February 1, 2019

Books & Records: Delaware Says Adhere to Formalities or Produce Your Email

Earlier this week, the Delaware Supreme Court held that a company’s disregard of corporate formalities may entitle a shareholder to access its emails and other electronic communications through a books & records demand.  This Proskauer blog says this decision provides yet another reason for companies to rely on traditional, formal methods of corporate recordkeeping:

The Court’s decision in KT4 Partners LLC v. Palantir Technologies, Inc. should cause corporations to focus on how they maintain key corporate records. The Court held that, “if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a § 220 petitioner’s needs solely by producing those books and records. But if a company instead decides to conduct formal corporate business largely through informal electronic communications, it cannot use its own choice of medium to keep shareholders in the dark about the substantive information to which § 220 entitles them.”

Thus, the more formal and traditional the corporation’s recordkeeping, the better a defense the corporation might have to a § 220 request for emails and other electronic communications, which can be quite burdensome to produce.

In this case, Chief Justice Strine’s opinion concluded that Palantir had “a history of not complying with required corporate formalities,” including failing to hold annual meetings, and that the shareholder had submitted evidence that Palantir had conducted other corporate business informally, including by means of email.

As a result, the Court concluded that traditional records were insufficient to provide information that would satisfy the shareholder’s proper purpose in making the demand, and ordered the company to provide its electronic communications.

John Jenkins