Delaware Court Of Chancery Rejects Demand To Inspect Books And Records Under Section 220 To Aid In Proxy Contest
On November 14, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery rejected a demand by stockholders of Occidental Petroleum Corporation under Section 220, 8 Del. C. § 220, for documents and information relating to the corporation’s acquisition of Anadarko Petroleum and related transactions. High River Ltd. P’ship, Icahn Partners Master Fund LP, and Icahn Partners LP v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS (Del. Ch. Nov. 14, 2019). According to the Court, plaintiffs considered the transactions “bad deals” and acknowledged that their primary purpose in seeking the documents was to aid them in their proxy contest to replace certain directors. In a post-trial decision in favor of the corporation, the Court explained that “an imminent proxy contest is not enough to earn access” to broad sets of documents relating to “substantive business decisions.”
Under Section 220, a stockholder can compel a company to turn over records for a “proper purpose,” such as investigating corporate wrongdoing or mismanagement where the stockholder demonstrates there is a “credible basis to suspect” that such misconduct has occurred. As the Court explained, although plaintiffs argued in “cursory” fashion that they met this standard, the Court found this contention “unsupported” because they did not even allege that the board was “conflicted, disloyal or in some way interested” in the transactions at issue.
Plaintiffs, in any event, urged the Court to “recognize a new, or at least expanded, rule” under Section 220 to permit inspection of documents relating to board-level business decisions that are “questionable, but not actionable” for the purpose of communicating with other stockholders in a proxy context. The Court rejected the request, explaining that it would “invite mischief to open corporate management to indiscriminate fishing expeditions.”
Nevertheless, the Court noted that “[i]t may well be that, in the right case, this court might endorse a rule” that would permit inspection of corporate documents in aid of a proxy context. The Court, however, did not make it clear what would constitute the “right case.”