IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JOHN SCHNATTER, 

Plaintiff,

v.

PAPA JOHN’S INTERNATIONAL, INC.,

Defendant.

)

)

)

)

)

)

)

)

)

C.A. No. 2018-0542-AGB

MEMORANDUM OPINION

Date Submitted: November 30, 2018

Date Decided: January 15, 2019

Peter B. Ladig, Brett M. McCartney, and Elizabeth A. Powers, BAYARD, P.A., 

Wilmington, Delaware; Garland A. Kelley, GLASER WEIL LLP, Los Angeles, 

California, Attorneys for Plaintiff.

Blake Rohrbacher, Robert L. Burns, Brian F. Morris, and Kevin M. Regan, 

RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for 

Defendant.

BOUCHARD, C.
1

In November 2017, John Schnatter, the founder of Papa John’s International, 

Inc., criticized the National Football League’s handling of the dispute between NFL 

players and owners over national anthem protests during a call held to report the 

company’s earnings. Some in the media portrayed Schnatter’s comments about the 

NFL as racial in nature. In July 2018, Forbes reported that Schnatter used a racial 

slur during an internal diversity training exercise at the company in May 2018. 

On the same day the Forbes article was published, the company’s board asked 

Schnatter to resign as its Chairman, which he did. Over the next few days, the board 

also asked Schnatter to resign as a director of the company, which he declined to do. 

The board then established a special committee to investigate all of the company’s 

relationships with Schnatter. Within three hours of its formation, the special 

committee decided to terminate two agreements the company had with Schnatter.

In the wake of these events, Schnatter made a demand under 8 Del. C. § 220 

in his capacity as a director of the company to inspect seventeen categories of 

documents. Perplexed about why the company made no effort to defend him as the 

founder and longstanding public face of the company from what he believes was 

unfair treatment by the media, and why the company instead seemed intent on 

abruptly cutting ties with him without investigating the matter, Schnatter questions 

whether his fellow directors fulfilled their fiduciary obligations. 
2

The parties have resolved their disputes concerning thirteen of the seventeen 

categories of documents sought in Schnatter’s demand. In this post-trial decision, 

the court concludes that the company failed to prove that Schnatter’s purpose for 

seeking to inspect the remaining four categories of documents is improper and that 

he therefore is entitled to inspect these documents subject to certain limitations. 

I. BACKGROUND

The facts recited in this opinion are the court’s findings based on the testimony 

and documentary evidence presented at a one-day trial held on October 1, 2018. The 

record includes stipulations of fact made in the Pre-trial Stipulation and Order 

(“PTO”), over 100 trial exhibits, and testimony from one fact witness: John 

Schnatter. Although the company bore the burden of proof to show that Schnatter’s 

purpose was improper, it did not call any other witnesses to testify at trial.

A. The Parties

Schnatter is the founder of Papa John’s International, Inc. (“Papa John’s” or 

the “Company”).1 Since around 1993, Schnatter has served as a member of the 

Company’s board of directors (the “Board”).2 Until recently, Schnatter served as 

the Company’s Chairman of the Board, Chief Executive Officer, and spokesman.

3

 

 

1 PTO ¶ 12 (Dkt. 47).

2 PTO ¶ 13.

3 PTO ¶¶ 21, 26; JX 2.
3

He is the Company’s largest stockholder, owning approximately 30% of the 

outstanding shares.

Papa John’s is a Delaware corporation and currently the third-largest pizza 

delivery and take-out company in the world.4 Its Board currently consists of six 

members, including Schnatter. The other five directors are Mark S. Shapiro, Sonya 

Medina, Olivia Kirtley, Christopher Coleman, and Laurette Koellner.5 Since 

January 1, 2018, Steve Ritchie has served as the Company’s President and CEO.6

B. Schnatter Comments on the NFL and Resigns as CEO

On October 31, 2017, the Company announced that it had hired Laundry 

Service, a marketing agency, as its new creative agency of record to handle the 

creative aspects of the Company’s marketing and some of its purchases of 

advertising time.7 Ritchie, the Company’s Chief Operating Officer at the time, was 

responsible for hiring Laundry Service.8

On November 1, 2017, Schnatter participated in a call to report on the 

Company’s earnings (the “Earnings Call”). At the time, the Company was the 

 

4 PTO ¶ 14.

5 PTO ¶ 15.

6 PTO ¶ 17.

7

JX 4 at 1; Tr. 22.

8 Tr. 10, 20.
4

official pizza sponsor of the National Football League.

9

 On the Earnings Call, 

Schnatter made the following comments:

Now to the NFL. The NFL has hurt us. And more importantly, by not 

resolving the current debacle to the player and owners’ satisfaction, 

NFL leadership has hurt Papa John’s shareholders. Let me explain. 

The NFL has been a long and valued partner over the years, but we are 

certainly disappointed that [the] NFL and its leadership did not resolve 

the ongoing situation to the satisfaction of all parties long ago. This 

should have been nipped in the bud 1.5 years ago. Like many sponsors, 

we are in contact with [the] NFL. And once the issues [are] resolved 

between the players and the owners, we are optimistic that [the] NFL’s 

best years are ahead, but good or bad, leadership starts at the top. And 

this is an example of poor leadership.10

These comments were part of a script for the call that was reviewed by Lance 

Tucker, the Company’s then-Chief Financial Officer, and Steve Ritchie.11 Ritchie

asked Schnatter not to make comments regarding the NFL during the call but, 

according to Schnatter, Ritchie lacked the authority to prevent him from doing so.

