Mickman v. American International Processing, L.L.C., et al,  (Del. Ch., C. A. No. 3869-VCP, April 1, 2009),  read opinion here.

Kevin Brady, a highly respected Delaware litigator, provides us with the benefit of his analysis of this case.

In this Chancery Court decision, Vice Chancellor Parsons addressed the issue of what evidence the Court might would consider in determining who had standing under 6 Del. C. § 18-305 to inspect the books and records of a Delaware limited liability company.

No Evidence of Membership in Operating Agreement

Defendant LFF, L.L.C. (“LFF”) moved for summary judgment on the basis that plaintiff was not entitled to inspect the books and records of LFF because she was not a member or manager of LFF. Defendant LFF argued that there was no record evidence in the company’s documents to show that plaintiff had any interest in LFF. Plaintiff responded by referring to documents signed by Richard Mickman (plaintiff’s ex-husband) and Howard Gleit, the only two members of LFF listed in the LLC operating agreement initially. In particular, plaintiff identified a 2001 tax return for LFF, which in the Schedule K-1 for each member, listed the members as Howard Gleit and [plaintiff and her ex-husband]. In addition, before they were divorced, plaintiff’s ex-husband “signed under penalty of perjury an Offer in Compromise to the IRS on or about February 9, 2002, in which he stated that his ‘only assets are his house . . . and stock in a number of closely held companies owned jointly by Taxpayer and his wife.’ ”

Should LLCs Get the Same Treatment as Corporations?

Under 6 Del. C. § 18-305, “[e]ach member of a limited liability company has the
right . . . to obtain from the limited liability company from time to time upon reasonable
demand for any purpose reasonably related to the member’s interest as a member of the
[LLC] . . . [various records of the LLC].” LFF argued that it had a formal operating agreement and that neither that agreement nor any amendments to it listed plaintiff as a member of LFF. LFF also argued that the Court should treat an LLC like a corporation in connection with a demand for inspection of books and records. For a corporation, only stockholders listed in the stock ledger are recognized as holders of record of stock for purposes of a request for books and records under Section 220 of the Delaware General Corporation Law. LFF argued that the Court should extend that reasoning to LLCs such that “only members listed in an LLC’s operating agreement, where a written agreement exists, should be recognized as members with a right to inspect books and records under Section 18-305.”

To support its argument, LFF cited Shaw v. Agri-Mark, Inc., 663 A.2d 464 (Del. 1995), where the Delaware Supreme held that “a party who supplied equity to a stock corporation, but who was not a stockholder of record, had no right to inspect the corporation’s books and records under Delaware common law or under Section 220.”

Vice Chancellor Parsons concluded, however, that there was nothing in that case to suggest, “by analogy or otherwise, that the inspection rights of members of an LLC under Section 18-305 should be limited strictly to persons named as members in the operating agreement.” (citing the decision in Shaw where Court limited the holding to stock corporations.)

Evidence Outside the Operating Agreement Considered?

Vice Chancellor Parsons stated that “LLCs generally are created on a less
formal basis than corporations and are basically creatures of contract.” Based on the
flexible and less formal nature of LLCs, the Court noted that “it is reasonable to consider evidence beyond the four corners of the operating agreement, where, as here, the plaintiff has presented admissible evidence that, notwithstanding the language of the operating agreement, that suggests the parties to the agreement intended to make, and believed they had made, the plaintiff a member of the LLC.”

Summary Judgment Denied

While there was no dispute that the LFF operating agreement did not list plaintiff as a member, there was evidence that the representations about plaintiff’s membership were mistakes. As a result, the Court denied LFF’s motion for summary judgment.

A recent Delaware Supreme Court decision should be required reading for anyone interested in the latest iteration of Delaware law on the contract-based right to demand “books and records” in the alternative entity context. Delaware’s High Court ruled in Murfey v. WHC Ventures, LLC, Del. Supr., No 294, 2019 (July 13, 2020), that the Court of Chancery erred by interjecting into a limited partnership agreement a statutory requirement from Section 17-805 that did not appear in the parties’ agreement.

The great importance of this ruling can best be appreciated by emphasizing that the court did not opine in any manner on the statutory requirements for demanding books and records of a business entity–about which so much has been written on these pages over the last 15 years and about which I recently provided an overview of key decisions with the title for the blog post of: Demands for Corporate Documents Not for the Fainthearted.

I will add to that characterization of Delaware decisions interpreting statutory provisions for demanding corporate documents, a general observation based on the instant decision: Contract-based demands for books and records of business entities are not for the fainthearted either. A few reasons that support my observation include the following:

  • This Supreme Court decision features the en banc Justices split 3-2, along with a less-than-common reversal of a Chancery decision. So, that procedural note underscores that 6 of the best legal minds in Delaware (5 jurists on the high court and 1 in Chancery rendering opinions in this case) cannot find unanimity on this issue.
  • The original demand in this case was made on January 10, 2018. The Chancery complaint was filed in September 2018.  Through no fault of the court system, this final decision on appeal came down on July 13, 2020. About 2 years is still lightening-fast for the period from filing a complaint to a final decision by a state’s highest court, but that still implies substantial legal fees and the need for financial and other types of stamina for someone who is serious about seeking corporate records.
  • Although this decision provides authoritative guidance on this nuance of Delaware business litigation, a careful parsing of the opinion still reveals a fertile field for indeterminacy–which makes it a challenge for the lawyers toiling in this vineyard who are trying to predict the outcome of this type of contract interpretation dispute–even if one need not be concerned with applying the multitude of court decisions applying the statutory provisions for inspection rights in this context.
  • I’ll end my introductory observations on a positive note: despite the plethora of case law interpreting the various statutory provisions for demanding books and records, such as Section 220 and Section 18-305, this decision is a welcome addition to the relatively few published Delaware opinions that address the purely contract-based right to books and records of an alternative entity.

