No Per Se Duty to Disclose Financial Statement in Closely Held Company

A recent Delaware Court of Chancery transcript ruling is notable for stating that there is no per se affirmative obligation, absent a request for stockholder action, in a closely held company, to produce financial statements. The court held, however, that under certain circumstance, for example in response to a demand under DGCL Section 220, it could raise a fiduciary duty question if no financial statement were prepared in order to keep the minority “in the dark.” The Ravenswood Investment Company, L.P. v. Winmill & Co. Inc., C.A. No. 7048-VCN (Transcript) (Del. Ch. Feb. 25, 2016). Note that transcript rulings are often cited as “good authority” in Delaware briefs (and formal court opinions.)

The short transcript ruling follows many other decisions in this long running dispute between the parties, and some of those prior Delaware rulings have been highlighted on these pages. Three statements of law that are helpful for purposes of those engaged in Delaware corporate and commercial litigation can be summarized as follows:

1)         There is no duty per se to provide financial statements in a closely-held company when stockholder action is not being requested. See Slip op. at 7.

2)         Based on the facts of this case, the court did allow a claim for breach of fiduciary duty based on the allegation that no financial statements were provided or even created as a means of thwarting a pending Section 220 claim and “keeping the stockholders in the dark.”

3)         The court allowed an amendment to a complaint in a case that appears to have been languishing for several years although the transcript does not elaborate on the potential justification for that situation transpiring.

SUPPLEMENT: Keith Bishop on his California Corporate and Securities Law blog, comments on this case by noting that despite Delaware law, if a Delaware company has its main office in California or regularly holds board meetings there, it may be required to produce annual reports pursuant to California law.

SUPPLEMENT II: The estimable Professor Stephen Bainbridge provides scholarly insights about this decision with citations to authorities and learned commentary.

Supreme Court Reinforces Second Amendment Rights

The recent decision from the United States Supreme Court in Caetano v. Massachusetts, 577 U.S. _ (March 21, 2016), includes a concurring opinion that is a forceful reiteration of the Supreme Court’s position on the Second Amendment.  As many readers know, the decision in McDonald v. Chicago, 561 U.S. 742, 750 (2010), held that the Second Amendment right to bear arms is fully applicable to the states.  McDonald was a sequel to the Supreme Court decision in District of Columbia v. Heller, 554 U.S. 570, 582 (2008) (Scalia, J.). The Heller decision emphasized that the Second Amendment protects an individual right to keep and bear arms.  In the Caetano case, the U.S. Supreme Court granted a writ of certiorari, vacated the judgment of the Supreme Judicial Court of Massachusetts, and remanded for further proceedings not inconsistent with the per curiam opinion.  The Caetano opinion strongly criticized the Massachusetts court for failing to follow Heller in several respects.  That court failed to recognize a stun gun as among the types of weapons that are protected under the interpretation of the Second Amendment in Heller.

Justice Alito and Justice Thomas joined in a concurrence which strongly rebuked the Massachusetts court for flagrantly ignoring the clear rulings in Heller.  The concurring opinion of Justices Alito and Thomas could be viewed as a way of honoring the author of the Heller opinion, Justice Scalia.  The concurrence reminded the Massachusetts court of several basic principles in Heller including the following:

“It is settled that the Second Amendment protects an individual right to keep and bear arms that applies against both the Federal Government and the States, District of Columbia v. Heller, 554 U.S. 570 (2008); McDonald v. Chicago, 561 U.S. 742 (2010).  That right vindicates the ‘basic right’ of ‘individual self-defense.’”  Id. at 767; see Heller, supra, at 599, 628.

This case involved a woman who obtained a stun gun to protect herself against an abusive former boyfriend who towered over her by nearly a foot and outweighed her by close to 100 pounds.  The Supreme Court opinion described how after work one evening, her ex-boyfriend confronted her and started screaming.  She stood her ground, displayed the stun gun, and told him that she would not take his abuse, and if he did not leave her alone she would use the stun gun on him.  It worked.  The ex-boyfriend left her alone.  Subsequently, in an unrelated incident, the police found the stun gun in her purse and arrested her because apparently the possession of a stun gun is in violation of a Massachusetts statute, even though the possession of the stun gun may have saved her life.

