A director of a Delaware corporation is afforded broad rights under 8 Del. C. § 220(d) to inspect a corporation’s books and records.  In the recent decision of Schnatter v. Papa John’s Int’l, Inc., C.A. No. 2018-0542-AGB (Del. Ch. Jan. 15, 2019), the Delaware Court of Chancery examined a books and records demand by John Schnatter, who is the largest stockholder and founder of Papa John’s pizza company.  Schnatter sought to inspect certain categories of documents and communications related to his ultimate ouster as the CEO of the corporation.

The opinion is significant in that Chancellor Bouchard ordered the production of communications pertaining to this dispute from directors’ personal email accounts and on their electronic devices, along with text messages.  In other words, e-discovery is fair game in books and records actions under the appropriate circumstances. In addition, the Court held that Schnatter’s commencement of an action for breach of fiduciary duty in his capacity as a stockholder did not serve as a basis to reject his inspection demand in his capacity as a director of the corporation.

Further, Chancellor Bouchard noted that a director should not be required to sign a confidentiality agreement as a condition to obtaining records.  That is so because directors of Delaware corporations owe fiduciary duties to maintain the confidentiality of corporate documentation.  “Delaware law has long suggested that directors need not sign confidentiality agreements to obtain documents under Section 220.”  Slip op. at 44.

By contrast, “there is a ‘presumption that the production of nonpublic corporate books and records to a stockholder making a demand pursuant to Section 220 should be conditioned upon a reasonable confidentiality order.’”  Slip op. at 44-45 (quoting Disney v. Walt Disney Co., 857 A.2d 444, 447 (Del. Ch. 2004) (emphasis added)). See also Jefferson v. Dominion Holdings, Inc., in which the Court provided guidance on confidentiality agreements entered in Section 220 actions.  C.A. No. 8663-VCN (Del. Ch. Sept. 24, 2014).  A prior post summarizing the Jefferson decision can be found here.

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.