Chancery Updates Delaware Law on Stockholder Requests for Books and Records

The Ravenswood Investment Company, L.P. v. Winmill & Co. Incorporated, C.A. No. 7048-VCN (Del. Ch. May 30, 2014).

This Court of Chancery decision is noteworthy because it addresses for the first time the issue of whether the production pursuant to DGCL Section 220 of books and records can be conditioned on the agreement by the stockholder not to trade in the stock of a defendant company that is thinly traded over-the-counter. The answer is: NO. The company was concerned about “tipper” liability under the federal securities laws, but nothing in this decision should be interpreted to absolve either the company or the stockholder of any liability as a tipper or a tippee.

Also important is the reiteration of a truism in defense of Section 220 cases that allows a company to deny a request if they can establish that the stated purpose is not the actual purpose, and that the actual purpose is improper. See footnote 26, citing Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 817 (Del. Ch. 2007) (“A corporate defendant may resist demand where it shows that the stockholder’s stated proper purpose is not the actual purpose for the demand. . . . [T]he defendant must prove that the plaintiff pursued its claim under false pretenses, and its primary purpose is indeed improper.”).

This decision also features the court’s analysis that statements by an attorney to the court on behalf of a client regarding what issues are still open for the court to decide, will be binding on the client. In this context, that court bound the company to its lawyer’s statement that the only open issue for decision was the condition on the production that would limit trading.

Lastly, the court explained why it declined a request to impose attorneys’ fees for allegedly bad faith litigation tactics, and included a reminder that Section 220 cases should not include other claims, (i.e., should be limited to Section 220 claims.)

Editor’s Note: This case is another example of how a seemingly simple statute like DGCL Section 220 regarding the right of a stockholder to obtain certain books and records if it can satisfy certain prerequisites, continues to spawn many decisions about various nuances of the statute that are still not quite clear despite hundreds of court opinions interpreting the statute–and how expensive these suits can be for stockholders pursuing them.

Supplement: Several prior Delaware decisions between these parties have been highlighted on these pages.