12

 

Later in the call, Ritchie told an analyst that “the NFL situation” was applying 

“pressure” to the Company’s sales.13 He also told another analyst that Schnatter’s 

 

9 PTO ¶ 20. 

10 Tr. 8-9; JX 6 at 5.

11 Tr. 10.

12 Tr. 10-11, 47, 171-72.

13 JX 6 at 8.
5

contention about the NFL “controversy” hurting the Company’s business was a 

“great point.”14

Schnatter’s comments during the Earnings Call were the subject of significant 

public criticism. Forbes reported that Papa John’s “received significant flak after 

Schnatter declared on an earnings call that national anthem protests in the National 

Football League were partially to blame for slow sales at the company.”15 Yahoo! 

Finance wrote that Schnatter’s comments on the Earnings Call were seen as “a 

desperate effort to find someone else to blame” and “sparked a backlash.”

16

Schnatter testified that the media took his comments “so far out of context so 

quickly” that the reaction appeared “premeditated.”17 Schnatter spoke to Company 

personnel, including Ritchie, about clarifying what he had said during the Earnings 

Call. According to Schnatter, Ritchie advised him to “lay low” and not “do 

anything,” and the Company made minimal effort to change the public’s perception 

of what he had said, instead blaming its declining sales on Schnatter’s comments for 

the next two months.

18

 

14 JX 6 at 19; Tr. 172-73.

15 JX 8 at 2.

16 JX 11 at 3.

17 Tr. 16.

18 Tr. 18-20.
6

On December 31, 2017, Schnatter resigned as CEO of the Company.19 On 

February 27, 2018, the NFL terminated its sponsorship with Papa John’s. The next 

day, the NFL announced that Pizza Hut would be its new pizza sponsor. Papa John’s 

stock price declined significantly when this news was announced.20

C. Schnatter Resigns as Chairman After the Training Exercise

On May 14, 2018, Schnatter attended a meeting with Laundry Service in New 

York to discuss the creative plan it was proposing for the Company.21 One of the 

proposals Laundry Service “was adamant” about was to put Kanye West in ads for 

Papa John’s with Schnatter.22 A few days later, Schnatter told Laundry Service he 

was not comfortable with this proposal after he did some research and learned that 

Kanye West used the N-word in his lyrics.

23

On May 22, 2018, Schnatter, Ritchie, and two others participated from the 

Company’s corporate offices in a telephonic media training exercise about diversity 

that was held with executives from Laundry Service (the “Training Exercise”).

24

 

Schnatter was not informed before the call that he would be asked questions about 

 

19 PTO ¶ 21.

20 JX 10 at 1.

21 Tr. 23-24.

22 Tr. 24-25.

23 Tr. 25-26; see also JX 23 at 1.

24 Tr. 165-66; PTO ¶ 23.
7

race.25 The Training Exercise began with a handout of questions that were not 

provided to Schnatter in advance, the first of which was: “Are you a racist?”26 After 

about forty minutes of questioning, including questions Schnatter viewed as 

insinuating that his comments about the NFL were racial in nature, Schnatter used 

the N-word during the Training Exercise. As he recounted at trial: “Well, I said, 

‘Colonel Sanders uses the N-word. I don’t use the N-word, and we’re not going to 

use the N-word.’”

27

 The next day, Papa John’s and Laundry Service mutually agreed 

to terminate their relationship.

28

 

On July 11, 2018, Forbes published an article about the Training Exercise, 

entitled “Papa John’s Founder Used N-Word on Conference Call” (the “Forbes 

Article”).29 The Forbes Article reported that Schnatter was engaged in a role-playing 

exercise in which he “was asked how he would distance himself from racist groups 

online” following his comments about the NFL.

30

 According to the Forbes Article, 

Schnatter tried to downplay the significance of his NFL comments by saying (using 

the entire racial slur) that “Colonel Sanders called blacks n-----s” yet “never faced 

 

25 Tr. 27.

26 Tr. 27-28.

27 Tr. 28-29.

28 PTO ¶ 24. 

29 PTO ¶ 25; JX 12.

30 JX 12 at 1-2.
8

public backlash.”

31

 The Forbes Article also reported that Schnatter wrote in an 

emailed statement on the afternoon of July 11 that “reports attributing the use of 

inappropriate and hurtful language to me during a media training session regarding 

race are true. Regardless of the context, I apologize. Simply stated, racism has no 

place in our society.”32 

Later on July 11, after the Forbes Article came out, Schnatter resigned as 

Chairman of the Board at the request of the Board.

33 Within a few days after the 

Forbes Article was published, some professional sports teams and organizations cut 

ties with Papa John’s.34 

On July 13, 2018, during a radio interview, Schnatter reportedly asserted that 

“he was pressured to use the N-word during the” Training Exercise: “The agency 

was promoting that vocabulary . . . . They pushed me. And it upset me.”35 The next 

day, on July 14, Schnatter sent a letter to the Board disputing the Company’s 

portrayal of his comments from the Training Exercise.36 According to Schnatter, the 

 

31 JX 12 at 2 (internal quotation marks omitted); Tr. 29.

32 JX 12 at 2.

33 PTO ¶ 26; Tr. 37.

34 See JX 15, 18, 21.

35 JX 17 at 2.

36 PTO ¶ 29.
9

Company did nothing “to set forth the truth so that the press could correctly report 

what occurred[.]”

37

On July 15, 2018, Kirtley, the Company’s lead director, requested that 

Schnatter also resign as a director but he declined to do so.38 Kirtley told Schnatter 

that he was not “designated or authorized to speak or make appearances on behalf 

of the Company.”39 

At around this time, Schnatter sent a letter to the other Board members in 

which he asserted that the Forbes Article “mischaracterized” what happened during 

the Training Exercise, that his use of the N-word was “in no way racist,” and that 

the Company “completely mishandled the NFL situation.”

40 He further asserted that 

Laundry Service had engaged in an “extortion attempt” to extract $1.2 million from 

the Company when its contract was terminated, that it was a “mistake” for him to 

resign as Chairman, and that “corporate governance experts” believed the Board had 

acted improperly in asking him to step down as Chairman and as a director “without 

any investigation.”

