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Showing 130 posts in Books and Records.
Supreme Court Affirms Court of Chancery’s Decision Directing “Long Dark” Company to Produce Books and Records to a Stockholder Free of Confidentiality Restrictions
Hauppauge Digital, Inc. v. Rivest, C.A. No. 2019-0848 (Del. July 10, 2023).
Under Delaware law, once a stockholder has established a proper purpose to inspect a corporation's books and records, the Court of Chancery has the discretion to impose limitations or conditions on the Section 220 production. In this case, the Supreme Court of Delaware agreed with the Court of Chancery's decision not to impose any limitations on the production. More ›
Chancery Denies Books and Records Request Related to Disney’s Opposition to Florida Legislation Prohibiting LGBTQ+ Topics in Classrooms
Simeone v. The Walt Disney Company, C.A. No. 2022-1120-LWW (Del. Ch. June 27, 2023)
The Walt Disney Company opposed Florida legislation that limits instruction on sexual orientation and gender identity in Florida classrooms. The Governor of Florida responded by threatening the revocation of tax-favorable treatment for Disney. The plaintiff filed a books and records demand and then litigation, alleging that Disney's opposition to the legislation put at risk Disney's tax-favorable treatment and that Disney's directors and officers may have breached their fiduciary duties by putting their own beliefs ahead of their obligations to stockholders. More ›
Plaintiff Overcomes Rule 23.1 In Walmart Opioids Litigation Based In Part On Over-Redacted Documents In Books And Records Productions
Ontario Provincial Council of Carpenters’ Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 26, 2023)
To assert a derivative claim, a stockholder plaintiff must plead demand futility. The plaintiffs advanced three types of claims relating to Walmart’s distribution of opioids: a Massey Claim (i.e., affirmative law-breaking claim), a Red-Flags Claim (i.e., a species of a Caremark claim), and an Information-Systems Claim (i.e., a species of a Caremark claim). The Massey Claim asserted that Walmart’s directors and officers knew that Walmart was failing to comply with its legal obligations and made a conscious decision to prioritize profits over compliance. The Red-Flags Claim asserted that a series of red flags put Walmart’s directors and officers on notice of Walmart’s noncompliance or potential corporate trauma, but the directors and officers consciously ignored them. The Information-Systems Claim asserted that Walmart’s directors and officers knew that they had an obligation to establish a monitoring system to address a core compliance risk, but consciously failed to make a good faith effort to fulfill that obligation. More ›
Chancery Orders an LLC to Provide Manager with Books and Records Comprising Informal Board Materials Related to Other Managers’ Actions
Bruckel v. TAUC Holdings, LLC, C.A. 2021-0579-MTZ (Del. Ch. Jan. 6, 2023)
Delaware law provides managers of an LLC with a right to inspect the company’s books and records for a purpose reasonably related to their management positions. In this Order, the Court emphasized that all managers of an LLC have equal access to the company's information. More ›
Chancery Concludes Section 18-110 of the LLC Act Does Not Permit Standalone Books and Records Claims When Company Management Is Undisputed
Cardinale v. Feingold, 2023 WL 142510 (Del. Ch. Jan. 10, 2023)
In a dispute about the manager of a limited liability company, Section 18-110 of the LLC Act grants the Court of Chancery the statutory authority to order the production of books and records “relating to the issue.” Here, the plaintiff sought a declaration that he was the sole manager of six companies and also an order directing the defendants to turn over the companies’ books and records. The defendants, who had recently resigned as managers, confirmed that the plaintiff was the companies’ sole manager and asked the Court to dismiss the remainder of the action for lack of jurisdiction. The Court agreed. Because the identity of the companies’ manager was undisputed, the Court concluded it no longer had jurisdiction under Section 18-110 to order the production of books and records.
Chancery Rules That Delisted and Long-Dark Corporation Failed To Show Harm Warranting a Confidentiality Order for Basic Financial Documents Responsive to a Books and Records Request
Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. Sept. 1, 2022)
Plaintiff stockholder sought to inspect the books and records of a defendant company, requesting a narrow universe of annual and quarterly financial statements for closed periods in order to value his shares. For several years, including time periods after deregistering its stock from a public exchange, the defendant had not provided any financial information to stockholders or held an annual meeting. More ›
Chancery Relies on Inconsistencies Between Board Materials and Proxy Statement to Order Books and Records Production
Hightower v. Sharpspring, Inc., C.A. No. 2021-0720-KSJM (Del. Ch. Aug. 31, 2022)
Once a plaintiff establishes a proper purpose under Section 220 of the DGCL, the Court of Chancery must determine the scope of the books and records inspection, which is those documents that are essential and sufficient for the stockholder’s stated purpose. Often, where the inspection relates to possible mismanagement or wrongdoing at the corporation regarding a specific transaction, the production of formal board materials will be sufficient for the stockholder’s needs. Here, however, the Court found that a plaintiff exploring a transaction involving a conflict demonstrated a need for documents beyond formal board materials, relying on inconsistencies between the board minutes and the proxy statement for the merger, which could be reconciled only with additional information. The Court awarded the plaintiff access to both informal board materials as well as officer-level materials not shared with the board in several defined categories.
