The New Jersey Supreme Court has agreed to determine how much inside information a shareholder is entitled to receive when he or she challenges business decisions made by a corporation’s board of directors.
The court in a Dec. 17 order granting a certification petition agreed to hear a shareholder’s appeal in Feuer v. Merck & Co. Oral arguments will likely be heard next year.
The court posted the question at issue: “Was plaintiff, a shareholder, entitled to inspect certain corporate documents, pursuant to statute, N.J.S.A. 14A:5-28(4) (books and records; right of inspection), or the common law?”
According to the Appellate Division’s June 1 decision in the case, the dispute involves a Merck shareholder, F.A. Feuer, and his opposition to Kenilworth-based Merck’s $8.4 billion acquisition of Cubist Pharmaceuticals, a Massachusetts-based manufacturer of drugs designed to combat infectious “superbugs.”
Feuer opposed the acquisition, contending that it was ill-advised and reckless because a number of Cubist’s patents were being challenged. The acquisition went through anyway: It was announced in 2014 and completed in 2015.
Feuer continued to make objections to Merck’s board of directors even after the acquisition, and the board appointed a three-member “working group” to look into Feuer’s objections. Feuer has been seeking access to documents transmitted between the board, its counsel and its financial advisers to determine what steps it took to examine the patent challenges before going ahead with the Cubist purchase, the appeals court explained.
Both a Superior Court motion judge and the Appellate Division ruled that Feuer was not entitled to the documents he sought, specifically because of restrictions enacted by the Legislature in 1988 to the relevant statute, N.J.S.A. 14A:5-28, and because of common-law principles.
Feuer, the Appellate Division said, is entitled under the statute and common law to documents such as minutes and other administrative items.
“Reading the statute sensibly, it does not impose … a vaguely defined record-keeping obligation on corporations, nor does it grant courts the power to grant an equally vague scope of inspections to shareholders,” Appellate Division Judge Mitchel Ostrer wrote, joined by Judges Jack Sabatino and Mary Whipple.
State lawmakers purposefully chose to limit access to internal corporate information, Ostrer added.
“The New Jersey Legislature has expressly recognized the court’s power to circumscribe the scope of inspection, stating that ‘[t]he court may, in its discretion, prescribe any limitation or conditions with reference to the inspection,’” Ostrer said, quoting a 2010 ruling in Cain v. Merck.
“Feuer is not entitled broad-ranging inspection … just because it would be useful,” Ostrer said.
Feuer’s attorney, Lisa Rodriguez, said she was pleased the Supreme Court agreed to hear her client’s appeal.
“We look forward to oral argument,” said Rodriguez, of the Cherry Hill office of Schnader Harrison Segal & Lewis.
Merck’s attorney, J. Gordon Cooney of Morgan, Lewis & Bockius in Philadelphia, did not return a call seeking comment on the certification order.