Chancery Dismisses Section 220 Complaint on Jurisdictional Grounds, Finding That Plaintiffs Filed Seven Hours Prematurely
MaD Investors GRMD, LLC, et al. v. GR Cos., Inc., C.A. No. 2020-0589-MTZ (Del. Ch. Oct. 28, 2020)
At 5:03 p.m., on the fifth day after serving a Section 220 demand (the “Demand”) on GR Companies, Inc. (the “Company”), MaD Investors GRMD, LLC and MaD Investors GRPA, LLC (together, “Plaintiffs”), filed a complaint to compel inspection of books and records pursuant to 8 Del. C. § 220 (the “Complaint”). The Company filed a motion to dismiss, asserting that Plaintiffs had filed the Complaint prematurely. Plaintiffs filed a cross-motion for leave to amend the Complaint (the “Leave Motion”).
Section 220(c) provides that stockholders may not file a books and records action until the company (1) refuses a demand to provide books and records, or (2) has not replied “within 5 business days after the demand has been made.” Here, the Demand was made on July 9 and the Complaint was filed at 5:03 p.m. on July 16. Because the Company never responded to the Demand, it argued that Plaintiffs could not file the Complaint prior to 12:00 a.m. on July 17. In response, Plaintiffs argued that they complied with the deadline because (1) the Company “refused” the Demand by requesting an extension to respond on July 15, and (2) the response period ended at 5:00 p.m. (the Court’s filing deadline) on the fifth business day following service of the Demand. In rejecting these arguments, the Court found that, because the request for an extension was not alleged in the Complaint, it was not properly before the Court and, in any event, this request did not constitute a refusal under Section 220. The Court also found that Section 220 refers to “business day” not “business hours,” and the commonly accepted meaning of a “business day” is “a twenty-four hour day other than weekends and holidays.”
Having found that the Plaintiffs had filed the Complaint prematurely, the Court held that it did not have jurisdiction over the Complaint or any request to supplement it. Furthermore, the Court held that, despite the fact that Plaintiffs no longer had standing as stockholders that would allow them to file a curative demand (due to the subsequent closing of a merger), there was no “equitable safe harbor” excusing the premature filing of the Complaint.
For the foregoing reasons, the Court dismissed the Complaint with prejudice and denied the Leave Motion.