Unlike a Section 220 request for books and records under the Delaware General Corporation Law (“DGCL”), the books and records provision of the Delaware LLC Act (Section 18-305) can be trumped by an LLC’s operating agreement.  See Mickman v. AIP, LLC, C.A. No. 3869-VCP (Del. Ch. July 28, 2009).  In that case, the Court held that “the basic approach of the [LLC] Act is to provide members with broad discretion in drafting the agreement and to furnish default provisions when the members’ agreement is silent.”  Therefore, the Court in Mickman first looked to the LLC’s operating agreement to determine whether plaintiff had a right to the requested documents.

Against that backdrop, the Court will first analyze what rights exist under an LLC’s operating agreement to determine whether and to what extent a member or manager of an LLC is entitled to inspect the requested documents.  This is true because “LLC agreements can grant members inspection rights that exceed the rights provided for in [Section 18-305].”  See id.

Absent contrary provisions in an LLC’s operating agreement, the demand to inspect the books and records of a Delaware limited liability company (“LLC”) must be “narrowly tailored” to a proper purpose asserted.  The scope of the inspection will be limited to those documents which are “necessary and essential” to satisfy the stated purpose.

It is the member or manager’s burden to prove that each category of documents sought is “narrowly tailored” to accomplish the purpose asserted.  Members or managers of an LLC must make their demands with “rifled precision”.  Saito v. McKesson HBOC, Inc., 806 A.2d 113, 117 n. 10 (Del. 2002) (in an analogous Section 220 books and records action of a corporation, Court held that plaintiffs may seek relevant books and records “if they can ultimately bear the burden of showing a proper purpose and make specific and discrete identification, with rifled precision, of the documents sought.”).

Key Takeaway

In making a demand to inspect the books and records of a Delaware LLC, a member or manager should first review the LLC’s operating agreement to determine what rights, if any, exist to review the company’s documents.  In the absence of, or in conjunction with, express rights provided in the operating agreement, the member or manager should then consult Section 18-305 of the Delaware LLC Act, along with relevant Delaware case law, to ensure that the demand being made comports with the necessary requirements, including that it state a “proper purpose”, and that the categories of documents requested are “narrowly tailored” to a proper purpose stated.

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.