Justice Alito explained the connection between the right to bear arms and the basic right of self-defense:  “By arming herself, Caetano was able to protect against the physical threat that a restraining order had proved useless to prevent.”  Slip op. at 2.

Justice Alito also explained that Heller confirmed that:  “The Second Amendment extends, prima facie, to all instruments that constitute bearable arms . . .”  554 U.S. at 582.  Justice Alito expressed discontent that the Massachusetts court defied the reasoning in Heller.  The reasoning of the Massachusetts court, instructed Justice Alito, “poses a grave threat to the fundamental right of self-defense.”  The concurrence observed that:

  “A State’s most basic responsibility is to keep its people safe.  The Commonwealth of Massachusetts was either unable or unwilling to do what was necessary to protect Jaime Caetano, so she was forced to protect herself.  . . . If the fundamental right of self-defense does not protect Caetano, then the safety of all Americans is left to the mercy of State authorities who may be more concerned about disarming the people than about keeping them safe.”

This concurrence by Justices Alito and Thomas reinforces the vitality of the Heller and McDonald decisions and gives hope to those who cherish the Bill of Rights.

Postscript: The Delaware Supreme Court’s opinion interpreting the Delaware Constitution’s version of the Second Amendment, known as Article I, Section 20, was reinforced in the opinion styled Doe v. Wilmington Housing Authority, highlighted on these pages. The natural right to self-defense that each person is born with transcends the typical corporate and commercial litigation fare typically found on this blog.

Supreme Court Determines SOL for Bad Faith Claims Against Insur. Co.

A recent Delaware Supreme Court opinion should be of interest to readers of these pages for two reasons: (1) Almost every litigator will find it useful during some point in her career to know when the statute of limitations runs for a claim against an insurance company for bad faith failure to settle within policy limits; and (2) for corporate and commercial litigators in particular, the court applies reasoning that borrows from its jurisprudence in the area of indemnification of directors and officers under Section 145 of the Delaware General Corporation Law. Connelly v. State Farm Mutual Automobile Insur. Co., Del. Supr., No. 426, 2015 (Mar. 4, 2016).

Issue on Appeal: When does the bad-faith-failure-to-settle claim accrue for purposes of the three-year statute of limitations.

Key Principles: The court began its analysis with basic principles. Readers are familiar with the condition imposed on all Delaware contracts of “good faith and fair dealing.” As applied to insurance contracts, the court explained that historically the implied covenant has “included a duty to settle claims within policy limits where recovery in excess of those limits is substantially likely.” See footnotes 12 and 13 for copious supporting citations.

The court drew upon analogous reasoning in the corporate context in which it is well settled that indemnity claims by a director or officer do not accrue until there is a final judgment. In other words, until the final judgment of the trial court withstands appellate review, the outcome of the underlying matter is not certain. See footnotes 33 to 36.

The court explained that insurance claims are a type of indemnity claim because in both cases the obligation to cover the indemnified party’s costs arises only once certain conditions occur—in the case of the bad-faith suit against an insurer, a final and non-appealable excess judgment as to a third-party claim. As for non-advancement indemnity claims, the “corporation’s obligation to indemnify its fiduciary, employee, or agent, is also conditioned on that party meeting the applicable standard of conduct” (citing DGCL section 145 (a) and (b)).

Delaware’s high court reasoned that the similarities between indemnity and insurance claims, justify the same policies of “litigative efficiency and preventing waste of judicial resources that have led Delaware courts to determine that an indemnity claim accrues when there is a final judgment….”

