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Walker v. Cabo Verde Capital, Inc.

Court of Chancery of Delaware

June 8, 2017

Donald Walker
v.
Cabo Verde Capital, Inc.

          Submitted: May 31, 2017

         Dear Counsel and Mr. Walker:

         Pending before me is a motion to dismiss a petition for books and records of a corporation. For the reasons that follow, I recommend the Court grant the motion. This is my final report.

         Plaintiff Donald Walker holds stock in Cabo Verde Capital Inc. ("the Company"). Walker sent the Company a demand letter pursuant to 8 Del. C. § 220 on October 29, 2015, at which time the Company was incorporated in Delaware. I will refer to the Company in its Delaware form as "Cabo Delaware." Cabo Delaware merged into Cabo Verde Capital, Inc., a Nevada corporation ("Cabo Nevada"), effective November 6, 2015, upon the filing of a Certificate of Merger with the Delaware Secretary of State.[1] Cabo Delaware ceased to exist as of November 6, 2015.

         On November 10, 2015, four days after the merger, Walker filed a pro se complaint to compel the inspection of Cabo Delaware's books and records for the purpose of determining the value of Walker's stock.[2] Walker attempted to serve Cabo Delaware's former registered agent on November 19, 2015, and served the Company via the Delaware Secretary of State on May 5, 2017.[3]

         The Company, in its only existent form of Cabo Nevada, moved to dismiss on September 10, 2016, and renewed that motion in part on May 31, 2017, after Walker served the Company. Cabo Nevada asserts Walker's complaint should be dismissed for lack of standing because Walker was not a stockholder of Cabo Delaware when he filed his complaint, due to the merger. The parties briefed Cabo Nevada's motion, and I held a teleconference with Walker and Cabo Nevada on April 5, 2017.

         The issue of whether Walker has standing to bring this action is jurisdictional.[4] A party seeking to invoke the jurisdiction of a court bears the burden of establishing standing to sue.[5] The Court may take judicial notice of documents on file with the Secretary of State at the motion to dismiss stage.[6]

         Though Walker has asserted in connection with the motion to dismiss that the merger was invalid, I presume it is valid for purposes of this Section 220 action. "The scope and purpose of a Section 220 proceeding is narrow."[7] This Court has declined to enlarge the scope of a Section 220 proceeding to determine the validity of an underlying merger, assuming instead that the merger was valid.[8]Walker did not attack or question the merger in his Complaint. To the contrary, he admitted in a January 14, 2016, status letter to the Court that "the Defendant moved its offices out of Delaware and merged itself into a Nevada subsidiary." [9] Accordingly, "I do not, and need not, consider the purpose, legality or timing of the merger."[10]

         Cabo Nevada's November 6, 2015, certificate of merger provides that Cabo Delaware merged into Cabo Nevada effective as of the date of filing, and that Cabo Nevada was the surviving corporation. Walker held stock in Cabo Delaware when he sent his demand letter on October 29, 2015, but did not when he filed his complaint on November 10, 2015, due to the intervening merger.

         Vice Chancellor Glasscock recently resolved the precise standing issue before me:

Must a plaintiff seeking corporate records under Section 220 of the Delaware General Corporation Law be a stockholder at the time she files her complaint, in order to have standing to pursue the action? If a stockholder makes a proper demand under Section 220, and a merger thereafter terminates the stockholder's ownership interest in the corporation, does the now-former stockholder have standing to bring a complaint for corporate records?[11]

         In Weingarten, the plaintiff held stock in the defendant company prior to the merger, but the merger cancelled that plaintiff's stock and converted it into the right to receive cash.[12] As in this case, the plaintiff sent a demand letter before the merger was consummated and filed suit afterwards. The defendant argued the complaint should be dismissed for lack of standing.

         The conclusion in Weingarten is straightforward and dispositive. I cannot improve on its language or tailor it more ...


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