As recent decisions from the Delaware courts remind us (e.g., Murfey v. WHC Ventures, LLC), Delaware entities often have the ability to negotiate the scope of investors’ right to inspect company books and records—and perhaps even to eliminate those rights. But few corporations, partnerships, or LLCs appear to do so. With the proliferation of books-and-records litigation in recent years, however, more Delaware entities should consider whether opportunities may be available to limit the potential burden of such litigation and whether it would be prudent to explore those opportunities.
The Delaware Court of Chancery recently showcased its commitment to maintaining open judicial records and proceedings. In a derivative suit predicated on the widely covered Boeing crashes from 2018 and 2019, in which the Complaint featured materials that had been produced pursuant to a books-and-records inspection demand under Section 220 of the Delaware General Corporation Law, the Court rejected all but one of Boeing’s attempts to shield its internal documents from the public spotlight. Most cases, of course, will not be so charged with public interest. Nonetheless, the Court’s analysis should serve as a reminder that keeping information confidential in Delaware courts may be an uphill battle.
The Delaware Court of Chancery decision in In re WeWork Litigation, issued on December 22, 2020, underscores the need for heightened care with respect to corporate communications and the preservation of the attorney-client privilege.
The above-referenced turn of phrase was penned by Benjamin Franklin in admonishing his fellow Philadelphians to take heed of fire prevention strategies. Although the benefits discussed here are short of life-saving, attention to implementation and periodic review of your practices for the preparation and maintenance of board minutes and related materials can yield significant dividends in managing and mitigating litigation risk, including the risk of personal liability for directors. In addition to providing an accurate record of board decisions, to the extent that minutes evidence directors’ good faith, diligence, and absence of conflict (or appropriate handling of conflict), minutes can help support early termination of stockholder suits for breach of duty. Attention to board (and board committee) minutes is especially important given the increase in demands by would-be stockholder plaintiffs for corporate books and records to assist them in assessing potential claims and constructing their allegations.