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Delaware Court of Chancery dismisses books and records action as premature

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Page d'accueil Perspectives Delaware Court of Chancery dismisses books and records action as premature
In MaD Investors GRMD, LLC v. GR Cos., Inc.,1 the Delaware Court of Chancery held that it lacked jurisdiction to hear a books and records matter because the plaintiff failed to wait the statutorily imposed five-day period between the time the demand was made on the company and the time the plaintiff filed the action. In this case, the plaintiff filed its complaint at 5:03 p.m., three minutes after the typical 5:00 p.m. deadline imposed by the Delaware Supreme Court in In Re Work Life Balance & The Adoption of New Filing Deadlines for All Delaware Courts (the Work/Life Balance Order). The MaD Investors opinion is significant because since the Delaware Supreme Court issued the Work/Life Balance Order on July 18, 2018, few Delaware courts have had the opportunity to explore exactly which types of filings are due by 5:00 p.m. and which types of filings are due by 11:59 p.m., the previous cutoff.

Background

In July 2018, the Delaware Supreme Court entered the Work/Life Balance Order directing, among other mandates, that all Delaware state courts amend their rules to reflect a filing deadline of 5:00 p.m. This new 5:00 p.m. deadline, however, did not apply to initial pleadings, notices of appeal, and electronic filings in expedited matters.

In July 2020, MaD Investors GRMD LLC and MaD Investors GRPA LLC (collectively Plaintiffs) served a demand to inspect the books and records of GR Companies, Inc. (the Company) pursuant to Del. Code Ann. tit. 8, section 220. The demand was served on July 9, 2020, and sought to investigate possible breaches of fiduciary duty by the company’s officers and directors in connection with a then-proposed acquisition by Curaleaf Holdings Inc. Plaintiff claimed that Company insiders renegotiated a conflicted transaction, and that the Company’s board failed to take protective measures, such as forming a special committee of disinterested directors to evaluate the proposed transaction.

Section 220 states that if a company fails to respond to a demand for inspection within five business days of service of the demand, “the stockholder may apply to the Court of Chancery for an order to compel such inspection.”

On July 15, Plaintiffs filed their complaint to compel inspection, but promptly withdrew that complaint, recognizing that it was premature. Then, on July 16, at 5:03 p.m., plaintiffs again filed their complaint. The Company responded to the complaint with a motion to dismiss, arguing that Plaintiffs again had failed to comply with section 220’s requirement to wait five business days after the company’s receipt of the demand to file suit.

Analysis

Plaintiffs argued that their complaint should not be dismissed because it was filed in accordance with the statutorily imposed five-business-day waiting period, which Plaintiffs argued ended at 5 p.m. on the fifth business day following the service of demand.

The Court of Chancery began its analysis by observing that the common definitions indicate that “business day” as it is used in section 220 refers to a full 24-hour calendar day. The court held that “Plaintiffs’ response period did not terminate until 12:00 a.m. on July 17,” because the Company had five full business days to respond. The court further clarified that “[t]he complaint, filed at 5:03 p.m. on July 16, was filed too early, and must be dismissed” because the court lacked jurisdiction over the matter because of Plaintiffs’ early filing.