Delaware Supreme Court Clarifies That Section 220 Books And Records Demands Are Not Subject To A Presumption Of Confidentiality
On August 7, 2019, in a decision authored by Justice Gary F. Traynor, the Delaware Supreme Court concluded that books and records produced to a stockholder under Section 220 of the Delaware General Corporation Law are not subject to a presumption of confidentiality. Tiger v. Boast Apparel, Inc., C.A. No. 23, 2019 (Del. Aug. 7, 2019). In this case, the Delaware Court of Chancery referenced such a presumption when it issued an order requiring the stockholder to keep such records confidential indefinitely. The Delaware Supreme Court affirmed the indefinite confidentiality order as “within the range of reasonableness … given the facts and circumstances of this case.” But the Court expressly clarified that there is no such presumption of confidentiality and the Court of Chancery must instead “assess and compare benefits and harms when determining the initial degree and duration of confidentiality” in connection with a Section 220 demand.
More specifically, the Court explained that the assessment should “weigh the stockholder’s legitimate interests in free communication against the corporation’s legitimate interests in confidentiality” to determine the “initial degree and duration of confidentiality.” In this case, the Court found that the confidentiality order was not an abuse of discretion because the order itself contained certain exceptions and the stockholder had not demonstrated that it reasonably imposed any burden.
In this regard, the Court highlighted that the Court of Chancery “certainly has the power to impose reasonable confidentiality restrictions” on Section 220 inspections and that “targets of Section 220 demands will often be able to demonstrate that some degree of confidentiality is warranted where they are asked to produce nonpublic information.” Nevertheless, the Court added that “an indefinite period of confidentiality protection should be the exception and not the rule.”