 

Chancery Explains Policy Reasons for Awarding Advancement to Former Director

The Delaware Court of Chancery’s opinion in Marino v. Patriot Rail Company LLC, C.A. No. 11605-VCL (Del. Ch. Feb. 29, 2016), is noteworthy for providing the most detailed historical analysis and doctrinal underpinning for the legislative scheme that requires corporations under certain circumstances to provide advancement to former directors and officers, that has come along in many years. The decision also explains why company’s are barred from terminating such advancement for former directors and officers unless certain prerequisites are satisfied.

Basic Facts

Although the factual background has many moving parts, for purposes of this short blog post that focuses on the legal analysis, the basic facts include a former chairman, president and CEO who had a controlling interest in the company involved. While a lawsuit was pending against the company by a former potential merger partner, the company was sold and an allegation was made that money from the sale was diverted in a manner that would make it difficult for the creditors to collect in the event of a judgment. After obtaining a judgment in the underlying suit that was pending prior to the sale, the creditor attempted to modify the judgment to add the former chairman as an individual party.

The former chairman sought advancement to cover the legal fees to defend against the efforts to add him as an individual party and to defend efforts to collect against him as a judgment debtor.

Legal Analysis

This opinion provides one of the “deepest dives” into legislative history and the policies underpinning advancement rights under Section 145(e); Section 145(f) and Section 145(j) of the Delaware General Corporation Law this writer ever recalls. This opinion also provides practical assistance for those handling this common form of corporate litigation.

In sum, Section 145(e) authorizes advancement; Section 145(j) suggests the extent to which a covered person’s indemnification and advancement rights for actions taken during the person’s period of service continued after the person ceased to serve; and Section 145(f) limits a corporation’s ability to cause a covered person’s rights to terminate after the person has served in reliance upon them. The court noted that Section 145(e) is permissive and therefore a corporation is free to limit the terms of advancement and even preclude advancement entirely at the outset.

The distinction in 145(e) between current and former directors and officers was not intended to do anything other than underscore the ability of current directors and officers to receive advancement if an undertaking is provided, and not be presumed to be engaged in self-interested transactions. See generally DGCL Section 144. Compare: principle of corporate actions being “twice tested.” See, e.g., footnotes 11 and 13.

The court refers to Section 145(j) as the “Continuation Clause” which requires an explicit opt-out before the advancement rights of a former director and officer can be terminated. So, although subsection (e) makes advancement permissive, once it is provided, this provision is mandatory to the extent that it prohibits termination of coverage for former directors unless this provision is satisfied.

The court explained that under the Continuation Clause in subsection (j), “the only way that a covered person loses coverage after having ceased to be a director is if the source of the coverage otherwise provided when authorized or ratified.” (emphasis added.)

By comparison and consistent with the Continuation Clause, the court explained that section 145(a) grants authority to a corporation to indemnify a person who “is or was” a director for actions that they took while a director. The “was” compliments the default rule of the Continuation Clause which states that unless the indemnification or advancement right specifies otherwise, coverage for actions taken while in a covered capacity continues after the person “has ceased” to serve in the covered capacity. Section 145(a) addresses whether an individual became involved in the litigation “by reason of” the individual’s service in a covered capacity.

Section 145(b) authorizes indemnification for actions by or in the right of a corporation and includes parallel usages of the words “is or was.”

The court next addressed Section 145(f) which “answers the more serious question of whether a corporation can cause those rights [of advancement] not to continue by altering or eliminating them.” The court refers to Section 145(f) as the “No Termination Clause.” It was added as an amendment to the statute in 2009 as a result of a decision which was superseded by this new statutory provision to negate the court ruling that allowed the corporation to terminate coverage of a former director after the former director left this position. This No Termination Clause provides prerequisites that must be satisfied before such coverage can be terminated.

The court discusses the policy reasons and doctrinal underpinning of the importance of providing advancement to former directors and officers for actions taken during their periods of service. Advancement has often been described as an important corollary to indemnification because of their use as inducements for attracting key individuals to perform corporate service. The court explained that the statute was designed to counter the natural human inclination to deny advancement to former directors and officers perceived to have harmed the corporation. Still, the court explained that: “by establishing a statutory presumption of continuing coverage for actions taken during the period of service, the Continuation Clause and the No Termination Clause ensure that the public policy interest prevails, unless the individuals know when they choose to serve that their rights will terminate or can be cut off later.” See Slip op. at 30.

