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Showing 113 posts in Books and Records.

Chancery Grants Books and Records Mismanagement Inspection Related to Rejected Financing Proposal Despite Potential Lack of Actionable Claim

Posted In Books and Records, Chancery

Alexandria Venture Investments LLC v. Verseau Therapeutics Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020)

This case highlights that the potential lack of an actionable claim generally is not a valid defense to a demand for books and records where the stockholder meets the low threshold of proving a credible basis to suspect wrongdoing. Plaintiffs sought to compel inspection of books and records of Verseau Therapeutics, Inc. (“Verseau”), pursuant to Section 220 of the Delaware General Corporation Law, to investigate whether Verseau’s directors violated their fiduciary duties by rejecting a financing proposal (made by the plaintiffs) to favor the interests of certain directors and affiliates. Verseau objected, arguing in part that plaintiffs did not have a credible basis to suspect wrongdoing because a majority of independent and disinterested Verseau directors had made all relevant decisions.  More ›

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Chancery Grants Leave to Move for Fees for Overly Aggressive Books and Records Defenses

Posted In Attorneys’ Fees, Books and Records, Chancery

Pettry v. Gilead Sciences, Inc., C.A. No. 2020-0132-KSJM (Del. Ch. Nov. 24, 2020)

This case illustrates that the Court of Chancery will not accept overly aggressive defenses to books and records actions and may grant fees to discourage such tactics. Section 220 of the Delaware General Corporation Law permits a stockholder plaintiff who has a “credible basis” to suspect wrongdoing by officers and directors to demand inspection of books and records relating to that misconduct. In this case, plaintiff-stockholders of Gilead Sciences, Inc. (“Gilead”) sought to inspect Gilead’s books and records to investigate misconduct. Gilead was subject to numerous lawsuits and government investigations arising out of alleged anticompetitive conduct, mass torts, breach of patents, and false claims relating to the development and marketing of its HIV drugs. The plaintiffs sought books and records about Gilead’s (1) anticompetitive agreements, (2) policies and procedures, (3) senior management materials, (4) communications with the government, and (5) director questionnaires. Gilead refused to produce any documents, even though the plaintiffs had a credible basis to suspect wrongdoing and the records they sought related directly to the misconduct. The Court of Chancery found that “Gilead exemplified the trend of overly aggressive litigation strategies by blocking legitimate discovery, misrepresenting the record, and taking positions for no apparent purpose other than obstructing the exercise of Plaintiffs’ statutory rights.” The Court, therefore, granted plaintiffs leave to move for fee shifting.  More ›

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Chancery Dismisses Section 220 Complaint on Jurisdictional Grounds, Finding That Plaintiffs Filed Seven Hours Prematurely

Posted In Books and Records, Chancery

MaD Investors GRMD, LLC, et al. v. GR Cos., Inc., C.A. No. 2020-0589-MTZ (Del. Ch. Oct. 28, 2020)
At 5:03 p.m., on the fifth day after serving a Section 220 demand (the “Demand”) on GR Companies, Inc. (the “Company”), MaD Investors GRMD, LLC and MaD Investors GRPA, LLC (together, “Plaintiffs”), filed a complaint to compel inspection of books and records pursuant to 8 Del. C. § 220 (the “Complaint”). The Company filed a motion to dismiss, asserting that Plaintiffs had filed the Complaint prematurely. Plaintiffs filed a cross-motion for leave to amend the Complaint (the “Leave Motion”).  More ›

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Chancery Rebukes Party for “Distracting” and “Detrimental” Rule 11 Arguments

Posted In Books and Records, Rules of Procedure

POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., C.A. No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020)

Under Court of Chancery Rule 15, a Delaware plaintiff may request leave from the Court to amend or supplement a complaint. Leave to grant such motions is “liberally granted, unless, in a narrowly construed exception, there is inexcusable delay and prejudice to the defendant.” This opinion involves an unsuccessful opposition to a motion to amend based, in part, on the argument that the original pleading violated Rule 11.   More ›

