Delaware Court Limits Section 220(d) Books and Records Inspections to Current Directors

more+
less-

The Court of Chancery of the State of Delaware strictly held that a non-stockholder and alleged former director was not entitled to inspect a Delaware corporation’s books and records as a matter of right under Delaware Code Section 220(d) and common law, despite assertions that the corporation had improperly, and without the plaintiff’s knowledge and consent, previously represented that he was a corporate director. Plaintiff Robert L. King, a government official in the District of Columbia, sought to inspect Defendant DAG SPE Managing Member, Inc.’s (DAG) books and records to investigate generally whether his name had been used without authorization or he was liable for any actions taken while he was a director. DAG, a Delaware corporation, filed a motion to dismiss for failure to state a claim.

DAG, along with its affiliates, is in the business of owning and operating retail gas stations, convenience stores and car washes, including in areas of the District of Columbia under King’s jurisdiction as a government official. King allegedly did not discover until March 2003 that he was named as an original director of DAG in 2000, and claims he was not informed until 2011 that he had been removed from DAG’s board in December 2003 by the stockholders’ unanimous written consent. King did not refute having given his written consent to a board action in March 2003, but denied having any knowledge that he was named a director prior to that date. Approximately one year after learning in April 2011 that he had been removed from the board, King sought, under Section 220(d) and the common law, to assert a director’s right to inspect DAG’s books and records. DAG argued that King lacked standing to inspect their books because he was not a current director.  

In analyzing Section 220(d) relating to a director’s inspection rights, the court determined that King was not a “director” under the Delaware Code, because the meaning of the statute was plain and unambiguous in that only current directors have Section 220(d) inspection rights. While acknowledging that other jurisdictions have conferred limited books and records inspection rights on former directors, the court found no indication that Delaware adopted a similar broad reading of Section 220(d). The court was not swayed from this strict application of the statute by the plaintiff’s assertions that equity required access to the books and records. The court similarly dismissed King’s alternative claims under the common law, finding that former directors were able to exercise inspection rights under the common law only when pursuing or defending actual substantive claims and access was granted through the discovery process. Consequentially, the court dismissed the action.   

King v. DAG SPE Managing Member, Inc., C.A. No. 7770-VCP (Del. Ch. December 23, 2013).

Topics:  Board of Directors, Books & Records, Directors, Request For Information, Section 220 Request

Published In: Business Organization Updates, Civil Procedure Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »