January 28, 2011 Books and Records Inspection Opinion

On January 28, 2011, the Delaware Supreme Court issued an opinion relating to a derivative shareholder’s books and records inspection action.  See the full opinion hereimagesIn the opinion, the Delaware Supreme Court focuses on what constitutes a “proper purpose” for inspection, a requirement of Delaware (and many other jurisdictions’) law.     

The Delaware Supreme Court, applying Delaware law, opined: “to obtain inspection relief the stockholder must demonstrate a proper purpose for making a [books and records inspection] demand.”  King v. VeriFone Holdings, Inc., Del. Supr., No. 330 at p.9, 2010 (Jan. 28, 20100).  The court further held:

A proper purpose is defined as a purpose reasonably related to such person’s interest as a stockholder.  To cite one example, investigating corporate mismanagement – the purpose stated by King – is a proper purpose for seeking a Section 220 books and records inspection. 

Id. at pp. 9-10 (internal citations omitted).

While the King court reversed the Delaware Court of Chancery’s Opinion, which required a books and records inspection to occur before filing a derivative action (article here), the Delaware Supreme Court cautioned:

Delaware courts have strongly encouraged stockholder-plaintiffs to utilize [a books and records inspection] before filing a derivative action, in order to satisfy the heightened demand futility pleadings requirements. . . By first prosecuting a [books and records inspection] action to inspect books and records, the stockholder-plaintiff may be able to uncover particularized facts that would establish demand excusal in a subsequent derivative suit.” 

Id at. pp. 10-11.  The Court further cautioned, “[a] failure to proceed in that specific sequence, however, although ill-advised, has not hereto fore been regarded as fatal.”  Id. at p. 11 (emphasis added). 

To read more about books and records inspections, click here & hereIf you are interested in conducting a proper records inspection upon a business or corporation in which you hold an interest, or simply have questions, you may want to consider consulting a licensed attorney. 


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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Intra-corporate dispute, Litigation, Officer, Shareholder and tagged , , , , . Bookmark the permalink.

2 Responses to January 28, 2011 Books and Records Inspection Opinion

  1. Pingback: 7 Corporate Records an Iowa Corporation Must Keep | Business and Corporate Disputes

  2. Pingback: Slow Down and Think Twice About Filing a Derivative Claim Before Trying to Inspect Books and Records | Business and Corporate Disputes

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