41

 

37 Tr. 37.

38 PTO ¶ 27; JX 36; Tr. 38.

39 PTO ¶ 28.

40 JX 23 at 1.

41 JX 23 at 1-2.
10

D. The Board Forms a Special Committee

On July 15, 2018, before a Board meeting scheduled for later that day,

Schnatter learned that the Board might form a special committee when he received 

an updated agenda for the meeting.42 Schnatter’s counsel (Glaser Weil LLP) wrote 

to the Board before the meeting, asserting that the Board “has no authority to remove 

Mr. Schnatter as a director” under Delaware law, that the Board had failed to act in 

the best interests of the Company by allowing Schnatter’s comments to be 

misconstrued, and that its failure to conduct a full investigation could result in the 

Board breaching its fiduciary duties.43

The Board meeting on July 15 (the “July 15 Meeting”) began at around 8:15 

p.m.44 About fifteen minutes later, the Board approved a set of resolutions 

establishing a special committee (the “Special Committee”) consisting of all the 

directors other than Schnatter, i.e., Shapiro, Medina, Kirtley, Coleman, and 

Koellner.45 The Special Committee was given “exclusive power and authority” to 

review, and make determinations about, all of the relationships between Schnatter 

and the Company.46 Akin Gump Strauss Hauer & Feld LLP was retained as the 

 

42 Schnatter Dep. 223-24.

43 JX 26 at 1-2.

44 PTO ¶ 30.

45 PTO ¶¶ 31, 16. 

46 PTO ¶ 32; JX 25 at 3-5.
11

Special Committee’s counsel.47 The Company contacted Akin Gump two days 

earlier, on July 13, to discuss its representation of the not-yet-formed Special 

Committee, and formally authorized the representation on July 15, 2018.

48

 It is 

unclear what, if anything, Akin Gump did during that two-day window in connection 

with its representation. 

The Special Committee met later on the evening of July 15.

49

 At 

approximately 11:23 p.m., a lawyer with a law firm representing the Company 

(Hogan Lovells US LLP) emailed Schnatter notices of the Company’s intent to 

terminate two agreements it had with Schnatter: (1) an Agreement for Service as 

Founder (the “Founder’s Agreement”) and (2) a Sublease Agreement governing 

Schnatter’s use of some office space at the Company’s headquarters (the “Sublease 

Agreement”).

50

After the July 15 meetings, counsel for Schnatter and Papa John’s exchanged 

letters. On July 16, 2018, Akin Gump wrote to Glaser Weil, explaining that “neither 

the Board nor the Special Committee has taken any action to remove Mr. Schnatter 

as a member of the Board” and that “all actions taken by the Special Committee in 

 

47 PTO ¶ 18.

48 JX 80 at 8.

49 PTO ¶¶ 30-33.

50 PTO ¶ 34; JX 2; JX 3.
12

this matter . . . have been in the best interests of the Company and its shareholders.”51 

The letter also stated that “the Special Committee will oversee an external audit and 

investigation of the Company’s existing processes, policies and systems related to

diversity and inclusion, supplier and vendor engagement and the Company’s 

culture.”52 Glaser Weil replied on July 18, 2018, arguing that the Company’s 

purported termination of the Founder’s and Sublease Agreements violated the terms 

of those agreements and stating that “we fully expect that as part of the review 

conducted by the Special Committee, it will interview Mr. Schnatter.”53

E. Schnatter Makes a Section 220 Demand and Files Suit

On July 18, 2018, Schnatter delivered to the Company and its registered agent 

a demand under 8 Del. C. § 220(d) (the “Demand”) to inspect the following 

seventeen categories of the Company’s books and records:

1. Communications with and between Counsel to the 

Company and any officer or director of the Company from October 31, 

2017 through the formation of the Special Committee at the July 15, 

2018 meeting of the Board of Directors (the “July 15 Meeting”) 

referring or relating to me. For purposes of this Demand, Counsel shall 

mean any outside counsel to the Company, including without 

limitation, Hogan Lovells US LLP, Gibson Dunn & Crutcher, LLP, inhouse counsel to the Company, and any counsel representing any 

director in connection with such director’s service on the Board of 

Directors (the “Board”).

 

51 JX 30 at 1.

52 JX 30 at 2.

53 JX 37 at 3.
13

2. Communications between or among directors, and/or any 

director and Counsel from October 31, 2017 through the July 15 

Meeting relating to the article on Forbes.com’s website published on or 

about 5:00 a.m. on July 11, 2018 referring to me (the “Forbes Article”).

3. Communications between or among directors, and/or any 

director and Counsel from October 31, 2017 through the July 15 

Meeting referring or relating to me.

4. Communications between or among directors and Counsel 

from October 31, 2017 through the July 15 Meeting referring or relating 

to Schnatter Group Arrangements as that term is defined in the 

resolutions adopted at the July 15 Meeting appointing the Special 

Committee (the “July 15 Resolutions”).

5. Documents reflecting notice to me that the Independent 

Directors had retained separate legal representation in connection with 

their service on the Board. For purposes of this Demand, the term 

Independent Directors means Olivia F. Kirtley, Christopher L. 

Coleman, Laurette T. Koellner, Sonya E. Medina, and Mark S. Shapiro.

6. Communications between or among directors or officers, 

Counsel and/or Akin Gump LLP prior to the July 15 Meeting, including 

without limitations all drafts of the July 15 Resolutions and the Special 

Committee Charter.

7. Any engagement letter between the Independent Directors 

and Akin Gump LLP prior to formation of the Special Committee.

8. The engagement letter between the Special Committee and 

Akin Gump.

9. The minutes of all meetings of the Board and any 

committees thereof from October 31, 2017 through and including the 

July 15 Meeting.

10. All materials provided to the Independent Directors in 

connection with the July 15 Meeting.
14

11. The minutes of any meeting of the Special Committee.

12. All materials provided to the Special Committee in 

connection with the meeting of the Special Committee held on or about 

July 15, 2018.

13. Communications between or among directors and Counsel 

referring to [sic] relating to my membership on the Board from October 

31, 2017 to the present.

14. All documents referring or relating to any allegations of 

sexual harassment or other sexual misconduct and innuendo by any 

member of the Board or any Section 16 officers including without 

limitation all communications received or sent by the Company or any 

officer or director of the Company referring or relating to such 

allegations.

15. All documents referring or relating to the Company’s 

relationship with Laundry Service, including without limitation all 

communications between the Company, Laundry Service, Casey 

Wasserman, and/or any companies (including their employees) 

affiliated with Casey Wasserman and any engagement letter between 

the Company and Laundry Service.

16. Any contracts, agreements or understandings between me 

and any of my affiliates and the Company.

17. Any settlement agreements or non-disclosure agreements 

involving me or my affiliates in the possession, custody or control of 

the Company.54

Regarding his purpose for making the Demand, Schnatter wrote: “The purpose of 

my demand is to inform myself so that I may fulfill my fiduciary duties and ensure 

 

54 JX 35 at 1-3.
15

that the other members of the Board are fulfilling their fiduciary duties as well.”55 

On July 25, 2018, the Company sent a response that largely rejected the Demand.

56

 

F. The Conflict Between Schnatter and the Company Continues

On July 27, 2018, counsel for the Papa John’s Franchisee Association wrote 

to the Board to officially complain about Schnatter’s use of the N-word. The letter 

asserted that this was “not the first time Mr. Schnatter has engaged in offensive and 

damaging behavior,” noting the NFL-related comments and comments pertaining to 

the Affordable Care Act.57

In August 2018, Schnatter created a website—savepapajohns.com—where he 

posts information, including filings in this action, about what he views as the 

Company’s unfair efforts to marginalize him.58

On August 5, 2018, the New York Post published an article describing the 

relationship between Schnatter and Ritchie.59 The article describes how Schnatter 

was complimentary of Ritchie when Ritchie was named as CEO on January 1, 2018, 

but that his confidence in Ritchie changed six months later, after two disappointing 

 

55 JX 35 at 3.

56 PTO ¶ 37; JX 53.

57 JX 32 at 1.

58 PTO ¶ 39.

59 JX 66.
16

quarters.60 The article goes on to suggest that Ritchie organized a coup to oust 

Schnatter from the Company after he learned that Schnatter had prepared a negative 

performance review of him and that Schnatter was planning to recommend to the 

Board that he be removed from the CEO position.61 According to the article, one of

the reasons Schnatter filed his Section 220 action was to “prove Ritchie got hold of 

his evaluation.”62 Schnatter testified that “Steve knew that [the] evaluation was 

going to be subpar and that [he] was going to terminate him.”63 

On August 7, 2018, the Company issued its second-quarter earnings report, 

“which revealed a 25% decline in earnings per share over last year’s numbers and 

falling sales both domestically and abroad.”64 That same day, Schnatter released a 

public statement saying he was concerned about the Company’s sales and the 

“direction the Company [is] headed under the stewardship of Steve Ritchie and the 

current board of directors.”65 

On August 17, 2018, Schnatter wrote a letter to the Company’s Senior Vice 

President for Global Human Resources with the subject line “Inappropriate Conduct 

 

60 JX 66 at 2.

61 JX 66 at 2.

62 JX 66 at 2.

63 Tr. 184. 

64 JX 71 at 1.

65 PTO ¶ 41.
17

By Members of the Company’s Leadership Team.”66 In the letter, Schnatter asserts 

that a “‘fraternity’-like environment” exists at the Company and that Ritchie is 

primarily responsible for creating it.

67

 The letter includes five exhibits, which are 

mainly notes and letters created by Company employees that describe a range of 

inappropriate conduct by Ritchie, Mark Shapiro (a director), and others.68

On August 28, 2018, Schnatter gave an interview with CNN’s business 

division. In discussing Papa John’s recent poor financial performance, Schnatter 

stated that “[y]ou can’t blame everything on two comments. I wish I had that kind 

of power, but I don’t.”69 Schnatter further commented that the Company needed 

“new leadership” because Ritchie was “struggl[ing] as a CEO.”70 At trial, Schnatter 

presented a graph that purports to correlate the Company’s declining financial 

performance with Ritchie’s tenure as CEO.

71

On August 29, 2018, the Special Committee issued a press release stating that 

Schnatter “has demonstrated a continued pattern of ignoring decisions of the Board, 

both in his role as CEO and as non-executive Chairman of the Board.”72 The Special 

 

66 PTO ¶ 42; JX 76.

67 JX 76 at 1.

68 JX 76 at 5-61.

69 JX 88 at 1.

70 JX 88 at 1.

71 JX 202.

72 JX 90 at 1.
18

Committee provided several examples, including that the “Board specifically 

directed John Schnatter not to talk about the NFL controversy related to the National 

Anthem” but he did so anyway, and that Schnatter “misinformed the Board about 

the circumstances surrounding the termination of the Company’s relationship with 

Laundry Service.”73

On September 12, 2018, Schnatter publicly accused the Company of “hiding 

documents that, we believe, will disclose the actual facts as to what is occurring here, 

including use of Mr. Schnatter as a scapegoat to cover up their own shortcomings 

and failures.”74 Schnatter also testified that a fellow director, Mark Shapiro, has 

benefitted from the Company’s efforts to cut ties with him because a company 

Shapiro owns is now doing advertising business with Papa John’s, which Schnatter 

would not have permitted.

75

G. Schnatter Files a Derivative Complaint

On August 30, 2018, Schnatter filed a second action in this court against 

Ritchie and the five members of the Board who serve on the Special Committee, 

asserting five claims for breach of fiduciary duty, four derivatively (Counts I-IV) 

and a fifth directly (Count V) (the “Fiduciary Action”). Count I asserted that Ritchie 

 

73 JX 90 at 1.

74 PTO ¶ 44.

75 Tr. 76, 182-83.
19

breached his fiduciary duty of loyalty as an officer of the Company by launching “a 

false and defamatory campaign against Mr. Schnatter, falsely accusing him of 

racism, after Mr. Ritchie learned that he was going to lose his job.”76 Counts II-IV 

asserted that the members of the Special Committee breached their fiduciary duties 

of care or loyalty in various ways.77 Count V asserted that the Special Committee 

defendants breached their fiduciary duties by adopting a shareholder rights plan in

July 2018.78

On September 21, 2018, Schnatter amended his complaint in the Fiduciary 

Action to drop the claim against Ritchie. Schnatter later stated his intention to amend 

his complaint a second time to withdraw the three claims asserted against the Special 

Committee defendants (Counts II-IV), but he has not yet sought to do so.

79

II. PROCEDURAL HISTORY

On July 26, 2018, after the Company had largely rejected his Demand, 

Schnatter filed this action. The Complaint contains a single claim seeking an order 

requiring the Company to permit inspection of the books and records sought in the 

Demand. On September 4, 2018, the Company moved to dismiss the Complaint for 

failure to state a claim for relief, which the court denied on September 20. 

 

76 JX 92 ¶ 74.

77 JX 92 ¶¶ 77-99.

78 JX 92 ¶¶ 100-06.

79 Def.’s Reply Br. Ex. B (Dkt. 58).
20

Following a one-day trial held on October 1, 2018, the court heard post-trial 

argument on November 16, 2018. Based on various positions the parties advanced 

during the argument suggesting that their disputes had been narrowed, the court 

asked the parties to meet and confer to explore a resolution. On November 30, 2018, 

the parties informed the court that they had resolved the open issues concerning 

thirteen of the seventeen categories of documents requested in the Demand and that 

the only issues that remain unresolved pertain to Requests Nos. 1-4.

80

 The court has 

only a partial understanding of how the parties resolved the issues concerning the 

thirteen categories of documents no longer in dispute.

III. ANALYSIS

The Delaware General Corporation Law provides that a “director shall have 

the right to examine the corporation’s . . . books and records for a purpose reasonably 

related to the director’s position as a director.”81 “A director who has a proper 

purpose . . . has virtually unfettered rights to inspect books and records,” which

afford “access at least equal to that of the remainder of the board.”82 “The public 

policy underlying that rule is plain: a director charged with fiduciary obligations to 

 

80 Dkt. 63.

81 8 Del. C. § 220(d).

82 Chammas v. NavLink, Inc., 2016 WL 767714, at *6 (Del. Ch. Feb. 1, 2016) (citations 

and internal quotation marks omitted).
21

protect and preserve a corporation must have access to the corporation’s books and 

records if he reasonably can be expected to perform his duties.”83 

A “director seeking inspection of books and records makes out a prima facie

case when he shows that he is a director, he has demanded inspection and his demand 

has been refused.”84 At that point, the “defendant corporation bears the burden of 

proving that any such inspection is for an improper purpose.”

85

 The burden of proof 

under Section 220 is a “preponderance of the evidence.”86 “[P]roof by a 

preponderance of the evidence means that something is more likely than not.”87

A director’s purpose is not automatically rendered improper “because of the 

possibility that he may abuse his position as a director and make information 

available to persons hostile to the Corporation or otherwise not entitled to it. If [a 

director] does violate his fiduciary duty in this regard, then the Corporation has its 

remedy in the courts.”88 If it is established, however, that a director’s “motives are 

 

83 Bizzari v. Suburban Waste Servs., Inc., 2016 WL 4540292, at *8 (Del. Ch. Aug. 30, 

2016).

84 Id. (citation and internal quotation marks omitted); see also Holdgreiwe v. Nostalgia 

Network, Inc., 1993 WL 144604, at *3 (Del. Ch. Apr. 29, 1993) (same).

85 Chammas, 2016 WL 767714, at *6.

86 Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del. 2006) (defining burden of 

proof as preponderance of evidence for 220(b) proceedings); see also Sec. First Corp. v. 

U.S. Die Casting & Dev. Co., 687 A.2d 563, 567 (Del. 1997) (same).

87 Physiotherapy Corp. v. Moncure, 2018 WL 1256492, at *3 (Del. Ch. Mar. 12, 2018) 

(citation and internal quotation marks omitted).

88 Henshaw v. Am. Cement Corp., 252 A.2d 125, 129 (Del. Ch. 1969).
22

improper, or that they are in derogation to the interest of the corporation, then his

right to inspect ceases to exist.”89

The following analysis proceeds in three parts. The court begins by 

determining the propriety of Schnatter’s purpose for seeking inspection of 

documents. After concluding that the Company has failed to prove by a 

preponderance of the evidence that his purpose is improper, the court considers the 

appropriate scope for Schnatter’s inspection of documents. Finally, the court 

addresses the Company’s arguments to impose conditions on the production of 

documents to Schnatter. 

A. The Propriety of Schnatter’s Purpose for the Demand

The record plainly shows that Schnatter is a director of the Company, that he 

made the Demand to inspect books and records of the Company under Section 

220(d), and that the Company largely rejected his Demand.90 As such, because the 

Company challenges the propriety of Schnatter’s purpose for making the Demand, 

the Company bears the burden of proving by a preponderance of the evidence that 

Schnatter’s purpose is not “reasonably related to [his] position as a director.”91

 

89 Holdgreiwe, 1993 WL 144604, at *3 (citation omitted).

90 See JX 35 (demanding production of seventeen categories of documents); JX 53 at 1-2 

(stating that “the Company would be justified in rejecting the Demand in its entirety” and 

offering significantly fewer categories of documents than were requested).