Basic Factual Background

Based on the assumption that readers of this post are familiar with the basics of Delaware law in this area, I’m only highlighting the irreducible minimum amount of facts to provide context for the key legal principles announced.

This case followed a typical pattern. The company provided some documents initially, and at the time of trial the only issue was the very limited documents the company refused to produce. Somewhat unusual was that only one specific type of document was the subject of the trial court decision and the appeal: the K-1 of the other limited partners in the limited partnership. Although the company allowed counsel for the plaintiff and the plaintiff’s valuation expert to review those K-1s, they refused to let the plaintiffs themselves review the K-1s of other limited partners–even subject to the common confidentiality agreement.

The limited partnership agreements involved allowed for a rather broad scope of documents to be demanded, including tax returns which were specifically listed as being subject to production. The company took the curious position that a K-1  (of other limited partners) was not part of the tax returns of the company–or at least not within the scope of documents they need to produce.

Primary Issue Addressed on Appeal

Whether the Court of Chancery erred by injecting into the terms of the agreement that provided for a right to books and records–additional statutory prerequisites. Short answer: yes.

High Court’s Reasoning–Key Takeaways

The majority opinion made quick work of dispensing with the defense that valuation was not a valid basis for requesting the disputed documents or that tax returns were not needed to complete a valuation. See, e.g., footnotes 65 and 66 as well as related text. More notably, the court found that the statutory notion of a “proper purpose” was not applicable to contract-based demands. See, e.g., footnote 53 and accompanying text (quoting with approval prior decisions so holding.)

Also noteworthy is the Court’s reference to dictionary definitions of words, including prepositions, at issue in this case. See footnotes 32 and 33.

The Court reviewed many prior Delaware decisions that addressed when, if ever, it would be appropriate to infer words or conditions that do not appear in the terms of an agreement, such as statutory prerequisites. Slip op. at 18-25.

A key part of the Court’s reasoning was that: because the partnership agreements involved

… do not expressly condition the limited partner’s inspection rights on satisfying a “necessary and essential” condition [a statutory concept], and given the obvious importance of tax return and partnership capital contribution information to the Partnerships’ investors, as evidenced by the agreements, we are not persuaded that such a condition should be implied.

Slip op. at 25

The majority opinion’s “rebuttal” of the dissenting opinion deserves to be read in its entirety. Slip op. 32 to 37. Two especially notable excerpts:

  • ” The words ‘necessary and essential’ do not appear in the written agreements”. Slip op. at 35.
  • “… we also do not agree that the parties to a limited partnership agreement have to expressly disclaim any conditions applied in the Section 220 context (or the Section 17-305 context….)” Footnote 85.


A recent Delaware Court of Chancery post-trial opinion addressing a demand for books-and-records by an LLC member did not attract my attention for the rather routine legal issues it decided, but it provides an opportunity to rely on it as a launchpad for broader commentary generally on this common type of Delaware corporate and commercial litigation. This post is intended for advanced readers of these pages who have followed at least some of the 200-plus highlights on this blog regarding Delaware decisions on DGCL Section 220 over the last 15 years, and a fewer number of case highlights regarding the analog to Section 220 in the Delaware LLC Act: Section 18-305.

In Riker v. Teucrum Trading, LLC, C.A. No. 2019-0314-AGB (Del.Ch. May 12, 2020), the Court determined after trial that only some of the requested data requested by the LLC member, and not yet provided, was required to be produced, although the case followed a familiar pre-trial pattern: The company initially refused to produce most of the documents requested prior to the suit being filed; then additional documents were produced after suit was filed, but not as many as requested. At trial, the Court needed to determine how many of the documents still requested were required to be produced.

Procedural History

The complaint was filed in April 2019. Court guidelines suggest a trial date within 90 days of the complaint for summary proceedings such as these, but through no fault of the court, that timetable may not always be possible. In this case, a pre-trial mediation took place that resulted in additional documents being produced, and that process added additional months to the timetable for trial. Post-trial briefing was also submitted.

Highlights of Decision

  • The Court held that all the “form and manner” requirements of the statute were met, in terms of stating a proper purpose, for example. See pages 8-18.
  • Valuation was recognized as a well-established statutory proper purpose, so the focus was on whether the documents requested were necessary in order to perform a valuation using the DCF method, which the plaintiff testified he was qualified to perform. The Court held that he was entitled to only one of the documents requested–most of them already having been produced. See generally, Lim v. PowerWise, highlighted on these pages, a 2010 Chancery decision that determined what documents were necessary to pursue the proper purpose of valuation in the context of that case.
  • The second purpose was recognized as proper–investigation of mismanagement–but a prerequisite for pursuing such a purpose is presenting a “credible basis” of wrongdoing which the plaintiff in this case did not establish in connection with the documents requested for this category of requests. See pages 21-28.

General Commentary on Section 220/Books-and-Records Cases

Hundreds of highlights on these pages, over the last 15 years, of Delaware decisions on demands for books and records–based on both the corporate statute and the LLC Act–and the many cases of this type that I have handled over the last 30 years or so, reveal a few common themes:

  • Although a reading of DGCL Section 220 and Section 18-305 of the LLC Act may appear to the casual observer as relatively simple and straightforward, the many hundreds of published decisions interpreting those statutes tell a different story.
  • Exhortations in ample Delaware corporate litigation decisions instruct Delaware lawyers to “employ the tools at hand”, including Section 220,  prior to filing a plenary action, especially a derivative suit which requires that one plead with particularity why pre-suit demand is futile. But what a blunt instrument Section 220 can be. Notably, Section 220 case law is often used by analogy when applying Section 18-305.
  • Highlights on these pages of decisions on this topic recite the many nuances and prerequisites that must be mastered for a successful books and records claim under either statute, often added by judicial gloss, which are not obvious from a reading of the statutes only.
  • Having represented both companies and stockholders/members in these cases over the years, there are many traps for the unwary. Companies have many arrows in their quiver to oppose a request under either statute. In addition to challenging a proper purpose (which can include a defense that the stated purpose is not the “true” purpose), a fertile field for disputes in this area relates to whether each of the documents requested is necessary to accomplish the stated purpose.
  • These cases are not for the faint of heart because:

