In the case of Oklahoma Firefighters Pension & Retirement System v. Citigroup, C.A. No. 9587-ML (Del. Ch. Sept. 30, 2014), Master LeGrow issued a Final Report granting inspection of the books and records of Citigroup’s wholly owned subsidiaries. This report is subject to a review by the Court of Chancery.
The Master’s Final Report applied the recent Delaware Supreme Court’s standard to determine whether books and records are “necessary and essential”. Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, Del. Supr., No. 614, 2013 (July 23, 2014), which is discussed here.
The Delaware Supreme Court in Wal-Mart stated that:
Documents are “necessary and essential” pursuant to a Section 220 demand if they address the “crux of the shareholder’ purpose” and if that information “is unavailable from another source.” Whether documents are necessary and essential “is fact specific and will necessarily depend on the context in which the shareholder’s inspection demand arises.
This case is also significant in that it confirms that a shareholder can obtain inspection of the books and records of a corporate board whose foreign subsidiary is accused of wrongdoing under certain circumstances. Here, the Master found that inspection was warranted because, among other reasons, of the significance of the wrongdoing, the fact that the subsidiary accounted for 10% of Citigroup’s corporate profits, and the fact that many high level executives were terminated as a result of the purported misconduct. Slip op. at 14.
Accordingly, merely because a corporation and its subsidiary are separate entities does not absolutely preclude the availability of inspection rights of a parent corporation’s subsidiary in connection with a Section 220 books and records action.