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Chancery Holds Statutory Rights to Inspect Books and Records of a Delaware Corporation are Subject to the Internal Affairs Doctrine and Governed Exclusively by Delaware Law

Posted In Books and Records, Chancery, Choice of Law

JUUL Labs, Inc. v. Grove, C.A. No. 2020-0005-JTL (Del. Ch. Aug. 13, 2020)

Stockholder inspection rights are a core matter of the governance of a corporation. This decision holds that, pursuant to the internal affairs doctrine, inspection rights for a stockholder of a Delaware corporation are governed exclusively by Delaware law, not by laws of other jurisdictions, regardless of where a company’s principal place of business is located. More ›

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Chancery Denies Books and Records Request From Indirect LLC Interest Holder That Assigned its Rights Prior to the Demand and the Action

Posted In Books and Records, Chancery, LLC Agreements

SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. 2020-0064-JRS (Del. Ch. Jul. 24, 2020)
Describing the case as deja vu, the Court of Chancery dismissed Plaintiff’s second attempt to enforce alleged rights related to Defendant/Company. See SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del.  Ch. Mar. 18, 2020) (“SolarReserve I”). The Company was formed to develop a solar power plant in Nevada, but the plan never came to fruition. More ›

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Delaware Supreme Court Holds That Limited Partnership Agreement That Includes Certain Books and Records Language From Section 17-305 of Limited Partnership Act Does Not Automatically Incorporate Judicial Interpretations of Section 17-305

Posted In Books and Records, Delaware Supreme Court, Limited Partnerships

Murfrey v. WHC Ventures, LLC, App. No. 294, 2019 (Del. Supr. Jul. 13, 2020)

Drafters of alternative entity agreements frequently cite to, or quote, statutory language to describe the parties’ obligations. But, the Delaware Supreme Court has concluded that when drafters do so, the drafters should be explicit in whether they also intend to incorporate judicial interpretations of that language, too. Here, because the governing limited partnership agreements (the “Agreements”) did not include an express requirement limiting books and records rights to those “necessary and essential” to a proper purpose, the Supreme Court declined to imply one. More ›

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Chancery Addresses Burdens for Valuation-Related Books-and-Records Inspections, While Finding Defendant’s Asserted Lack of Records Supported Mismanagement-Related Inspection

Posted In Books and Records, Chancery

Woods v. Sahara Enterprises, Inc., C.A. No. 2020-0153-JTL (Del. Ch. July 22, 2020)

This decision concerning statutory inspection rights under Section 220 of the Delaware General Corporation Law clarifies the requirements of a proper valuation purpose, involves a unique twist concerning a mismanagement-investigation purpose, and provides a helpful summary on the potential scope of books-and-records inspections. More ›

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Chancery Rejects Argument that Books and Records Plaintiff Could “Retroactively” Comply with Statutory Demand Requirements

Posted In Books and Records, Chancery, Limited Partnerships

Martinez v. GPB Capital Holdings, LLC, C.A. No. 2019-1005-SG (Del. Ch. June 9, 2020)

The Delaware Court of Chancery largely entered judgment on the pleadings in favor of GPB Capital Holdings, LLC (“Defendant”), the general partner to four limited partnerships, holding that the plaintiffs had failed to meet the statutory requirements of 6 Del. C. §17-305 (Delaware’s statute pertaining to access to the books and records of limited partnerships).  More ›

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In a Books and Records Action, Court Critiques Defendant’s Motion to Dismiss, and Declines to Order Inspection of Documents Not Requested in the Plaintiff’s Demand

Posted In Books and Records

Paraflon Investments, Ltd. v. Linkable Networks, Inc., C.A. No. 2017-0611-JRS (Del. Ch. Apr. 3, 2020).

Sometimes it bears repeating that Section 220 actions are intended to be summary proceedings to evaluate a stockholder’s pre-suit demand to inspect a corporation’s books and records.  More ›

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Chancery Further Explains the “Proper Purpose” Requirement for Section 220 Demands

Posted In Books and Records

Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020).

