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Kosinski v. GGP Inc.

Court of Chancery of Delaware

August 28, 2019

Randy KOSINSKI, Plaintiff,
v.
GGP INC., Defendant.

         Date Submitted: June 5, 2019

Page 945

[Copyrighted Material Omitted]

Page 946

          Seth D. Rigrodsky, Brian D. Long, Gina M. Serra, RIGRODSKY & LONG, P.A., Wilmington, Delaware; Carl L. Stine, Adam J. Blander, WOLF POPPER LLP, New York, New York; Counsel for Plaintiff Randy Kosinski.

         Kevin G. Abrams, John M. Seaman, Matthew L. Miller, ABRAMS & BAYLISS LLP, Wilmington, Delaware; John A. Neuwirth, Evert J. Christensen, Jr., Seth Goodchild, Matthew S. Connors, WEIL, GOTSHAL & MANGES LLP; Counsel for Defendant GGP Inc.

          MEMORANDUM OPINION

          McCORMICK, V.C.

          In 2018, GGP Inc. merged with its thirty-four percent stockholder. The plaintiff in this action owned GGP stock and sought books and records under Section 220 of the Delaware General Corporation Law to investigate

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possible wrongdoing in connection with the merger. After GGP rejected the inspection demand, the plaintiff commenced this action to enforce his inspection rights. In this action, GGP argues that the plaintiff is not entitled to inspect books and records because his stated purposes for inspection are not his own, he lacks a credible basis for investigating possible wrongdoing, and he otherwise fails to provide a proper purpose for requesting books and records. This post-trial decision finds in the plaintiff’s favor on each of these issues. This decision does not address the scope of inspection or whether the documents sought should be subject to confidentiality restrictions— the parties have twenty days to confer concerning these issues.

          I. FACTUAL BACKGROUND

         These are the Court’s findings of fact based on the paper record presented at trial. That record comprises sixty-one joint trial exhibits,[1] stipulations of fact in the pre-trial order, and the deposition testimony of the plaintiff.[2]

          A. The Merger

         GGP was a publicly traded real estate company incorporated in Delaware and headquartered in Chicago, Illinois.[3] In 2010, GGP emerged from bankruptcy and entered into a series of investment agreements, including one with Brookfield Property Partners L.P. (together with its subsidiaries and affiliates, "Brookfield"), a commercial real estate company.[4] Brookfield owned about thirty-four percent of the outstanding shares of GGP’s common stock.[5]

         On November 11, 2017, Brookfield submitted an offer to acquire all of the outstanding shares of GGP common stock it did not already own.[6] Brookfield offered to pay per share either 0.9656 units of Brookfield or $23.00, subject to proration.[7]

         The next day, the GGP board formed a special committee (the "Special Committee") to negotiate the merger.[8] At the time of the merger, the GGP board comprised Chief Executive Officer Sandeep Mathrani, Richard B. Clark, Mary Lou Fiala, J. Bruce Flatt, Janice R. Fukakusa, John K. Haley, Daniel B. Hurwitz, Brian W. Kingston, and Christina M. Lofgren.[9] Of the nine directors, three— Clark, Flatt, and Kingston— were affiliated with Brookfield and appointed by Brookfield to the GGP board pursuant to the Brookfield-GGP investment agreements.[10] The Special Committee comprised Fiala, Fukakusa, Haley, Hurwitz, and Lofgren.[11] Hurwitz was made the Special Committee chair.[12]

         The Special Committee negotiated with Brookfield throughout late 2017 and into early 2018, and entered into a merger

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agreement on March 26, 2018 (the "Merger Agreement").[13] Pursuant to the Merger Agreement, GGP stockholders were entitled to total per share consideration of $23.50 in cash, one Brookfield unit, or one share of a newly created U.S. Real Estate Investment Trust ("REIT"), subject to proration.[14] The Special Committee’s negotiation efforts resulted in a 50 cent per share increase.[15] Those efforts also increased the exchange ratio from 0.9656 to 1.0000.[16]

         The Special Committee unanimously recommended the transaction.[17] On July 26, 2018, GGP stockholders voted to approve the merger.[18] The merger closed on August 28, 2018.[19]

          B. The Demand for Inspection

         Plaintiff Randy Kosinski ("Plaintiff") is the quintessential main street investor. He lives in the suburbs of Buffalo, New York.[20] In his early twenties, he built a hockey rink, which he ran for around thirty-four years.[21] In retirement, Plaintiff has grown more interested in his stock portfolio.[22] In his words: "I’m not a rich guy. I make a living. I’ve worked for my living. Again, I’ve invested for my living, I babysit my living, I make sure what my stocks are doing, I do my homework."[23]

         Plaintiff did his homework on GGP. Since 2009, Plaintiff has accumulated 12,000 shares of GGP.[24] Plaintiff explained that he regularly reviewed GGP statements,[25] read analyst reports,[26] and followed the retail sector.[27] When the merger was announced, Plaintiff had an informed view on the market and believed that "[GGP] was making all the right moves" and that GGP’s "value was much greater" than the deal price.[28]

         Plaintiff was disappointed with the merger price.[29] His kneejerk reaction was to pursue a lawsuit challenging the merger.[30] The day after the merger was announced, Plaintiff responded to an advertisement from a law firm about a potential

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lawsuit challenging the merger.[31] The next day, Plaintiff called GGP’s Investor Relations department and left the following voicemail:

Kevin, I’m a shareholder. I’m wondering if you’re the investor relation guy or not, but I just needed to voice my opinion. I’ve been a long-term shareholder and this is a disgusting back-door deal that you guys just put together. I mean, this is full of fraud and I’m ...

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