01 April 2020 - Article
In a recently decided case, the Delaware Court of Chancery held that valuation of stock can serve as a proper purpose for a stockholder demanding to inspect the books and records of a corporation only if the stockholder has a specific need or reason for the valuation. In Mehta v. Kaazing Corp., the plaintiff (Kaazing Corporation's former CEO) demanded to inspect the company's books and records in his capacity as a stockholder. The plaintiff sought the books and records to value his stock and to ascertain if the company had engaged in mismanagement, waste or other wrongdoing in connection with various financing transactions. The company alleged that the stockholder had failed to establish a proper purpose for an inspection under Section 220 of the Delaware General Corporation Law and claimed that the stockholder really wanted to access documents otherwise inaccessible to him by discovery in an employment suit against the company. Ultimately, the Chancery Court granted the stockholder access to some (but not all) of the documents he had requested. The court concluded that valuation can be a proper purpose to inspect a company's books and records if there is a particular need or reason for such valuation. In doing so, the court ruled that the stockholder had not demonstrated a proper purpose because he did not show any reason to value his stock at the time of his demand. For more information, see http://courts.delaware.gov/Opinions/Download.aspx?id=262440.