Section 220 of the Delaware General Corporation Law (“DGCL”) provides stockholders seeking information for a proper purpose with the right to inspect a corporation’s books and records. This recent decision provides additional guidance by (i) rejecting a “purpose-plus-an-end” test as inconsistent with the text of Section 220 and Delaware Supreme Court precedent; and (ii) explaining that a stockholder may have a proper purpose to investigate wrongdoing regardless of whether she can show potentially viable claims against a board of directors.  More ›

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Chancery Finds Proper Purpose in Books and Records Demand to Investigate Potential Wrongdoing in CBS-Viacom Merger, Orders Narrowed Inspection that Includes Electronic Documents

Posted In Books and Records

Bucks Cty. Employees Ret. Fund v. CBS Corp., C.A. No. 2019-0820-JRS (Del. Ch. Nov. 25, 2019).

A stockholder seeking books and records in Delaware states a proper purpose for inspection by demonstrating a credible basis to suspect that fiduciaries engaged in wrongdoing. So long as the documents sought are necessary and essential to that purpose, the Court of Chancery will order inspection. The Court generally will not, however, require a broad production of electronic documents akin to plenary discovery. More ›

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Chancery Declines to Establish New Rule Concerning Books and Records Inspections Related to Proxy Contests

Posted In Books and Records, Chancery, Proxy Contest

High River Limited Partnership v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS (Del. Ch. Nov. 14, 2019).

Section 220 of the DGCL grants stockholders a qualified right to inspect corporate books and records “necessary and essential” to a “proper purpose.”  One recognized proper purpose is investigating potential corporate wrongdoing or mismanagement.  In such cases, the stockholder must establish a “credible basis” for the suspicion before the Court of Chancery will order inspection.  When a stockholder makes that showing, the Court has permitted use of the produced books and records to mount a proxy contest.  However, as the Court of Chancery observes in this decision, no Delaware court has compelled inspection “when the stockholder’s only stated purpose for inspection is a desire to communicate with other stockholders in furtherance of a potential proxy contest.”  And under the facts and circumstances of this case, the Court declines to be first.   More ›

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Chancery Rejects Claim that Books and Records Demand was “Pretextual,” Finds Sufficient Overlap Between Demand Letter and Plaintiff’s Purpose

Posted In Books and Records

Donnelly v. Keryx Biopharmaceuticals, Inc., C.A. No. 2018-0892-SG (Del. Ch. Oct. 24, 2019).

A stockholder-plaintiff seeking a corporation’s books and records must have a genuine proper purpose, and cannot rely simply on a lawyer-crafted demand letter to justify her request.  There must be alignment between a plaintiff’s books and records demand and her own stated interest in seeking books and records.  In this recent decision, the Court of Chancery considers and rejects an attempt by a defendant-corporation to argue that a books and records demand was really driven by plaintiff’s counsel, and that the plaintiff lacked any genuine proper purpose. More ›

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Chancery Denies Section 220 Bid for Executive Compensation Records Involving Facebook

Posted In Books and Records, Cases, Chancery

Southeastern Pa. Trans. Auth. v. Facebook, Inc., C.A. No. 2019-0228-JRS (Oct. 29, 2019)

Shareholders of a Delaware corporation have a qualified right to access corporate books and records for a “proper purpose.” One such proper purpose is to investigate potential mismanagement or fiduciary wrongdoing. Indeed, Delaware law encourages shareholders to use this “tool at hand” prior to bringing a derivative action. But this type of inspection has an important precondition: the shareholder must advance some evidence to suggest a “credible basis” from which the Court can infer actionable wrongdoing. As this decision involving Facebook illustrates, the credible basis standard is lenient but not meaningless, and may turn on, among other things, the potential for monetary damages arising out of the alleged wrongdoing. After a trial on a paper record, the Court of Chancery denied an attempt by two stockholders of defendant Facebook, Inc. to obtain additional documents related to the company’s executive compensation practices. More ›

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