The court explained why some actions that were taken after the resignation of the chairman in his personal capacity in this case would not be covered, but the actions taken while he was the chairman would be covered.

There are many parts of this opinion that make it required reading for anyone interested in this area of Delaware corporate law. One of the key parts of this opinion at pages 39 and 40 should be consulted not for its uniqueness but because it describes a detailed procedure that the parties and their counsel must follow to address disputed claims for advancement. This procedure is similar to prior procedures used in Chancery and will inevitably be needed to address disputes as this opinion is applied to specific bills that are received on a monthly basis and that will engender disagreement about which bills are properly covered pursuant to this opinion and which are not.

N.B.: This decision should be closely compared and contrasted with the Delaware Court of Chancery’s opinion styled Charney v. American Apparel, Inc., C.A. No. 11098-CB (Del. Ch., Sept. 11, 2015), which rejected the advancement claims by a former chairman and CEO (and founder), based on the provisions for advancement in the company’s charter and in an indemnification agreement. That ruling was highlighted on these pages.

Supreme Court Rejects Claims Against Directors

The Delaware Supreme Court, in a short Order issued not long after oral argument, rejected the arguments on appeal that challenged a decision of the Court of Chancery that dismissed claims that directors were beholden to those that they had business relationships with. Greater Pennsylvania Carpenters’ Pension Fund v. Giancarlo, et al., No. 531-2015, Order issued (Del. Mar. 11, 2016).

Frank Reynolds of Thomson Reuters provides helpful insights and more details on the case in an article. Frank writes that:

… the plaintiffs’ bid for a reversal faced long odds with the Delaware Supreme Court’s recent track record of quickly rejecting emergency appeals in cases such as this that were dismissed for failure to clear procedural hurdles like the pre-suit-demand requirement.

Over the past several months, the high court has summarily affirmed the dismissal of  high-profile shareholder suits in one-page orders often issued the day after oral argument was held. For example, within 24 hours, the justices tossed an appeal in a suit that claimed GM Co.’s directors negligently failed to respond quickly to reports of fatal ignition switch failures. In re GM Co. Derivative Litig., No. 392, 2015, order issued (Del. Feb. 11, 2016).

 

Supreme Court Expands Basis to Sue Directors and Officers in Delaware

The Delaware Supreme Court recently interpreted the statutory basis for imposing jurisdiction over directors and officers of Delaware corporations in a manner that is broader than the interpretation that previously prevailed in Delaware courts for the last 30 years. Hazout v. Tsang, No. 353, 2015 (Del. Supr., Feb. 26, 2016).

Directors and officers of Delaware corporations are deemed to consent to the personal jurisdiction of the Delaware courts by virtue of their agreement to serve as directors and officers of Delaware corporations.  The prevailing interpretation of the applicable statute, Section 3114 of Title 10 of the Delaware Code, for the last 30 years or so, has been to limit personal jurisdiction over directors and officers to claims against them in their capacity as directors and officers only for such things as breach of fiduciary duties or claims by stockholders that they violated sections of the Delaware General Corporation Law.  In essence, for reasons related to concern over minimum contacts required by due process under the U.S. Constitution, the case law over the last three decades has, in the words of the Supreme Court, “excised” a phrase in Section 3114 that allows the imposition of jurisdiction where a director or officer was merely a “necessary or proper party.”

This opinion has now rejected more than a generation of cases interpreting Section 3114 to the extent that the Delaware courts (until a few days ago), did not enforce the provision of the statute that allowed for the imposition of jurisdiction over directors or officers when they were merely “necessary or proper parties,” even if there was no breach of fiduciary duty or related claim.

