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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Delaware Supreme Court Addresses Emails and Jurisdictional Use Conditions in Books and Records Actions
Two prevailing questions for books and records inspections under Section 220 of the Delaware General Corporation Law are what records can I get, and what can I do with them? This decision from the Delaware Supreme Court addresses both issues.
First, it holds the stockholder-petitioner should have been given access to emails on a particular topic (amendments to an investor rights’ agreement). This holding followed from proof that the subject company did not respect corporate formalities, lacked more typical corporate records (like minutes and resolutions), and had acted through email when taking the action the stockholder was investigating. As the Supreme Court reasoned: “Ultimately, if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a § 220 petitioner’s needs solely by producing those books and records. But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which § 220 entitles them.” The Supreme Court also clarified the burden when asking to inspect emails. There is no “compelling” evidence requirement; rather, “a petitioner meets her burden to prove necessity by identifying the categories of books and records she needs and presenting some evidence that those documents are indeed necessary.”
Second, it holds the stockholder-petitioner’s forum choice for an action arising out of the inspection should not have been so strictly limited to the Delaware Court of Chancery under the circumstances. There might be cases where jurisdictional use restrictions (in Delaware or otherwise) are appropriate conditions to inspection. But that probably is not the norm, and this was not a case for it.