Section 220 of the Delaware General Corporation Law, 8 Del. C. §220 (“Section 220”), permits a stockholder of a Delaware corporation to inspect corporate books and records upon a showing of a proper purpose. The Delaware courts have long urged stockholders to avail themselves of Section 220 — the “tools at hand” — to inspect relevant corporate documents before commencing plenary derivative litigation.

In Weingarten v. Monster Worldwide, Inc., C.A. No. 12931-VCG, 2017 WL 752179 (Del. Ch. Feb. 27, 2017), the Delaware Court of Chancery (Glasscock, V.C.) clarified when a plaintiff has standing to vitiate inspection rights under Delaware General Corporation Law Section 220, 8 Del. C. §220. In a case of first impression, the Court decided that the language of Section 220(c) does not confer standing to a former stockholder bringing an action to exercise his or her inspection rights after the former stockholder’s shares were canceled in a merger.

For decades, Delaware courts have encouraged stockholders to use the “tools at hand” — before initiating lawsuits — by obtaining corporations’ books and records through 8 Del. C. § 220 (Section 220). As described in prior articles,1 in recent years, stockholder plaintiffs utilized this tool with increased frequency, resulting in the Delaware courts issuing further guidance to litigants as they assess their rights and obligations under the statute.Although Delaware courts have placed limits on defenses for companies in the Section 220 context over the past few years, decisions issued in recent months serve as a reminder that books and records demands are not an “open sesame” for stockholders. Delaware courts have reaffirmed that although the burden to demonstrate a “credible basis” to suspect wrongdoing before being allowed to access books and records is a low bar for stockholders to meet, it is not inconsequential. Delaware courts have also continued to emphasize that formal board-level materials are typically the starting point and ending point of a Section 220 inspection, rejecting stockholders’ attempts to access emails and text messages through a books and recor

No longer does a stockholder need to specify the ends to which it might use the books and records or demonstrate that the alleged wrongdoing or mismanagement it seeks to investigate is actionable.At the same time, the Delaware courts confirmed as “well-settled” law that a stockholder must “strictly adhere” to the statutory requirements under Section 220, including by having proper standing to make a demand: A stockholder must be a stockholder at the time of seeking books and records and have a proper purpose. See 8 Del. C. § 220(c)(1), (3). Despite this, three recent decisions allowed stockholders access to company books and records through unconventional means where those stockholders would not have been able to obtain them in a direct 220 action.

In the ever-changing and divisive political climate facing our nation today, boards of directors and the companies they oversee face myriad pressures from numerous stakeholders to weigh in on specific political, cultural, and social issues. Helpfully, a recent decision by the Delaware Chancery Court determined that a board’s decision to utilize the company’s voice and speak out about the pertinent issue is a “business decision” by the Company. The Court reasoned that Delaware directors have “significant discretion to guide corporate strategy—including on social and political issues” and that the decision to oppose such an issue fell outside the purview of 8 Del. C. § 220’s requirement to provide company books and records related to that decisionDelaware General Corporation Law Section 220 permits a stockholder to inspect corporate books and records for a “proper purpose” related to its ownership of stock (typically to investigate suspected corporate wrongdoing), as long as the stockholder can demonstrate a “credible basis” for suspecting wrongdoing or mismanagement. If a stockholder meets both requirements, he or she is entitled to inspect those books and records that are “necessary or essential” to investigate the suspected wrongdoing or mismanagement.BackgroundSimeone v. Walt Disney Company involved the Disney board’s decision to speak out against Florida House bill HB 1557 (titled the “Parental Rights Act” but popularly referred to as the “Don’t Say Gay” law) (“HB 1577”), which restricts discussion in classrooms related to sexual orientation and/or gender identity. On the day Florida Governor Ron DeSantis, signed HB 1577 into law, Disney – followin

In High River Limited Partnership v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, 2019 WL 6040285 (Del. Ch. Nov. 14, 2019) (Slights, V.C.), the Delaware Court of Chancery held that a stockholder’s mere disagreement with a business decision of a board of directors and intent to pursue a bone fide proxy contest is not a “proper purpose” to support a demand to inspect the corporation’s books and records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220. By declining the stockholder’s invitation to adopt a “new rule entitling stockholders to inspection documents under Section 220 if they can show a credible basis that the information sought would be material in the prosecution of a proxy contest,” this decision clarifies what had been a “murky” legal landscape under Section 220.In 2019, Occidental Petroleum Corporation (“Occidental”), a Delaware corporation with large petroleum and chemicals operations, entered into a merger agreement with Anadarko Petroleum Corporation, wherein Occidental would eventually acquire Anadarko in a transaction valued at $55 billion.

In High River Limited Partnership v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, 2019 WL 6040285 (Del. Ch. Nov. 14, 2019) (Slights, V.C.), the Delaware Court of Chancery held that a stockholder’s mere disagreement with a business decision of a board of directors and intent to pursue a bone fide proxy contest is not a “proper purpose” to support a demand to inspect the corporation’s books and records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220. By declining the stockholder’s invitation to adopt a “new rule entitling stockholders to inspection documents under Section 220 if they can show a credible basis that the information sought would be material in the prosecution of a proxy contest,” this decision clarifies what had been a “murky” legal landscape under Section 220.In 2019, Occidental Petroleum Corporation (“Occidental”), a Delaware corporation with large petroleum and chemicals operations, entered into a merger agreement with Anadarko Petroleum Corporation, wherein Occidental would eventually acquire Anadarko in a transaction valued at $55 billion.

King v. VeriFone Holdings, Inc., No. 330, 2010, C.A. No. 5047 (Del. Jan. 28, 2011) (Jacobs, J.)January 28, 2011In King v. VeriFone Holdings, Inc., the Delaware Supreme Court reversed Vice Chancellor Strine’s dismissal of a request, pursuant to 8 Del. C. § 220, by VeriFone Holdings, Inc. (“VeriFone”) stockholder Charles King (“King”), to inspect VeriFone’s books and records related to an internal audit of an earnings restatement. The Court held that the Vice Chancellor erred by finding King lacked a proper purpose, because the U.S. District Court judge for the Northern District of California had dismissed King’s earlier-filed derivative action without prejudice and with leave to amend his complaint.

A ruling last fall by the Delaware Chancery Court has prompted a wave of 8 Del. C. § 220 books and records inspection demands on (and threatened litigation against) Delaware corporations that have entered into credit agreements containing so-called “dead hand proxy put” provisions. A “dead hand proxy put” provision allows the corporation’s lenders to demand immediate payment of all outstanding debt if, within a specified measuring period, a majority of incumbent board members is replaced in a threatened or actual contested election.

In 2019, Delaware’s Court of Chancery and Supreme Court expanded the potential fruits of a “books and records” demand under 8 Del. C. § 220 to reach the electronic communications among board members and other corporate officers. Deal planners and others advising corporate fiduciaries need to understand those circumstances or risk seeing their client’s informal (and often more revealing) communications featured in a complaint asserting breaches of fiduciary duty.The right to review corporate records, codified from common law, has long been a fundamental tool with which stockholders may protect their interests.