Chancery Dismisses Section 220 Claim of Former Director
King v. DAG SPE Managing Member, Inc., C.A. No. 7770-VCP (Del. Ch. Dec. 23, 2013).
Issue Presented: Whether a former director has standing to demand books and records under DGCL Section 220(d) or under the common law. Short Answer: No.
This Court of Chancery decision granted a motion to dismiss under Chancery Rule 12(b)(6) for failure to state a claim by a former director who sought books and records covering the prior period of his directorship. Although the stated purpose was to investigate mismanagement or breaches of duty during the period of his directorship, the complaint failed based on standing. In sum, the statutory rights under Section 220 supplanted the prior common law right and Section 220(d) only gives the right to a current director to seek books and records.
The Court distinguished other similar cases, for example those cases addressing the right of a director to access corporate books and records as part of normal discovery when personally involved in litigation either as a plaintiff or as a defendant in a plenary case. Chancery has previously explained rights under Section 220 are not to be conflated with the rights to discovery as part of conventional litigation.
In addition, the Court rejected the argument that a former director possesses a “right of equal access to board information” comparable to that of other directors. This argument was rejected because that concept of “equal access” only would apply in the context of an action, for example, under DGCL Section 225 or other litigation asserting a legal claim against the company, such as the assertion by a corporate defendant of the attorney/client privilege over documents that the former director plaintiff sought. See footnote 50 and accompanying text. Unlike the instant case, those cases deal with former directors pursuing or defending substantive claims and their right to discovery as litigants in connection with those claims.
In this case, the plaintiff, former director, is not challenging his removal as a director under Section 225. Although he presumably could have enforced his rights under Section 220 while he was a sitting director, he is not pursuing a legal claim against the company in which the corporate documents he is seeking would be relevant.
In conclusion, there is no allegation that any claim has been asserted against the former director based on his service as a director and therefore no exceptions would apply to the general rule that Section 220(d) only refers to the rights of current directors to seek books and records from the corporation.