Directors' and Officers' Liability

A stockholder of a Delaware corporation has a statutory right to inspect the books and records of the corporation under Section 220 of the Delaware General Corporation Law. The statute prescribes form and manner requirements for a request, chief among them that the stockholder has a “proper purpose” for the inspection. It is not uncommon for stockholders, whether acting together or not, simultaneously to pursue a federal securities class action and a state court books-and-records initiative, ostensibly to investigate a possible derivative suit relating to the same core facts as the federal suit. It is now generally accepted that in enacting the Private Securities Litigation Reform Act (“PSLRA”) and the Securities Litigation Uniform Standards Act (“SLUSA”) Congress did not intend categorically to preempt lawsuits by stockholders under Section 220 seeking to compel an inspection of books and records related to the conduct at issue in a parallel federal class action. The intersection of a books-and-records action with a related putative federal securities class action raises important jurisdictional and strategic issues for the corporation and its management. Recent decisions from the Delaware Court of Chancery and elsewhere provide importance guidance on the interplay between the PSLRA and SLUSA, and a stockholder’s demand rights under Section 220.

Books and Records Inspections

Any stockholder of a Delaware corporation who satisfies specified procedural requirements and demonstrates a specific proper purpose may use the summary procedure embodied in 8 Del. C. § 220 to inspect and copy the corporate stock ledger, stockholder list and other corporate books and records of corporations in which they have an ownership interest. The inspection process begins with service on the corporation at its registered Delaware office or principal place of business of a written demand that states under oath the purpose of the requested inspection. If the corporation declines to permit the requested inspection or does not respond to it within five business days of the demand, the stockholders may seek to compel inspection by way of a summary proceeding in the Delaware Court of Chancery.