Pershing Square, L.P. v. Ceridian Corporation, Delaware Court of Chancery, C.A. No. 2780-CC (May 11, 2007)

A seemingly narrow books and records request made by a self-styled “activist” hedge fund in connection with an announced proxy contest raised interesting issues regarding proper purpose and confidentiality in the context of a 220 request. The decision also explored the limits of a stockholder’s ability to communicate with and obtain information from senior executives within a company. In this case, the plaintiff-stockholders sought disclosure of three confidential letters written by senior executives of Ceridian to its board of directors that allegedly raised concerns about Ceridian’s senior management. Plaintiffs learned of the existence of the two letters from a Ceridian executive who was opposed to Ceridian’s senior management. The Ceridian executive disclosed the existence of the letters during secret meetings with representatives of the plaintiffs at which Ceridian representatives were not also present. At the same meetings, the Ceridian executive pledged his support to plaintiff-stockholders in the proxy contest to unseat the current board and his services in the future should the proxy contest succeed.

The Court denied the plaintiffs’ Section 220 demand and found that the plaintiffs’ real -- and improper -- purpose for making their demand was to “find a legal vehicle by which [the plaintiff could] publicly broadcast improperly obtained confidential information.” The Court chastised the plaintiff for seeking the Court’s assistance in a scheme to unseat the current management – a scheme that included disclosure of confidential information by a company executive to the plaintiffs in furtherance of “improper and self-interested goals.” The Court also ruled that the letters were confidential and should be protected from disclosure to avoid a “harmful chilling of candid communications between executives and a board of directors.”

Young Conaway handled the litigation of this matter on behalf of Ceridian Corporation along with lawyers from Wachtell, Lipton, Rosen & Katz. Within the firm, litigation of the matter was conducted by partners David C. McBride, Rolin P. Bissell, and Christian Douglas Wright and associate Tammy L. Mercer of the Corporate Counseling and Litigation Section.