(i) As this case indicates, the litigation can last for a year or more (and some cases highlighted on these pages have lasted several years through appeal);

(ii) In connection with the litigation lasting as long as some plenary cases, the fees incurred in these cases can be substantial for matters such as discovery (however limited and circumscribed by the narrow scope and summary nature of these cases) and motion practice, for example, related to discovery disputes (though dispositive motions are strongly discouraged.);

(iii) As the instant case highlighted above exemplifies, the results of trial in these types of case are often unsatisfying to the extent that even if one is successful–which is never a certainty–the court merely orders the production of documents. This contrasts with a typical trial in which success often means a monetary award or substantive relief. So too, an order for production of records does not equate with receipt of records. It’s not uncommon that a continuing struggle ensues to enforce the production ordered by the court.

(iv) Truly egregious behavior, as an exception to the American Rule, must be presented before the court will engage in fee shifting–otherwise each party pays its own fees. Thus, the economics must support pursuing one of these cases through trial, and possible appeal.

UPDATE: Professor Stephen Bainbridge, a nationally-prominent corporate law professor whose scholarship is often cited in Delaware court opinions, kindly linked to this post on his blog.

This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.

Rallye Motors Holding, LLC cannot use Delaware’s McWanedoctrine to force its ex-CEO to move his books-and-records action to New York, where a fellow member and ex-employee of that limited liability company is litigating related claims including records inspection demands, the Chancery Court has ruled in Stanco v. Rallye Motors Holding, LLC, No. 2019-0751-SG (Del. Ch. Dec. 23, 2019).

Vice Chancellor Sam Glasscock’s Dec. 23 memorandum opinion declined to dismiss Joseph Stanco’s records inspection suit filed under Delaware LLC Act Section 18-305 – the LLC analog of Section 220 of the Delaware General Corporation Law – after rejecting two novel Rallye arguments of interest to alternate entity counsel.

  • First, the Court found that the LLC agreement did not clearly require Stanco to waive his right to file his records action in Delaware, where Rallye is chartered, because he was a managingmember as well as an officer.
  • Second, the vice chancellor said Rallye cannot use the seminal forum non conveniens decision in McWane v. McDowell-Wellman to force Stanco to combine his records action with a related suit by a third party because McWane: “should not be employed to defeat a plaintiff’s choice of forum.” McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 2821 (Del. 1970).

Stanco says he had worked for Rallye, a holding company for five Long Island automobile dealerships, since 1980 and had acquired a 5.5 percent member ownership, a seat on Rallye’s board of members and an appointment as managing member when he was fired without cause in 2017.

Two years later, he demanded inspection of Rallye’s books and records to value his ownership interest, evaluate Rallye’s financial condition, the performance of its management, the reason for its failure to continue making distributions to shareholders and the propriety of company disclosures.

No ‘clear expression’

Two weeks after he filed his inspection complaint on Sept. 19, Rallye moved to dismiss it from Chancery Court, but the vice chancellor found that, “Generally, except as limited by contractual waiver, the members of a Delaware LLC have the right to vindicate proper books and records demands in this court” and waivers of those rights must include “the clear expression of the intent to relinquish the right.”

Vice Chancellor Glasscock ruled that Stanco “could not have intended to waive his rights to a books and records as a manager,” because in his capacity as a managing member he would have had access to the company’s books and records.

The McWane argument fails because Rallye cannot demonstrate “a high degree of hardship” should the litigation go forward in Delaware, and does not even attempt to make such a showing, he said.

Under McWane, “this court’s discretion is to be freely exercised in favor of a stay or dismissal where there is a prior action pending elsewhere, in a court capable of doing prompt and complete justice, involving the same parties and issues,” but that’s not the case here, the Court noted.

In whose interest?

The action that Rallye wants Stanco to join in the interest of efficiency is a books and records suit filed by Nicholas Toomey, a member and ex-employee of the LLC.  Toomey v. Rallye Motors Holding LLC et al., Index No. 613005/2019 (N.Y. Sup. Ct.).

According to Rallye, Toomey was Stanco’s “cohort” who was fired along with him for cause in 2017 and the two are co-plaintiffs in a related New York state court breach of contract action.  Stanco and Toomey v. Rallye Motors Holding LLC, Index No. 612155/2017 (N.Y. Sup. Ct.).

Rallye argues that the two New York suits have “a common nucleus of operative fact” and “share the same issues” for purposes of a McWane analysis, but the vice chancellor found the connection to be “insufficient to support my exercise of discretion under McWane.”

Although it might be efficient for Rallye to address both records inspection actions together, McWane“seeks to promote efficient litigation by vindicating a plaintiff’s choice of forum” and there is no overlap in the parties aside from the common defendant nor are the issues the same, he said.

McWane is not – and should not be – that flexible,” Vice Chancellor Glasscock said in denying Rallye’s motion to dismiss.

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.

Jagodzinski v. Silicon Valley Innovation Company LLC, C.A. No. 6203-VCP (Del. Ch. Feb. 14, 2012).

Issue Addressed

The issue addressed in this case was whether the Court of Chancery should grant a Motion for Contempt and for the Appointment of a Receiver in connection with a failure to comply with a prior order entered by the Court granting access to books and records pursuant to Section 18-305 of the Delaware Limited Liability Company Act (Title 6 of the Delaware Code), and the limited liability company agreement of the defendant company.


The Court entered an order in August 2011 that the defendant company must produce books and records.  Again, in October 2011, the Court granted in part and denied in part a prior motion to contempt for failure of the company to comply with the August order.  In November 2011, the plaintiff filed the most recent pending motion for contempt and for a receiver.  After the most recent motion was filed, also in late November 2011, the Court ordered the company to file an opposition to the most recent motion for contempt, and for the third time also directed the company to make the production required in the August order.