91 8 Del. C. § 220(d).
23

1. Schnatter’s Stated Purpose for Making the Demand

The stated purpose for which Schnatter made his Demand has been the subject 

of some confusion. In his Demand, Schnatter stated: “The purpose of my demand 

is to inform myself so that I may fulfill my fiduciary duties and ensure that the other 

members of the Board are fulfilling their fiduciary duties as well.”92 The use of the 

introductory phrase “[t]he purpose” suggests that Schnatter has a single purpose. 

One reasonably could read the balance of the sentence, however, to describe two 

potentially distinct purposes: first, to ensure that Schnatter is fulfilling his own 

fiduciary duties, and second, to ensure that the other directors have fulfilled their 

fiduciary duties. 

In response to an interrogatory, Schnatter stated that “his only purpose is set 

forth in the Demand: to investigate whether members of the Board have breached 

their fiduciary duties to the Company and its stockholders.”93 Shortly before trial, 

Schnatter purported to amend this interrogatory response to state that, “consistent 

with his Demand and his deposition testimony, his purposes are to inform himself 

so that he may fulfill his fiduciary duties and ensure that the other members of the 

Board are fulfilling their fiduciary duties as well.”94 

 

92 JX 35 at 3.

93 JX 79 at 13.

94 JX 201 at 6. The Company requests that the court strike Schnatter’s amended 

interrogatory response given that he reconfirmed his original response at trial and no 
24

At trial, Schnatter stood by his original interrogatory response when asked 

about the purpose of his Demand.

95

 Schnatter then elaborated on redirect that “to 

investigate” in this context means to “gain knowledge, to inform yourself, to have 

insight. I mean, investigate means to get to the bottom of something and know 

what’s going on.”96 By post-trial argument, Schnatter’s counsel took the position

that the two purposes apparent in the Demand “are one and the same, and they both 

seek to investigate potential mismanagement.”97

In sum, although Schnatter’s explanations of his purpose have varied, I find 

that the stated purpose for his Demand boils down to a single purpose: to investigate 

mismanagement of the Company by the other members of the Board. Both parties 

now agree on this.98 “It is well established that investigation of mismanagement is 

a proper purpose for a Section 220 books and records inspection.”99 

 

testimony was elicited at trial about his amended response. Def.’s Opening Br. 24. Given 

that the amended response is referenced only for purposes of background, this request is 

denied. 

95 Tr. 66-67.

96 Tr. 182.

97 Post-Trial Tr. 70.

98 See Post-Trial Tr. 70, 110.

99 Sec. First Corp., 687 A.2d at 567.
25

2. The Company Has Failed to Prove that Schnatter’s Purpose 

Is Not Reasonably Related to His Position as a Director

The Company argues that “Schnatter is not seeking documents for a purpose 

reasonably related to his position as a director” on the theory that he actually “is 

seeking documents that relate to his individual status as John Schnatter—founder 

and stockholder and former Chairman and CEO of the Company.”100 In other words, 

according to the Company, Schnatter’s stated purpose for the Demand is a pretext 

and his actual purpose is personal and thus improper.

The Company gives four reasons in support of this contention: (1) Schnatter’s 

Demand seeks “mostly documents about himself;”

101 (2) his Complaint concedes 

that he “sought to inspect documents because of the unexplained and heavy-handed 

way in which the Company has treated him since the publication of” the Forbes 

Article;

102 (3) he conceded at trial that he wants to “get hold of documents he feels 

will clear him and his reputation;”

103 and (4) he “appears to be seeking documents 

to further his current fiduciary suit or to pursue another fiduciary suit.”104 The court 

will address the first three reasons together and then turn to the fourth reason. 

 

100 Def.’s Opening Br. 17.

101 Def.’s Opening Br. 17.

102 Compl. ¶ 1 (Dkt. 1).

103 Tr. 77-79.

104 Def.’s Opening Br. 18. 
26

a. The Company Has Failed to Prove that Schnatter’s 

Purpose Is Improper Because It Is Personal

The first three reasons fundamentally say the same thing: Schnatter’s actual 

purpose for making the Demand is personal and therefore improper under Section 

220. Although Schnatter’s interests as a director and as an individual often overlap

because of the unique public role he has played at the Company for many years, the 

Company has failed in my opinion to meet its burden of showing that Schnatter’s 

actual purpose for making the Demand is personal and thus not reasonably related 

to his position as a director. 

Schnatter is the founder and largest stockholder of the Company. Over the 

course of his thirty-four-year career with the Company, he held virtually every 

position—from cook and dishwasher to CEO—and, critically, he became the public 

face of the Company in its marketing efforts on television and in print.

105

 Given his 

unique role as the Company’s longstanding public spokesman, Schnatter’s concerns

that the Company made no effort to defend him in response to the controversies 

arising from his comments about the NFL and the publication of the Forbes Article,

and that the Company instead appeared intent on abruptly severing ties with him, are 

relevant concerns that any director, including Schnatter, would have about the 

Company’s management and oversight. 

 

105 Tr. 6-7. See JX 2 at 1 (Founder’s Agreement stating that Schnatter “will,” among other 

things, “participate in commercials and other high profile public relations events”). 
27

Additionally, having listened carefully to Schnatter’s testimony about how 

these events unfolded and having observed his demeanor at trial,

106 I find that 

Schnatter’s Demand arose from a genuine desire to investigate whether the other 

members of the Board had fulfilled their fiduciary obligations in handling the

controversies during the period leading up to the July 15 Meeting.

