United Technologies Corp. v. Treppel
(Del. Dec. 23, 2014)

A frequent precursor to public company deal litigation is the books and records request under Section 220 of the Delaware General Corporation Law. Typically employed by plaintiffs as the first step of “information gathering” for derivative litigation, a company’s right to limit the potential use of requested information for claims solely in Delaware has been recently reviewed by the Delaware courts.

Faced with a books and records request relating to the rejection of a litigation demand, United Technology Corporation (“UTC”) offered to provide the plaintiffs the requested information, pursuant to a binding confidentiality agreement that allowed the plaintiffs to use the information solely in connection with cases filed in Delaware. Unsurprisingly, the demanding stockholder refused to agree to such a limitation. Note that, at the time, UTC had not adopted a forum selection bylaw provision. In United Technologies Corp. v. Treppel, the Supreme Court reversed the Court of Chancery’s ruling that the court lacked statutory power under Section 220 to impose a restriction on use of the information for claims brought in Delaware. The Delaware Supreme Court held that the state courts had “wide discretion to shape the breadth and use of inspections under §220 to protect the legitimate interests of Delaware corporations” and the power to impose the use restriction requested by UTC. The Supreme Court also noted that a company’s interest in consistent rulings in the home state of incorporation, further fueled by the goal of reducing expenses from duplicative lawsuits, were indeed legitimate interests to be reviewed and protected by the courts and could be taken into account by the Court of Chancery in reviewing proposed restrictions in Section 220 disputes. The Supreme Court did not rule on the merits of UTC’s request in remanding the case to the Court of Chancery for further review.

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Posted by Cooley