Investor Status Clarified in `Unique' Del. Inspection Ruling

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By Michael Greene

Aug. 8 — A former Hybrid Energy Inc. employee can't inspect the company's internal documents even though its stock ledger identifies him as a shareholder, the Delaware Chancery Court ruled Aug. 5 ( Pogue v. Hybrid Energy Inc. , 2016 BL 254060, Del. Ch., No. 11563-VCG, 8/5/16).

In a case involving “unique” circumstances, Vice Chancellor Sam Glasscock III said the court isn't limited to looking at a company's stock ledger to determine whether a plaintiff is a shareholder that can sue to inspect a company's books and records. Instead, he found the stock ledger only creates a presumption of ownership which can be rebutted by evidence in the record.

Under Delaware General Corporation Law Section 220, shareholders have the right to inspect a company's books and records when they state a legitimate purpose for doing so. Plaintiffs seeking inspections have the burden of establishing that they are stockholders.

The stock ledger is a record of stock transactions that companies maintain, and it typically is used to establish stock ownership.

Void Issuance

The dispute stemmed from Hybrid denying plaintiff James Pogue's demand to inspect the company's records. Pogue claimed that Hybrid issued him one million shares of stock in 2011, and the inspection would help him ascertain the value of the shares. The company argued that Pogue lacked standing to make an inspection demand because he isn't a stockholder.

According to the court's decision, the purported stock issuance was void because the company didn't have shares available to distribute at the time. However, Pogue was recorded as a stockholder in Hybrid's ledger.

The court ruled that Pogue didn't have standing to inspect the company's records because the evidence showed that Hybrid only had 1,500 authorized shares at the time of the purported issuance, all of which was held by the company's sole director and chief executive officer, Thomas Lull.

Glasscock said that Pogue, by receiving void, allegedly fraudulent stock certificates, had the right to pursue contract and fraud claims against Hybrid. “It does not, however, make him a stockholder with an ownership interest in the corporation, and to find standing to vindicate such a non-existent interest would not advance the purpose of the statute,” he wrote.

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To contact the editor responsible for this story: Yin Wilczek at

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