Delaware’s high court based its thorough analysis on statutory construction principles and the intent of the General Assembly.  The holding also acknowledged the benefit, and likely legislative intent, of efficiency and avoiding piecemeal litigation.

The Supreme Court reasoned that there is no constitutional impediment to its conclusion because the statute requires that there be a close nexus between the claims against the corporation and those against the officer and director, and “that the claims against the officer and director involved conduct taken in his official corporate capacity.  In other words, this safeguard ensures that the implied consent mechanism of Section 3114 only applies when a director or officer faces claims that arise out of his exercise of his corporate powers.”

The court explained that the defendant in this case satisfied the statutory language because he was a “necessary or proper party to a civil action brought in this State against the corporation of which he is an officer and director.”  Moreover, he consented to suit in Delaware for certain types of lawsuits by virtue of his service as an officer and director of a Delaware corporation, and, moreover: (i) the dealings that gave rise to the suit were focused on a change of control of the Delaware corporation based on an infusion of capital or loan, and (ii) the parties to those dealings agreed to Delaware law as their common language of commerce.  Thus, the defendant had no basis to complain that his due process rights would be offended by Delaware’s exercise of personal jurisdiction over him.

The court’s conclusion was also bolstered by underscoring the public policy reason why “Delaware has a legitimate interest in providing a forum for efficient redress of claims against a Delaware corporation and a fiduciary whose actions are at the heart of those claims.”

The court explained that the defendant was “obviously a proper party because he has a tangible legal interest in the matter” that is separate from the interest of the corporation involved and because the claims against him arise out of the same facts and occurrences as the claims against the corporation involved.

In sum, the court declined to “excise” the provisions in Section 3114 that allow for the imposition of personal jurisdiction over directors and officers who are either “a necessary or proper party,” even though Delaware cases have been excising that phrase in the statute for many years as a result, apparently misplaced, of due process concerns.  Moreover, the court emphasized that it was not enough to make that “necessary or proper party” determination, but rather the court must also find that the exercise of personal jurisdiction, as in this case, was also consistent with constitutional expectations of due process.

By becoming a director and officer of the corporation involved, the defendant purposely availed himself of certain duties and protections of Delaware law.  The claims against him involved his actions in his official capacity of negotiating contracts that involved the change of control of the Delaware company.  The defendant executed written agreements which chose Delaware law to govern the disputes that formed the basis of the claims.

To make the point about choosing Delaware law more colorful, the court observed that other parties in the case were from Hong Kong and Canada, but the court found that all the parties “understood that as to the course of their respective actions relevant to this case, the jurisdiction that was their focus was the home of the fried oyster sandwich, and not the home of poutin or dim sum.”  Therefore the court concluded that requiring him to defend the lawsuit in this state does not “offend traditional notions of fair play and substantial justice.”

Delaware Allows Claims Based on Extra-Contractual Statements About Merger

Allegations are commonly made that representations outside the four corners of the parties’ agreement about a merger or similar deal were untrue, and the buyer relied to his detriment on them. A recent decision from the Delaware Court of Chancery addresses the types of provisions in an agreement that could bar such claims for misrepresentation based on extra-contractual statements or omissions. In FdG Logistics LLC v. A&R Logistics Holdings, Inc., C.A. No. 9706-CB (Del. Ch. Feb. 23, 2016), the court allowed claims to proceed based on the absence in the parties’ agreement of a provision that restricted the representations on which the buyer relied only to those contained in the agreement.

Key Takeaways:

