As this blog has highlighted, a number of judicial decisions on statutory demands to inspect books and records under Delaware’s Section 220 in recent years have emphasized the broad scope of types of materials to which courts will permit access, and the consequences faced by companies that have attempted to restrict access. Two recent Delaware Court of Chancery decisions provide a welcome reminder of the limitations on the scope of the inspection right. These cases are Jose Mellado, D.M.D. v. ACPDO Parent Inc. and Greenlight Capital Offshore Partners, LTD. v. Brighthouse Financial, Inc.
While there are limits to a stockholder’s right to inspect books and records under Section 220 of the Delaware General Corporation Law or other sections allowing inspection—and corporations can negotiate the scope of inspection—there are also limits to how vigorously a corporation can resist a stockholder’s inspection demand, particularly when it does not present novel legal issues. Two recent fee-shifting decisions issued by Vice Chancellor Zurn provide a cautionary reminder of those limits, which were previously set out by the Court of Chancery in opinions such as Pettry v. Gilead Scis. Inc. (2020), Marilyn Abrams Living Trust v. Pope Invs. Inc. (2017), and McGowan v. Empress Entm’t (2000). The unmistakable message: if the right to inspection is clear, a defendant should think twice about a blanket opposition, unless the defendant does not mind paying the plaintiff’s legal fees in the end.
Last year, applying a 2019 Delaware Supreme Court opinion admonishing that there is no presumption of confidentiality in Section 220 productions, the Delaware Court of Chancery refused to treat certain financial information produced in connection with a books and records action as confidential. See A Reminder that in Books and Records, Nonpublic Does Not Always Mean Confidential. Recently the Delaware Supreme Court affirmed that decision, clarifying the standard the court should apply when evaluating confidential treatment.
On June 27, 2023, in Simeone v. The Walt Disney Company (Del. Ch. June 27, 2023), the Delaware Court of Chancery rejected a lawsuit by a Walt Disney Company’s stockholder to compel inspection of its books and records relating to the company’s opposition to Florida House Bill 1557. Though this case was in some ways quite routine—it rested on a straightforward application of the long-settled standard for a Section 220 demand—the political subtext underlying the inspection demand was anything but ordinary.
The boardroom frequently presents attorney-client privilege and work product protection issues. The Delaware Court of Chancery’s recent decision in Hyde Park Venture Partners Fund III, LP v. FairXchange, LLC, C.A. No. 2022-0344-JTL (Del. Ch. March 9, 2023), provides a reminder of the importance of vigilance in considering when and how to limit a director’s access to privileged materials in circumstances where directors’ interests may diverge – particularly where directors manage, or are affiliated with, investment funds owning stock of the Company.
In a March 1, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery dismissed duty of oversight claims against director defendants and provided helpful guidance on “mission critical” risks, the “gross negligence” standard under the business judgment rule, and redactions in productions of books and records under DGCL Section 220, including the potential that a motion to dismiss relying on overly redacted documents from a 220 production could be converted to a motion for summary judgment by the court. The court also entered an order on the same day, granting the defendants’ Rule 23.1 motion and dismissing the action in its entirety, including claims against the company’s former Global Chief People Officer. The court had previously denied a motion to dismiss those claims under Rule 12(b)(6) on January 25, 2023, as discussed further here, underscoring the important role of Rule 23.1 in derivative cases.
A recent Delaware Court of Chancery decision provides a timely reminder that a confidential document production may not always satisfy a Section 220 demand, and there are circumstances when a single stockholder’s request for books and records will require a company to disclose nonpublic books and records without any restriction on who may view them or how they may be used.
On April 20, 2022, the Delaware Supreme Court affirmed in part and reversed in part the Court of Chancery’s decision requiring production of certain informal records from NVIDIA’s officers and directors pursuant to a Section 220 of the Delaware General Corporation Law (“Section 220”). NVIDIA Corp. v. City of Westand Police & Fire Retirement System, et al., 2022 WL 2812718 (Del. Apr. 20, 2022).
As stockholders continue to seek expansive books and records collections, and particularly as requests for materials outside “formal” board materials become routine, it is worth reflecting on areas in which Delaware courts have continued to uphold boundaries with respect to Section 220 obligations. In a recent decision announced from the bench, Vice Chancellor Joseph R. Slights III recently offered a reminder of one such area: the non-company email accounts of outside directors. (more…)
Delaware Section 220 corporate books and records inspection demands have long been a precursor to stockholder litigation. Companies often challenge the propriety and scope of inspection demands and, even when companies ultimately produce books and records for inspection, they routinely do so subject to a confidentiality agreement. However, a February 28, 2022 letter decision in In re Lordstown Motors Corp., Stockholder Litigation illustrates how confidentiality agreements may not fully protect the information in those books and records from public disclosure or use in other litigation.