The company did not file any reply brief or memorandum in opposition to the most recent  motion for contempt.  The record also indicates that the defendant has not produced all of the documents required in the August, October or November orders.

The defendant purported to move for an extension of time to respond to the second motion for contempt although the motion to extend was not properly filed with the Court and therefore the Court did not consider it.  The Court explained that even if it did consider the motion to extend time, the motion would not be granted.  The Court reasoned that under Court of Chancery Rule 6(b) that the Court may extend time only when “the failure to act was the result of excusable neglect.”  That is, “neglect which might have been the act of a reasonably prudent person under the circumstances.”  The company could not meet this standard.


The Court explained that under Court of Chancery Rule 70(b), the Court “may find a party in contempt when it fails to obey or to perform any order of which it has knowledge.”  It is clear that the company violated essential terms of the prior orders in several ways, such as failing to deliver or make available all the documents the Court ordered it to produce in the August, October and November orders.  The company still has not fully complied with those orders, nor has it complied with an order of several months ago requiring it to obtain new Delaware counsel.  Thus, the Court found the company in contempt.

Appropriate Remedy for Contempt

The Court explained that it has broad discretion in formulating a remedy for contempt of its orders.  See cases cited at footnote 4 for authority, based on the history of this case and the multiple failures to comply by the defendant.  The Court also awarded attorneys’ fees and costs.  In addition to contempt penalties, or as an additional penalty, the plaintiff also sought the appointment of a receiver.

Criteria for Appointment of Receiver

The Court explained that except where the certificate of formation has been cancelled, Delaware law is silent on the appointment of a receiver for an LLC.  See footnotes 6 and 7.  The LLC Agreement in this case did not address the issue and the relevant statutory provision of the LLC Act, at Section 18-1104, provides that “in any case not provided for in this chapter, the rules of law and equity shall govern.”

The Court also observed that it has the inherent equitable power to appoint a receiver.  See footnote 9.  The Court also acknowledged that the appointment of a receiver is a “extraordinary remedy” (citing Roth v. Laurus U.S. Fund, L.P., 2011 WL 808953, at *5 (Del. Ch. Feb. 25, 2011)).  One of the factors in determining whether a receiver should be appointed is when it is necessitated by the exigencies of a case, and whether “some real beneficial purpose will be served thereby.”  See footnotes 11 through 13.

The Court reasoned that based on the evidence which demonstrated that the company only had one employee, who cannot be relied on to produce the documents required under the order, that it was appropriate to appoint a receiver.  The Court added that a receiver was appropriate because the company appeared to have limited or no resources, and may not be able to pay a receiver out of current funds.  With that in mind, the Court accepted the recommendation of the plaintiff that the Court appoint an agent of the plaintiff, who appears to have the necessary skills, and that would also minimize the financial strain on the company.

The Court limited the power and the appointment of the receiver “only to the extent necessary to cure the contempt by effecting the production ordered under 6 Del. C. Section 18-305.”  Thus, the powers of the receiver were limited to retrieving and producing the documents ordered by the Court in the underlying books and records litigation and actions reasonably related to that purpose.  The receiver may attempt to obtain documents at issue from third parties where the company can claim to have control over those documents, but once the receiver completed his efforts to collect and produce the books and records, he will be discharged.

[In an unrelated and separate opinion, also issued this month, involving the dissolution of a company, the Court of Chancery appointed a receiver in the Calypso case highlighted here.]

In closing, however, the Court underscored that its restriction on the scope of the receiver is without prejudice to the ability of the plaintiff to petition the Court to expand those powers in a later proceeding on the merits.

Noteworthy 2011 Corporate and Commercial Decisions from Delaware’s Supreme Court and Court of Chancery.

By:  Francis G.X. Pileggi and Kevin F. Brady.


This is the seventh year that we are providing an annual review of key Delaware corporate and commercial decisions. During 2011, we reviewed and summarized approximately 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues.  Among the decisions with the most far-reaching application and importance during 2011 include those that we are highlighting in this short overview.  We are providing links to the more complete blog summaries, and the actual court rulings, for each of the cases that we highlight below. Prior annual summaries are linked in the right margin of this blog.

Top Five Cases from 2011

We begin with the Top Five Cases on corporate and commercial law from Delaware for 2011 and we are glad to see that at least four of them have some support from the bench as these were the cases that four Vice Chancellors highlighted as important decisions in a recent panel presentation that they offered in New York City in early November 2011.  Those cases were the following:  In Re: OPENLANE Shareholders Litigation; In Re: Smurfit Stone Container Corp. Shareholder Litigation; In Re: Southern Peru Copper Corp. Shareholder Litigation and Air Products and Chemicals, Inc. v. Airgas Inc., and Kahn v. Kolberg Kravis Roberts & Co., L.P.

In Re: OPENLANE Shareholders Litigation. In what many commentators referred to as a “sign and consent” transaction, in which the majority shareholders and the board of directors had sufficient control to provide the statutorily required consent, the Court of Chancery determined that the Revlon standard was satisfied and fiduciary duties were not breached notwithstanding the Omnicare case and even without customary safeguards such as a fairness opinion. See fuller summary here.

 In Re: Smurfit Stone Container Corp. Shareholder Litigation. The Court of Chancery denied a motion for preliminary injunction and determined that the Revlon standard applied to a merger for which the consideration was split roughly evenly between cash and stock. See fuller summary here.

In Re: Southern Peru Copper Corp. Shareholder Litigation. In what may be the largest award granted in the Court of Chancery’s venerable history, a judgment was entered for $1.2 billion (later amended to $1.3 billion) for breach of fiduciary duties in connection with an interested transaction. With interest, the total is expected to be $2 billion.  The Court later awarded attorneys’ fees of 15% which amounts to $300 million, in this derivative action. See fuller summary here.

