Case Name: Shawn Luger v. FireEye, Inc.
Case No.: 16-CV-291999

This petition for writ of mandate arises from a related shareholder derivative lawsuit by petitioner Shawn Luger and other plaintiffs, which is pending in Department 1 (In re FireEye, Inc. Derivative Litigation (Super. Ct. Santa Clara County, No. 2015-1-CV-276138)). Currently at issue is respondent FireEye, Inc.’s demurrer to the petition, which Luger opposes.

I. Factual and Procedural Background

On December 4, 2015, Judge Kirwan sustained a demurrer to the complaint in the shareholder derivative action with 90 days’ leave to amend so that plaintiffs could make a demand to inspect the corporate records of FireEye (which is a defendant to the shareholder action), in order to obtain information concerning an asserted lack of disinterestedness and independence on the part of FireEye’s board of directors. (Petition, ¶ 26.) Luger is a beneficial shareholder in FireEye, which is a Delaware corporation with its principal executive offices in Milpitas. (Id., ¶¶ 3-4.) Luger does not allege his state of residence. (See ibid.)

According to the petition, Luger sent an inspection demand to FireEye on January 5, 2016—a month after the demurrer in the shareholder action was sustained. (Petition, ¶ 1.) In a letter dated January 12, FireEye responded by stating that the demand did not comply with Delaware law and refusing to permit Luger to inspect any of the demanded books and records. (Id., ¶ 1, Ex. 2.) On February 11—a month after FireEye responded to the inspection demand, Luger filed the instant petition for a writ of mandate directing FireEye to permit the inspection of the books and records identified in the demand. (Id., ¶ 2.) Luger also seeks a temporary stay of the derivative action until the writ proceedings are concluded. (Ibid.) He alleges that FireEye’s refusal to permit the inspection violates both section 1601 of the Corporations Code (“Section 1601”) and title 8, section 220 of the General Corporation Law of the State of Delaware (“Section 220”). (Ibid.)

On March 2, 2016, Luger made an ex parte application to Judge Kirwan for a stay of the derivative action. Judge Kirwan ordered the action to be stayed until May 3. On April 6, FireEye filed its demurrer to Luger’s petition. On April 19, this Court continued the hearing on the underlying petition pending the outcome of the instant demurrer.

II. Demurrer to the Petition

FireEye demurs to the petition on the grounds that the Court lacks subject matter jurisdiction over Luger’s claim under Section 220; the petition fails to state a claim under either Section 1601 or Section 220; and Luger lacks the legal capacity to sue for relief under Section 1601. (Code Civ. Proc., § 430.10, subds. (a), (b), and (e).)

A. Demurrer for Lack of Capacity

As an initial matter, FireEye’s demurrer for lack of capacity to sue under Section 1601 is OVERRULED. FireEye’s argument that Luger lacks standing to sue under Section 1601, which is addressed below, should be raised in the context of its demurrer for failure to state a claim, rather than through a demurrer for lack of capacity. (See Washington Mut. Bank v. Blechman (2007) 157 Cal.App.4th 662, 669 [incapacity is “a legal disability, such as minority or incompetency, that can be cured during the pendency of the litigation”].)

B. Applicable Law

While this issue is not well-briefed by the parties, the Court must first determine whether Delaware or California law applies to this action before turning to FireEye’s other arguments. (See Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1851 [applying choice of law analysis to determine whether California or Delaware law applied to directors’ request to inspect corporate books and records].) “To determine the correct choice of law, we apply a three-step analysis.” (Ibid.)
First, we determine whether the two concerned states have different laws. Second, we consider whether each state has an interest in having its law applied to this case. Finally, if the laws are different and each state has an interest in having its own law applied, we apply the law of the state whose ‘interests would be more impaired if its policy were subordinated to the policy of the other state.’
(Ibid., citation omitted.)

