July 17, 2019

July 17, 2019

Subscribe to Latest Legal News and Analysis

July 16, 2019

Subscribe to Latest Legal News and Analysis

July 15, 2019

Subscribe to Latest Legal News and Analysis

Delaware Courts Address Production of Emails and Other Electronically Stored Information In Response to Section 220 Demands

Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, provides that any stockholder of a Delaware corporation “shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from . . . the corporation’s stock ledger, a list of its stockholders, and its other books and records.”  Whether emails and other electronically stored information (“ESI”) created and maintained by the corporation constitute “other books and records” within the meaning of Section 220 has been a matter of some uncertainty.  Recent decisions from the Delaware Courts provide useful guidance to practitioners on this question.

In Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp., C.A. No. 2017-0910-MTZ, 2018 WL 6719718 (Del. Ch. Jan. 25, 2018) (Zurn. V.C.), petitioner sought electronic communications, including personal emails, to investigate the discussions between Calgon Carbon Corp.’s management and third parties to determine if management prioritized its own retention and compensation over the interests of Calgon’s stockholders.  The Chancery Court granted the petition in part.  The Chancery Court noted that the nature of those communications meant that the fund was unlikely to uncover any meaningful answers in the more traditional, formal books and records, like minutes or letters between the companies.  The court found that the electronic communications sought were necessary and essential to the investigative purpose, including the personal emails of management to the limited extent that they are not duplicative of sources from company emails and devices.  As the Chancery Court noted, in today’s age, corporate records are not always confined to a company’s premises, domain name, and servers. Thus, the court held that “[w]hen considering requests for information from personal accounts and devices in Section 220 proceedings, a court should apply its discretion on a case-by-case basis to balance the need for the information sought against the burdens of production and the availability of the information from other sources, as the statute contemplates” (citing Schnatter v. Papa John’s Int’l, Inc., C.A. No. 2018-0542-AGB, 2019 WL 194634 (Del. Ch. Jan. 15, 2019) (Bouchard, C.)).

The Chancery Court emphasized that the core inquiry is whether the record is necessary and essential to the stockholder’s investigation. Prior decisions have echoed this sentiment. In Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996), the court noted that an inspecting stockholder with a proper purpose “bears the burden of proving that each category of books and records is essential to accomplishment of the stockholder’s articulated purpose for the inspection.”  In Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016), the Chancery Court indicated that there is some limit on what need be produced:  “The order should permit access to books and records that are ‘essential’ for the plaintiff to achieve its purpose, but should stop at the quantum of information that the court deems ‘sufficient.’”  Note, too, that “if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a Section 220 petitioner’s needs solely by producing those books and records.”  KT4 Partners, LLC v. Palantir Technologies, Inc., C.A. No. 2017-0177-JRS, 2018 WL 6719718 (Del. Jan. 29, 2018) (Strine, C.J.).

The decisions discussed above confirm the term “other books and records” in Section 220 can, in an appropriate case, include emails and other ESI.  These decisions also recognize, however, that production of emails and other ESI can be onerous and unnecessary depending upon the stated purpose of the demand, especially where the corporation maintains traditional types of books and records.  Boards and management should consider whether their recordkeeping comports with traditional practices to minimize the likelihood that burdensome email and ESI production will be required in response to a stockholder’s Section 220 demand.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

TRENDING LEGAL ANALYSIS


About this Author

Jeffrey Fessler, Sheppard Mullin Law Firm, New York, Corporate Law Attorney
Partner

Jeffrey Fessler is a partner in the Corporate Practice Group in the firm's New York office. Mr. Fessler is principally engaged in the practice of corporate and securities law. His practice is focused on the representation of public and private companies, principally in the biotechnology industry. Mr. Fessler has extensive experience representing investment banks and companies in public offerings and private placements as well as exchange listings and compliance. In addition, Mr. Fessler has been involved in a wide variety of corporate transactions, including mergers and...

212-634-3067
John Stigi, securities, corporate, attorney, Sheppard Mullin, law firm
Partner

John Stigi is a partner in the Business Trial Practice Group in the firm's Century City and New York offices, and leader of the firm's Corporate/Securities Litigation Team.

Mr. Stigi's practice focuses on securities class action and shareholder derivative action defense, SEC investigation defense, internal corporate investigations, complex contract and commercial litigation, and M&A and corporate governance litigation.  He has extensive experience representing issuers, officers, directors and auditors in all areas of securities, corporate and complex commercial litigation, from the early stages before a complaint is filed through pleading motions, discovery, mediation, trial and appeal.  Mr. Stigi also advises companies on disclosure and corporate governance issues, as well as directors and officers insurance matters.

310-228-3717
Justin Anslow, Sheppard Mullin Law Firm, New York, Corporate Law Attorney
Associate

Justin Anslow is an associate in the Corporate Practice Group in the firm's New York office. Mr. Anslow’s practice focuses on advising public and private companies in securities offerings, corporate governance and SEC reporting. Mr. Anslow's experience includes representation of issuers of securities as well as investors, underwriters and placement agents in connection with both public and private offerings of equity and debt securities. Mr. Anslow assists clients with business entity formation matters, general corporate law matters and securities law compliance,...

212-653-8170