Delaware Court of Chancery Rulings Highlight the Importance of a Plaintiff’s Subjective Intent in Books and Records Action

January 2018

Publication| Corporate Transactions| Corporate & Chancery Litigation

Two recent rulings of the Delaware Court ofChancery highlight the need to examine a stockholderplaintiff ’s objectives in seeking to inspect thecorporation’s books and records under Section 220of the Delaware General Corporation Law (DGCL).As is well known, a stockholder seeking to compelan inspection of books and records under Section220 must demonstrate a “proper purpose” for theinspection by a preponderance of the evidence. Ingeneral, to meet its burden, the stockholder mustestablish a “credible basis” from which the court caninfer there is “possible mismanagement that wouldwarrant further investigation.” But, even if its statedpurpose is facially proper, the stockholder may notbe entitled to conduct the inspection if it can beshown that the stated purpose is not the stockholder’sactual primary objective. Th e Court’s recent rulingsdemonstrate that the stockholder’s subjective intent,and not any unrelated objective of its counsel, is thefocus of the inquiry into whether the stockholder hasarticulated a proper purpose.

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