Blunting the “Tools at Hand”: Recent Developments in Delaware Books-and-Records Demand Law

In recent years, and despite their heeding the guidance of Delaware courts, stockholders’ use of the statutory books-and-records investigation mechanism under Delaware Code Title 8, Section 220 (“Section 220”) has been much maligned, with commentators blaming Section 220 actions for straining judicial resources and causing companies unnecessary costs and burdens. Moreover, Delaware’s legislature and courts have taken steps to curb stockholders’ inspection rights, blunting a crucial tool needed to develop allegations in meritorious cases so that stockholders can bring cases that survive motions to dismiss and continue into plenary discovery. Instead of blindly accepting a narrative regarding a Section 220 crisis, this Article looks at the court’s docket and concludes that the vast majority of Section 220 petitions do not require judges to render decisions on the merits. Instead, most of these actions are voluntarily dismissed, meaning that they result in little to no substantive burden on the judiciary. This Article also analyzes the supposed legislative and judicial “fixes” to Section 220. With respect to the recent, hurried amendments to Section 220, this Article observes that the new statute contains many ambiguities that likely will result in increased Section 220 litigation and its attendant burdens on the court and parties. Likewise, with respect to recent Section 220 case law, this Article predicts that the Delaware Supreme Court’s adoption of a novel aspect of the relevant standard will result in more litigation. In other words, the so-called solutions to an unsubstantiated problem likely—and perversely—will lead to an exacerbation of that very problem in the form of increased strains on the court and costs and burdens for Delaware companies.