Submitted: November 8, 2017
Michael Van Gorder, FARUQI & FARUQI, LLP, Wilmington,
Delaware; Amy Miller, Christopher J. Kupka, LEVI &
KORSINSKY, LLP, New York, New York; Attorneys for Plaintiff.
Stephen C. Norman, Tyler J. Leavengood, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; Anthony J. O'Malley,
VORYS, SATER, SEYMOUR & PEASE LLP, Cleveland, Ohio;
Attorneys for Defendant.
letter dated August 19, 2016, plaintiff Jack Wilkinson sought
to inspect specified categories of books and records of
defendant A. Schulman, Inc. (the "Company").
Section 220 of the Delaware General Corporation Law
authorizes such a request. It states, in pertinent part:
Any stockholder, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business
to inspect for any proper purpose, and to make copies and
extracts from: (1) The corporation's stock ledger, a list
of its stockholders, and its other books and records . . .
statute defines a "proper purpose" as "a
purpose reasonably related to such person's interest as a
demand letter identified four purposes for the requested
(i) To investigate potential wrongdoing, mismanagement,
breaches of fiduciary duties and/or waste of corporate assets
by the members of A. Schulman's Board of Directors (the
"Board"), or others related to the issues discussed
(ii) To assess the ability of the Board to consider
impartially a demand for action (including a request for
permission to file a derivative lawsuit on the Company's
behalf) related to the items described in this demand;
(iii) To take appropriate action in the event the members of
the Board did not properly discharge their fiduciary duties,
including the preparation and filing of a stockholder
derivative lawsuit or the sending of a litigation demand
letter, if appropriate; and
(iv) To discuss with the Board and/or management proposed
reforms to prevent any future wrongdoing or mismanagement
related to the issues discussed below.
"issues discussed below" involved a decision by the
Board to accelerate the vesting of 111, 365 shares of
restricted stock for the Company's President and Chief
Executive Officer, Joseph M. Gingo, when he retired effective
December 31, 2014.
demand explained that, under one reasonable reading of
Gingo's employment agreement, Gingo only was entitled to
pro rata vesting of the shares over
time. Based on the amount of time that had
elapsed between the grants and his retirement, he could
receive a maximum of 111, 365 shares. By accelerating the
vesting for all unvested shares, the Board caused an
additional 107, 775 shares to vest, worth over $3.9 million.
The demand contended credibly that (i) the shares were
performance awards under the terms of a stockholder-approved
equity compensation plan and (ii) accelerating the vesting of
the shares based on the fact of Gingo's retirement
violated the requirements for performance awards under the
demand articulated harm to the Company as a result of the
Board's decision, including the loss of favorable tax
treatment under Section 162(m) of the Internal Revenue Code.
The demand further observed that, when explaining its
rationale for accelerating all of Gingo's shares, the
Board referred only to the past services that Gingo had
provided to the Company. Because Gingo already had been
compensated for those services, and because the Board did not
identify any consideration that Gingo provided for the
additional shares, the demand posited that there was a
credible basis to suspect that the full acceleration could be
attacked as corporate waste. The demand also posited that the
directors who approved the acceleration could have been
serving Gingo's interest rather than the Company's,
giving rise to a credible basis to suspect a breach of the
duty of loyalty.
letter dated September 1, 2016, the Company rejected the
demand in its entirety. By letter dated September 23,
Wilkinson's primary counsel, Levi & Korsinksy LLP
("L&K"), followed up on the demand. By letter
dated October 12, the Company again rejected the demand in
filed suit on February 22, 2017. The parties engaged in
discovery, and Wilkinson was deposed. A trial ...