Air Products and Chemicals, Inc. v. Airgas Inc. This magnum opus of over 150-pages in length will be the focus of scholarly analysis for many years to come. For purposes of this short blurb, it ended a year-long takeover battle between two determined companies, with the Court of Chancery ruling, among other things, that the target company was not required to pull its poison pill when the board determined that the offer for the company was too low. See fuller summary here.

Kahn v. Kolberg Kravis Roberts & Co., L.P.  This Delaware Supreme Court decision reversed and remanded an opinion by the Court of Chancery interpreting “a Brophy claim as explained in Pfeiffer.”  The issue before the Court was whether a stockholder had to show that the company had suffered actual harm before  bringing  a breach of loyalty claim that a fiduciary improperly used the company’s material, non-public information (a Brophy claim).  The Supreme Court rejected that part of the Chancery’s decision in Pfeiffer v. Toll which requires a showing of actual harm to the company.  See fuller summary here.

We also selected the following additional noteworthy cases:

Shareholder Litigation

In Re: John Q. Hammons Hotels, Inc. Shareholder Litigation.  Despite the application of the entire fairness standard, the Court concluded that the merger price was entirely fair, the process leading to the transaction was fair, that there was no breach of fiduciary duty, and therefore no claims for aiding and abetting fiduciary duty.  See fuller summary here.

Reis v. Hazelett Strip-Casting Corp.  The Court applied an entire fairness analysis and held that the attempt to cash out minority shareholders via a reverse split was neither the result of a fair process nor did it involve a fair price.  See fuller summary here.

In re: Del Monte Foods Co. Shareholders Litigation. This first of three rulings enjoined a shareholder vote on a premium LBO transaction and the buyers’ deal protection devices.  The Court also held that the advice that the target board received from a financial advisor (who also did work on the deal for the bidder) was so conflicted as to give rise to a likelihood of a breach of fiduciary duty and the Court indicated that the financial advisory firm could face monetary damages due to aiding and abetting the potential breach.  See fuller summary here.

In re: Massey Energy Company Derivative and Class Action Litigation.  The Court declined to enjoin a proposed merger.  The Court noted that the derivative claims that the plaintiffs argued were not being fairly valued as part of the merger, would become assets of the surviving corporation.  The Court reasoned in part that the shareholders should decide for themselves whether to exchange their status as Massey stockholders for a chance to receive value from a third party in an arms-length merger.  See fuller summary here.

Frank v. Elgamal.  This decision exemplifies the different approach taken by different members of the Court in connection with an application for interim fees in a class action.  (Compare the different approach in the Del Monte case.)  See fuller summary here.

Krieger v. Wesco Financial Corp.  This decision determined that holders of common stock were not entitled to appraisal rights under Section 262 when they had the option of electing to receive consideration in the form of publicly traded shares of the acquiring company.  See fuller summary here.

In re: The Goldman Sachs Group, Inc. Shareholder Litigation.  In this first corporate opinion by Vice Chancellor Glasscock, the Court dismissed a derivative action brought against Goldman’s current and former directors based on a failure to make a pre-suit demand.  At issue was Goldman’s allegedly excessive compensation structure.  See fuller summary here.

Contested Director Elections

Genger v. TR Investors, LLC.  In this opinion, the Delaware Supreme Court addresses electronic discovery issues and contested elections for directors involving DGCL Section 225. See fuller summary here.

Johnston v. Pedersen.  This opinion determined that directors breached their fiduciary duties when issuing additional stock and as a result were not entitled to vote in connection with the removal of the incumbent board and the election of the new directors.  See fuller summary here.

Section 220 Cases

King v. VeriFone Holdings, Inc. This Delaware Supreme Court ruling reversed a Chancery decision that found a lack of proper purpose in a suit by a shareholder seeking books and records pursuant to Section 220.  Delaware’s High Court explained that it remains preferable to file Section 220 suits for books and records prior to filing a derivative suit, but holding that such a chronology is not, per se, a fatal flaw in a Section 220 action.  See fuller summary here.

Espinoza v. Hewlett Packard Co. This affirmance of Chancery’s denial of a §220 claim was based on the requested report to the board being protected by the attorney/client privilege.  (This is one of several decisions in this matter.) See fuller summary here.

Graulich v. Dell., Inc.  This is a Section 220 case in which Chancery denied a request for books and records due to the underlying claims being barred by a previous release and due to the shareholder not owning the shares during the period of time for which he was requesting documents.  See fuller summary here.

Alternative Entity Cases

CML V, LLC v. Bax.  This Delaware Supreme Court decision determined that creditors of an insolvent LLC are not given standing by the Delaware LLC Act to pursue derivative claims unlike the analogous situation in the corporate context.  See fuller summary here.

Sanders v. Ohmite Holding, LLC.  This decision clarified the rights of a member of an LLC that demanded books and records of an LLC.  The Court determined that pursuant to Section 18-305 of the Delaware LLC Act a member may seek records for a period prior to becoming a member of the LLC.  See fuller summary here.

Achaian, Inc. v. Leemon Family LLC.  This opinion addressed the transferability of interests of a member of an LLC and specifically whether one member of a Delaware LLC may assign its entire membership interests, including voting rights, to another existing member, notwithstanding the provision in an agreement that requires the consent of all members upon the admission of a new member.  See fuller summary here.

Jurisdictional or Procedural Issues

Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC.  In this decision, a Delaware Supreme Court determined that Delaware would not follow the standards for a motion to dismiss under Rule 12(b)(6) announced by the U.S. Supreme Court in the Twombly or Iqbal opinions.  See fuller summary here.

Hamilton Partners, LP v. Englard.  This decision addressed the issue of personal jurisdiction over directors and interlocking entities, as well as demand futility in the context of a double derivative shareholders suit.  (Although this was decided at the end of 2010, it was important enough to include in this list as it was issued after our deadline for our compilation last year). See fuller summary here.

Encite LLC v. Soni.  This decision rejected a request for an extension of a deadline for submitting expert reports because the Court did not approve an amendment to the Scheduling Order.  See fuller summary here.

