In the recent decision of Tiger v. Boast Apparel, Inc., No. 23, 2019 (Del. Aug. 7, 2019), the Delaware Supreme Court held that the inspection of documents pursuant to a demand under Section 220 of the Delaware General Corporation Law (“DGCL”) should be viewed as the exception, not the rule, and found that a level of justification of confidentiality is required in order for such a condition to be imposed by the producing party.

As stated by the Delaware High Court:

“We hold that, although the Court of Chancery may—and typically does— condition Section 220 inspections on the entry of a reasonable confidentiality order, such inspections are not subject to a presumption of confidentiality. We further hold that when the court, in the exercise of its discretion, enters a confidentiality order, the order’s temporal duration is not dependent on a showing of the absence of exigent circumstances by the stockholder. Rather, the Court of Chancery should weigh the stockholder’s legitimate interests in free communication against the corporation’s legitimate interests in confidentiality.

Slip op., at 2-3.

Key Takeaway:

Given the importance that the Delaware Supreme Court has placed on making Section 220 demands prior to asserting a shareholder derivative action, parties to Section 220 actions should take note of this decision and consider carefully the necessity of imposing a confidentiality agreement in connection with a Section 220 inspection.

[View source.]