Delaware Business Litigation Report

Chancery Addresses Books and Records Demand Under Section 220 by Papa John’s Founder

Schnatter v. Papa John’s Int’l, Inc., C.A. No. 2018-0542-AGB (Del. Ch. Jan. 15, 2019). 

As a general matter, under Section 220 of the DGCL, directors of a Delaware corporation enjoy the right to virtually unfettered access to the corporation’s books and records so they can exercise their fiduciary duties.  In this recent post-trial decision, the Court of Chancery addressed a request by Papa John’s founder and longtime spokesperson, John Schnatter, to inspect documents and communications leading up to the formation of a special committee that decided to terminate certain relationships with him following remarks construed as racial in nature.  While the parties resolved most of their disputes consensually, the remaining issues turned largely upon the Court’s factual finding that Schnatter sincerely wished to investigate potential mismanagement in connection with the committee’s decision to distance the company from him.  Particularly noteworthy, after considering recent precedents in this area, the Court ordered the production of communications relating to this issue that may be found in the other directors’ personal email accounts or on personal devices.  Also notable, in light of all the circumstances, the Court declined to find a separate action for breach of fiduciary duty filed by Schnatter in his capacity as a stockholder was a basis for denying inspection in his capacity as a director.

 

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