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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 84 posts in Books and Records.
Court Of Chancery Explains Stock Restriction Law
Henry v. Phixios Holdings Inc., C.A. No. 12504-VCMR (July 10, 2017)
This is the rare decision explaining when restrictions on stock transfers (permitted by Section 202 of the DGCL) can be enforced. While the statute seems clear enough, the real lesson from this decision is that it might be difficult to show a stockholder had advanced knowledge of restrictions that are not on the stock certificate when no other written notice exists. Without such advanced knowledge or later assent by the stockholder, the restrictions are not enforceable.
ShareCourt of Chancery Explains When There Is A Basis To Investigate
T.J. Rogers v. Cypress Semiconductor Corp., C.A. No. 2017-0070-AGB (April 17, 2017)
This decision does a good job of explaining when there is an adequate showing of possible wrongdoing sufficient to justify a books and records inspection. It also explains why conducting a proxy contest does not warrant denying inspection.
ShareCourt of Chancery Holds That A Books And Records Plaintiff Must Be A Stockholder At The Time Of Suit
Weingarten v. Monster Worldwide Inc., C.A. 12931-VCG (Feb. 27, 2017)
This decision resolved a matter of first impression: a plaintiff seeking corporate records under Section 220 of the DGCL must be a stockholder at the time he files his complaint to have standing. Thus, when a stockholder makes a proper Section 220 demand, and a merger terminates his ownership interest in the corporation before he files his books and records action, the now-former stockholder loses standing to sue. In short, stockholder-plaintiffs must be diligent in pursuing their record demands to avoid losing standing.
ShareCourt Of Chancery Holds That Wrong Forward Looking Statement Insufficient To Support Records Inspection
Haque v. Tesla Motors Inc., C.A. 12651-VCS (February 2, 2017)
It is not enough that certain forward-looking statements failed to come true to justify requiring an inspection of corporate records. More evidence of wrongdoing is needed if your inspection is based on a theory of mismanagement.
ShareCourt Of Chancery Denies Inspection When The Board Has An Obvious Defense To A Claim Of Wrongdoing
In general, the bar is low for exercising inspection rights to investigate claims of wrongdoing. Plaintiffs need provide only some evidence to suggest a credible basis from which the Court can infer possible mismanagement or wrongdoing. But as this decision holds, when there is an obvious defense to the claim, such as the board’s reliance on an audit firm for a complicated accounting issue, inspection may be denied.
ShareCourt of Chancery Denies Director Full Inspection Rights
Bizzari v. Suburban Waste Services Inc., C. A. No. 10709-JL (Del. Ch. Aug. 30, 2016)
This is an almost unprecedented decision to limit the inspection rights of a corporate director. Directors generally have “essentially unfettered” access to the corporate records to fulfill their fiduciary roles. Here, given the director’s improper motive to use the records to compete with or harm the corporation, the result is entirely justified under the bizarre set of facts.
ShareCourt Of Chancery Explains Inspection Rights For A Statutory Trust
This is the first decision examining the right to inspect the records of a Delaware Statutory Trust. Applying settled law from decisions in the LLP and LLC context regarding whether to read statutory and contractual inspection rights as separate and independent, the Court held that a contractual right to inspection is not subject to the conditions in the trust statute (Section 3819) unless the Trust language says so. The Court also held that defending against the inspection on the grounds of an improper purpose requires proof of probable harm to the trust if the Court allowed the inspection.
ShareCourt Of Chancery Limits Inspection To A Real Stockholder
Pogue v. Hybrid Energy Inc., C.A. 111563-VCG (August 5, 2016)
This decision holds that when stock issued is void, the recipient is not entitled to records inspection even if he is listed as a stockholder on the company's stock ledger.
ShareCourt Of Chancery Explains Inspection Rights In An LLC
RED Capital Investment L.P. v. RED Partner LLC, C.A. 11575-VCN (February 11, 2016)
This is an interesting decision because it explains inspection rights in the LLC context under the two different standards set out in Section 18-305(a) and (b) of the LLC Act. As expected, it is better to seek inspection as a manager than as a member. Managers have similar “unfettered” access to company books and records as corporate directors, absent restrictions in the LLC agreement. Also notable, inspection rights may include the books and records of subsidiaries, under the right circumstances.
ShareCourt Of Chancery Imposes An “Incorporation Condition” On A Stockholder’s Books And Records Inspection
Amalgamated Bank v. Yahoo! Inc., C.A. 10774-VCL (February 2, 2016)
This is a precedent-setting decision in the books and records context. In it, the Court imposes an “Incorporation Condition” on the stockholder’s inspection. That is, a stockholder who establishes a credible basis to inspect corporate records for the purpose of investigating alleged wrongdoing must agree -- as a condition to the inspection -- that all the documents it inspects will be deemed incorporated by reference in any later-filed derivative complaint. More ›
ShareCourt Of Chancery Explains Director Right To Information And What Communications Qualify As Corporate Books and Records
Chammas v. NavLink, Inc., C.A. 11265-VCN (February 1, 2016)
This is one of those scarce cases dealing with director access to a corporation’s books and records. After all, Delaware law provides directors with an almost unlimited right to a corporation’s records needed for them to exercise their fiduciary duties. Hence, these cases are rare. More ›
ShareCourt Of Chancery Dismisses Case For Failure To Pursue Records
Thermopylae Capital Partners LP v. Simbol, Inc., C.A. 10619-VCG (January 29, 2016)
The Court of Chancery expects a plaintiff to supply those facts necessary to state a claim in reasonable detail, particularly when those essential facts might be obtained by an inspection of an entity’s records. Here the Court dismissed a complaint for its failure to state those facts that would have been evident from a records inspection and when the absence of those facts made the complaint too difficult to understand.
ShareCourt Of Chancery Limits Records Inspection In Valuation Case
In Re: New Media Books And Records Action, C.A. 9984-VCB (December 23, 2015)
Exactly how much information is a stockholder entitled to under the “necessary, essential and sufficient” standard applied when the stockholder seeks to value his interest in the corporation? This decision suggests that 3 years of past financial information is enough.
ShareCourt Of Chancery Outlines Discovery In Books and Records Case
Chammas v. NavLink Inc., C.A. 11265-VCN (August 27, 2015)
What discovery is permitted in a books and records case has two dimensions. More ›
ShareCourt Of Chancery Denies Request For A "No Trade" Agreement
The Ravenswood Investment Companies L.P. v. Winmill & Co. Inc., C.A. 7048-VCN (May 30, 2014)
Inspection of a company's records may not be conditioned on an agreement not to trade the company's stock following the inspection.
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