Whittington v. Dragon Group.  In this latest iteration of multiple decisions in this long-running saga, the Court examines the doctrine of claim preclusion, issue preclusion and judicial estoppel.  See fuller summary here.

In re: K-Sea Transportation Partners, L.P. Unitholders Litigation.  This decision provides a useful recitation of the standard used in Chancery for deciding whether to grant a motion to expedite proceedings, and it also reviews language in a limited partnership agreement which arguably was an effective waiver of traditional fiduciary duties as allowed by the LP statute.  See fuller summary here.

Sagarra Inversiones, S.L. v. Cemento Portland Valderrivas, S.A.  This ruling determined that the standard of “irreparable harm” granting injunctive relief was not satisfied based on the financial condition of the defendant which was “not poor enough” to convince the Court that a money judgment would not make the plaintiff whole.  (This is one of several decisions in this matter.) See fuller summary here.

ASDC Holdings LLC v. The Richard J. Malauf 2008 All Smiles Grantor Retained Annuity Trust.  This decision discussed the enforceability of forum selection clauses and in particular when those clauses will be enforced despite a related case being filed first in another forum.  See fuller summary here.

Gerber v. ECE Holdings LLC.  This decision discusses the difference between a motion to supplement and a motion to amend a complaint.  See fuller summary here.


Fuhlendorf v. Isilon Systems, Inc.  This decision addresses the advancement of fees incurred by officers and directors sued in connection with their corporate roles.  The specific issue in this case was whether the corporation should pay for all of the costs of a Special Master appointed to review the interim application for fees.  The case also discusses the common procedure employed to review disputed monthly legal bills in advancement cases.  See fuller summary here.

Receiver or Dissolution

Pope Investments LLC v. Benda Pharmaceutical Inc.  This decision rejected the application for the appointment of a receiver on the grounds that while the plaintiff demonstrated that the defendant was insolvent, the plaintiff failed to show that “special circumstances existed which would warrant the appointment of a receiver.”  See fuller summary here.

Stephen Mizel Roth IRA v. Laurus U.S. Fund, L.P.  This decision rejected a request to dissolve a limited partnership and refused to appoint a receiver in the context of an investment fund that was in liquidation mode but was not dissolved, nor was it winding-up as that term is used in the statute.  See fuller summary here.

Legal Ethics

BAE Systems Information and Electronics Systems Integration, Inc. v. Lockheed Martin Corp.  This opinion addresses Delaware Lawyers’ Rule of Professional Conduct 3.4(b) and discusses those situations in which a fact witness may be compensated for the “lost time” away from his “day job” suffered while testifying.  See fuller summary here.

Judy v. Preferred Communications Systems, Inc.  This decision addresses the issue of legal ethics involved in determining whether an attorney may assert a retaining lien over the documents of a former or delinquent client.   See fuller summary here.

Common Law v. Statutory Claims

Overdrive, Inc. v. Baker & Taylor, Inc.  In this last formal decision  by Chancellor Chandler, the Court discussed how the Delaware Uniform Trade Secrets Act displaces conflicting tort and other common law claims that are grounded in the same facts which would support the statutory misappropriation of trade secret claims.  See fuller summary here.

Damages for Breach of Agreement to Negotiate in Good Faith

PharmAthene, Inc. v. SIGA Technologies, Inc. This Court of Chancery decision awarded damages for breach of a contractual obligation to negotiate in good faith and fashioned an equitable remedy that required the sharing of profits from the production of a product that the defendant failed to negotiate the license of in good faith. There are several decisions involving contract law by the Court of Chancery in this matter, the most recent ruling denying a motion for reargument. See fuller summary of the most recent decision here.


On a final note, the last week of 2011 saw the sudden and sad passing of one of the nation’s foremost experts on alternative entities, Professor Larry Ribstein, who was often cited in opinions of the Delaware Courts. He coined the word “uncorporations” to refer to alternative entities and was the author of many treatises, law review articles and other publications on uncorporations, jurisdictional competition, the business of law firms and related topics involving the intersections of law and business. He was an iconic figure in the law, and the legal profession is better because of his many contributions.


UPDATE: The Harvard Law School Corporate Governance Blog published this post here. The NACD’s Directorship.com site kindly published this article as a lead story on Jan. 5, 2012, available here. Professor Stephen Bainbridge graciously commented on this summary in his post available here. Professor Joshua Fershee on the Business Law Prof  Blog linked to this summary with kind references here.

DFG Wine Company, LLC v. Eight Estates Wine Holdings, LLC, C.A. No. 6110-VCN (Del. Ch. Aug. 31, 2011).  This decision was initially sealed and not available to the public until recently.

Issue Addressed

This is a books and records action involving an LLC, based on Section 18-305 of the Delaware LLC Act.  In this post-trial 31-page opinion, the Court granted in part the request for  documents.


DFG sent a written demand in late 2010 for 16 categories of documents.  The stated purposes for seeking the records were two-fold:  (1) To determine the value of its investment in Eight Estates; and (2) To determine whether it should appoint a representative to sit on the board of managers.  The 16 categories of requested records were itemized on pages 4 through 6 of the letter opinion.  After an exchange of letters in which Eight Estates maintained that neither the LLC Agreement nor 6 Del. C. Section 18-305 required the production of the requested records, and after making a final request on Dec. 7, 2010 for reconsideration, DFG filed this lawsuit on January 4, 2011.

On January 24, 2011 Eight Estates provided DFG with the documents described at page 7 of the slip opinion. The LLC Agreement defined the rights of members and managers to inspect the books and records of the company and itemized specific records including tax returns and financial statements to which members and managers were entitled.

Specific Issues

The issues for trial were whether Eight Estates completely satisfied the demands of documents requested in categories 1, 4 and 6.  Eight Estates satisfied categories 2, 3 and 5 after the complaint was filed but did not provide any documents responsive to categories 7 to 17.