With respect to the first step, Section 1601 provides that corporate books and records “shall be open to inspection upon the written demand on the corporation of any shareholder …, for a purpose reasonably related to such holder’s interests as a shareholder.” (Corp. Code, § 1601, subd. (a).) Similarly, Section 220 provides that a stockholder “shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose” the corporate books and records. (Del. Code Ann. tit. 8, § 220(b)(1).) “A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder.” (Id., § 220(b).)
While both California and Delaware courts exercise discretion in interpreting the “proper purpose” requirement (see Schnabel v. Superior Court (Schnabel) (1993) 5 Cal.4th 704, 717 [“the right of inspection does not extend to records not reasonably related to the proper purpose for which it is sought, and a trial court acts within its discretion in limiting such discovery”]), the showing required under Delaware law is arguably more robust than the showing under California law. More importantly, there is a clear difference between Section 1601 and Section 220 in one respect critical to this action: only a shareholder of record has the right to demand an inspection under Section 1601. (See Corp. Code, § 185 [defining “shareholder” as a “holder of record of shares”]; Hagan v. Fairfield (1960) 183 Cal.App.2d 703, 706 [“[s]ince the Corporation Code provides that records of a corporation shall be open to inspection by a shareholder, and since that code also provides that a shareholder is a holder of record of shares or a shareholder of record, and since the petition herein does not allege that petitioner is such a shareholder, it is apparent that the petition has not alleged a proper basis for issuing a writ of mandamus,” discussing former sections 103 and 3003 of the Corporations Code]; Acosta v. Pacific Enterprises (9th Cir. 1991) 950 F.2d 611, 615, fn. 4 [under related section 1600 of the Corporations Code, only shareholders of record are entitled to bring an action to inspect the corporation’s record of shareholders].) Section 220, by contrast, establishes inspection rights in favor of beneficial shareholders like Luger. (See Del. Code Ann. tit. 8, § 220(a)(1) (2016) [“ ‘Stockholder’ means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person.”]; Petition, ¶ 3 [alleging that Luger is a beneficial shareholder].)
Given that Section 1601 establishes inspection rights in favor of record shareholders only, Luger would not state a claim under this section even if California law applied to his claim (a conclusion which he does not dispute in his opposition papers). Furthermore, considering the conflict at issue, it is clear that Delaware law must be applied: while California has some interest in this action as the forum state and because FireEye has its principal executive office here, “Delaware has an interest in prescribing the powers of [FireEye], imposing uniform regulations on its internal affairs, and controlling its rights and liabilities.” (Havlicek v. Coast-to-Coast Analytical Services, Inc., supra, 39 Cal.App.4th 1844, 1852.)
Applying California’s limitation on inspection rights to record shareholders would violate Delaware’s law permitting inspection by beneficial shareholders. (Cf. id. at p. 1854.) Consequently, Delaware’s interest in regulating FireEye’s internal affairs and Luger’s rights as a shareholder would be more impaired by the application of California law than California’s weaker interests in this action would be impaired if Delaware law were applied. (See Lidow v. Superior Court (International Rectifier Corp.) (2012) 206 Cal.App.4th 351, 359 [shareholders’ rights to examine corporate records fall within the internal affairs doctrine, a conflict of laws principle providing that the laws of the state of incorporation should generally govern a corporation’s internal affairs so that it is not faced with conflicting demands].) Notably, both parties agree that Delaware law should be applied to this action.
The Court will accordingly apply Delaware law to Luger’s petition.

C. Section 220

FireEye contends that only the Delaware Court of Chancery has subject matter jurisdiction over claims to enforce demands under Section 220, and Luger furthermore fails to state a claim for mandamus relief arising from this section.

1. Subject Matter Jurisdiction

Section 220 provides that if a corporation refuses to permit an inspection, “the stockholder may apply to the Court of Chancery for an order to compel such inspection. The Court of Chancery is hereby vested with exclusive jurisdiction to determine whether or not the person seeking inspection is entitled to the inspection sought.” (Del. Code Ann. tit. 8, § 220(c) (2016).) FireEye argues that—as a number of courts outside of Delaware have held—this language requires all actions to enforce inspection rights under Section 220 to be filed in Delaware. Luger contends that—as other courts outside of Delaware have held, and the Delaware Court of Chancery has discussed—this language refers to the Court of Chancery’s jurisdiction relative to other Delaware courts.

To support its argument that Luger must seek relief in Delaware, FireEye relies heavily on an unpublished California federal opinion, Utterkar v. Ebix, Inc. (N.D. Cal., Aug. 25, 2015, No. 14-CV-02250-LHK) 2015 WL 5027986. The court in Utterkar relied on the plain language of the statute and a single New York opinion, Transeo S.A.R.L. v. Bessemer Venture Partners VI L.P., 936 F.Supp.2d 376, 405 (S.D.N.Y. 2013), to support its holding—in two sentences devoid of analysis—that it lacked jurisdiction over a claim arising under Section 220. Transeo, in turn, relied on Reserve Solutions Inc. v. Vernaglia (S.D.N.Y. 2006) 438 F.Supp.2d 280, 289. Like Utterkar itself, Transeo and Reserve Solutions provide no analysis to support their holdings. These authorities consequently have little persuasive weight. The only other California authority addressing this issue, Havlicek v. Coast-to-Coast Analytical Services, Inc., supra, 39 Cal.App.4th 1844, noted in dicta that the Delaware Court of Chancery would have exclusive jurisdiction if Delaware law applied to the director inspection claim at issue in that case; however, the court ultimately applied California law to the directors’ claim, and consequently never held that the California courts lack jurisdiction over Section 220 claims.

