{"id":114,"date":"2019-02-14T17:11:43","date_gmt":"2019-02-14T21:11:43","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/?p=114"},"modified":"2019-02-14T17:21:15","modified_gmt":"2019-02-14T21:21:15","slug":"delaware-supreme-court-issues-additional-guidance-on-scope-of-section-220-inspections","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/2019\/02\/14\/delaware-supreme-court-issues-additional-guidance-on-scope-of-section-220-inspections\/","title":{"rendered":"Delaware Supreme Court Issues Additional Guidance on Scope of Section 220 Inspections"},"content":{"rendered":"

In the case KT4 Partners LLC v. Palantir Technologies, Inc.<\/em>, No. 281, 2018\u00a0(Jan.\u00a029,\u00a02019)<\/a>, the Supreme Court of Delaware provided additional guidance as to two issues that can arise in disputes over statutory inspections of books and records demanded by stockholders.\u00a0 First, the court clarified when the scope of an inspection being demanded might include email communications of officers and directors of the corporation.\u00a0 Second, the court addressed the fact-specific inquiry involved in determining whether a forum-use restriction would be placed on the stockholder’s future use of the fruits of an inspection in litigation.<\/p>\n

On the issue of whether email communications are properly within the scope of a statutory inspection under Section 220 of the DGCL, the Supreme Court reiterated that the analysis\u00a0depends on the facts and circumstances present, but that the bar remains\u00a0fairly high for a stockholder to show that such documents are necessary for the purpose they have articulated in their demand for inspection.\u00a0Here, the Supreme Court also took the opportunity to put a finer point on the legal standard stockholders, corporations, and the trial court should apply to determine the proper scope of an inspection of books and records.\u00a0 While at various times the decisions of the courts have used the terms “necessary” or “essential” or “sufficient,” in this opinion the Supreme Court holds that the scope of documents subject to inspection\u00a0are those “that are essential and sufficient to the stockholder’s stated purpose,”\u00a0 that is, “the court must give the petitioner everything that is essential, but stop at what is sufficient” (internal quotations omitted).\u00a0 The Supreme Court went on to find that in this case, the Court of Chancery should have permitted the inspection of electronic communications because the company did not have other, more formal board-level documents to memorialize the actions that were the target of the inspection.\u00a0 As the court concluded:\u00a0 “Ultimately, if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions and official letters, it will likely be able to satisfy a Sec. 220 petitioner’s needs solely by producing those books and records.\u00a0 But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which Sec. 220 entitles them.”<\/p>\n

The Supreme Court also addressed when it is appropriate for a stockholder’s use of the information from a statutory inspection be limited to the potential for bringing litigation in a specific jurisdiction–often Delaware as the state of incorporation.\u00a0 The court reiterated that (a) “the Court of Chancery must be cautious about limiting the jurisdiction in which a petitioner can use in litigation the books and records it receives from a Sec. 220 action,” and (b) the circumstances when such restrictions are appropriate “must be justified by case-specific factors” (internal quotations omitted).\u00a0 The most important of those case-specific factors continues to be whether the subject corporation’s bylaws or charter contains a forum-selection clause limiting litigation by stockholders addressing the internal affairs of the corporation to the courts of Delaware.<\/p>\n","protected":false},"excerpt":{"rendered":"

In the case KT4 Partners LLC v. Palantir Technologies, Inc., No. 281, 2018\u00a0(Jan.\u00a029,\u00a02019), the Supreme Court of Delaware provided additional guidance as to two issues that can arise in disputes over statutory inspections of books and records demanded by stockholders.\u00a0 First, the court clarified when the scope of an inspection being demanded might include email … <\/p>\n

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