Chancery Limits Review on Motion to Dismiss to Only Section 220 Documents Cited in Complaint and Dismisses Complaint Under MFW Doctrine
City Pension Fund for Firefighters and Police Officers in the City of Miami, v. The Trade Desk, Inc., et al., C.A. No. 2021-0560-PAF (Del. Ch. July 29, 2022)
This decision addresses certain points of interest concerning (i) the use of books and records produced pursuant to Section 220 of the DGCL in subsequent litigation, and (ii) structuring controlling stockholder transactions to facilitate business judgment review. More ›
Delaware Supreme Court Clarifies That There Is No Blanket Rule Requiring Dismissal Of An Overbroad Section 220 Demand And That A Proper Purpose May Be Established Through Hearsay
Nvidia Corp. v, City of Westland Police and Fire Ret. Sys., et al., No. 259, 2021 (Del. July 19, 2022)
In this decision, the Delaware Supreme Court clarified two points concerning books and records actions under Section 220 of the Delaware General Corporation Law: (i) there is no blanket rule requiring the Court of Chancery to dismiss overbroad demands; and (ii) a stockholder may establish a proper purpose under Section 220 through hearsay evidence, but this exception should not be abused. More ›
Chancery Finds That Stockholder’s Broad Section 220 Demand Lacked The Precision And Plus Factors Required To Entitle Shareholder To Additional Materials
Oklahoma Firefighters Pension & Ret. Sys. v. Amazon.com, Inc., C.A. No. 2021-0484-LLW (Del. Ch. June 1, 2022)
In reviewing the propriety of a stockholder’s Section 220 demand to inspect corporate records, Delaware courts must determine (1) whether the stockholder has stated a proper purpose; and (2) whether the requested documents are essential to the accomplishment of the proper purpose. Where the stated purpose of a Section 220 demand is to investigate alleged corporate wrongdoing which is the subject of other pending investigations or litigation, Delaware courts require one or more “plus factors” in addition to the mere pendency of an investigation or litigation to establish a credible basis to suspect wrongdoing. In this decision of the Court of Chancery, the Court held that the stockholder failed to establish the requisite plus factors and, in all events, the company had already produced sufficient records for the accomplishment of the stockholder’s purpose. More ›
Chancery Curtails Discovery in Appraisal Action Instituted as a Substitute for Books and Records Demand
Wei v. Zoox, Inc, C.A. No. 2020-1036-KSJM (Del. Ch. Jan. 31, 2022)
Often, stockholders who suspect corporate wrongdoing in connection with M&A transactions demand to inspect the company’s books and records under Section 220. But if, through no fault of the stockholder, the timing of a closing makes Section 220 relief more difficult to obtain, may the stockholder use Section 262, the appraisal statute, and its broader available discovery, to accomplish the same goal? In this case, the Court concludes that the answer is a qualified yes. That is, the stockholders are entitled to discovery in the appraisal proceeding. But if it appears the proceeding is just a means to investigate a potential class action for breach of fiduciary duties, the stockholder is entitled to discovery only to the limited extent it would have been available under Section 220, and not to the broader extent typically available under Section 262.
Chancery Strictly Applies Statutory Standing Requirement to Dismiss Books and Records Action by Former Stockholder Who Filed Hours After Effective Time of Merger
(Previously published in ABA's Business Law Today)
Swift v. Houston Wire & Cable Co., C.A. No. 2021-0525-LWW (Del. Ch. Dec. 3, 2021)
In this decision, the Delaware Court of Chancery applied Section 220(c) of the Delaware General Corporation Law to dismiss a books and records complaint filed shortly after an event that, under the terms of a merger agreement, caused the plaintiff’s shares to be canceled. More ›
Chancery Holds that Corporation Cannot Rely on Its Stock Ledger to Deny A Stockholder Inspection Rights When it is Aware of and Concedes the Stockholder’s Status
Knott Partners L.P. v. Telepathy Labs, Inc., C.A. No. 2021-0583-SG (Del. Ch. Nov. 23, 2021)
To seek corporate records under section 220 of the DGCL, the plaintiff must demonstrate that it is a stockholder. Generally, a corporation can rely on its stock ledger to determine who is a stockholder of record. This case confirmed, however, that a corporation may not rely on its stock ledger to deprive a stockholder of inspection rights when the corporation was aware of the stockholder’s status but failed to update its stock ledger to reflect that. More ›
Chancery Denies Books and Records Inspection Brought to Advance the Stockholder’s Interests as a Creditor
Georgia Notes 18, LLC v. Net Element, Inc., C.A. No. 2021-0246-JRS (Del. Ch. Nov. 18, 2021)
Plaintiff, a stockholder and creditor of the defendant company, demanded to inspect the company’s books and records pursuant to 8 Del. C. § 220. The company objected, arguing that the plaintiff had failed to state a proper purpose for inspection and had a primary improper purpose. The Court found in the company’s favor, determining that plaintiff sought documents for the primary improper purpose of seeking pre-litigation discovery in connection to its interests as a creditor. More ›
Chancery Shifts Fees, Finds That Defendant’s Litigation Tactics in Books and Records Case Crossed The Line Between Aggressive Litigation And Glaringly Egregious Conduct
Pettry, et al. v. Gilead Sciences, Inc., C.A. Nos. 2020-0132-KSJM; 2020-0138-KSJM; 2020-0155-KSJM; 2020-0173-KSJM (Del. Ch. July 22, 2021).
Delaware follows the American Rule: all litigants pay their own attorneys’ fees, no matter the outcome of the litigation. In rare cases where a litigant’s conduct is “glaringly egregious,” Delaware courts will make an exception and shift fees. This is known as the “bad faith” exception. More ›
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