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.
As regular readers know, this blog sometimes takes a break from recent developments to reflect on bedrock decisions and key principles of which all practitioners should be aware. This post highlights decisions that have shaped legal practice concerning Section 220 of the Delaware General Corporate Law, which allows stockholders to inspect corporate books and records under certain circumstances. Counsel sending or receiving a Section 220 demand would be wise to review these seven decisions. (more…)
The Delaware Court of Chancery recently issued an opinion making a narrow but key distinction in appraisal proceedings: the petitioners’ underlying intent in filing a Section 262 action matters. The court held that petitioners should not be allowed to obtain full discovery where the sole purpose in bringing the appraisal proceeding is to investigate potential wrongdoing. In this case, such intent was determined from Petitioners’ de minimis financial stake in the company. (more…)
On December 3, 2021, the Delaware Court of Chancery dismissed an action for books and records under Delaware General Corporation Law Section 220, reiterating that when a plaintiff files such an action, they must currently be a stockholder of the company against whom the Section 220 action is filed.
Specifically, a plaintiff must file a books and records action before a merger agreement becomes effective under its own terms; after the merger becomes effective, a plaintiff typically ceases to be a stockholder in the target company, which also precludes their ability to pursue books and records of that company. Companies facing Section 220 demands in the face of a merger agreement should scrutinize the demanding party’s standing to pursue such records. (more…)