The interplay between corporate books and records inspections and stockholder derivative claims is an essential strategic consideration in derivative suits. Delaware courts have long urged stockholder plaintiffs to invoke their qualified statutory right to inspect the books and records of the corporation and otherwise conduct an adequate pre-suit investigation before filing a derivative action. This sequence discourages an inefficient “fire, ready, aim” approach to stockholder derivative litigation and prevents stockholders with pending derivative claims from using a simultaneously filed books and records action as a substitute for discovery in pending plenary actions. Delaware law, however, imposes no bright-line bar against inspection relief merely because the plaintiff has filed a derivative action before seeking inspection relief.
Recent Delaware Court of Chancery decisions have limited the potential for abuse arising from a rule which does not categorically bar a stockholder books and records inspection to bolster a derivative complaint that has already been filed. These decisions limit a stockholder’s ability to pursue books and records relief post-commencement of derivative litigation to circumstances where the earlier-filed derivative complaint has been dismissed on demand futility grounds with express leave to amend. Separately, the Delaware Supreme Court last month revitalized the “form and manner” of demand requirements prescribed in the inspection statute, emphasizing that they are not mere formalities, but threshold requirements which must be satisfied in order for the company to have any obligation to respond to a demand.
Books and Records Inspections
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