NJ Supreme Court Narrowly Construes Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Supreme Court affirmed the Appellate Division’s narrow construction of the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law.

In the underlying case, a Merck & Co, Inc. shareholder sought documents in order to elicit evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. Merck appointed a “Working Group” to respond to the shareholder’s demand, which rejected the shareholder’s request for documents relating to the acquisition. Following this rejection, the shareholder sought twelve broad categories of corporate documents, including documents pertaining to the Working Group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s consideration of the shareholder’s demands and the Working Group’s recommendation. Merck disclosed pertinent minutes of the board and of the Working Group, but denied the remainder of the shareholder’s demand.

The shareholder sued Merck, alleging entitlement to the documents under N.J.S.A. 14A:5-28(4), which permits a shareholder to compel the corporation to produce its “books and records of account, minutes, and record of shareholders,” and the common law. The trial court denied the shareholder’s request and the Appellate Division affirmed.

In a per curiam decision, the New Jersey Supreme Court affirmed based upon the opinion of the Appellate Division. As described here, the Appellate Division interpreted N.J.S.A. 14A:5-28(4) narrowly, holding that “minutes” refers only to “shareholder, board, and executive committee minutes,” and does not encompass any documents presented at a corporate meeting. “Books and records of account” consist of “accounting or financial documents,” not “any and all records, books and documents of a corporation.” The Appellate Division also took a restrictive view of the second sentence of subsection four, which provides that a court may “prescribe any limitations or conditions with reference to the inspection or award any other or further relief as the court may deem just and proper.” The Appellate Division concluded that this sentence was designed to restrict or burden inspection, and did not provide broad inspection rights to a shareholder.

The Supreme Court did not address whether the common-law right of inspection is abrogated by N.J.S.A. 14A:5-28, which the Appellate Division also avoided. The Appellate Division concluded that, even if the common law survives, it provides no remedy to the shareholder at issue, because the shareholder set forth insufficient allegations regarding the Merck acquisition to demonstrate the good faith, germane purpose, and substantial concern for mismanagement sufficient to warrant inspection under the common law.

In affirming the Appellate Division’s decision, the New Jersey Supreme Court followed a different path than the Delaware Supreme Court with respect to access to corporate books and records. Several months before the New Jersey Supreme Court issued its decision in Feuer, the Delaware Supreme Court required the production of emails in response to a “books and records” request under 8 Del. C. §220. Though limiting its determination to the facts presented, Delaware has certainly adopted a more expansive approach to corporate records requests than New Jersey. New Jersey’s stance, on the other hand, which follows the Legislature’s recent amendment to N.J.SA. 14A:3-6.9, appears to signify a shift towards a more business-friendly corporate landscape.