Delaware law gives shareholders the right to request corporate books and records in order to investigate issues that are of interest to them. For several decades now, Delaware courts have encouraged shareholders to take advantage of this right as a matter of first course, to use the “tools at hand” and seek company records before filing litigation or making a litigation demand. In recent years, more shareholders (and their attorneys) have been following that advice, and the so-called “Section 220 books and records demand” is more common than ever.
Delaware courts have acknowledged, however, that the shareholder’s right to obtain corporate records must be balanced against the board’s right to manage the company’s business without undue interference. Accordingly, where a shareholder requests mundane company materials like stock ledgers or shareholder lists, the company generally must produce. But where the shareholder seeks more sensitive company records, the law puts the burden on the shareholder to show why the production is necessary. READ MORE
In a recent decision, the Delaware Supreme Court reversed the Court of Chancery in Pyott, et al. v. Louisiana Mun. Police Emp. Ret. Sys., et al., holding that a derivative suit against Botox-maker Allergan, Inc. should be dismissed because Allergan had already secured a judgment in its favor in a nearly identical suit in California. The decision will make it more difficult for plaintiffs’ lawyers to pursue duplicative derivative litigation in multiple jurisdictions.
Shortly after Allergan entered into a $600 million settlement with the U.S. Department of Justice over alleged off-labeling marketing of Botox, separate groups of shareholders brought suit in Delaware and California. Before motions to dismiss in the Delaware derivative litigation were heard, a California Federal Court dismissed the California derivative suit, finding that plaintiffs could not support the inference that the Allergan directors conspired to violate the law, which prevented plaintiffs from showing that making a demand on the Board to investigate the matter would be futile. The Delaware Court of Chancery held that the California Judgment did not bar the Delaware action and denied Allergan’s motion to dismiss. The Court of Chancery’s decision that it was not required to give preclusive effect to the California judgment was based on two principles: first, under Delaware law, the shareholder plaintiffs in two jurisdictions were not in privity with each other, and second, the California shareholders were not adequate representatives of the corporation. READ MORE