The other authority that FireEye discusses in depth is Carbone v. Nxegen Holdings, Inc. (Conn. Super. Ct., Oct. 3, 2013) 57 Conn. L. Rptr. 36. Like Havlicek, Carbone ultimately resolved the defendant’s motion to dismiss the plaintiff’s request to inspect corporate records under the law of the forum state (there, Connecticut’s). Before doing so, however, it held that there was a material conflict between Connecticut and Delaware law for the sole reason that Section 220 vests exclusive jurisdiction in the Delaware courts. In doing so, it disagreed with Anderson v. Children’s Corner, Inc. (Conn. Super. Ct., Feb. 15, 2011) 51 Conn. L. Rptr. 427, another opinion by the Superior Court of Connecticut that held the opposite. In a detailed analysis, Carbone held that it was incorrect to consider Section 220’s legislative history, as Anderson did, because the plain language of Section 220 was clear that the jurisdiction of the Delaware Chancery Court was exclusive. The Carbone court expressly noted that it “was unable to find any Delaware authority interpreting the exclusive jurisdiction language,” suggesting that it may have reached a different conclusion if Delaware courts interpreted this language as Anderson did: as a reference to jurisdiction among the Delaware courts.

Since Carbone was decided, the Delaware Court of Chancery has issued a published opinion interpreting “exclusive jurisdiction” language like Section 220’s in the manner urged by Luger. While the opinion, IMO Daniel Kloiber Dynasty Trust (Del. Ch. 2014) 98 A.3d 924, addresses a different statutory provision (section 3572(a) of Delaware’s “Qualified Dispositions in Trust Act”), the operative language in that statute is substantively identical to Section 220’s language, and the opinion unequivocally stated that

[w]hen a Delaware state statute assigns exclusive jurisdiction to a particular Delaware court, the statute is allocating jurisdiction among the Delaware courts. The state is not making a claim against the world that no court outside of Delaware can exercise jurisdiction over that type of case.

(At p. 939, italics original.) While the Kloiber court considered this issue in the context of the equitable standard governing the issuance of a temporary restraining order, FireEye’s argument that its construction of the “exclusive jurisdiction” language was not part of the holding lacks merit. Regardless, whether or not Kloiber is actually binding on this Court, the Court will follow it as the most authoritative statement of Delaware law on this point. Notably, FireEye cites no case adopting its interpretation of the “exclusive jurisdiction” language that addresses Kloiber.

The court in Kloiber also explained its view that, even if it wanted to, Delaware “cannot unilaterally preclude a sister state from hearing claims under its law” under the Full Faith and Credit Clause of the United States Constitution. (Id. at pp. 939-940.) While it is unnecessary to address this issue, which was not raised by the parties, in detail, the Full Faith and Credit Clause provides another basis to hold that a California court may entertain claims under Section 220. (See Randall v. Arabian American Oil Co. (5th Cir. 1985) 778 F.2d 1146, 1151, fn. 6 [noting that the Restatement (Second) of Conflict of Laws provides that “[a] State may entertain an action even though the state of the applicable law has provided that action on the particular claim shall not be brought outside its territory”].)

FireEye’s demurrer for lack of subject matter jurisdiction is accordingly OVERRULED.

2. Failure to State a Claim

Turning to the demurrer for failure to state a claim, FireEye contends that Luger’s claim under Section 220 is not amenable to resolution through a petition for writ of mandate, because Luger has an adequate alternative remedy—an expedited action in Delaware—and because Luger does not have a clear right to the records at issue under Delaware law.

