A recently published Delaware Court of Chancery decision must be read by anyone who seeks to understand the latest iteration of Delaware law involving Section 220 of the Delaware General Corporation Law in connection with demands by stockholders for corporate books and records. Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corporation, No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020), is the name of this seminal opinion that will be often-cited as one of the more consequential cases interpreting DGCL Section 220, in part due to the manner in which it performs a deep analysis of the fundamental principles that animate Section 220, as well as how it illuminates the prerequisites that must be satisfied–beyond what the statute explicitly states–in order for one to make a successful claim. It also serves as a reminder that 220 cases are not simple.

Key Takeaways from this 63-Page Opinion:

Although this decision deserves a careful reading in its entirety, and warrants a lengthy analysis, I will merely provide in this short blog post selected bullet points highlighting what this writer views as the most noteworthy aspects that make this decision must-reading for those interested in the latest developments in this area of corporate litigation:

       Proper Purpose Requirement:

  • After providing a justification for why enumerated prior Chancery decisions would not be followed to the extent they added prerequisites to Section 220 that have not been recognized by the Delaware Supreme Court, the Vice Chancellor refused to superimpose on the statute as part of the “proper purpose” requirement, an explanation for what will be done with the documents that are received.
  • That is, this Chancery decision confirmed that in order to satisfy the proper purpose requirement under Section 220, it is not necessary to explain what a stockholder will do once he receives the documents after a Section 220 demand. See Slip op. at 25-29. See also footnote 13.
  • The Court recited the doctrinal underpinnings that animate Section 220, as well as the competing interests between the corporation and the stockholder.
  • This opinion provides an eminently quotable list of the many previously recognized “proper purposes” that satisfy the requirements of Section 220. See page 14. (This alone is a reason that this ruling should have a prominent place in the toolbox of every corporate litigation practitioner.)

       Credible Basis Requirement:

  • This decision also illuminates the meaning of the “credible basis” requirement, which allows the court to infer a sufficient reason for a stockholder to seek records in order to pursue an investigation for certain potential claims. See page 16. See also pages 30-40 (explaining the credible basis standard in the context of an investigation into types of wrongdoing).
  • The Vice Chancellor expressly rejected the defense that “they-only-want-to-sue” as a reason for not producing documents requested–that could be used for other reasons.

       Scope of Documents for Production–including Emails:

  • The Court describes the scope and conditions and details for the production of documents that were ordered to be produced. The Court also ordered a Rule 30(b)(6) deposition to determine “what types of documents exist and who has them.”
  • Citing for support to prior Section 220 decisions (after distinguishing others), this opinion requires the production of emails among board members, even if those emails are on a non-corporate email account. See, e.g., Palantir decision.
  • Both the Court of Chancery and the Delaware Supreme Court in prior decisions on Section 220 have quoted from a law review article that Francis Pileggi co-authored, here and here, on the topic of electronically-stored information (ESI) that should be produced pursuant to a Section 220 demand.