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Chancery Dismisses Books and Records Action Based on Pending Plenary Action

CHC Investments LLC v. Firstsun Capital Bancorp, C.A. No. 2018-0610-KSJM (Del. Ch. Jan. 24, 2019).

One proper purpose for a books and records inspection under Section 220 of the Delaware General Corporation Law is to investigate potential plenary claims. But what happens when the stockholder seeks records under Section 220 after it already initiated its plenary claims on the same subject? Shouldn’t investigations, by their nature, precede a charge? And may Section 220 be used as an end-around discovery rules in the pending plenary action? This decision addresses these issues, discusses the relevant Delaware precedent, and explains that, “although there is no bright-line rule prohibiting stockholders from using Section 220 to investigate pending plenary claims, Delaware courts have enforced those inspection demands in special circumstances only.”  Special circumstances may include where the plenary complaint was dismissed without prejudice, with leave to amend. No special circumstances were present in this books and records action, so the Court of Chancery dismissed it.