Delaware Court of Chancery Strictly Applies Statutory Standing Requirement to Dismiss Books and Records Action by Former Stockholder Who Filed Hours After Effective Time of Merger
In Swift v. Houston Wire & Cable Co., 2021 WL 5763903 (Del. Ch. Dec. 3, 2021), the Delaware Court of Chancery applied Section 220(c) of the Delaware General Corporation Law to dismiss a books and records complaint filed shortly after an event that, under the terms of a merger agreement, caused the plaintiff’s shares to be cancelled. After the corporation entered into an agreement for a cash-out merger, a stockholder made a books and records demand. Under the merger agreement, upon the filing of the certificate of merger with the Delaware Secretary of State, stockholders’ shares would be cancelled and converted into the right to receive the merger consideration. The plaintiff filed his books and records action a few hours after that filing. In granting the corporation’s motion to dismiss, the Court of Chancery reasoned that Section 220(c) unambiguously required that a plaintiff “is” a stockholder at the time he files a Section 220 complaint; because here the plaintiff’s shares had already been canceled, he lacked standing. It was not relevant that the merger agreement set a later time for the closing of the merger, because the agreement deemed the shares cancelled upon the “effective time,” which was defined by reference to the filing of the certificate of merger. The Court also reasoned that, although the “shares” formally kept trading on the public market for a few hours after the certificate of merger was filed, all that was being traded at that point was the right to receive the merger consideration.