a. Legal Standard Governing Mandamus Relief

As recently explained by the Court of Appeal for the Sixth Appellate District,
[m]andate is the principal extraordinary writ surviving under California law. It issues “to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins, as a duty resulting from an office, trust, or station ….” (Code Civ. Proc., § 1085, subd. (a), italics added.) It is said that the writ rests in the discretion of the issuing court, but becomes a matter of right when the plaintiff shows that “there is not a plain, speedy, and adequate remedy, in the ordinary course of law.” (Code Civ. Proc., § 1086; May v. Board of Directors (1949) 34 Cal.2d 125, 133–134, 208 P.2d 661.) … [T]he substantive requirements for issuance of the writ are “(1) a clear and present ministerial duty of the defendant to do an act which the law specially enjoins (Code Civ. Proc., § 1085; Faulkner v. California Toll Bridge Authority (1953) 40 Cal.2d 317, 326 [253 P.2d 659] … ), and (2) a substantial beneficial interest of the plaintiff in the performance of that duty (Code Civ. Proc., § 1086; Parker v. Bowron (1953) 40 Cal.2d 344, 351 [254 P.2d 6] … ).” (Flora Crane Service, Inc. v. Ross (1964) 61 Cal.2d 199, 203–204, 37 Cal.Rptr. 425, 390 P.2d 193; cf. Thorning v. Hollister School Dist. (1992) 11 Cal.App.4th 1598, 1603, 15 Cal.Rptr.2d 91.)
(City of King City v. Community Bank of Central California (2005) 131 Cal.App.4th 913, 925-926.) While generally imposed upon a person in public office, “mandate will sometimes lie against a private person to compel performance of a [ministerial] duty.” (Id., at p. 927.) In this context, it is most typically available “to force the disclosure of records or the performance of similar duties owed to shareholders or other principals by a corporate officer or similar functionary,” as Luger seeks to do here. (Ibid.)

b. Plain, Speedy, and Adequate Remedy at Law

“It is a general rule that the extraordinary remedy of mandate is not available when other remedies at law are adequate.” (Agosto v. Board of Trustees of Grossmont-Cuyamaca Community College Dist. (2010) 189 Cal.App.4th 330, 336, quoting Tevis v. City & County of San Francisco (1954) 43 Cal.2d 190, 198.) Whether a plain, speedy and adequate remedy exists at law “is a question primarily within the trial court’s discretion.” (San Joaquin County Employees Assn. v. City of Stockton (1984) 161 Cal.App.3d 813, 820.)

Here, Luger alleges that he “has no adequate remedy in the ordinary course of law, and has no other procedural method of compelling respondent FireEye to make available the books and records that are necessary and essential to accomplish the purpose of his Inspection Demand.” (Petition, ¶ 48, italics added.) Contrary to these allegations, however, Delaware provides Luger with a speedy and adequate legal remedy in the form of an expedited action under Section 220 in that state. As noted by FireEye, Section 220 authorizes the Delaware courts to “summarily order” an inspection. (Del. Code Ann. tit. 8, § 220(c).) Indeed, Delaware “[c]ourts have construed § 220 as mandating an expedited and, sometimes, summary adjudication to preserve the orderly and proper governance of the corporation.” (Gotham Partners, L.P. v. Hallwood Realty Partners, L.P. (Del. Ch. 1998) 714 A.2d 96, 103, italics added; see also Shaw v. Agri-Mark, Inc. (Del. 1995) 663 A.2d 464, 468 [“With its enactment of Section 220 in 1967, the General Assembly sought to replace the formalized and burdensome mandamus procedure in the Superior Court with a summary procedure in the Court of Chancery by which a stockholder who has demonstrated a purpose reasonably related to his or her interest as such may gain swift access to the corporate books and records.”].)

In his motion for issuance of writ of mandate (which is not yet at issue), Luger asserts that another FireEye stockholder who made similar inspection demands filed a Section 220 complaint in Delaware Chancery Court on December 15, 2015, which is scheduled for trial beginning on May 3, 2016. Luger characterizes these circumstances as evidence that the Delaware court does not quickly resolve Section 220 actions. As noted by FireEye, however, Luger himself could have filed an action in Delaware around the same time that this second stockholder did, and had he done so he would likely have obtained a resolution before the demurrer in this matter was heard. Luger does not satisfactorily explain why he chose to file this petition in California—in February—rather than to promptly file a Section 220 action in Delaware, as Judge Kirwan apparently suggested. It consequently appears likely that Luger is forum-shopping. While several months have now passed since Luger was granted leave to amend his complaint, and the most recent stay of his derivative action is set to expire on May 3, these circumstances are a result of Luger’s own tactical choices. Particularly given that Luger does not have any inspection rights under California law, and it does not appear that a California court has ever granted a writ of mandate to compel an inspection under Section 220, this Court will not exercise its discretion to consider the extraordinary remedy of mandamus in Luger’s favor.

FireEye’s demurrer is consequently SUSTAINED WITHOUT LEAVE TO AMEND for failure to state a claim for mandamus relief, on the ground that Luger has an adequate remedy at law. (See Nast v. State Bd. of Equalization (1996) 46 Cal.App.4th 343, 348 [demurrer to petition for writ of mandate appropriately sustained without leave to amend on this ground].) In light of this ruling, the Court need not address the parties’ remaining arguments.

After FireEye has served notice of entry of this signed order, FireEye shall submit a judgment of dismissal. The Court will prepare the order.