SS M&A Litigation Outlook - Flipbook - Page 16
Riker v. Teucrium Trading, LLC,
C.A. No. 2019-0314-AGB (Del. Ch. May 12, 2020)
Paraflon lnvestments, Ltd. v. Linkable Networks, lnc.,
C.A. No. 2017-0611-JRS (Del. Ch. April 3, 2020)
Section 220 cases continue in
record numbers
This quarter, the Delaware Court of Chancery
continued to issue several opinions in connection
with Section 220 books and records demands. In
the first six months of 2020, there were 19 published
opinions concerning Section 220 demands, which
put 2020 on track to exceed the average of 34
opinions per year between 2015 and 2019. In two
of the latest opinions, the Court of Chancery has
continued to shape the contours of Section 220.
In a continuing trend, the Court of Chancery in
Paraflon Investments, Ltd. v. Linkable Networks,
Inc. ordered the production of emails and electronic
documents. In Paraflon, the plaintiff made a
Section 220 demand after Linkable was sold for
“pennies on the dollar,” alleging several theories
of mismanagement and wrongdoing. The Court of
Chancery agreed partially with the plaintiff, ordering
the production of records related to Linkable’s
decision to abandon certain financing. The Court
of Chancery specifically noted that responsive
information on that topic could include emails
and electronic documents. In addition, the court
denied the plaintiff certain contracts because those
contracts were not specifically included in the
demand, demonstrating the Court of Chancery’s
insistence that a plaintiff follow all form and manner
requirements set forth in Section 220.
Riker v. Teucrium Trading, LLC, addressed Section
220’s sister statute for LLCs, Section 18-305 of the
Delaware LLC Act, which is interpreted consistent
with Section 220 case law absent a contractual
modification. As the Court of Chancery noted,
although most books and records matters are
resolved on an expedited schedule, such litigation
can drag on. In Riker, the parties engaged in a
pre-trial mediation, followed by trial and post-trial
briefing. As a result, the decision was issued over
a year after the plaintiff first filed his complaint.
Ultimately, the court granted the request in part.
The court found the plaintiff’s desire to value his
interest to be a proper purpose and ordered the
production of certain documents. The court rejected
the plaintiff’s other stated purpose – to investigate
wrongdoing – because the trial testimony and
post-trial briefing demonstrated that there was no
credible basis to infer mismanagement.
These cases, both individually, and as part of
the continued flow of Section 220 decisions,
demonstrate the growing importance of Section
220 as a pre-litigation battleground.
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