Posts in Books and Records

Master in Chancery Explains Damages Needed to Justify Books and Records Based On Wrongdoing

Walther v. ITT Educational Services Inc., C.A. 8273-MA (February 10, 2015) When a stockholder seeks to inspect a company's records based on alleged wrongdoing, it is necessary to also show that wrongdoing has led to some damage to the entity. Otherwise, the inspection will be denied. Share

Court Of Chancery Upholds Denial Of Inspection To Former Member

Prokupek v. Consumer Capital Partners LLC, C.A. 9918-VCN (December 30, 2014) This decision applies settled law in the corporate context to hold that a former member of an LLC may not obtain inspection rights because those are limited to current members. The opinion is also interesting in that it holds that even if the member interests were redeemed at too low a price, the right to inspect ended and the former member should pursue a breach of contract claim. Share

Supreme Court Confirms Chancery May Restrict Use Of Company Records

United Technologies Corp. v. Treppel, No. 127, 2014 (December 23, 2014) This decision holds that in granting inspection of a company's records, the Court of Chancery may limit the use of those records to litigation in Delaware. The factors that guide the Court's discretion are spelled out in a non-exclusive way. Share

Court Of Chancery Applies Limitations To Books And Records Case

Wolst v. Monster Beverage Corporation, C.A. 9154-VCN (October 3, 2014) Normally a books and records case will not be dismissed on the basis that the claim sought to be investigated is subject to some affirmative defense. That defense is for another day if the claim is ever filed. However, when that claim is clearly subject to a limitations defense, then investigation of it may be too burdensome to permit, as was the case here. Note, however, that the underlying claim involved in this case had been investigated before and that influenced the decision. Share

Court Of Chancery Explains Inspection Rights For Subsidiary Wrongdoing

Oklahoma Firefighters Pension & Retirement System v. Citigroup Inc., C.A. 9587-ML (September 30, 2014) This decision explains when wrongful conduct at a subsidiary is sufficient to warrant inspection of the parent's records to determine if the parent has violated any Caremark duties.  At least when there is some basis to infer that the parent had oversight responsibility for the subsidiaries activities in question the very low standard for granting inspection is satisfied. Share

Court 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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Former Director Loses Right To Inspect

King v DAG SPE Managing Member Inc., C.A. 7770-VCP (December 23, 2012)

This decision holds that after a director ceases to be a director, he loses any statutory or other right as a director to inspect a corporation's books and records.

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Court Of Chancery Limits Inspection From Third Party

Florida R&D Fund Investors LLC v. Florida BOCA, C.A. 8400-VCN (August 30, 2013)

This decision illustrates the danger in vesting practical control of the records an entity in a non-Delaware "agent."  Simply put, as the agent is not subject to the statutory duty to produce those records and may not even be subject to Delaware jurisdiction, the Delaware forum is not available to enforce inspection rights

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Court Of Chancery Permits Access To Litigation Reserves

JP Morgan Chase & Co. v. American Century Companies Inc., C.A. 6875-VCN (April 18, 2013)

This decision explains the rare case when a litigant may gain access to the opposing party's litigation reserves. That information is usually subject to attorney-client privilege.

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Court Of Chancery Explains Limits On Inspection

Doerler v. American Cash Exchange Inc., C.A. 7640-VCG (February 19, 2013)

This books and records case provides a good summary of the law limiting inspection to what the petitioner really needs to fulfill her proper purpose in seeking inspection.  The decision covers both inspection to value shares and to investigate alleged wrongdoing.

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Court Of Chancery Permits Interlocutory Appeal In 220 Case

In Re Freeport-McMoRan Copper & Gold Inc. Derivative Litigation,  C.A. 8145-VCN (February 14, 2013)

In recent years, the Delaware Supreme Court has stressed that it is desirable to file a books and records case before starting derivative litigation.  But do you need to do that every time?  In the unusual situation presented by this case, the Court of Chancery declined to hold up a derivative case to permit a books and records case to go first.  In granting an immediate appeal, the Court recognized that the Supreme Court may want to clarify the law in this area.

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Court Of Chancery Limits Claims In Section 220 Cases

The Ravenswood Investment Company LP v. Winmill & Co. Incorporated, C.A. 7048-VCN (January 31, 2013)

In a books and records action, may the plaintiff also add a count for breach of duty?  This decision holds that he cannot do so.  After all, a books and records action is meant to be summarily litigated.  That fast track cannot be achieved if other claims must also be decided at the same time.

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Court Of Chancery Explains Scope Of Inspection

Rock Solid Gelt, Ltd. v. The SmartPill Corporation,  C.A. 7100-VCN (October 10, 2012) This decision addresses one of the more perplexing problems of book and records litigation - what exactly is the plaintiff entitled to review? The Court of Chancery expects plaintiffs to limit their demands to what is really necessary and to explain to the Court, sometimes with witnesses, exactly what should be inspected to meet the proper purpose established at trial.  A blunderbuss approach is likely to irritate the Court and get you less than you really want.  This decision spells out the sort of evidence that should be presented to inspect specific records. Share

Court Of Chancery Explains Sufficient Basis For Inspection

Louisiana Municipal Police Employees' Retirement System v. Lennar Corporation, C.A. 7314-VCG (October 5, 2012)

To inspect corporate records to see if there has been "wrongdoing,"  a stockholder has to have a basis to suspect that wrongdoing has occurred. The evidence needed has been described as the lowest level possible if there is to be any standard at all.  This decision illustrates that a standard does exist.  Past lawsuits that have been settled are not sufficient to show present wrongdoing. General news articles about an industry-wide investigation are not sufficient.  Both together do not get there either and the suit was dismissed.

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Supreme Court Upholds Section 220 Jurisdictional Rules

Central Laborers Pension Fund v. News Corporation,  No. 682, 2012 (May 29, 2012)

The right of a stockholder to inspect a company's books and records is govenned by Section 220 of the DGCL.  A beneficial owner must first show proof of beneficial ownership, however, and Section 220 tells how to do so.  Here the plaintiff for some reason just ignored Section 220's requirements to show beneficial ownership.  When then faced with a motion to dismiss, he argued that he could supply that proof later because it was just a clerical mistake to not do so when his complaint was filed. The Delaware Supreme Court forcefully rejected  that argument and upheld the dismissal of his complaint.

Note that the Supreme Court sidestepped the holding of the Court of Chancery that once it filed a derivative suit, this plaintiff lost its rights under Section 220.

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