Opinion
C.A. No. 5456.
Submitted: November 23, 1977.
November 25, 1977.
Rodman Ward, Jr., Esquire, Prickett Ward, Burt Sanders, Wilmington, Delaware. Lewis S. Black, Jr., Esquire, Morris, Nichols, Arsht Tunnell, Wilmington Delaware.
Gentlemen:
Plaintiff Bear, Stearns Co. ("Bear, Stearns") has brought this action pursuant to 8 Del.C. § 220 seeking inspection of the stockholder list of the defendant Pabst Brewing Company, ("Pabst"), a Delaware corporation. Bear, Stearns, a partnership, is an investment banking and brokerage firm. As part of its business it also renders financial opinions and other advisory services in the area of corporate security transactions. It is conceded that Bear, Stearns is a stockholder of record of Pabst.
Bear, Stearns acquired its present stock ownership in Pabst at the direction and on behalf of APL Corporation, ("APL"), a New York corporation. In purported compliance with 8 Del.C. § 203, the Delaware tender offer statute, APL has informed Pabst of its intention to make an offer to holders of common stock of Pabst to exchange their shares for debentures of APL. In furtherance of its plan to seek control of Pabst, APL has caused Bear, Stearns to purchase 400,054 shares of Pabst stock which is held of record in the name of Bear, Stearns as nominee for APL. (Bear, Stearns has since transferred 100 of the shares into the name of APL, but this is of no significance to the present controversy.) In order to facilitate its proposed exchange offer, APL has called upon Bear, Stearns to seek a stocklist from Pabst. To that end, Bear, Stearns, pursuant to the authority given by § 220 to do so, has appointed APL as its attorney-in-fact to actually seek production of the stocklist. APL has made written demand for the list, and Pabst has made written reply refusing to provide it.
As part of its proposed exchange offer APL has made filings with the Securities and Exchange Commission, and word as to their sufficiency is expected at any time. Also, a hearing has been set for November 30 before the Wisconsin Commissioner of Securities concerning applicable requirements of Wisconsin law as to the exchange offer, and, should the results of this hearing and the word from the Securities and Exchange Commission prove favorable to APL, the proposed offer could become operative within a matter of days. Thus APL asserts that it lacks the time to commence a § 220 action in its own name, but further takes the position that such action by it is unnecessary since there is no legal impediment to its nominee, Bear, Stearns, seeking the list for their joint use.
In this regard, Bear, Stearns is receiving a flat fee from APL for acting as its adivsor in the exchange offer and, in addition, it is understood that Bear, Stearns will act as dealer/manager for the exchange offer if and when it is actually made. For this latter service it will receive a per share commission for each share of Pabst acquired by APL and, if APL should be successful in acquiring the 4 million shares of Pabst that it is seeking, Bear, Stearns has a potential for total remuneration in the vicinity of $800,000 to $1,000,000.
Finally, in addition to seeking a list of the shareholders of record of Pabst, the demand of Bear, Stearns also asks that Pabst provide it with a breakdown of the benificial owners for whom Cede Co., as nominee of The Depository Trust Company, holds title to Pabst stock.
Pabst has refused to furnish the stocklist on two grounds. First, it takes the position that the demand patently reveals that it is not made for a proper purpose under Delaware law, and that in any event, it is defectively vague and unspecific since it does not relate to an impending stockholders meeting or other corporate proposal as required by Weisman v. Western Pacific Industries, Inc., Del.Ch., 344 A.2d 267 (1975). Second, it argues that Bear, Stearns has no need for the list inasmuch as Pabst has committed itself to the Wisconsin Commissioner of Securities to promptly mail any solicitation materials of APL to Pabst security holders upon receipt from APL of the reasonable expense of postage and mailing.
I find two of these arguments unpersuasive. The purpose stated in the letter of demand is as follows:
"The purpose of this demand is to permit APL and Bear, Stearns to communicate with other stockholders of Pabst on matters relating to their interests as stockholders, including communicating with Pabst stockholders in order to solicit offers from such stockholders to exchange their Pabst Common Stock for debentures of APL."
Obviously the demand does relate to a specific, impending event well within the knowledge of all concerned. Pabst offers no authority to the effect that the event giving rise to the need must be initiated by the corporation in order to justify stocklist inspection by a shareholder. Nor do I feel the case ofState ex rel Theile v. Cities Service Co., Del.Supr., 115 A.773 (1922) to be applicable to the present facts. This is not a case of a shareholder desiring inspection so as to compile a "sucker list" to sell commercially to anyone who might want it for his own gain. While Bear, Stearns is being compensated for its services to APL, it was not hired to obtain a stocklist and its actions are being taken on behalf of a substantial beneficial owner which does have a practical need for the list.
Secondly, the fact that Pabst has agreed to mail any materials of APL to its shareholders is of no significance. In Kerkorian v. Western Airlines, Inc., Del.Ch., 253 A.2d 221, aff'd, 254 A.2d 240 (1969) it was held that a stockholder is not limited to communicating with other stockholders through management, but rather that he has "a right to go to stockholders directly, without procedural impediment if he desires to do so." Pabst's offer of assistance provides no defense.
