Kosinski v. GGP Inc.

• Decision Date: 28 August 2019
• Docket Number: C.A. No. 2018-0540-KSJM
• Citation: 214 A.3d 944
• Parties: Randy KOSINSKI, Plaintiff, v. GGP INC., Defendant.
• Court: Court of Chancery of Delaware

214 A.3d 944

Randy KOSINSKI, Plaintiff,

v.GGP INC., Defendant.

C.A. No. 2018-0540-KSJM

Court of Chancery of Delaware.

Date Submitted: June 5, 2019

Date Decided: August 28, 2019

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 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 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 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 very disappointed. Hopefully, we'll win our case. Thank you.³²

Plaintiff subsequently learned of his information rights as a GGP stockholder.³³ He came to believe that obtaining information was the logical first step. As he said, "I felt that [counsel] had the right approach about obtaining books and records and not to put the cart before the horse ...."³⁴

Around July 9, 2018, through counsel, Plaintiff demanded inspection of GGP's books and records pursuant to Section 220.³⁵ Plaintiff testified that he relied on counsel to prepare the demand letter, but that he reviewed it before it was sent and concluded it accurately reflected his purposes.³⁶ During his deposition, Plaintiff explained each purpose in detail.³⁷

C. This Litigation

GGP rejected Plaintiff's demand on July 17, 2018.³⁸ On July 25, 2018, Plaintiff filed his Verified Complaint Pursuant to 8 Del. C. § 220 to Compel Inspection of Books and Records. GGP answered the complaint and the parties stipulated to a trial date. GGP deposed Plaintiff on March 20, 2019, and his deposition testimony was admitted as evidence at trial.³⁹ The parties completed briefing on May 14, 2019,⁴⁰ and the Court held trial on June 5, 2019.

Other stockholders filed plenary class action litigation in this Court⁴¹ and in federal court.⁴² Plaintiff moved to intervene in the action pending before this Court on March 6, 2019.⁴³ Counsel to the class stipulated to permit intervention for limited purposes and to stay the plenary litigation pending resolution of the instant action.⁴⁴

II. LEGAL ANALYSIS

Under Section 220, a stockholder is entitled to inspect a company's books and records if he demonstrates by a preponderance of the evidence that he: "(1) is a stockholder of the company, (2) has made a written demand on the company, and (3) has a proper purpose for making the demand."⁴⁵ If a stockholder meets these three requirements, he must then establish "that each category of the books and records requested is essential and sufficient to [his] stated purpose."⁴⁶

Defendant challenges Plaintiff's Section 220 demand on three grounds. First, Defendant argues that Plaintiff's purposes in making the demand were his lawyers' rather than his own. Second, Defendant argues that Plaintiff's stated purposes are improper. Third, Defendant argues that the categories of documents Plaintiff seeks are not necessary and essential to his enumerated purposes.

A. Plaintiff's Purposes Are His Own.

Defendant argues that Plaintiff's demand and this litigation are lawyer-driven and reflect the intentions of Plaintiff's counsel rather than Plaintiff himself.⁴⁷

It is true that "[a] corporate defendant may resist demand where it shows that the stockholder's stated proper purpose is not the actual purpose for the demand."⁴⁸ However, "[s]uch a showing is fact intensive and difficult to establish."⁴⁹ In Wilkinson v. A. Schulman, Inc ., this Court declined to enforce inspection rights because "the purposes for the inspection belonged to [the plaintiff's] counsel ... and not to [the plaintiff] himself."⁵⁰ Several unusual facts led the Court to conclude that the plaintiff in Wilkinson merely "lent his name" to counsel for purposes of counsel's own Section 220 investigation.⁵¹ In that case, the plaintiff admitted in his deposition testimony that the purposes in his demand letter were not his own and that his counsel came up with each of them.⁵² Discovery revealed that the issue that concerned the plaintiff (the company's negative financial results) "differed substantially" from what his counsel ultimately chose to investigate (an executive compensation issue).⁵³ Also, the plaintiff lacked any understanding of his demand letter or involvement in the action to enforce his inspection rights.⁵⁴

In this case, Defendant emphasizes the fact that Plaintiff's original intention in retaining counsel was to commence litigation challenging the merger, rather than to seek to inspect books and records.⁵⁵ Defendant contends that Plaintiff's counsel, having failed to file suit before three other GGP stockholders did in April and May 2018, "lost the race to the courthouse" and decided to go the Section 220 route instead.⁵⁶ This, Defendant argues, qualifies as the sort of "lawyer-driven litigation" that Wilkinson wards against.⁵⁷ Defendant also points to a text-message in which Plaintiff references his books and records demand and states that he had made a lot of money on his GGP stock, "so...