Shareholder Inspection Rights Out Of Control

• Published date: 15 August 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Katten Muchin Rosenman LLP
• Author: Mr Richard Zelichov

Professor Geeyoung Min at Michigan State University College of Law and Alexander M. Krischik, an associate at Richards, Layton & Finger, P.A., recently published an article summarized in the CLS Blue Sky Blog entitled "Realigning Shareholder Inspection Rights." The article discusses Section 220 of the Delaware General Corporation Law and notes that two recent shifts in the law present challenges for both corporate defendants and stockholder plaintiffs. For corporate defendants, the article notes that Delaware courts "have expanded the scope of books and records available under Section 220 to include emails, text messages, and other electronically stored information." For stockholder plaintiffs, the article notes that "Delaware plaintiffs have become more vulnerable to a risk of preclusion due to the extra time ... required to exercise their inspection rights" in light of the Delaware Supreme Court's decision in California State Teachers' Retirement System v. Alvarez, 179 A.3d 824 (Del. 2018).

I would suggest that this paper overstates the problem facing stockholder plaintiffs pursuing Section 220 demands vis-a-vis stockholders who do not pursue such demands For stockholder plaintiffs who make Section 220 demands, they can address in large part the issues faced from the risk of preclusion by moving to intervene in lawsuits filed by stockholders who do not.

On the other hand, the article understates the problem facing companies faced with Section 220 demands. The Delaware courts have not just expanded the scope of the books and records available to stockholders, they are also holding that the absence of discussion of specific details in board minutes permits adverse inferences to be drawn against corporate defendants and their directors and officers in plenary litigation that follows productions under Section 220. See, e.g., Goldstein v. Denner, 2022 WL 1671006, at *7, *8, *9, *18, *21-22, *56 (Del. Ch. May 26, 2022). Courts are also holding the absence of production of emails on specific issues in connection with a Section 220 demand - whether the scope of such production resulted from an agreement between the parties or was ordered by a court -- allows for an inference that such emails do not exist. Significantly, these developments are contrary to other decisions in Delaware holding that "there is no requirement under Delaware law that board minutes adopt any level of particularity." See, e.g., Feuer v. Redstone, 2018 WL 1870074, at *14 n. 146 (Del. Ch...