107 Schnatter 

testified, for example, that he was taken aback by the swiftness of the media to 

portray his comments about the NFL as racial in nature, and that he felt ambushed 

and pressured during the Training Exercise, which led to the Forbes Article. 

Whether or not Schnatter’s perceptions of those events are accurate, he testified 

credibly that he had those perceptions, which lends credence to his concern that it 

was inappropriate for the Board to ask him to resign as Chairman and as a director 

within a few days of the publication of the Forbes Article and before the Board had 

conducted an investigation or interviewed him.

 

106 See supra Section I.B-C.

107 The Company argues that “Schnatter must show ‘ample evidence that [he] has a bona 

fide need to inspect the corporate records in order to ensure that [management] has not 

engaged in any mismanagement of [the Company].’” Def.’s Opening Br. 25 (quoting 

Holdgreiwe, 1993 WL 144604, at *4). This quotation of Holdgreiwe mischaracterizes its 

holding. Although the court in Holdgreiwe noted as a factual matter that there was “ample 

evidence” the director in question had a bona fide need to inspect corporate records, it did 

not hold as a legal matter that the director bore the burden of showing ample evidence of 

mismanagement to justify his inspection. Such a proposition would be at odds with the 

burden of proof the statute places on the corporation when a director makes an inspection 

demand. See 8 Del. C. § 220(d) (“The burden of proof shall be upon the corporation to 

establish that the inspection such director seeks is for an improper purpose.”).
28

To be sure, there is a personal element to the concerns Schnatter testified about

because they also pertain to his reputation as an individual. But that fact does not 

negate that these concerns are legitimate corporate concerns, particularly given that 

Schnatter’s image and standing has been inextricably intertwined with the 

Company’s public persona for decades. In short, I find that the Company has failed 

to prove that Schnatter’s purpose for the Demand is not reasonably related to his 

position as a director. I reject the Company’s theory that his actual purpose is to 

obtain documents to advance his personal interests, although I recognize that the 

documents sought in the Demand may be important to him personally as well.

b. The Company Has Failed to Prove that Schnatter’s 

Purpose Is Improper Based on His Filing of the 

Fiduciary Action

The fourth reason the Company cites to prove that Schnatter’s purpose is 

improper is that he “appears to be seeking documents to further his current fiduciary 

suit or to pursue another fiduciary suit.”108 Delaware courts have recognized that a 

stockholder who files a plenary action asserting claims of mismanagement undercuts 

his alleged need to obtain documents under Section 220 to investigate the same 

alleged acts of mismanagement.109 

 

108 Def.’s Opening Br. 18. 

109 Bizzari, 2016 WL 4540292, at *6 (holding that need for documents sought in inspection 

demand to investigate mismanagement and wrongdoing was undercut by filing of pending 

plenary action challenging same conduct); Cent. Laborers Pension Fund v. News Corp., 

2011 WL 6224538, at *2 (Del. Ch. Nov. 30, 2011) (holding that stockholder was “unable 
29

The rationale for this rule was most recently explained in Bizzari v. Suburban 

Waste Services, Inc.

110

 In that case, Louis Bizzari, the founder of Suburban Waste 

Services, Inc. and its parent company, Felt Properties, LLC, made a demand to 

inspect documents of both entities in two different capacities: (1) as a stockholder 

of Suburban and as a member of Felt, and (2) as a director and a manager of those 

companies, respectively. Recognizing that the standards governing his demands 

varied depending on Bizzari’s capacity, the court was careful to analyze Bizzari’s 

“demand as a stockholder/member separately from his demand as a 

director/manager.”111 

In analyzing Bizzari’s demand as a stockholder and member, the court noted 

that, after trial in his inspection action, Bizzari had filed a plenary action concerning 

efforts to remove him as a director and manager and to sell certain assets of Suburban 

 

to tender a proper purpose for pursuing its efforts to inspect” books and records given that 

its “currently-pending derivative action necessarily reflects its view that it had sufficient 

grounds for alleging both demand futility and its substantive claims without the need for 

the assistance afforded by Section 220”); see also King v. VeriFone Hldgs., Inc., 12 A.3d 

1140, 1148 (Del. 2011) (acknowledging that dismissal of later-filed Section 220 action was 

proper when the “stockholder-plaintiff’s plenary derivative complaint was still pending and 

the plenary court had not granted the plaintiff leave to amend”); Baca v. Insight Enters., 

Inc., 2010 WL 2219715, at *4 (Del. Ch. June 3, 2010) (“[A] stockholder does not act with 

a proper purpose when the stockholder attempts to use Section 220 to investigate matters 

that the same stockholder already put at issue in a plenary derivative action.”); Taubenfeld 

v. Marriott Int’l, Inc., 2003 WL 22682323, at *3 (Del. Ch. Oct. 28, 2003) (noting that filing 

a derivative complaint “was a certification under Rule 11 that the plaintiffs had enough 

information to support their allegations”).

110 2016 WL 4540292.

111 Id. at *4.
30

without his consent. The court concluded that Bizzari had “failed to meet his burden 

of establishing a credible basis to investigate possible mismanagement or 

wrongdoing.”112 With respect to the subject matter of the plenary action, the court 

reasoned that, by filing the plenary action, “Bizzari and his counsel presumably 

concluded they possessed sufficient information under Rule 11 to file the complaint 

without first inspecting books and records.”

