideration of the increase. Bill
Harrington’s salary was not adjusted. JX 69.
116
JX 72.
26
 3. Communicating with Stockholders

A section 220 complaint seeking a stockholder list for communication with

other stockholders is rarely denied. 117 And communication with other stockholders

about specific matters of corporate concern, has consistently been held to be a proper

purpose for a stockholder to obtain a stock list. 118 It is a sufficient defense of a

corporation to show that a stockholder list was sought for idle curiosity.” 119 Here,

Plaintiff describes what he wants to share with other stockholders: information about

potential mismanagement and wrongdoing. Accordingly, I am convinced the

request is not idle, rather it is a proper purpose.

B. The Scope of the Inspection

Plaintiff has established a proper purpose under Section 220. Thus, I

must determine “the scope of inspection” related to that purpose, which “is a fact

specific inquiry” granting “the court [] broad discretion when conducting it.”120

Plaintiff “bears the burden of proving that each category of books and records is

Polygon Glob. Opportunities Master Fund v. W. Corp., 2006 WL 2947486, at *6 (Del.
117

Ch. Oct. 12, 2006).
Conservative Caucus Rsch., Analysis & Educ. Found., Inc. v. Chevron Corp., 525 A.2d
118

569, 571 (Del. Ch. 1987).
119
Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563,570 (Del. 1997).
120
Myers v. Academy Sec., Inc., 2023 WL 4782948, at *14 (Del. Ch. July 27, 2023)
(quoting Hightower v. SharpSpring, Inc., 2022 WL 3970155, at *8 (Del. Ch. Aug. 31,
2022).
27
essential to accomplishment of the stockholder's articulated purpose for the

inspection.”121

When tailoring the production order, the court must balance the interests of

the stockholder and the corporation.122 “[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.”123

When determining the necessary and essential documents, courts have

grouped requests into three categories:

• “Formal Board Materials,” or “board-level documents that formally

evidence the directors’ deliberations and decisions and comprise the materials

that the directors formally received and considered”;

• “Informal Board Materials,” which “generally will include communications

between directors and the corporation's officers and senior employees, such

as information distributed to the directors outside of formal channels, in

121
KT4 Partners LLC v. Palantir Techs. Inc., 203 A.3d 738, 751 (Del. 2019).
122
Amerisourcebergen, 2020 WL 132752, at *24 (citing Sec. First, 687 A.2d at 569).
123
Id.

28
 between formal meetings, or in connection with other types of board

gatherings”; and

• “Officer-Level Materials,” which are “communications and materials that

were only shared among or reviewed by officers and employees.” 124

Most often, 220 demands only require Formal Board Materials, but should it

prove necessary, an inspection may extend all the way to officer-level materials.125

Plaintiff’s argue that the scope of demand should extend to all-levels of documents,

including informal documents such as emails because SETI failed to follow

corporate formalities.126 SETI argues that Plaintiff waived this request for certain

categories of documents by shifting the scope of the documents requested in the pre-

trial brief and at trial and that Plaintiff’s request seeks information already in his

possession. 127 I disagree.

1. Informal Materials

Plaintiff cites KT4 Partners LLC v. Palantir Techs. Inc., as a basis for his

request for the Company to include additional categories of documents, including

124
Hightower, 2022 WL 3970155, at *9.
125
Amerisourcebergen Corp., 2020 WL 132752, at *24.
126
Op. Br. At 32-34.
127
Defs. POB at 2.
29
emails.128 They argue that Palantir and its progeny require the production of emails

where there is a meritorious showing that a Company frequently utilized less-formal

methods of communication to conduct its business. 129 Under this theory, they assert

that the Company only sporadically formalized board actions.130 Plaintiff offers trial

testimony from Lyons who said that Board meetings were “loosely arranged,”131

Tara Brown’s deposition testimony where she admits that SETI possessed the

materials to function formally but still communicated through personal emails and

sent corporate documents that way. 132 Lastly, Plaintiff offers that the nature of the

suspected mismanagement and wrongdoing require the company’s informal

communications. 133

Defendant asserts that under Palantir, companies who perform traditional

business formalities should only need to produce those records and as such, Plaintiff

must show a specific need for additional materials.134 The Company furthers their

argument by highlighting the many ways SETI observes corporate formalities. SETI

128
PPB at 5.
129
Id. at 4-7.
130
PPB at 7.
131
PPB at 7; Tr. 17:5.
132
PPB at 9.
133
PPB at 10.
134
DPB at 11.
30
says it held “nearly” monthly board meetings, “prepares and maintains agendas,

minutes, resolutions, and written consents.” 135 SETI notes that it has the necessary

positions in place to conduct corporate formalities, such as a Chief Financial Officer,

Corporate Secretary, and Treasurer. SETI even employs a third party, Clear Trust,

to maintain its corporate records and Quickbooks, for its financial statements.136

Defendant also asserts that Plaintiff “failed to present evidence” that SETI conducts

business without board formalities.137

A stockholder may seek the tools to pursue a claim against the company under

section 220. The Delaware Supreme Court has at least inferred that the statue

permits inspection for this purpose but does so without permitting disruption of the

corporations' operations and decision-making. 138 Therefore, Stock’s request must

strike a balance between the two. Stock’s purposes require email’s due to the nature

of the wrongdoing. Several of the emails submitted to the court involved

compensation arrangements, board proposals, conversations around the business

plan, PPM, and distribution strategy. It follows then, that wrongdoing in these areas

is less likely to be evinced through the company’s corporate records if much of that

135
DPB at 12.
136
DPB at 13.
137
DPB at 16.
138
See Verizon, 909 A.2d at 121.
31
discussion occurred informally. While SETI certainly conducted formal board

meetings, Lyons credibly testified that much of the questionable decisions occurred

outside of those formal meetings.139 Certainly, Sanders did not offer his private

shares to Lyons and Stock in ear shot of the secretary for recording in the board’s

minutes. 140 Accordingly, to give Plaintiff the ability to achieve section 220’s

purpose, I must recommend that SETI disclose its emails.

2. Unnecessary Documents

In Plaintiff’s opening brief, Plaintiff asserts that all the documents requested

are necessary and essential.141 Plaintiff also asks for a wide range of documents

because the Company lacked formalities. 142 For each set of Plaintiff’s requested

“documents and communications” related to each proper purpose, Defendant claims

that Plaintiffs have certain documents in their possession. Namely, document set

number two “[t]he Company’s articles of incorporation and bylaws, including any

amendments thereto;” Defendant’s point out that those documents were submitted

as joint exhibit. Unless there are any unknown amendments, documents set two is

not necessary nor essential.

139
Tr 17:5-14.
140
Tr 16:1-7; Tr. 113:15-24.
141
POB at 36.
142
POB at 34.
32
 Document set six requests documents and communication relating to MITO

serving as distributor. Because Plaintiff admitted that he no longer desires to be in

contract with SETI, they are unnecessary. Likewise, document set ten is

unnecessary as it requests communications with potential investors. I find the

communications with potential investors are unnecessary as their interest in the

investigation of wrongdoing and understanding of the company is speculative since

potential investors lack a relevant interest in the Company.

IV. CONCLUSION

For the foregoing reasons I recommend that SETI give Plaintiff all document

sets except numbers two, six, and ten from the Demand. The Plaintiff has established

that the remaining category of books and records requested is essential and sufficient

to its stated purpose.

This is a final report and exceptions may be taken pursuant to Court of

Chancery Rule 144(d)(2). The stay of exceptions entered under the Chancellor’s

May 9, 2023, reassignment letter is hereby lifted.

33