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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 135 posts in Books and Records.
Court 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 Applies Garner In 220 Case
In re Lululemon Athletica Inc. 220 Litigation, Consol. C.A. 9039-VCP (April 30, 2015)
This is an important Section 220 decision for at least two reasons. First, it holds that the personal records of non-employee directors do not need to be produced in a Section 220 case, at least on the facts presented here. Second, it applies the Garner analysis used by the Delaware Supreme Court in its Wal-Mart decision to determine when privileged documents need to be produced. It also has a good analysis of the common interest privilege.
ShareCourt Of Chancery Permits Records Inspection Despite Dubious Claim
While the test for books and records inspection to check on possible wrongdoing is very liberal, it is not without its limits. This decision permits inspection, if limited, even when the alleged wrongdoing is at the level of a subsidiary whose conduct might have reasonably escaped the attention of the parent board.
ShareCourt Of Chancery Explains What Is A Credible Basis to Inspect
Southeastern Pennsylvania Transportation Authority v. Abbvie Inc., C.A. 10374-VCG (April 15, 2015) It is too often thought that just by alleging some wrongdoing a demand for inspection of records is sufficient. Well, this decision explains why that is wrong. The demand must state a credible basis to believe that as a result of the inspection nonexculpated conduct will be uncovered and suit filed. That is hard to do when there is a 102(b)(7) provision in the certificate of incorporation and no real breach of loyalty claim.
ShareCourt Of Chancery Explains When Inspection Is Warranted
Fuchs Family Trust v. Parker Drilling Company, C.A. 9986-VCN (March 4, 2015) Everyone knows that a proper purpose is needed to justify inspection of a company's records and that investigating wrongdoing is such a proper purpose. But is it enough to just allege that alone, even when there is sufficient evidence that there was wrongdoing? As this decision explains, it is also necessary that the inspection may lead to some sort of action. Here the wronging had already been addressed by a new board and further inspection of the company's records did not seem necessary. Hence, inspection was denied.
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