December 19, 2023

Books & Records: What the Past Year Has Taught Us

This Dechert memo looks back at Delaware opinions on books and records demands in the last year and makes recommendations for drafting minutes and gathering responsive documents. It highlights two recent decisions that show the need to be judicious with any redactions when producing materials.

First, [a decision] criticized a series of relevance redactions that seemed to defy logic, including mid-sentence redactions in apparently responsive paragraphs, redaction of a paragraph in the middle of minutes for a special meeting to address the exact subject of the Section 220 demand, and multiple redactions to a one-page memorandum that also addressed the subject at issue. The Vice Chancellor explained, for example, that “there is no reason to think that the author of the minutes incoherently injected an unrelated topic into an otherwise responsive sentence.” […]

Several months later, the same issue of over-redaction contributed to the Court of Chancery’s denial of a motion to dismiss. Because all substantive discussions of the disputed topic were redacted from board minutes, the Court allowed plaintiffs’ claim to proceed on the inference that the company’s board did not discuss or act on the issue.

Given these recent decisions and others related to the stated purpose and the scope of the request, it makes these suggestions:

– minutes should be drafted to organize like-with-like, include clear headings showing the different topics discussed, and reflect both privileged and business discussions, if any, on the pertinent topics,
– minutes should provide sufficient detail on each item discussed to show that the directors engaged in a discussion on the issue and decided on some further action,
– ideally, the directors will be informed by management, ask questions, deliberate, and exercise their business judgment, and the minutes will reflect that,
– materials considered by the board, such as presentations and reports, can be attached to meeting agendas or minutes, to provide a complete record of each meeting, and
– if redactions are needed, litigation counsel should be judicious in considering what information is redacted in response to a Section 220 demand, and consider carefully whether the reasons for a redaction (particularly based on a lack of relevance) are sufficiently clear from the face of the document so as to avoid any inference that directors did not engage on the topic at issue.

While we’re on the topic, this Sullivan & Cromwell memo discusses a November opinion on Section 220 demands. In Greenlight Capital Offshore Partners, Ltd. v. Brighthouse Financial, Inc. (Del. Ch.; 11/23), the Chancery Court granted a request by a stockholder of a publicly traded company to inspect the books and records of a private subsidiary. The court “held that the private subsidiary’s books and records were within the scope of what could be sought under Section 220, but ordered the company to produce only a limited subset of the requested information, including board minutes and formal communications with the company’s primary regulator.”

Meredith Ervine