Chitwood v. Vertex Pharmaceuticals, Inc. (Lawyers Weekly No. 10-046-17)
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us SJC-12101 FRED CHITWOOD vs. VERTEX PHARMACEUTICALS, INC. Suffolk. November 9, 2016. – March 20, 2017. Present: Gants, C.J., Botsford, Lenk, Hines, Gaziano, Lowy, & Budd, JJ.[1] Corporation, Stockholder, Custodian of corporate records. Civil action commenced in the Superior Court Department on August 15, 2013. The case was heard by Janet L. Sanders, J. The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court. Steven J. Purcell, of New York (Justin Sherman, of New York, & Mitchell J. Matorin also present) for the plaintiff. Todd Cronan (William B. Brady also present) for the defendant. Ben Robbins & Martin J. Newhouse, for New England Legal Foundation, amicus curiae, submitted a brief. GANTS, C.J. Under G. L. c. 156D, § 16.02 (b), of the Massachusetts Business Corporation Act (act), a shareholder of a corporation, upon written notice, is entitled to inspect and copy various categories of corporate records if the shareholder makes the demand “in good faith and for a proper purpose,” and if the particular records sought to be inspected are “directly connected” with that purpose. The plaintiff, Fred Chitwood, a shareholder of the defendant Vertex Pharmaceuticals, Inc. (Vertex or the corporation), made a demand for corporate records pursuant to § 16.02 (b), claiming that inspection of the records was needed to investigate his allegation that the board of directors had committed a breach of its fiduciary duty of oversight with regard to Vertex’s financial reporting and insider stock sales. Vertex “rejected” the demand, claiming that the demand was “invalid under Massachusetts law” and that it was improper because the board, following a reasonable inquiry by a special committee of independent directors, had rejected his earlier demand to commence derivative litigation based on the same allegations of misconduct. The plaintiff commenced an action in the Superior Court, seeking an order compelling Vertex to make the requested corporate records available to the plaintiff. After a bench trial, the judge dismissed the complaint with prejudice, concluding that the plaintiff had failed to meet his burden of showing a proper purpose. The issue on appeal is whether the judge applied the correct standard regarding the proper purpose required to inspect corporate records under § 16.02 (b). We conclude that she did not. Because the judge applied too demanding a standard […]