The Importance Of Documenting Corporate Actions: Delaware Supreme Court Requires Production Of Emails In Books-And-Records Request

Author:Mr Jonathan Richman
Profession:Proskauer Rose LLP
 
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The Delaware Supreme Court held yesterday that a corporation can be required to produce emails and other electronic documents where necessary to satisfy a shareholder's legitimate request to inspect corporate books and records under § 220 of the Delaware General Corporation Law. The Supreme Court also held that, under the circumstances of the case, a court could not impose jurisdictional limitations on the shareholder's use of documents obtained through the § 220 inspection process.

The Court's decision in KT4 Partners LLC v. Palantir Technologies, Inc. should cause corporations to focus on how they maintain key corporate records. The Court held 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 § 220 petitioner's needs solely by producing those books and records. But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which § 220 entitles them."

Thus, the more formal and traditional the corporation's recordkeeping, the better a defense the corporation might have to a § 220 request for emails and other electronic communications, which can be quite burdensome to produce. And as for jurisdictional restrictions on use of produced documents: they might be acceptable if a corporation has a forum-selection clause in its charter or bylaws, but they might face more skepticism in other circumstances.

Section 220 of the Delaware General Corporation Law

Section 220 gives shareholders a qualified right to demand inspection of corporate books and records. The inspection right does not depend on the existence of pending litigation, and it is intended to be narrower than discovery rights available in litigation.

To inspect books and records under § 220, a shareholder must present a proper purpose and must show that each requested category of books and records is "essential" to the accomplishment of that purpose. If litigation over the inspection request ensues, a court must limit any inspection order to only those books and records that are "essential and sufficient" to the shareholder's stated purpose. "In other words, the court must give the petitioner everything that is essential, but stop at what is sufficient."

The KT4 Decision

The KT4 case arose from...

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