Shareholder Suing for Mismanagement Gets Documents Related to Specific Allegations
Description Delaware court held that shareholders suing a company for mismanagement were not entitled to see all company records for the past ten years. The document request must be based on specific complaints. Records related to the complaints must be produced.
Topic Business Organization
Key Words Shareholder Request for Documents; Proper Purpose
C A S E   S U M M A R Y
Facts SSTG sent a request to inspect the books and records of defendant Ellipso covering a nine year period. SSTG, a shareholder of Ellipso, claimed mismanagement that caused the Ellipso to fail to take advantage of business opportunities. Ellipso rejected the inspection request, so SSTG sought a court order to obtain the records. Ellipso contended that the request was not justified.
Decision "SSTG's right of inspection [under Delaware law] depends on the propriety of the purpose stated in its demand. A purpose is 'proper' if it is 'reasonably related to [SSTG's] interest as a stockholder.'" SSGT must show at trial that there is "a credible basis to find probable wrongdoing on the part of corporate management." Mere curiosity or a fishing expedition for evidence will not suffice. SSGT is critical of Ellipso management and has not received explanations it finds adequate for business decisions made. Ellipso claims that SSGT's real motive is improper as it is involved in deals related to purchases of Ellipso stock. SSGT appears to have real concerns, however, the open ended document request is too broad. Given the specific complaints made by shareholder SSGT, it is entitled to see company records since the beginning of 1999 and the documents related to transactions that it has raised specific complaints about.
Citation Sahagen Satellite Technology Group, LLC v. Ellipso, Inc., 2000 WL 1456925 (Chancery Ct., Del., 2000)

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