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 hereIn 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. 

LEGAL DISCLAIMER AND TERMS OF USE

Innovative Litigation, L.L.C., as owner and host of this site, and Matthew McKinney as the author (acting on behalf of and through Innovative Litigation, L.L.C.) cannot and does not warrant the accuracy or reliability of the information presented on or through this site.  The law can and does change over time and the information contained herein may not reflect the most recent laws – whether statutory law, administrative law, case law, constitutional law, or otherwise.  The information on this website does not constitute legal advice and readers should not rely on it to solve problems or other matters.  Further, you should seek licensed counsel in the appropriate legal jurisdiction before taking any action.  Any information provided on this site is presented “As Is” for your personal curiosity and enjoyment.  It is not meant to be relied upon for legal advice, counsel, or for any other purposes.  Such information does not take the place of a lawyer.  Rules and laws differ by jurisdiction and the information contained within this website may not apply in your jurisdiction.  The appearance of articles, listings, or ads, by or for professionals, on this site, does not constitute an endorsement.  In all cases, you are responsible for determining the quality of services, information, and/or advice provided by professionals through, or as a consequence of, your use of this site.  Neither liability nor responsibility shall arise to any person or entity with respect to loss or damage caused (or alleged to be caused), directly or indirectly, by information posted on this website, or by reason of contact with a professional listed on, or posting information to, this site.  No attorney-client relationship is formed by viewing this website and practice is limited to jurisdiction where lawyers are admitted.  The information furnished on the website is only general and not a substitute for personalized legal advice.   Legal advice cannot be given without full consideration of all relevant information relating to the individual(s) situation.  Laws can change daily and new laws may, and likely will, affect the accuracy of the information herein.  The information herein may be outdated and replaced by new law.

If you are seeking representation, please read the following notice before sending an e-mail:

Sending an e-mail will not make you a client.  Until an agreement regarding representation is reached with you, anything you send will not be confidential or privileged.  Before representation can occur, a lawyer will first take you through the conflict of interest procedure and see that you are put in touch with the lawyer best suited to handle your matter.

If you proceed with an e-mail, you confirm that you have read and understood this notice.

Advertisements

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

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s