This brings us to the main issue for decision. As Pabst points out, while the relief provided by § 220 is virtually absolute as to stocklist inspection, case precedents have tended to require strict adherence to the requirements of the statute in the interest of insuring prompt and limited litigation. See,Northwest Industries v. B.F. Goodrich Co., Del.Supr., 260 A.2d 428 (1958); Lenhan v. National Computer Analyst Corp., Del.Ch., 310 A.2d 661 (1973). Thus, Pabst contends that this strict interpretation of the statute requires that the purpose, in order to be a proper one, must be that of the stockholder of record since a beneficial owner of corporate stock has no right of inspection under § 220. Compare Lenahan v. National Computer Analyst Corp., supra. The demand here indicates that Bear, Stearns seeks the list to further APL's exchange offer plan. Pabst suggests that this establishes that Bear, Stearns has no interest other than bare record title, and that as a consequence it has no genuine concern for what other Pabst stockholders may do in response to APL's offer. It has no real interest as a stockholder which would be affected by a change in ownership or control of Pabst, and it has no genuine interest itself in opposing or promoting the exchange offer. All of these interests are those of APL, the beneficial owner of Bear, Stearns stock. Thus Pabst argues that the technical requirements of § 220 are not met by combining a recordholder's status with a non-recordholder's purpose.
However, while Pabst makes a fair argument based upon a literal reading of the statute, the precedents cited by Bear, Stearns appear to undercut this approach. In Trans World Airlines, Inc. v. State ex rel Porterie, Del. Supr. 183 A.2d 174 (1962) our Supreme Court held it to be a proper exercise of inspection rights under the statute or one to purchase 100 shares of stock after the commencement of litigation by the corporation and to use his status as a stockholder of record as a basis to seek a stocklist on behalf of the defendants in the litigation who were not stockholders), and who inspired the demand by the stockholder and who were financing him in his efforts because of their desire to communicate with other stockholders of Trans World Airlines concerning the litigation. The Supreme Court further disapproved expressly of a limitation imposed by the trial court on the right of the stockholder-agent to disclose the stocklist information to his principals.
In State ex rel Healy v. Superior Oil Corp., Del. Super., 13 A.2d 453 (1940), the petitoner was stockholder of record who sought inspection at the direction and on behalf of an Atlantic City stockbroker who, in turn, engaged counsel on her behalf to assist her in her purpose. The result of the decision indicates that this was not improper, and the Healy decision was expressly relied upon and, approved by the Supreme Court in Trans World Airlines. In neither of these cases was the stockholder holding title as a fiduciary for the beneficial owner, as is the situation here. A fortiori, it would seem that the case for granting inspection here is even stronger than in either Healy or Trans World Airlines. Furthermore, as Bear, Stearns notes, to allow it inspection as nominee-stockholder is in keeping with other portions of the corporation law which require that where a beneficial owner desires appraisal of his stock, the demand must be made on his behalf by the nominee holding legal title for him. Having considered the arguments, I conclude that Bear, Stearns is entitled to relief.
The scope of the relief, however, is a different matter. Bear, Stearns wants a "Cede breakdown" to be provided by Pabst. It says that since Cede Co. is the nominee for the Depository Trust Company, which in turn holds title through individual brokerage firms on behalf of the true beneficial owners, that it is of no assistance in communicating with the true beneficial owners to be told that Cede Co. is the stockholder of record of a large block of Pabst stock. Bear, Stearns says that Cede Co. is obligated to give Pabst such a breakdown at Pabst's request, but that no other stockholder can obtain this breakdown in the absence of Pabst's approval. They say that the recent birth of The Depository Trust Company as a convenience to brokerage firms and so as to reduce transfer expenses and paperwork is something which did not exist and which therefore was not contemplated by § 220 at the time of its most recent enactment. Because of this and in the interests of fairness, Bear, Stearns argues that Pabst should be compelled to provide this "Cede breakdown" as part of furnishing a current stocklist so as to avoid giving it an advantage in communicating with the real parties in interest concerning the APL exchange offer.
As a practical matter, this argument, if true, might seem to have some merit. However, on the present record, there is nothing but the admitted assumption or opinion of an APL officer that a "Cede breakdown" would be unavailable to a stockholder who has been granted inspection rights for the purpose of placing him on a par with corporate managment in communicating with other shareholders. In short, the disadvantage on which the claim for this unusual relief is based has not been adequately established, at least as I view the evidence.
At § 220(c) it is provided that this Court, after hearing may summarily order a corporation to make available for inspection an "existing list of stockholders," or, alternatively, it may order that the corporation furnish "a list of its stockholders as of a specific date." Since the basis for the right of inspection is the stock ledger of the corporation, then it would seem that the only requirement of the statute is that the corporation provide to the stockholder the stocklist as maintained by the corporation as of either an existing or specified date. Should this include a "Cede breakdown," then it should be furnished without deletion. If it does not, there is nothing in the statute to indicate that the existing stocklist should be expanded for the benefit of the shareholder.
In conclusion, I find that the plaintiff, Bear, Stearns, is entitled to have a list of Pabst stockholders promptly made available to it, but that as a part thereof Pabst shall be under no duty to take any separate action to identify the beneficial owners of Cede Co. I ask that a form of order be submitted forthwith.