Last year, we highlighted the risks of filing a Section 220 books and records request post-litigation, citing a case where the Delaware Chancery Court found that such use was an improper attempt to “sue first, ask questions later.”

Recently, the Delaware Chancery Court opined on this issue again in Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corporation – this time, the Vice Chancellor took a more expansive view in favor of the parties seeking information under Section 220. Section 220 of the Delaware General Corporation Law allows stockholders to inspect books and records of a Delaware corporation for any proper purpose and to compel inspection if such inspection is refused.

In Lebanon, Vice Chancellor Laster refused to expand the “proper purpose” requirement as also implying a “purpose-plus-an-end” requirement. Although the Court of Chancery has held that the most important factor in the Section 220 analysis is the stockholder’s purpose in seeking such information, VC Laster held that the proper purpose requirement did not include a condition that a requesting party specifically state in the initial demand what will be done with documents that are received (e.g., to evaluate potential claims, initiate litigation, seek other corrective measures, etc.). In fact, VC Laster’s opinion is particularly instructive because it provides a list of previously accepted purposes under which a stockholder can seek information which satisfy the “proper purpose” requirement, including (among others):

  • To investigate allegedly improper transactions or mismanagement;
  • To clarify an unexplained discrepancy in the corporation’s financial statements regarding assets;
  • To communicate with other stockholders in order to effectuate changes in management policies; and
  • To determine an individual’s suitability to serve as a director.

Further, Vice Chancellor Laster spoke to the “credible basis” standard derived from established Delaware law, which states that a stockholder must show a credible basis that there is “possible mismanagement” that warrants investigation. VC Laster held that defendants cannot rely on the defense that plaintiffs “only-want-to-sue” as a way to avoid producing documents in response to a Section 220 request by cabining that request to the merits of a potential shareholder derivative claim – a plaintiff may still have an additional credible basis of wrongdoing worthy of further investigation to justify the demand for relevant information.

Separately and importantly, VC Laster noted that relevant emails between members of a corporation are subject to production in response to a Section 220 request even if those emails were sent using personal accounts.

The Lebanon opinion is extremely informative in elucidating the parameters of Section 220’s requirements. This decision illustrates various views that courts may take in evaluating Section 220 requests in favor of the stockholder, and is indicative of the ambiguities of Section 220. Litigants should remain cautious in the event that a plaintiff casts a wide net by seeking a broad range of information wrapped in the cloak of a Section 220 request.

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Photo of Margaret A. Dale Margaret A. Dale

Margaret Dale is a trial lawyer and first-chair litigator handling complex business disputes across a wide variety of industries, including: consumer products, media and entertainment, financial services, telecommunications and technology, and higher education. She is a former vice-chair of the Litigation Department, and…

Margaret Dale is a trial lawyer and first-chair litigator handling complex business disputes across a wide variety of industries, including: consumer products, media and entertainment, financial services, telecommunications and technology, and higher education. She is a former vice-chair of the Litigation Department, and heads the Department’s Data Privacy and Cybersecurity Practice Group. Margaret has been recognized since 2017 in Benchmark Litigation’s Top 250 Women in Litigation.

Margaret’s practice covers the spectrum of complex commercial disputes, including privacy and data security matters, as well as disputes involving M&A, intellectual property, bankruptcy and insolvency, securities, corporate governance, and asset management.

Margaret regularly counsels clients before litigation commences to assess risk, adopt strategies to minimize or deflect disputes, and resolve matters without going to court.

Margaret is a frequent writer, including authoring a regular column on corporate and securities law in the New York Law Journal. She also serves as the lead editor of Proskauer’s blog on commercial litigation, Minding Your BusinessShe also authored the chapter titled “Privileges” in the treatise Commercial Litigation in New York State Courts (Haig, 5th ed.), as well as the chapter titled “Data Breach Litigation” in PLI’s Proskauer on Privacy.

Margaret maintains an active pro bono practice advocating on issues relating to women, children and veterans. She serves on the Board of Directors of CFR (Center for Family Representation), VLA (Volunteer Lawyers for the Arts), JALBC (Judges and Lawyers Breast Cancer Alert), and the City Bar Fund.

Photo of Joshua M. Newville Joshua M. Newville

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and…

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and criminal investigations. In addition, Josh advises registered investment advisers and private fund managers on regulatory compliance, SEC exams, MNPI/insider trading and related risks.

Before joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry. His prior experience with the SEC provides a unique perspective to help asset managers manage risk and handle regulatory issues.

Photo of Hena M. Vora Hena M. Vora

Hena M. Vora is an associate in the Litigation Department and a member of the Asset Management Litigation practice and Products Liability group. Her practice encompasses a range of complex civil and commercial litigation matters, including securities litigation, partnership disputes, and consumer products.…

Hena M. Vora is an associate in the Litigation Department and a member of the Asset Management Litigation practice and Products Liability group. Her practice encompasses a range of complex civil and commercial litigation matters, including securities litigation, partnership disputes, and consumer products.

Hena has experience with various stages of litigation, including pitching clients, coordinating discovery, drafting dispositive motions and trial memoranda, and preparing witnesses for depositions and trial. She also has experience conducting highly sensitive and confidential internal investigations.

Hena maintains an active pro bono practice and has been awarded for creating a partnership between Proskauer’s Boston office and Minds Matter Boston, through which she helps high school students from low-income backgrounds achieve college readiness and success.

Hena earned her J.D. from Emory University School of Law, where she received the Pro Bono Publico honor and a Transactional Law Certificate. In addition, she was a national competitor on the Moot Court Society and served as president of Emory’s South Asian Law Students Association. While at Emory, Hena served as judicial intern for Judge Denny Chin at the U.S. Court of Appeals for the Second Circuit.