Stockholder Inspections Of Delaware Corporations In California
Tuesday, January 13, 2015

In United Techs. Corp. v. Treppel, 2014 Del. LEXIS 608 (Del. Dec. 23, 2014), the Delaware Supreme Court held that the Court of Chancery had authority to condition a stockholder’s inspection under Section 220 of the Delaware General Corporation Law upon the stockholder’s agreement  that “any claim, dispute, controversy or causes of action . . . arising out of, relating to, involving or in connection with” the inspection be brought in a Delaware court.  The Supreme Court notably did not decide whether the condition should be imposed.  Instead, the Supreme Court remanded the matter to the Court of Chancery.

From a California perspective, it is important to remember that stockholders may have inspection rights under California law even though the corporation is incorporated in another state.  California Corporations Code Section 1601(a) grants stockholders the right to inspect a foreign corporation’s accounting books and records and minutes if the corporation keeps those records in California or has its principal executive offices in California.  In addition, inspection rights under California law are imposed on pseudo-foreign corporations pursuant to Corporations Code Section 2115.

Some might argue that the application of California’s inspection rights to foreign corporations violates the internal affairs doctrine.  In Valtz v. Penta Investment Corp., 139 Cal. App. 3d 803, 807 (1983), the California Court of Appeal has held that Section 1600 (governing the right to inspect the shareholder records) “is a right incidental to the ownership of stock, affects the relationship between corporation and shareholder, and is thus subject to regulation by statute where the corporation does business”.  See my article, California Court of Appeal Applies California Inspection Rights to Delaware Corporation, 17 CEB California Business Law Reporter 168 (1996).

 

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