Recent Trends In Books And Records Demands

By Matthew Solum and Vera Esses (January 30, 2018, 10:53 AM EST) -- Section 220 of the Delaware General Corporation Law has been called an important tool to gather information from a company and a key weapon in a plaintiffs lawyer's toolkit. The statute provides that a stockholder is entitled to inspect a corporation's "books and records" for a "proper purpose," and is typically used as a means to gather discovery in order to file a derivative lawsuit. A proper purpose is "a purpose reasonably related to such person's interest as a stockholder." The investigation of alleged corporate misconduct, so long as the stockholder provides credible evidence from which a court could infer actionable wrongdoing, may be a "proper purpose" for demanding books and records pursuant to Section 220. But that leaves the question of what level of alleged wrongdoing is sufficient to allow a stockholder access to a company's nonpublic information. Can any implausible, trivial or pretextual assertion of "wrongdoing" be used to justify a court-sanctioned fishing expedition? More and more often, courts are saying "no." Courts are also empowering corporations to place reasonable conditions on the production of any documents in response to Section 220 demands. This article briefly discusses recent opinions addressing these topics....

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