Under the Delaware Statutory Trust Act, a beneficial owner of a Delaware statutory trust may seek inspection of the books and records of such trust.  Those rights are codified under 12 Del. C. § 3819.  Section 3819 provides that each beneficial owner of a statutory trust has the right, subject to reasonable standards imposed by the trustees, to inspect the following documents:

  1. A copy of the governing instrument and certificate of trust and all amendments thereto, together with copies of any written powers of attorney pursuant to which the governing instrument and any certificate and any amendments thereto have been executed;
  2. A current list of the name and last known business, residence or mailing address of each beneficial owner and trustee;
  3. Information regarding the business and financial condition of the statutory trust; and
  4. Other information regarding the affairs of the statutory trust as is just and reasonable.

The recent decision by Vice Chancellor Montgomery-Reeves in the case of Grand Acquisition LLC v. Passco Indian Springs DST, C.A. 12003-VCMR (Del. Ch. Aug. 26, 2016) constitutes the first written opinion adjudicating the right to inspect the records of a Delaware statutory trust.

It is worth noting that the Court looked to case law construing rights in the context of LLCs and LLPs.  In addition, the Court confirmed that a contractual right to inspection is only subject to the conditions in the trust statute, 12 Del. C. § 3819, if the Trust agreement language so specifies.  Otherwise, “[beneficial owners” can inspect the Trust’s books and records without complying with Section 3819’s procedural and proper purpose requirements….” (Slip op. at 18).

Given that the trust agreement at issue contained a books and records inspection clause, Section 5.3(c), and the trust agreement did not state that inspection rights were otherwise subject to Section 3819, the Court analyzed the beneficial owners’ rights to inspect books and records under the terms of the trust agreement.  The Court also clarified that the trust’s “improper purpose defense” required the trust to demonstrate proof of probable harm to the trust, which the Court ruled the trust failed to do.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.