Why this Decision is Useful

This ruling provides helpful explanations about the scope of documents that are required to be produced for those seeking to value a closely-held company.  The Court explained that because members of a closely-held LLC “do not have access to the same quantity of information available from the regulatory filings of publicly traded companies . . .,” they should “be given slightly broader access rights.”  See footnote 23.

Court’s Reasoning

The Court also explained that the right of limited liability company members to inspect books and records of a limited liability company’s subsidiaries is not made explicit by 6 Del. C. Section 18-305, but nonetheless, Delaware courts have recognized that the statute provides a right to inspect the records of such subsidiaries where “the facts at least suggested the absence, in reality, of separate entities.”  See footnotes 24 and 25 (relying on DGCL Section 220(b)(2) by analogy).

The Court also observed that Section 18-305(c) limits the inspection rights granted to members of an LLC to the extent that the LLC “has the opportunity to establish a good faith belief that disclosure of the desired information would not be in the best interest of the entity . . . .” (citing Arbor Place, L.P. v. Encore Opportunity Fund, LLC, 2002 WL 205681, at *5 (Del. Ch. Jan. 29, 2002)).  Moreover, unlike a Section 220 case, a limited liability company is a creature of contract and the LLC Agreement may grant inspection rights that are “in addition to and separate from” the statutory inspection right.

The Court, unsurprisingly, concluded that the purpose of valuation was a proper purpose.

The Court also determined that it was a proper purpose to seek books and records for the purpose of determining whether to appoint someone, and if so, who to appoint as a member of the board of managers of the LLC.  The Court compared Section 18-305(b), which gives managers the right to examine all the materials described in Section 18-305(e), with the provision of Section 18-305(c) which allows for a good faith defense to a books and records action involving members – – but not managers.

Importantly, the Court emphasized, by reliance on a Delaware Supreme Court decision (in footnote 36), that so long as a single proper purpose related to one’s role as a stockholder is established, all other purposes are irrelevant (relying on DGCL Section 220).

Records of Subsidiary of LLC

The Eight Estates LLC had no value apart from its subsidiary known as Ascentia.  The Court distinguished the Arbor Place case because unlike that case and subsidiaries of the LLC in that opinion, the facts in this case “suggest the absence, in reality, of separate entities.”  The Court reasoned that it would be unfair under these circumstances to require a member of Eight Estates to attempt to value its holdings without providing access to the records of the only asset of the LLC, which are the records of the subsidiary, in order to allow the member to value that asset.  See footnote 43 citing to a decision involving piercing the corporate veil, which relies on a combination of factors and an overall element of unfairness as opposed to a single factor.

Trade Secrets

Although the Court allowed the company to redact any information that would be in the nature of trade secrets, the Court was not persuaded by the defense that the member seeking the information would be using that information in order to “cherry pick” or otherwise damage the competitive position of the company.

See footnote 50, referring to Section 18-305(c) which provides that an objective standard is applied to the belief of a manager that certain information is in the nature of a trade secret–but a subjective standard is applied to a belief of a manager that certain disclosures would not be in the best interest of the company.

Prior Production

The Court also rejected the defense that because a large number of hard copy documents were produced in a separate arbitration proceeding, which were designated as “for attorneys’ eyes only,” that the members seeking books and records would not be able to obtain those same documents in this case.

Scope of Relief and Specific Documents Required to be Produced

The Court determined that state tax returns of the subsidiary were not part of the enumerated documents that members were entitled to under the LLC Agreement, but such returns would be part of the “true and full information regarding the status of the business” to which it was entitled under Section 18-305(a)(1).

The Court also explained that the company did not establish a good faith belief that withholding the information would not be in the best interest of the company, and thus required state tax returns to be produced.  The Court also required the production of the “independent auditor’s report and financial statements” as well as the unaudited financial statements because those documents are reasonably related to the purpose of valuing the membership interests.

The Court also required the production of Employment Agreements with key employees which would be included within the category of “information regarding the affairs of the limited liability company” pursuant to Section 18-305(a)(6), and these documents also contribute to the valuation of the interest in the LLC, and there was no basis to establish the belief of a manager that withholding those records would be in the best interest of the company.

The production of a general ledger of the subsidiary was also required based on Section 18-305(a)(1).  The Court mandated the production of business plans and budgets including projections for future performance, and all documents related to such estimates or projections, subject only to redaction for trade secrets.

The Court also ordered the production of documents related to inventory and non-inventory assets that it determined would be necessary to value an interest in the LLC or its subsidiary.  Likewise, the Court ordered the production of documents related to the relationship of the company with its creditors such as any loan agreements, notes, mortgages and other debts or liabilities.  In addition, the Court required the production of information regarding grape contracts which apparently have great value in connection with valuing a winery.  The Court permitted the production of either the grape contracts themselves or a summary of the contracts that shows how many contracts it has and has had since 2008 and related information about the contracts.

In Sanders v. Ohmite Holding, LLC, C. A. No. 5145-VCL (Del. Ch. Feb. 21, 2011), read opinion here, the Delaware Court of Chancery clarified the rights of a member of an LLC to demand certain books and records of an LLC.

Issue Addressed

 Whether the member was entitled to books and records, pursuant to Section 18-305 of the Delaware LLC Act ( 6 Del. C. Section 18-305), for a period prior to him becoming a member of the LLC? Answer: Yes.

Short Factual Background

Max Sanders loaned $2 million to a member of an LLC and received a security interest in the member’s units as collateral. That member later transferred his interests back to Sanders. In the interim, the member’s units were diluted and instead of having the 7.75% stake that he thought he had, the LLC told Sanders that he only had what the Court described as a "nigh microscopic"  stake of merely 0.000775%. Sanders made a formal demand for 8 categories of books and records relating to why his units were diluted and the value of his interest as well as the performance of the LLC’s management. The LLC denied the request in total. After this action was filed, the LLC did provide tax returns and financial statements but not all the documents requested. Based on that information, the Court found that Sanders had a reasonable basis to believe that additional units were issued to an affiliated party at a deep discount, and thus, questioned whether the LLC received proper consideration for the additional units that were issued.


