Central Laborers Pension Fund v. News Corp., C.A. No. 682, 2011 (Del. May 29, 2012)
The Delaware Supreme Court affirmed the Chancery Court’s dismissal of plaintiff’s action to inspect the books and records of defendant News Corporation (“News Corp.”), under Section 220, but found that the Chancery Court should not have addressed whether plaintiff had shown a proper purpose for making an inspection demand prior to resolving whether plaintiff’s demand complied with Section 220’s procedural standing requirements.
In March 2011, Central Laborers Pension Fund (“Central Laborers”) delivered a demand letter to News Corp. requesting to inspect books and records relating to News Corp.’s proposed acquisition of Shine Group Limited. However, the letter contained several critical errors. First, the demand letter specified that Central Laborers was seeking to inspect the books and records of Viacom Inc., not News Corp. In addition, the demand letter identified Central Laborers as the beneficial owner of 14,110 News Corp. shares, but failed to attach evidence of Central Laborer’s beneficial ownership of such shares as required by Section 220. The Chancery Court did not address these procedural deficiencies when defendant subsequently moved to dismiss the Section 220 action. Instead, the Court dismissed plaintiff’s Section 220 action for failure to state a proper purpose because plaintiff filed a derivative action subsequent to filing the Section 220 action and thereby conceded that a books and records inspection was unnecessary.
On appeal, the Delaware Supreme Court found that the Chancery Court should not have resolved the motion to dismiss on a substantive issue prior to considering whether Central Laborers’ demand complied in form and manner with Section 220. According to the Court, Section 220’s procedural requirements ensure the maintenance of a proper balance between the interests of stockholders and the interests of corporate management. Accordingly, the Court affirmed the Chancery Court’s decision dismissing plaintiff’s Section 220 action, but on the alternative basis that Central Laborers did not establish its standing to inspect News Corp.’s books and records.
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