In the recent decision of Wilkinson v. Schulman, C.A. No. 2017-0138-VCL (Del. Ch. Nov. 13, 2017), the Court of Chancery denied a Section 220 books and records demand on the basis that even though the demand stated a “proper purpose”, the purpose was merely crafted by counsel for the stockholder in a lawyer manufactured litigation.

The Court found that Wilkinson’s service as a nominal plaintiff for his law firm, Levi & Korsinksy LLP (“L&K”), in this action is consistent with his past relationship with the firm. Wilkinson has served as a plaintiff for L&K in at least seven lawsuits, most of which challenged mergers.

In denying the demand, Vice Chancellor Laster found that “In this case, the trial record established that the purposes for the inspection belonged to Wilkinson’s counsel, L&K, and not to Wilkinson himself. Wilkinson simply lent his name to a lawyer-driven effort by entrepreneurial plaintiffs’ counsel.”

Further to this point, “The mere statement of a proper purpose, however, will not automatically satisfy § 220(b).”  Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 817 (Del. Ch. 2007).

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.