Holman v. Northwest Broadcasting, L.P., 2002 WL 1074770 (Del. Ch., March 29, 2007), read opinion here. This Chancery Court decision involved a demand for books and records from a limited partnership under Section 17-305 of Title 6 of the Delaware Code, which is the analogue to Section 220 of the DGCL (Title 8 of the Delaware Code) regarding a demand for books and records by a shareholder in a corporation. In this case, the parties agreed that Holman complied with all of the procedural formalities for the inspection demand, but disagreed about whether he had a proper purpose. The Court looked to Section 220 and the cases interpreting it for guidance.
The Court emphasized that even if the “technical requirements” for a demand are met and there is a proper purpose, it is important to remember that “the scope of such relief will typically be limited only to the inspection of those books and records that are necessary and essential to the satisfaction of the stated purpose.” Citing to other cases, the Court stated clearly that the valuation of one’s interest is a proper purpose for the inspection of books and records. For purposes of valuation in the context of a demand for books and records, distinction is drawn between publicly traded companies and closely held companies. This was a closely held company, but if it were a public held company, a demand will be denied if necessary information is available publicly. In this case, there was a prior demand for books and records which was resolved based on a settlement agreement and there was also an issue about what was covered in the prior settlement.
Although the Court allowed the records requested for valuation purposes, the Court found that there was not “credible evidence of wrongdoing by current management” sufficient to support a demand for books and records to investigate wrongdoing. Thus, the Court denied the demand in that respect. For valuation purposes, the Court required the production of supplemental information regarding executive compensation, “disaggregated into cash, non-cash and performance-based remuneration, received by the three most highly compensated employees since the year 2000 and on a yearly basis."