Posts in Books and Records

Court of Chancery Limits Use of Demand for Records

Highland Select Equity Fund, L.P. v. Motient Corp., C.A. No. 2092-N, 2006 WL 1903129 (Del. Ch. July 6, 2006). In this case, the Court of Chancery dismissed a demand to inspect the records of a Delaware corporation because the demand for inspection was abusive. A demand to inspect corporate records must be based on a good reason and when the request is to inspect allegations of wrongdoing, those allegations must have some basis. While the Court here felt that part of the test for inspection had been met, the way the plaintiff went about its request cost it the litigation. More › Share

Court of Chancery Determines Criteria To Decide Inspection Rights

Wynnefield Partners Small Cap Value LP v. Niagara Corp., C.A. No. 1261, 2006 WL 1737862 (Del. Ch. June 19, 2006). This is Section 220 action where the principal issue is whether the plaintiff had satisfied the criteria to inspect records related to alleged wrongdoing. The Court of Chancery held that merely alleging that wrongdoing had occurred was not sufficient to warrant inspection of corporate records. However, in some areas the Court held that sufficient facts had been alleged to justify record insepction. More › Share

Court of Chancery Aids The Missing Stockholder

Gildor v. Optical Solutions, Inc., C.A. No. 1416-N, 2006 WL 1596678 (Del. Ch. June 5, 2006). It is often not clear what a corporation is to do when it cannot find a missing stockholder. While 8 Del. C. §230 answers that question for stockholder meetings, what to do in other circumstances is less clear. In this decision, the Court of Chancery held that the corporation should at least look through its records to try to find the missing stockholder to give him notice of the right to acquire corporate stock. The failure to try harder led the court to extend the stockholder's time when he finally appeared. Share

Court of Chancery Orders Production of Documents in Books and Records Action

Sutherland v. Dardanelle Timber Co., C.A. No. 671-N (Del. Ch. May 16, 2006). Defendant objected to Master in Chancery's report granting relief to Plaintiff on majority of her requests in Section 220 action. Plaintiff objected to Master in Chancery's narrowing the scope of documents she demanded. More › Share

Court of Chancery Dismisses De Facto Dividend Claim Because Disguised as Improperly Pled Claim of Self-Dealing

Horbal v. Three Rivers Holdings, Inc., C.A. No. 1273-N, 2006 WL 668542 (Del. Ch. Mar. 10, 2006). Plaintiffs, founders of a Health Management Organization, alleged that their co-investors abused their positions by siphoning off tens of millions of dollars from the HMO in the form of disguised salaries and corporate perquisites; plaintiffs call these "de facto dividends." The Court of Chancery granted defendants' motion to dismiss because plaintiffs did not adequately allege self-dealing, the center of a de facto dividend claim. More ›

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Court of Chancery Denies Motion to Stay Books and Records Action in Favor of Separate Derivative Action Involving Substantially Similar Matters

Kaufman v. Computer Associates International, Inc., C.A. No. 699-N, 2005 WL 3470589 (Del. Ch. Dec. 13, 2005). A beneficial stockholder filed a books-and-records action pursuant to 8 Del.C. §220 seeking documents relating to the corporation's decision to settle certain derivative and federal class action litigation in a manner that allegedly benefited the individual wrongdoers at the corporation's expense. A special litigation committee acting on behalf of the corporation moved to stay this action until it completed its investigation on this issue, which had become the subject of new derivative litigation in New York brought by different plaintiffs. More › Share

Books-and-Records Action Dismissed Where No Credible Evidence to Justify Investigation of Alleged Misconduct

Seinfeld v. Verizon Communications, Inc., C.A. No. 1100-N, 2005 WL 3272365 (Del. Ch. Nov. 23, 2005). Shareholder sought to compel inspection of books and record under 8 Del.C. -220 related to three senior executives' compensation, which Plaintiff claimed to be excessive and wasteful. Plaintiff's complaint claimed that those executives received total compensation of $205 million for ostensibly performing the same services as co-chief executives. The complaint also alleged that Verizon's long-term bonus plan was amended shortly after at least two of the three employee contracts were entered into, which caused a further increase in the executives' total compensation. After discovery, the parties cross-moved for summary judgment, and the court granted judgment in the company's favor. More › Share

