The 2014 decision of Jefferson v. Dominion Holdings, Inc., C.A. No. 8663-VCN (Del. Ch. Sept. 24, 2014) provides an excellent example of the scope of production allowable in a Section 220 books and records demand upon a close corporation.
The Court found that Plaintiff demonstrated that valuing his shares is a primary and proper purpose for his demand, and determining executive compensation.
Accordingly, the Court awarded the following categories of documents:
- Tax returns and financial reports. However, the Court denied the request for “supporting documents relating thereto”, as the tax returns and financial reports sufficed.
- Audited consolidated annual financial statements. However the Court denied Plaintiff’s request for unaudited statements.
In addition, the Court held as follows:
- If documents are stored in electronic format, they should be produced in such format. If they are stored in paper format, and not readily available electronically, then paper production is acceptable.
- Payment by the stockholder of the reasonable costs of copying company paper records is part of the Section 220 process.
Of note, the Court denied Plaintiff’s demand that subsidiary-by-subsidiary financial reports be provided, given that the corporation handles its reports on a consolidated basis. As stated by the Court:
It is not an objective of a Section 220 proceeding to require the corporation to compile various financial data in a particular format when it has not done so and when the stockholder has offered no reason why the corporation’s standard practices should not be respected.