Nature of Company's Defenses Can Expand Scope of Discovery

There is no question that, in a books-and-records action, the scope of discovery is limited and such discovery is not an appropriate means of obtaining the same books and records sought in the action. In Chammas v. NavLink (Del. Ch. Aug. 27, 2015), however, the Delaware Court of Chancery rejected an argument that discovery should be limited to whether the plaintiffs had a proper purpose for the books and records demanded. Rather, the court held that it was appropriate for the company to produce discovery related to the affirmative defenses it asserted in the action.

The plaintiffs, George Chammas and Laurent Delifer, are founders and directors of defendant NavLink Inc. The plaintiffs issued a books-and-records demand pursuant to 8 Del. C. Section 220, seeking an inspection of certain information in their capacity as directors of the company. Also pending was a breach of fiduciary duty action filed by relatives of the plaintiffs against other directors of the company. In response to the plaintiffs’ discovery requests, the company filed a motion for protective order, seeking to limit discovery to the issue of whether the plaintiffs had a proper purpose for their demand. Although such information was not requested, the company also conceded that discovery would be appropriate into whether the plaintiffs were directors of the company and whether they made a proper demand under Section 220.