Court of Chancery Denies Motion For Continued Sealing Of Portions Of Derivative Complaint

Stone v. Ritter, C.A. No. 1570-N, 2005 WL 2416365 (Del. Ch. Sept. 26, 2005). Defendants sought continued sealing of portions of derivative complaint. More › Share

Court of Chancery Finds Proper Purpose in Books and Records Case Where Beneficial Owners Demonstrate that CEO Received Excessive Compensation

Haywood v. Ambase Corp., C.A. No. 342-N, 2005 WL 2130614 (Del. Ch. Aug. 22, 2005). Plaintiffs Haywood and Cronin were beneficial owners of defendant AmBase Corporation's ("AmBase") common stock. Ambase was a publicly held Delaware corporation, and its primary purpose at the time was to pursue pending litigation against the United States government based on the impact of the Financial Institutions Reform, Recovery and Enforcement Act. Richard Bianco was the chairman and chief executive officer of AmBase. More › Share

Court of Chancery Holds that Private Securities Litigation Reform Act and Securities Litigation Uniform Standards Act do not Preempt Books and Records Action

Romero v. Career Educ. Corp., C.A. No. 793-N, 2005 WL 1798042 (Del. Ch. July 19, 2005). Plaintiff shareholder brought an action against Career Education Corporation ("CEC"), a Delaware corporation, seeking to compel inspection of certain books and records. CEC moved to dismiss the complaint or to stay. More › Share

Court of Chancery Holds Fund to be Beneficial Owner Even When it Holds a Net Short Position or Purchases Shorted Shares from its Other Accounts

Deephaven Risk ARB Trading Ltd. v. UnitedGlobalCom, Inc., C.A. No. 379-N, 2005 WL 1713067 (Del. Ch. July 13, 2005). Plaintiff Deephaven Risk ARB Trading Ltd. ("Deephaven"), an investment fund, sought to compel inspection of defendant UnitedGlobalCom's ("UGC") books and records to investigate possible wrongdoing in connection with a rights offering. In response, UGC moved to dismiss the complaint, challenging Deephaven's status as a beneficial owner and the purpose for its demand. The court denied UGC's motion. More › Share

Court of Chancery Holds that Unitholders in Private Equity Fund Can Inspect Books and Records After Fund Loses 75% of Value

Forsythe v. CIBC Employee Private Equity Fund, C.A. No. 657-N, 2005 WL 1653963 (Del. Ch. July 7, 2005). Plaintiffs Forsythe and Tesche, who were unitholders in a Delaware limited partnership, brought an action to inspect the books and records. At the close of trial, two issues remained for post-trial briefing: (1) whether the plaintiffs stated a proper purpose; and (2) whether plaintiffs had a right to demand inspection of documents held or under the control of an entity other than the general partner. More › Share

Court of Chancery Protects Certain Materials Obtained Through Section 220 Action as Confidential

Roy E. Disney v. The Walt Disney Company, C.A. No. 234-N, 2005 WL 1538336 (Del. Ch. June 20, 2005). The Court of Chancery considered the confidentiality of certain documents on remand from the Supreme Court. Plaintiff moved to lift a confidentiality designation placed on ten documents. More › Share

Court of Chancery Permits 220 Action To Proceed Despite Likelihood that Documents Would Give Rise to Precluded Causes of Action

Amalgamated Bank v. UICI, C.A. No. 884-N, 2005 WL 1377432 (Del. Ch. June 2, 2005) Plaintiff Amalgamated Bank brought an action under 8 Del. C. § 220 to inspect the books and records of UICI, a corporation in which it was a shareholder. The Court of Chancery permitted Plaintiff's inquiry, despite the request encompassing documents likely only to reveal time-barred and other precluded causes of action. More › Share

Court of Chancery Holds No Right To Books And Records Without Attested Documentary Evidence Supporting Shareholder Status

Frank D. Seinfeld v. Verizon Communications Inc., C.A. No. 484-N, 2005 WL 147765 (Del. Ch. Jan. 21, 2005)(published at 873 A.2d 316) (revised Jan. 24, 2005). This is a books and records summary judgment action under 8 Del. C. §220. More › Share