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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.

Reviewing a Master in Chancery’s report de novo, the Court held that the corporation failed to sustain its burden to support the two-year confidentiality restriction recommended by the Master. Under Tiger v. Boost Apparel, Inc., 214 A.3d 933, 938-39 (Del. 2019), the company failed to establish a sufficient interest for a confidentiality restriction for its financial statements, and the plaintiff had a greater interest to utilize and share the information with fellow stockholders or to seek a price quotation from a broker-dealer. Specific factors that the Court relied upon were that ninety percent of shares were held by retail investors, the company previously had been public, and the company had not included confidentiality restrictions in its constitutive documents. Further, the plaintiff was an average retail stockholder seeking to value his shares, not pursuing a litigation strategy that would harm the company. The Court drew a distinction between the confidentiality of documents sought to investigate wrongdoing and documents sought to value shares, explaining that the former involved greater sensitivity to protect confidentiality. In sum, when a plaintiff investor seeks basic financial information for closed periods to value shares, a confidentiality restriction should not issue simply because the company has financial information not subject to public disclosure and prefers its financial information to remain that way.

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