  • The starting point of an analysis about whether claims based on extra-contractual statements or omissions will be barred, must be the precise wording of the representation clauses and the integration clause in the applicable agreements. This starting point explains why the recent decision in Prairie Capital barred fraud claims based on alleged extra-contractual statements, but the instant opinion allowed such claims to proceed.
  • Another factually determinative aspect of an analysis of the issue is whether the promises about relying only on the warranties in the agreement are expressed from the point of view of the buyer. That is, in order to bar claims based on statements outside the four corners of the agreement, the provision in the agreement must “reflect a clear promise by the buyer that it was not relying on statements made to it outside of the agreement to make its decision to enter into the agreement” (citing Anvil, 2013 WL 2249655, at *8) (emphasis in original).
  • The court in the instant opinion recognized that an opposite conclusion was reached in dismissing fraud claims based on extra-contractual representations in the Prairie Capital case. But unlike in a similar case called Anvil, the court in Prairie found that the provisions at issue in that matter: “reflected an affirmative expression by the aggrieved buyer that it had relied only on the representations and the warranties in the purchase agreement.” Slip op. at 27. See also n. 55 (quoting exact language of the agreement).
  • In the instant opinion, the court distinguished Prairie Capital, and found the critical language was similar to the Anvil case to the extent that key language was missing from the integration clause and the representation provisions that did not include an affirmative expression by the buyer of: (1) specifically what it was relying on when it decided to enter the merger agreement or (2) that it was not relying on any representation made outside of the merger agreement. Instead, the representations in the instant matter were disclaimers by the selling company of what it was representing and what it was not representing. Moreover, in the instant opinion the court determined that the integration clause did not contain a clear statement by the buyer disclaiming reliance on extra-contractual statements.
  • The court relied heavily on the reasoning in the Abry case which underscored the strong public policy against fraud and the unwillingness of the court to bar a contracting party from asserting claims for fraud unless that contracting party “unambiguously disclaims reliance on such statements.”
  • The court referred to the point made in the Prairie Capital case that the disclaimer language need not include any “magical words,” but the disclaimer must be made from the perspective of the party who is making the claim in order to preclude fraud claims for extra-contractual statements.
  • The court noted the important fact that the buyer in the Abry case did not seek relief based on extra-contractual representations, but instead amended its complaint to premise its claims solely upon alleged misrepresentations in the agreement itself.

Free Supplemental Commentary: A complete understanding of this opinion and the key issue it addresses, requires a familiarity with and a comparison of the recent Chancery opinion that dealt with an identical issue in Prairie Capital III, L.P. v. Double E Holdings Corp., 2015 WL 7461807 (Del. Ch. Nov. 24, 2015), highlighted on these pages. Also, in order to master this issue, one needs to be familiar with two other cases listed in this post. The only practical way to distinguish between the cases is the precise wording of the integration clauses and the representation clauses in the agreements considered by these cases, regarding whether the provisions sufficiently and specifically expressly disclaimed reliance on extra-contractual statements, or if the agreement confined the universe of reliance in an affirmative manner to the four corners of the agreement. See Abry Partners V, L.P. v. F & W Acquisitions LLC, 891 A.2d 1032 (Del. Ch. 2006); and Anvil Hldg. Corp. v. Iron Acquisition Co., Inc., 2013 WL 2249655 (Del. Ch. May 17, 2013). See also cases cited at footnotes 47 and 48 of the FdG opinion.

Other Noteworthy Principles of Law for Corporate and Commercial Litigation:

  • The court rejected claims based on the Delaware Securities Act because the buyer did not establish the requisite factual nexus between the challenged merger and Delaware, needed to trigger an application of the Act. The court rejected as unreasonable the arguments that the Act applied in this case because to do so would lead to the “bizarre result” of converting a blue-sky statute intended to regulate intrastate securities transactions into one that would regulate interstate securities transactions. In addition, the court rejected the use of a statute allowing for the parties to agree that Delaware law would apply as a way to bootstrap an application of the Act.
  • That statute referred to is useful to know about – – independent of this case: Section 2708 of Title 6 of the Delaware Code allows parties to choose Delaware law to govern their agreement to provide certainty to the parties who are subject to jurisdiction in Delaware, to ensure their choice of Delaware law will be respected. The statute was intended to preempt the analysis in the Restatement (Second) of Conflict of Laws, that there exists a substantial relationship between the state and the parties, and that the application of the law of Delaware would not be contrary to any fundamental policy of the state. A prerequisite for the application of the statute is that the contract must involve $100,000 or more.
  • As part of this opinion, the court also granted summary judgment to the seller based on the terms of the agreement for payment of a tax refund that was earned prior to the merger, but received by the buyer after the merger. The court did not address, and apparently none of the parties raised the issue of, whether a claim for payment of money was outside the scope of the equitable jurisdiction of the Court of Chancery.

