A recent Chancery Court decision discussed the limitations on the right of a shareholder to demand books and records of a corporation under Section 220 of the DGCL, including whether the board and the company could maintain the confidentiality of board data. In Amalgamated Bank v. UICI, pdf, Vice Chancellor Noble issued his decision after a “trial consisting of documents”. He first noted that DGCL Section 220(b) requires that a shareholder show a proper purpose for the demand, and that “proper purpose” is defined as one “reasonably related to such person’s interest as a stockholder.” The parties

here exchanged many documents prior to trial, and the main issues were whether the stockholder could demand documents about a “related party transaction” and the scope of a confidentiality agreement. I refer the reader to the opinon linked about for the factual analysis on the first issue.
This short post will highlight the court’s analysis on the vexing issue of which documents deserve confidential treatment. The court began by observing the practical need for a framework to maintain confidentiality until such time as any issues on that point are answered through the judicial process.
The court viewed it as customary and proper that limits be placed on the disclosure of confidential documents produced pursuant to Section 220. In this case there was a dispute over the definition of “confidential”. Amalgamated objected to UICI deeming “any nonpublic information” as confidential.
Citing Section 220(c), which authorizes the court to impose reasonable restrictions on a shareholder’s use of records under Section 220, the court found that imposing the obligation to preserve the confidentiality of confidential documents is a routine condition imposed. Vice Chancellor Noble rejected the argument that the test should be restricted to potential harm to the corporation from disclosure, in light of sensitive personal information relating to the corporation often being included in documents. The court reasoned that it would be too great a burden for the corporation to demonstrate “harm in fact” as the standard for maintaining confidentiality.
Ultimately, the question of whether a document is entitled to confidential treatment “requires a balancing of various considerations within a specific context” and “no precise formula exists” (citing Disney v. The Walt Disney Company). (The Disney decision cited was not the famous one by Chancellor Chandler, but rather a 2005 decision by VC Lamb that addressed the right of the company and the board to maintain the confidentiality of certain board data. See 2005 WL 1538336 at * 3-4 and n.26 (Del.Ch., June 20, 2005)).
The court concluded that UICI may treat as confidential that information which it believes in good faith, “constitutes confidential, proprietary, or commercially or personally sensitive information that needs the protection of confidential treatment.” However, the court ended its opinion by limiting its ruling to the specific facts of the case, and recommended that the preferred methodology is for the parties to agree on a standard that “protects information entitled to confidential treatment”, but also allows a practical framework for production. In sum, this situation involves a factually determinative analysis.