Delaware Business Litigation Report

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. 

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