Chancery Determines Rights to Books and Records Under LLC Act

The Court of Chancery just decided a case that elucidates the rights of members and managers of an LLC to books and records of the LLC. A few bullet points will extract the nuggets of this decision. You should read the whole thing if you need to know the latest Delaware law on this topic. RED Capital Investment LP v. RED Parent LLC, C.A. No. 11575- VCN (Del. Ch. Feb. 11, 2016).

  • First, this ruling should be compared to the recent ruling in the Yahoo opinion highlighted on these pages. Although this decision did not address electronically stored information (ESI), readers are likely aware that decisions regarding demands for the books and records of an LLC often apply the rationales in rulings interpreting the analogous DGCL provisions (however different they may be)–therefore, you read it here first that the reasoning in the Yahoo decision that ESI must be produced in a Section 220 demand under the DGCL, will also be applied in the future to demands for books and records under Section 18-305 of the Delaware LLC Act, to require ESI to be produced when there otherwise is an entitlement to books and records under the LLC Act.
  • The money quote, which underscores the additional rights of managers of LLCs (and directors of corporations) to books and records:

    Managers are entitled to all information falling within Section 18-305(a)(1)-(6) that is “reasonably related to the position of manager.”40  This language is tantamount to that used in 8 Del. C. § 220 with respect to director requests for corporate information.41  As such, LLC managers should be afforded similar “unfettered”42  access to company books and records, absent restrictions in an applicable LLC agreement. With this context, the Court is unwilling to deprive an LLC holding company’s manager of books and records of the company’s wholly-owned operating entities…. (footnotes omitted)

  • One big difference between DGCL Section 220 and Section 18-305 of the LLC Act, is that LLC operating agreements can limit the rights that a member or manager may otherwise have to demand books and records. The LLC Act expressly says so. Section 220 does not expressly say so, but in a teleconference for a relatively recent Section 220 case, one member of the Court of Chancery informed the parties that a contract that purported to limit rights under Section 220 was not likely to be enforced. The name of the case was Brazil Mining. That case comes to mind readily, but I expect that there are similar cases, some of which have been featured on these pages over the last 10 years.
  • This opinion is also helpful in how it addresses issues involving the interface between the rights of members or stockholders in affiliated entities relating to access to records of subsidiaries and parent entities in the corporate context and LLC context.

UPDATE: In a Law 360 article, Jeff Montgomery reports that subsequent to this decision, the company indicated in a letter that it would not produce the documents until the appeal period ended, which apparently was on or about March 15, as it had not yet decided whether to appeal. Vice Chancellor Noble, who previously set the end of February for his retirement from the bench, responded to that position, described by the opposing side as a self-granted unilateral stay, by ordering that the data be produced by March 3.

RIP Justice Scalia

U.S. Supreme Court Justice Antonin Scalia has gone to his eternal reward. The front page of The New York Times today quoted Court of Appeals Judge Richard Posner as writing in 2011 that Justice Scalia was “the most influential justice of the last quarter century.” Whether you agreed with his views or not, he was in my estimation the best writer of legal opinions that I have ever read. Period.

I had the pleasure of meeting and speaking with Justice Scalia when he attended a reception prior to speaking at a dinner in Wilmington sponsored by the St. Thomas More Society about a decade ago. More recently, I met him again at a book signing in Wilmington where he signed one of his latest books for a group of Delaware lawyers that included yours truly. Over the last 24 hours or so since his passing, much has been written, and more will continue to be written about his towering intellect and the lasting impact he will have on American jurisprudence. I agree with Professor Bainbridge’s observation that his death is a national tragedy.

I extend my prayers and sympathies to his family. May he rest in peace.

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