Main Menu

Showing 134 posts in Books and Records.

Chancery Largely Denies Books-and-Records Inspection Exploring Dividend Potential

Posted In Books and Records, Chancery


Greenlight Capital Offshore Partners, LTD., v. Brighthouse Financial Inc., C.A. No. 2022-1067-LWW (Del. Ch. Nov. 20, 2023)
Valuation is a well-established proper purpose to inspect corporate books and records. While each case turns on its own facts, in general the availability of public information to satisfy a valuation demand will result in a relatively narrow court-ordered inspection. Here, the plaintiff conceded the availability of public information for valuation purposes, but sought more to help it speculate regarding the company’s dividend potential, after recent extraordinary dividends at the subsidiary level caused the stock price to jump. While dividend capacity may be relevant to valuation, the Court of Chancery largely denied the inspection, finding the requested information too removed from the company’s current value and thus not necessary and essential to the plaintiff’s valuation purpose.

Share

Chancery Limits Section 220 Books-and-Records Production to Formal Board Materials

Posted In Books and Records, Chancery


In re Zendesk, Inc. Section 220 Litigation, C.A. No. 2023-0454-BWD (Del. Ch. Aug. 25, 2023)
The background of this books-and-records decision involved a failed acquisition, a strategic review, a proxy contest, and a decision to sell the company at a price below an offer rejected just a few months prior. The plaintiff-shareholders' inspection purpose was to investigate alleged board wrongdoing in connection with the transaction’s approval. The company voluntarily produced formal board materials. But, contending there were information gaps, the plaintiffs also wanted informal board materials, including emails among directors, as well as documents and emails at the officer level. In its post-trial decision, the Court of Chancery found that while the plaintiffs had stated a proper purpose, they did not show entitlement to documents beyond the formal board materials already provided. Citing produced materials, including board minutes and presentations, and the Court found the formal board materials were sufficient to satisfy the shareholders' inspection purpose. As the Court explained, Section 220 inspections “are not tantamount to ‘comprehensive discovery,’" and entitle shareholders only to the “essential” responsive records. 

Share

Chancery Finds That Books and Records Incorporated by Reference in Complaint Demonstrate the Lack of a Valid Caremark Claim

Posted In Books and Records, Chancery, Demand Futility


Joel Newman v. KKR Phorm Investors, L.P., et al. C.A. No. 2022-0310-NAC (Del. Ch. Aug. 31, 2023).
At the motion to dismiss stage, Delaware courts will consider the facts alleged in the complaint as well as the documents incorporated into and integral to it. Under Court of Chancery Rule 23.1, a derivative plaintiff is entitled only to reasonable inferences drawn from the facts asserted and the documents incorporated. Here, the Court reviewed the books and records incorporated by reference in the complaint and determined that the plaintiff failed to plead demand futility. More ›

Share

Chancery Orders Company to Produce Books and Records in Response to Section 220 Demand and Grants Stockholder Leave to Seek Fees and Costs

Posted In Attorneys’ Fees, Books and Records, Chancery


Myers v Academy Securities, Inc. C.A. No. 2023-0241-BWD (Del. Ch. July 27, 2023).
Under Section 220 of the Delaware General Corporation Law ("DGCL"), stockholders are entitled to corporate books and records if they make a valid demand on the company, have a proper purpose for conducting an inspection, and establish that each category sought is essential to that purpose. In this case, a Magistrate in Chancery found that the stockholder met his burden to receive books and records for the purpose of determining the value of his shares. The Court also recommended that the stockholder be permitted to seek his attorneys' fees and costs for the books and records action. More ›

Share

Supreme Court Affirms Court of Chancery’s Decision Directing “Long Dark” Company to Produce Books and Records to a Stockholder Free of Confidentiality Restrictions

Posted In Books and Records, Delaware Supreme Court


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 ›

Share

Chancery Denies Books and Records Request Related to Disney’s Opposition to Florida Legislation Prohibiting LGBTQ+ Topics in Classrooms

Posted In Books and Records, Chancery, Fiduciary Duty


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 ›

Share

Plaintiff Overcomes Rule 23.1 In Walmart Opioids Litigation Based In Part On Over-Redacted Documents In Books And Records Productions

Posted In Books and Records, Chancery, Fiduciary Duty


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 ›

Share

Chancery Orders an LLC to Provide Manager with Books and Records Comprising Informal Board Materials Related to Other Managers’ Actions

Posted In Attorneys' Fees/Costs/Interest, Books and Records, Chancery, LLCs


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 ›

Share

Chancery Concludes Section 18-110 of the LLC Act Does Not Permit Standalone Books and Records Claims When Company Management Is Undisputed

Posted In Books and Records, Chancery, LLCs


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.

Share

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

Posted In Books and Records, Chancery


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 ›

Share

Chancery Relies on Inconsistencies Between Board Materials and Proxy Statement to Order Books and Records Production

Posted In Books and Records, Chancery


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. 

Share

Chancery Limits Review on Motion to Dismiss to Only Section 220 Documents Cited in Complaint and Dismisses Complaint Under MFW Doctrine

Posted In Books and Records, Chancery, Controlling Stockholder, Special Committees


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 ›

Share

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

Posted In Books and Records, Delaware Supreme Court


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 ›

Share

Chancery Finds That Stockholder’s Broad Section 220 Demand Lacked The Precision And Plus Factors Required To Entitle Shareholder To Additional Materials

Posted In Books and Records, Chancery


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 ›

Share

Chancery Curtails Discovery in Appraisal Action Instituted as a Substitute for Books and Records Demand

Posted In Appraisal, Books and Records, Breach of Fiduciary Duty, Chancery, Discovery


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. 

Share
Back to Page