The Court determined that Sanders had a proper purpose for inspecting the books and records and that the documents he requested were necessary for him to fulfill that purpose, regardless of whether they pre-date when he formally acquired member status. Thus, summary judgment was granted for Sanders.

Procedural Posture

Both parties filed cross motions for summary judgment which the Court treated as the equivalent of a stipulation for decision on the merits based on the record submitted with the motions, pursuant to Chancery Rule 56(h).

Brief Overview of Key Legal Principles Discussed

As the Court observed:

Section 18-305(a) of the LLC Act provides a member of an LLC with the right,
“upon reasonable demand for any purpose reasonably related to the member’s interest as
a member” of the LLC, to obtain the following records:

(1) True and full information regarding the status of the
business and financial condition of the limited liability

(2) Promptly after becoming available, a copy of the
limited liability company’s federal, state and local income tax
returns for each year;
. . . .
(5) True and full information regarding the amount of cash
and a description and statement of the agreed value of any
other property or services contributed by each member and
which each member has agreed to contribute in the future,
and the date on which each became a member; and

(6) Other information regarding the affairs of the limited
liability company as is just and reasonable.

 6 Del. C. § 18-305(a). The inspection right is subject to “such reasonable standards(including standards governing what information and documents are to be furnished . . . ) as may be set forth in a limited liability company agreement or otherwise established by
the manager.” Id.

The rights of Sanders were co-extensive with Section 18-305 of the LLC Act because the LLC Agreement did not limit those rights. The Court observed that the extensive case law surrounding the rights of a shareholder to books and records of a corporation under DGCL Section 220 are often considered by analogy in the LLC context. Likewise, the following basic rules apply:

  • There must be a "proper purpose" for the inspection;
  • That proper purpose must be reasonably related to such person’s interest as a member;
  • The requested books and records must be reasonably required to fulfill the stated purpose.

Delaware cases have established several proper purposes in this context, including:

  • valuation of one’s ownership interest
  • investigation of potential wrongdoing and mismanagement. Note that in order to satisfy this proper purpose, one need not prove wrongdoing. Rather, it suffices in this context to merely present a "credible basis" to suspect wrongdoing and from which the court may "infer" wrongdoing that would warrant further investigation.

In this case, the Court explained that wrongful dilution that benefits a majority holder establishes a credible basis from which the Court can infer that further investigation is warranted.

The Court also remarked that the data received need not be used to file a derivative suit and that it may also be used, for example, to "communicate with … management" and to determine whether to retain or dispose of one’s interest.

A core inquiry in these types of cases is whether the documents requested are "essential and sufficient" to satisfy the party’s stated purpose. See footnote 2 and related text that comments on the lack of precision in these words that are used by the courts in these types of matters, and what the Court calls the "strange" choice of  "bi-partite phrasing".

Among the documents that the Court determined were reasonable to request in order to advance the stated purpose, were minutes of meetings that discussed the number and pricing of the units issued, and records relating to any opportunity that Sanders had to buy the units at the same price. The Court cited to cases in the Section 220 context to support its decision to allow the records requested for a period prior to the date that Sanders became a member because the records from that earlier period obviously had an impact, for example, on the value of the fully diluted units he currently owned.


Although the result of this case may be a positive one for the member seeking the books and records, it may also be described in some ways as a Pyrrhic victory, for several reasons. First, the opinion describes the litigation that was initiated in Illinois by the member way back in November 2007 in his first attempt to address the issues involved. Now, over three (3) years later he obtains some judicial relief–but the story does not end there. The member still does not have the documents. I suspect that there is a good chance that the LLC will not be forthcoming in a prompt and complete manner with all the documents they are required to produce pursuant to this opinion. To the extent that the opinion requires "categories of documents" there is plenty of opportunity for the company to engage in Fabian tactics. I’m not in any way suggesting that the company in this case will do so. I’m simply commenting based on my experience that if the company did so, it would not be unprecedented.

The takeaway, in my view, about these cases, is that requests by members or shareholders for books and records are not for the faint-hearted and are not for those who do not have the financial stamina, or the financial tenacity to spend considerable sums in legal fees to pursue litigation if the company is determined to make the process as expensive as possible, especially in light of the American Rule pursuant to which each party pays its own fees, regardless of who wins the case.

Lavi v. Wideawake Deathrow Entertainment LLC, C.A. No. 5779-VCS (Del. Ch. Jan. 18, 2011), read letter ruling here.

Issue Addressed

The issue decided by the Court of Chancery in this books and records action under Section 18-305 of the Delaware Limited Liability Company Act was whether a motion to dismiss the complaint should be granted in light of the multiple documents that were attached to the motion that went beyond what the Court could properly consider at the early stages of the summary proceeding. Thanks to counsel for the plaintiff, David L. Finger, a Delaware litigator, for forwarding this letter ruling to us.

Brief Overview of Decision

This short 3-page letter ruling can be most efficiently summarized in classic bullet point fashion as follows:

1) The Court emphasizes in several parts of the ruling that books and records actions in Delaware are summary proceedings that should receive prompt trial dates.

2) The author of the letter ruling in this case does not favor dispositive motions in books and records cases, in light of their nature as summary proceedings, “when a trial can take place within two months of filing” a complaint, (although, in the past, other members of the Court have granted dispositive motions in books and records cases).

3) The Court provides pointed instruction on motion practice to the extent that a motion to dismiss under Rule 12(b)(6) is contrasted with a motion for summary judgment. Specifically, the Court explained that when documents beyond those contained or referenced in the pleadings are attached to a motion to dismiss, it is converted into a motion for summary judgment.

4) The Court explained that it could not properly consider all the documents attached to the motion of the defendant through either judicial notice or otherwise. Instead, the Court denied the motion and ordered the parties to submit a proposed schedule for a prompt trial “as is contemplated in books and records actions.”