The Delaware Court of Chancery found that media reports of an industry-wide, federal investigation of potential unfair labor practices by the nation’s home builders, including the defendant, and several previous labor-related lawsuits against defendant, failed to support a books and records action. In this lawsuit, plaintiff sought to inspect the books and records of Lennar Corp. (“Lennar”), under Section 220 of the DGCL, for purposes of investigating breaches of fiduciary duty under Caremark, in connection with Lennar’s labor practices. Lennar rejected plaintiff’s demands for books and records on the basis that plaintiff did not present a credible basis from which any wrongdoing on the part of Lennar could be inferred. Lennar then moved for summary judgment.
The Court granted Lennar’s motion for summary judgment for the following reasons. Under Section 220 of the DGCL and the common law, a stockholder of a Delaware corporation is entitled to inspect the books and records of the corporation if the stockholder (1) identifies a “proper purpose” for the demand, and (2) supports the demand with a “credible basis” from which the court can conclude an investigation is warranted. Here, the Court held that plaintiff’s purpose for making the demand—to investigate ongoing compliance with labor laws for purposes of bringing a Caremark claim—constituted a “proper purpose” under Delaware law. However, the Court held that plaintiff had failed to show a credible basis for its allegations of wrongdoing. Relying on prior precedent, the Court rejected plaintiff’s argument that several lawsuits filed against Lennar between 2007 and 2009, but later settled by Lennar without an admission of culpability, provided evidence of wrongdoing. Further, the Court found unpersuasive several newspaper articles which simply reported that Lennar was one of many companies being investigated by federal agencies in connection with an industry-wide investigation of possible violations of federal labor laws.