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Chancery Grants Books and Records Mismanagement Inspection Related to Rejected Financing Proposal Despite Potential Lack of Actionable Claim

Alexandria Venture Investments LLC v. Verseau Therapeutics Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020)

This case highlights that the potential lack of an actionable claim generally is not a valid defense to a demand for books and records where the stockholder meets the low threshold of proving a credible basis to suspect wrongdoing. Plaintiffs sought to compel inspection of books and records of Verseau Therapeutics, Inc. (“Verseau”), pursuant to Section 220 of the Delaware General Corporation Law, to investigate whether Verseau’s directors violated their fiduciary duties by rejecting a financing proposal (made by the plaintiffs) to favor the interests of certain directors and affiliates. Verseau objected, arguing in part that plaintiffs did not have a credible basis to suspect wrongdoing because a majority of independent and disinterested Verseau directors had made all relevant decisions. 

In granting inspection, the Court of Chancery followed the Delaware Supreme Court’s recent holding in AmerisourceBergen Corp. v. Lebanon County Employees’ Retirement Fund, which explained that the Court of Chancery should “defer the consideration of defenses that do not directly bear on the stockholder’s inspection rights, but only on the likelihood that the stockholder might prevail in another action.” Putting aside whether the plaintiffs had alleged an actionable claim, the Court found that the totality of the circumstances in the record—involving officer resignations and a late-rejected financing proposal seemingly in favor of an insider’s proposal—were enough to support a credible basis to infer potential mismanagement. Regarding the scope of the inspection, the Court ordered the production of formal materials of the board of directors related to the rejected financing proposal. Considering the state of the record, the Court found it both permissible and desirable for the parties to confer on the availability and scope of additional records subject to inspection, if any, before ruling further. 

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