Delaware Supreme Court Clarifies: No Presumption of Confidentiality for Documents Produced Pursuant to a Books and Records Request
The Delaware Supreme Court held that documents produced pursuant to a request for books and records under Section 220 of the Delaware General Corporation Law are not subject to a presumption of confidentiality.
Boast was an apparel brand created in the 1970s and retired in the 1990s. In 2010, plaintiff Alex Tiger joined with John Dowling to revive the Boast brand, utilizing an entity ultimately named BAI Capital Holdings, Inc. (“BAI”). Through 2014, Tiger and Dowling disagreed on several management decisions. In December 2014, Tiger delivered his first Section 220 demand to BAI. Tiger rejected BAI’s proposed confidentiality agreement, the final version of which would have barred Tiger from using BAI documents in subsequent litigation other than derivative actions. Tiger made a second 220 demand in February 2017 and filed a 220 action in October 2017. The parties disputed the scope of Tiger’s confidentiality obligations for BAI’s production of the relevant books and records. The Court of Chancery adopted an indefinite confidentiality period. Tiger appealed.
The Supreme Court affirmed the Court of Chancery’s order and final judgment relating to a Section 220 inspection, disagreeing with the Court of Chancery’s formulation of the presumption but determining that its order was within a range of reasonableness and was not an abuse of discretion. The Supreme Court clarified that a “presumption of confidentiality” formulation had erroneously developed over the years on the basis of a quote from a 2004 opinion, later modified on remand, of the Court of Chancery. Rather than agree with the presumptive formulation arising from that quote, the Supreme Court in Tiger clarified that the Court of Chancery should weigh a stockholder’s legitimate interests in free communication against the corporation’s legitimate interests in confidentiality when determining the initial degree and duration of confidentiality; that an indefinite period of confidentiality protection should be the exception and not the rule; and that a party demanding Section 220 books and records need not show exigent circumstances for a court to grant something less than indefinite confidentiality.Share