On August 7, 2019, the Supreme Court of Delaware issued an opinion making clear that no presumption exists under Delaware law that the corporate books and records a stockholder inspects pursuant to 8 Del. C. 220 will be entitled to confidentiality restrictions. That said, the Supreme Court also made clear that the Court of Chancery remains fully empowered to condition statutory inspections of corporate books and records on the entry of a reasonable confidentiality order, and expressed its expectation that “the targets of Section 220 demands will often be able to demonstrate that some degree of confidentiality is warranted where they are asked to produce nonpublic information” for inspection.
In Tiger v. Boast Apparel, Inc. (a/k/a BAI Capital Holdings, Inc.), No. 23, 2019 (Aug. 7, 2019), the Supreme Court affirmed the Court of Chancery’s entry of a confidentiality order governing an inspection of books and records pursuant to Section 220 of the DGCL as being within the “range of reasonableness” for such restrictions. It disagreed, however, with the trial court’s “formulation of the principles governing confidentiality in the Section 220 inspection context . . . .”
First, as noted above, the Supreme Court rejected the notion that the books and records of a corporation subject to a statutory inspection demand were entitled to a presumption of confidentiality. This clarification by the Supreme Court countered what it found to be a recent trend in Court of Chancery decisions applying such a presumption that appeared based–either directly or indirectly–on an insecure foundation of earlier case law and/or reference to a widely-regarded treatise on Delaware corporate law. The Supreme Court reiterated that the Court of Chancery retained the discretion to determine whether confidentiality restrictions are appropriate in a given case, and in exercising that discretion, “must assess and compare the benefits and harms when determining the initial degree and duration of confidentiality.”
Second, the Supreme Court held that when addressing the duration of confidentiality restrictions, “an indefinite period of confidentiality protection should be the exception and not the rule,” and that a stockholder need not demonstrate “exigent circumstances” in order for the court to grant such restrictions for a time period shorter than indefinite confidentiality.
As the Supreme Court notes in a footnote, this opinion is not unlike another recent ruling of the Court in which it “rejected the notion that jurisdictional use restrictions were a ‘norm’ in Section 220 production agreements.” The takeaway from this recent Section 220 jurisprudence is that stockholders and corporations retain wide latitude in negotiating the terms of a statutory inspection, and should the Court of Chancery become involved, it retains broad discretion in imposing reasonable restrictions and conditions on such a statutory inspection.