Reed Smith Client Alerts

A recent decision from the Delaware Supreme Court instructs that stockholders of Delaware corporations are not always entitled to inspect electronic communications, including emails, in a Section 220 books-and-records action.  However, the corporation could be compelled to produce those electronic communications if it fails to document its actions through the traditional corporate formalities, such as board minutes and resolutions.

The Delaware Supreme Court, in KT4 Partners LLC v. Palantir Technologies, Inc.,1 recently held that a stockholder seeking to inspect a corporation’s books and records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, was entitled to receive electronic communications, including emails, from the corporation’s board and management, because the defendant corporation lacked traditional board-level materials that contained sufficient information to satisfy the stockholder’s reason for inspection.2

Section 220 allows stockholders of Delaware corporations to inspect a corporation’s books and records by delivering to the corporation a written demand, under oath, asserting a proper purpose.  A “proper purpose” is defined in Section 220 as “a purpose reasonably related to such person’s interest as a stockholder,” and includes (i) valuing the stockholder’s interest in the company, (ii) communicating with other stockholders about matters relating to the corporation (i.e., governance), and (iii) evaluating potential wrongdoing, mismanagement, or breaches of fiduciary duty by the corporation’s officers and/or directors.3  Delaware courts encourage stockholders to investigate possible claims against the corporation’s officers and/or directors through Section 220 prior to filing suit so those stockholder-plaintiffs are able to properly state a claim for relief in the complaint.