In a noteworthy decision from the Delaware Court of Chancery, Vice Chancellor Morgan T. Zurn dismissed a stockholder's attempt to use an appraisal petition as an alternative method to obtain corporate books and records.
What struck me most about this opinion is the court's thorough analysis of the statutory distinctions between Sections 220 and 262. Vice Chancellor Zurn methodically dismantled the petitioner's attempt to circumvent the inspection statute's "form and manner" requirements, emphasizing that these aren't mere technicalities but "mandatory statutory procedural standing requirements" that cannot be bypassed.
Of relevance to this opinion, last year I prepared a helpful updated primer of Delaware books and records demand litigation under Section 220 of the DGCL.
The case, Barkan v. Exabeam, Inc., involved a stockholder who never filed a Section 220 demand for books and records before Exabeam was acquired in a private stock-for-stock merger. Instead, Barkan filed what he called an "appraisal petition" under Section 262 of the Delaware General Corporation Law (DGCL), but admitted it was a "substitution" for obtaining documents that would have been available under Section 220.
The court dismissed the petition, emphasizing that Section 220's "form and manner" requirements are mandatory statutory procedural standing requirements. Barkan's failure to serve an inspection demand was fatal to his standing to seek inspection. The court clarified that Section 262 provides only one remedy – determining the fair value of a stockholder's shares – and doesn't offer an alternative path to obtaining books and records.
Vice Chancellor Zurn distinguished this case from Wei v. Zoox, where the court limited discovery in an appraisal action to what the stockholder would have received in a Section 220 action that was frustrated by a merger. Unlike in Zoox, Barkan never served a Section 220 demand at all.
The court also denied Barkan's motion to intervene in a related plenary action for the purpose of staying those proceedings while he completed his purported pre-suit investigation, since he lacked standing to conduct such an investigation.
Key Takeaway: This decision reinforces that Delaware's corporate inspection statute and appraisal statute serve distinct purposes with specific requirements that cannot be circumvented. Stockholders seeking pre-suit investigation materials must follow Section 220's requirements and cannot use Section 262 as an alternative path when they fail to do so. The decision underscores Delaware courts' consistent application of statutory standing requirements and cautions against attempts to expand statutory remedies beyond their legislative purpose.
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