Wynnefield Partners Cap Value L.P. v. Niagara Corporation , download file. This Chancery Court case is an action under Section 220 of the DGCL. Wynnefield filed this action on April 14, 2005 seeking an inspection of books and records pursuant to Section 220 due to the decision of Niagara to deregister its common stock and an allegation that Niagra failed to comply with its reporting obligations under Federal Securities Laws.
This case provides a comprehensive analysis of the requirements of Section 220 and also illustrates how Section 220 cases can often be far from simple. Although on a conceptual level they are summary proceedings that simply seek documents, this case went to trial approximately five months after the complaint was filed and post-trial briefing and oral argument was not completed until February 15, 2006 with the detailed and thorough final written opinion coming four months thereafter. Thus, the right to obtain enumerated books and records came after approximately 15 months of filing suit and the substantial costs that necessarily follow therefrom.
Though many other Section 220 cases have been summarized on this blog,[use the search function in the right margin to find them], this case is a reminder that there must be a credible basis for wrongdoing and not a mere suspicion–assuming the claim of wrongdoing is the proper purpose for which the books and records are sought. Noteworthy about this decision is the clarification about a request for the stocklist (which the statute gives the corporation the burden to oppose as compared with the normal burden being on the shareholder). The case addressed the fact that the stocklist on its face did not reflect the number of Depository Trust Company (“DTC”) participants. The DTC registered its shares in the name of CEDE & Co., a partnership used by DTC solely as a nominee to hold the shares of the participants. ( The court observed that the names DTC and CEDE are often used interchangeably. )
Relying in part on prior caselaw, the court determined that a corporation was required to provide the breakdown and details behind the nominee names for purposes of allowing one to make contact with the shareholders whose shares are held by DTC. Those details are necessary in order to make meaningful the proper purpose of soliciting those stockholders for their proxies.