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Court of Chancery Enforces Broad Director-Like Books and Records Rights in the LLC Context

Obeid v. Gemini Real Estate Advisors LLC, C.A. No. 2017-0510-JTL (Del. Ch. June 5, 2018)

To facilitate the proper exercise of one’s fiduciary duties, the right of directors to inspect a corporation’s books and records is broad, often referred to as unfettered.  The right of managers to inspect an LLC’s books and records generally is equivalent, subject to modification in the LLC agreement.  A significant showing is required to avoid a fiduciary’s inspection on the basis that is not for a proper purpose, i.e., any purpose reasonably related to the inspector’s fiduciary status.  The company must put forward concrete evidence that the fiduciary will violate duties and use the information to harm it.  Without such a showing, the Court generally does not assume the role of questioning the fiduciary’s business judgment about the records he needs to do his job.  This decision is an example of the LLC failing to prove the manager lacked a proper purpose for his inspection, with the backdrop of much friction and other litigation among the LLC’s several managers.