Shareholder records and book inspection qualified right under §220

In United Techs. Corp v. Treppel (2013 Del. LEXIS 608) the Court of Chancery denied defendant United’s request to restrict the use of information obtained through a shareholder records and books inspection under Delaware General Corporation Law §220(c). In 2012, shareholder Lawrence Treppel sent a demand letter to United's board to investigate and commence proceedings against certain officers and directors for their involvement in exporting military helicopter software to the Chinese government.  For those actions United entered into a Deferred Prosecution Agreement with the Justice Department and paid significant fines.  Treppel was not the only shareholder to file suit, but the first shareholder derivative action was dismissed for failing to make a demand on the board.  The board rejected Treppel’s demand and insisted that he sign a confidentiality agreement before an inspection; Treppel refused based on the Delaware court forum selection clause within the confidentiality agreement.  Treppel then filed a DGCL §220 action in the Court of Chancery and while it was pending, the United board adopted a forum selection clause to its bylaws.  The Court denied United’s inspection restriction and United appealed.

The Supreme Court of Delaware reversed.  Section 220(c) states: “The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other or further relied [deemed] just and proper.”  The Court explained the broad discretion was based on shareholder inspection rights being qualified.  Because the Court of Chancery denied the request without analyzing any considerations for its discretion, the Supreme Court remanded.  On remand the Court of Chancery was to consider the duplicative nature of Treppel’s litigation, United interest in a Delaware forum, United’s adoption of the forum-selection clause, and the investment United already made in the present and prior litigation.

The Court reversed and remanded the case.