James Pogue v. Hybrid Energy, Inc., C.A. No. 11563-VCG (Del. Ch. August 5, 2016)

The Court of Chancery addressed an alleged shareholder’s claim to inspect the books and records of the defendant entity, Hybrid Energy, Inc. (“Hybrid”). The plaintiff claimed that Hybrid had issued him a stock certificate evidencing ownership of 1 million shares of Hybrid common stock. The plaintiff was also listed as a shareholder on Hybrid’s corporate stock ledger. However, at the time the plaintiff’s alleged stock certificate was issued, Hybrid’s Certificate of Incorporation authorized only 1,500 shares of common stock, all of which were already issued to someone other than the plaintiff. Nevertheless, the Court determined that the plaintiff’s name appearing on Hybrid’s share ledger was enough to create a rebuttable presumption that he was a shareholder entitled to inspect the books and records of Hybrid. The Court went on to find, however, that Hybrid had put forth enough evidence to rebut the presumption and the plaintiff was not entitled to access the books and records.

BOTTOM LINE: This case serves as a reminder that Delaware corporations must keep an accurate stock ledger and books and records in order to avoid numerous potential issues. The appearance of a name on a corporation’s stock ledger will create a presumption, only rebuttable by other evidence to the contrary, that the person so named is a shareholder of the company.