The New Jersey Supreme Court has blocked a Merck shareholder’s plans for a deep dive into the company’s records related to the acquisition of another drug company.
R.A. Feuer, who owns 288 shares of Merck stock and has threatened to bring a shareholder derivative action against the company, sought records related to its 2015 acquisition of Cubist Pharmaceuticals for $9.5 billion. But the Supreme Court rejected Feuer’s document request, finding that a state law allowing shareholders of a corporation to inspect “books and records of account” does not encompass all records, books and documents of a corporation. The court also found that the circumstances of the case, including Feuer’s claim that Merck overpaid for the Cubist acquisition, did not support his argument for common-law access to company records.
The justices affirmed the Appellate Division’s ruling for reasons expressed in the June 2018 opinion by Judge Mitchel Ostrer, who was joined by Judges Jack Sabatino and Mary Gibbons Whipple. That decision upheld a trial judge’s ruling granting Merck’s motion to dismiss.
Feuer maintained that N.J.S.A. 14A:5-28 entitled him to the documents that Merck declined to provide. That statute requires corporations to maintain “books and records of account and minutes of the proceedings of its shareholders, board and executive committee, if any.” It also entitles shareholders, on a showing of “any proper purpose,” to the “minutes of the proceedings of its shareholders” and its “record of shareholders.” In addition, rather than directly entitling shareholders to inspect documents, the statute also preserves the court’s power to grant shareholders the right to inspect documents, for a proper purpose. The statute also authorizes a court to limit or place conditions on such access.
Feuer maintained that the acquisition of Cubist was misguided and reckless. He claimed Merck proceeded with the transaction although it knew patents for certain Cubist drugs were being challenged, and it failed to reserve the right to cancel the deal if Cubist lost the patent litigation.
Feuer claimed that the statute should be interpreted broadly to help him assess whether he has a well-founded derivative claim. But the justices adopted the Appellate Division’s finding that Feuer is not entitled to a broad-ranging inspection under the statute “just because it would be useful, or because he prefers it to discovery within a derivative action. We are bound by the plain language of the statute.”
After some of Cubist’s patents were invalidated, but before the deal closed, Feuer asked Merck’s board in a letter to reconsider the deal, or to file a lawsuit against the board and company managers who were responsible for the deal, seeking to recover the damages he said the company would suffer. After the Cubist deal closed, Feuer sent the board a second letter, saying it “should be held accountable to the company for the difference between what Merck will be paying for Cubist and its current value.”
The board responded by appointing a subcommittee to evaluate and respond to his request. Four months later, the subcommittee rejected Feuer’s document request. Feuer then made a broad demand for Merck records related to the subcommittee’s activities, documents provided to the board regarding Cubist before Merck’s tender offer, and the board’s consideration of Feuer’s demands and the subcommittee’s recommendations. Among other things, he demanded documents related to the board meeting where his demands were rejected, documents relating to the amount of time the board spent considering his demands, and minutes of the board and subcommittee meetings where there was any discussion of his demands.
The board provided Feuer with minutes of the board and subcommittee meetings but otherwise refused his demands. He responded by filing a suit in state Superior Court in Union County. He said in the suit that his request was related to his interests as a shareholder and his forthcoming commencement of a shareholder derivative suit.
In finding for Merck, the Appellate Division said the statute cited by Feuer was written to limit access to internal corporate information and to give courts the authority to place limits on the scope of inspections.
Feuer’s lawyer, Lisa Rodriguez of Schnader Harrison Segal & Lewis in Cherry Hill, did not respond to a reporter’s call about the ruling. Nor did J. Gordon Cooney Jr. of Morgan, Lewis & Bockius in Philadelphia, who represented Merck.