The resolution of corporate law disputes has a significant impact on the stockholders, directors, officers, and employees of companies around the world. With more than 60% of the Fortune 500 incorporated in Delaware, decisions of the state’s courts have a direct impact on leading companies worldwide and greatly influence the law of other jurisdictions. The Enhanced Scrutiny blog provides timely updates and thoughtful analysis on M&A and corporate governance matters from the Delaware courts and, on occasion, from other jurisdictions.

Can Inspection Rights Be Waived? Some Observations on Delaware Law

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.

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Durham v. Grapetree, LLC: A Helpful Affirmation of the Limits on the Scope of Section 220 Inspections in the Context of Email and Text Communications

A short decision issued in January by the Delaware Supreme Court provides helpful insight into an issue of practical import in the context of Section 220 demands: when does a stockholder have a right to go beyond formal communications, such as board minutes, presentations, and resolutions, to conduct a more invasive and burdensome search of informal methods of communication, such as text messages and emails?

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Delaware Supreme Court Invalidates Board Meeting “Ambush”

Alex Bäcker did not like to wait in line.  Nor did he want to give up control of the company he co-founded and led, QLess, which produces a “virtual queue management system that reduces the time that retail customers must wait in line for services.”  The Delaware Supreme Court’s rejection of Bäcker’s apparent subterfuge in an effort to maintain that control is a reminder that director actions are subject to equitable review.

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Shareholder Activism, Hostile M&A, and Related Issues for the 2021 Proxy Season

It’s proxy season, and for most companies, the time for annual meetings is just around the bend. Publicly traded companies are coming off a tumultuous year. The link between corporation and community has never been more at the forefront — from COVID-19 to racial justice to worker treatment. And businesses are facing activist pressure. How should they navigate this complex environment?

Our latest episode of The Sidley Podcast addresses the interplay between shareholder activism and hostile M&A, including as to how ESG may impact activism. It also offers practical advice on what you can do as you prepare for a potential attack by an activist or hostile bidders. Join host and Sidley partner, Sam Gandhi, as he speaks with three of the firm’s thought leaders on proxy season — Beth BergKai Liekefett, and Derek Zaba.

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Court of Chancery Sheds Light on When Documents Produced Under Section 220 May Remain Confidential

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.

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“An Ounce Of Prevention Is Worth A Pound Of Cure”: Effective Practices for Board Minutes and Related Board Materials

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.

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Texas Appeals Court Confirms That Protections Against Usurpation of Corporate Opportunities Under Delaware Law Can Be Contractually “Worked-Around”

A recent Texas Court of Appeals case held that members of a Delaware limited liability company (LLC) can contract around (i.e., waive) the general principle protecting against usurpation of corporate opportunities. This decision is of particular importance to private equity owners that may hold other investments in companies in the same industry and closely follows recent Delaware case law. The case also should limit the ability for parties to forum shop and seek to obtain a different outcome on Delaware legal issues by filing in another forum, in this case Texas.

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