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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.

Best Practices; Partnerships; Private Equity; Section 220/Inspection Rights

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

Mar 08 2021

Elizabeth Y. Austin and Emily P. Morgan

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?

Board Minutes and Materials; Section 220/Inspection Rights

Delaware Supreme Court Invalidates Board Meeting “Ambush”

Mar 04 2021

Jon Muenz

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.

Board Minutes and Materials; Corporate Control

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

Mar 01 2021

Enhanced Scrutiny Contributors

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 Berg, Kai Liekefett, and Derek Zaba.

Shareholder Activism

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

Feb 22 2021

Hille R. Sheppard and Will French

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.

Best Practices; Section 220/Inspection Rights

Cornerstone Says Stockholder Suits Declined in 2020

Feb 18 2021

Andrew W. Stern and Joshua J. Card

We are pleased to share Cornerstone’s latest annual report on federal and state securities class actions, which reflects that new securities case filings fell substantially in 2020.

Cornerstone

Chancery Court Orders Company to Wave Goodbye to Privilege after Seconded Employees Use Other Company Email to Discuss Non-Company Business

Feb 03 2021

Jim Ducayet and Vincent J. Margiotta

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.

Best Practices; Privilege

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

Feb 01 2021

Charlotte K. Newell and Holly J. Gregory

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.

Best Practices; Board Minutes and Materials; Section 220/Inspection Rights

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

Jan 28 2021

Robert Velevis and Lora Chowdhury

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.

Corporate Opportunity; LLCs; Private Equity

Can Inspection Rights Be Waived? Some Observations on Delaware Law