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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Delaware's Court of Chancery Clarifies Scope of Inspection Under Books and Records Demands
In Amalgamated Bank v. Yahoo!, Inc., C.A. No. 10774-VCL (Del. Ch. Feb. 2, 2016), Plaintiff Amalgamated Bank’s Section 220 books and records demand sought, among other things, the emails of certain Yahoo officers and directors. Yahoo objected to the request as overly broad, but the Court found differently. Continuing the trend from Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271 (Del. 2014), which first permitted access beyond board materials, the Court ordered inspection of certain Yahoo director and officer documents and communications. In addition, the Court found that the directors’ and officers’ personal email accounts were subject to inspection if they were used to conduct business. This development signals to corporate officers and directors’ that personal emails may be discoverable in a 220 Action if the emails are essential to fulfilling a plaintiff’s proper purpose.
Although Yahoo had produced certain “Board-Level Materials,” that were “indisputably subject to inspection,” Yahoo challenged Amalgamated Bank’s request for: (1) CEO Marissa Mayer’s files, including emails; and (2) documents and emails reflecting the discussions and decision of the board or one of its committees, including memos and notes about Amalgamated Bank’s February 24, 2014 demand, emails between the directors, and documents and communications reflecting the board’s deliberations.
The Court determined that Mayer’s documents were necessary for Amalgamated Bank’s proper purpose, namely the investigation into potential wrongdoing or mismanagement in connection with the hiring of Yahoo's COO in 2012 and his subsequent firing only fourteen months later. In addition, the Court rejected Yahoo’s argument that electronically stored information was outside the scope of Section 220. Most notably, the Court found that Mayer would have to produce responsive documents from her personal email account if she used her personal email account to conduct business, holding that a “corporate record retains its character regardless of the medium used to create it.”
Thus it is not the source of the document (e.g., a personal email account) that should govern whether that document is rightfully subject to inspection under Section 220. The proper inquiry is whether certain documents are essential and sufficient to satisfy a stockholder plaintiff’s proper purpose. In this action, the Court answered that question in the affirmative. Similarly, the Court ordered a limited inspection of additional board documents, including the emails of four members of the compensation committee that related to the hiring and firing of the deputy.
Section 220 inspection rights are certainly more limited than the right to discovery in plenary actions, but Delaware courts will not stop short of ordering inspection of ESI or personal email communications if they contain documents necessary to a plaintiff’s proper purpose. Having permitted the inspection of personal email in a 220 Action, the Court is likely to allow the same in plenary actions where it deems such discovery is warranted.