Yahoo finance reports that:
New York State's $150-billion public pension fund has sued Qualcomm Inc., seeking to force the chipmaker to reveal its political spending, according to the state comptroller.
The suit was filed late on Wednesday in Delaware Court of Chancery, after Qualcomm refused the request by the New York State Common Retirement Fund -- a Qualcomm shareholder -- to inspect records detailing the use of corporate resources for political activities, said state comptroller Thomas DiNapoli, who oversees the fund.
"Without disclosure, there is no way to know whether corporate funds are being used in ways that go against shareholder interests," DiNapoli, a Democrat who is up for re-election in 2014, said in a statement.
The suit opens a new front in the fight over corporate political spending, which has risen dramatically since the U.S. Supreme Court's 2010 ruling in Citizens United.
In a way, it's sort of interesting that Democrat DiNapoli is going after Qualcomm. After all Qualcomm co-founder and ex-boss Irwin Jacobs is a huge Obama donor. But I don't think that renders the suit apolitical.
In any case, if the issue goes to court, things could get very interesting from a doctrinal point of view. As I explain in Corporation Law, DGCL § 220(b) authorizes shareholders to inspect the corporation’s stockholder list and other books and records upon making a written demand setting forth a "proper purpose" for the request. The statute further defines a "proper purpose" as one "reasonably related to such person's interest as a stockholder." If the corporation denies the shareholder access to its records, the shareholder may sue in the Chancery Court. Under subsection (c), where the shareholder only seeks access to the shareholder list or stock ledger, the burden of proof is on the corporation to show that the shareholder is doing so for an improper reason. Where the shareholder seeks access to other corporate records, however, the shareholder must prove that he is doing so for the requisite proper purpose.
Attempts to investigate alleged corporate mismanagement are usually deemed proper, although the shareholder must have some factual basis for making the request and is not allowed to conduct a fishing expedition. See, e.g., Nodana Petroleum Corp. v. State, 123 A.2d 243, 246 (Del.1956); Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 165 (Del.Ch.1987); Skouras v. Admiralty Enters., Inc., 386 A.2d 674, 678 (Del.Ch.1978).
Improper purposes include attempting to discover proprietary business information for the benefit of a competitor, to secure prospects for personal business, to institute strike suits, and—most pertinently to present purposes—to pursue one's own personal social or political goals. Tatko v. Tatko Bros. Slate Co., 569 N.Y.S.2d 783 (App.Div.1991).
The latter improper purpose—pursuit of noneconomic social or political goals—has proven an especially problematic subject for courts. In the well known State ex rel. Pillsbury v. Honeywell, Inc. decision, the plaintiff belonged to an antiwar group trying to stop Honeywell from producing anti personnel fragmentation bombs for the military. 191 N.W.2d 406 (Minn.1971) (interpreting Delaware law). After buying some Honeywell stock, plaintiff requested access to Honeywell's shareholder list and to corporate records relating to production of such bombs. In denying plaintiff access to those records, the court emphasized that plaintiff's stated reasons were based on his pre existing social and political views rather than any economic interest. Accordingly, the court carefully limited its holdings to the facts at bar: "We do not mean to imply that a shareholder with a bona fide investment interest could not bring this suit if motivated by concern with the long or short term economic effects on Honeywell resulting from the production of war munitions." The court further noted that the "suit might be appropriate when a shareholder has a bona fide concern about the adverse effects of abstention from profitable war contracts on his investment in Honeywell." As such, Honeywell puts more emphasis on proper phrasing of one's statement of purpose than on the validity of the purpose itself. So long as one's social agenda can be dressed up in the language of economic consequences, one gets access to the list. See, e.g., Conservative Caucus Research, Analysis & Education Foundation, Inc. v. Chevron Corp., 525 A.2d 569 (Del.Ch.1987) (a political group successfully sought access to Chevron's shareholder list for the stated purpose of warning its fellow "stockholders about the allegedly dire economic consequences which will fall upon Chevron if it continues to do business in Angola").
Does this formalistic approach make sense? The Delaware Chancery Court seems to think not, as at least one Chancery decision opines that Delaware law has de facto rejected Honeywell's requirement that the shareholder's purpose must relate to the "enhancement of the economic value of the corporation." Food & Allied Serv. Trades Dep't, AFL-CIO v. Wal-Mart Stores, Inc., 1992 WL 111285 at *4 (Del.Ch.1992).
My guess is that the NY pension fund will be smart enough to claim they’re motivated solely by economic concerns rather than admitting that this is all part of the left’s effort to silence corporate political speech.
If so, Qualcomm’s best bet would be to argue that the request is too broad. The Delaware Supreme Court has held, however, that a request to access such records must be very narrowly tailored: “A Section 200 proceeding should result in an order circumscribed with rifled precision.” Security First Corp. v. U.S. Die Casting and Development Co, 687 A.2d 563 (Del.1997).
In addition, Qualcomm should argue that in the absence of any facts suggesting breach of duty on the part of management that the pension fund is engaged in a fishing expedition. Cf. Cooke v. Outland, 144 S.E.2d 835, 842 (N.C.1965) ("Considering the huge size of many modern corporations and the necessarily complicated nature of their bookkeeping, it is plain that to permit their thousands of stockholders to roam at will through their records would render impossible not only any attempt to keep their records efficiently, but the proper carrying on of their businesses.").
An insufficiently narrow fishing expedition should not be allowed, especially given that we all know what DiNapoli is really up to.