Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
By Michael Greene
March 10 — The Delaware Chancery Court March 4 denied a Parker Drilling Co. stockholder's requests for documents to identify two senior executives and outside legal counsel who were involved in funneling $1.25 million in bribes to Nigerian officials.
The plaintiff stockholder sought books and records for the purpose of investigating whether to pursue further derivative litigation or to demand Parker's board to take action in relation to past Foreign Corrupt Practices Act violations.
However, Vice Chancellor John W. Noble found that the plaintiff failed to establish that it was entitled to an inspection under 8 Del. C. §220 because collateral estoppel barred the plaintiff from pursuing further derivative litigation and the documents sought were unnecessary to make a demand on the company's board.
Vice Chancellor Noble observed that an otherwise proper purpose of investigating possible derivative actions may be deemed improper if claim or issue preclusion would bar such actions.
He determined that the plaintiff was barred from pursuing a derivative action for FCPA-related issues because the facts and legal theories underlying the alleged breach of fiduciary duties claims were sufficiently similar to another stockholder's derivative action that a Texas federal court dismissed for failure to plead demand futility.
Noble concluded that the company's subsequent settlements with the U.S. Department of Justice and Securities and Exchange Commission did not represent “new facts” that would have materially affected the Texas court's decision.
“This Court has observed that a prior plaintiff’s decision against making a Section 220 demand before pleading demand futility does not prevent collateral estoppel,” Noble wrote.
He added that because the plaintiff had proceeded with the same strategy in its ongoing Texas derivative action, “it should not be heard to complain that such a decision alone rendered the [federal action] plaintiff an inadequate representative of its interests.”
The court additionally held that the plaintiff did not need to know the identities of the two executives, the outside legal counsel and law firm involved in the Nigerian bribing scheme in order to make a demand on the board.
Vice Chancellor Noble opined that even though seeking information for making a demand on the board is a proper purpose under §220, the scope of the plaintiff's inspection is limited to documents necessary and essential to such a purpose.
He determined that through documents that accompanied the company's settlements, the plaintiff knew sufficient details about the bribing scheme, as well as the steps Parker's board had taken to remediate its FCPA-related issues, to make a demand on the board.
“[Plaintiff] can request that Parker’s board take further action against the wrongdoers without itself knowing their identities,” he wrote, adding that the plaintiff “already has sufficient information to pursue this course of action; the production it seeks is not necessary and essential.”
Accordingly, the court entered judgment in favor of Parker and denied the books and records demand.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
The opinion is available at http://www.bloomberglaw.com/public/document/Fuchs_Family_Trust_v_Parker_Drilling_Co_No_9986VCN_2015_BL_60639_.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)