113 Thus, as the court further explained, 

Bizzari “effectively conceded that the books and records he seeks are not necessary 

or essential to his stated purpose of investigating mismanagement or wrongdoing

with respect to the removal or asset sale issues.”114

In analyzing Bizzari’s demand as a director and manager, the court made no 

mention of Bizzari’s filing of his plenary action or the impact that filing could have 

on obtaining documents in his capacity as a director and manager. The court instead 

focused on evidence showing that “Bizzari’s conduct during the last year had been 

entirely inconsistent with [Suburban’s] interests.”115 In particular, the court found 

that Bizzari “demonstrated a willingness to compete directly with Suburban” and 

“remains motivated to do so as a result of his extreme anger and resentment of 

 

112 Id. at *6.

113 Id.

114 Id.

115 Id. at *8.
31

[Suburban’s] other two principals.”116 Relying on this evidence, the court concluded 

that Suburban had carried its “rather substantial burden of proving that [Bizzari’s] 

demand to inspect books and records in his capacity as a director and manager is not 

motivated by a proper purpose.”117

Here, in challenging the propriety of Schnatter’s purpose based on his filing 

of the Fiduciary Action, the Company focuses on one aspect of one claim in the 

Fiduciary Action where Schnatter alleges that the members of the Special 

Committee breached their fiduciary duty of care by terminating the Founder’s and 

Sublease Agreements almost immediately after the Special Committee was formed. 

The core supporting allegation appears in Count II of the original complaint in the 

Fiduciary Action. It states, in relevant part:

In violation of this duty of care, the Special Committee acted within 

less than three hours of its formation to terminate two Schnatter-related 

agreements. The Board could not have possibly met its obligation to 

consider all information reasonably available before invalidly 

terminating those agreements. Nor has the Board cured this flaw in its 

decision-making process.118

 

116 Id. at *8-9.

117 Id. at *1.

118 Derivative Compl. ¶ 79 (C.A. No. 2018-0646) (Dkt. 1). The Company makes no 

argument that the other matters raised in the five claims of the original complaint concern 

the same subject matter as Requests Nos. 1-4. 
32

In my opinion, the Company has not met its burden to prove that Schnatter’s purpose 

for seeking the documents described in Requests Nos. 1-4 is improper based on the 

assertion of this narrow claim in the Fiduciary Action for two reasons. 

First, there are fundamental differences between inspection demands made by 

stockholders and those made by directors. A stockholder seeking to inspect books 

and records (other than a stock ledger or list of stockholders) not only bears the 

burden of proving that her demand is proper, i.e., reasonably related to her interests 

as a stockholder,

119 but also must demonstrate that the documents she seeks are 

“necessary and essential to satisfy [her] stated purpose.”120 As Bizzari explains, a 

stockholder seeking documents under Section 220 to investigate claims of 

mismanagement undercuts her ability to make the second showing by asserting 

claims in a plenary action challenging the same alleged acts of mismanagement.

By contrast, a director “who has a proper purpose is entitled to virtually 

unfettered access to the books and records of the corporation,”121 and it is the 

 

119 8 Del. C. § 220(c).

120 Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 816 (Del. Ch. 2007) (emphasis 

added); see also Polygon Glob. Opportunities Master Fund v. West Corp., 2006 WL 

2947486, at *3 (Del. Ch. Oct. 12, 2006) (finding stockholder plaintiff stated proper purpose 

of valuing its shares but denying inspection because it had “all ‘necessary and essential’ 

information from public filings”); Marathon P’rs, L.P. v. M&F Worldwide Corp., 2004 

WL 1728604, at *4 (Del. Ch. July 30, 2004) (“The scope of inspection should be 

circumscribed with precision and limited to those documents that are necessary, essential 

and sufficient to the stockholder’s purpose.”).

121 McGowan v. Empress Entm’t, Inc., 791 A.2d 1, 5 (Del. Ch. 2000) (Jacobs, V.C.). 
33

corporation’s burden to prove that the director’s purpose is improper, i.e., not 

“reasonably related to the director’s position as a director.”122 And, importantly, 

standing to bring a claim on behalf of the corporation has not been extended to a 

director under Delaware law.123 Thus, if Schnatter obtains documents in response to 

the Demand, he may use them internally at the Company to advance his point of 

view, but he may not use them to pursue a derivative claim unilaterally. Presumably 

recognizing this limitation, Schnatter has represented he will not use any documents 

produced in response to the Demand to assert a claim as a stockholder without first 

obtaining the Company’s consent to do so.

124

No authority has been brought to the court’s attention in which a director’s 

right to access books and records under Section 220(d) has been denied based on his 

filing of a plenary claim as a stockholder. Bizzari is not that case. Given (i) the lack 

of any such authority, (ii) the significant differences in our law between inspection 

demands made by stockholders and those made by directors, (iii) the fact that a 

director lacks standing to assert derivative claims in that capacity, and (iv) the fact 

that Schnatter has agreed not to use any documents produced in response to the 

Demand to file a claim as a stockholder without the Company’s consent, I see no 

 

122 8 Del. C. § 220(d).

123 Schoon v. Smith, 953 A.2d 196, 199 (Del. 2008).

124 See Post-Trial Tr. 72, 110-11, 119-20. 
34

basis to deny Schnatter access to the documents described in Requests Nos. 1-4

based on his filing of the Fiduciary Action. 

Second, even if one were to ignore the distinctions discussed above 

concerning inspection demands made by directors as opposed to stockholders, it 

would not be appropriate in my view to deem Schnatter’s filing of a claim 

challenging the Special Committee’s exercise of its duty of care in a very limited 

respect—i.e., its alleged failure to inform itself during the three hours after it was 

formed—to be a concession that Schnatter does not need the documents sought in 

Requests Nos. 1-4 to investigate mismanagement. Each of those requests only seeks 

documents pertaining to a time period before the Special Committee was formed, 

i.e., from November 1, 2017 until the July 15 Meeting. And even if such documents 

were relevant to Schnatter’s due care claim (e.g., by showing that the directors had 

become informed about the Sublease and Founder’s Agreements before the Special 

Committee was formed), Schnatter has not asserted a loyalty claim relating to the 

termination of those agreements and thus could not be said to have conceded that he 

has sufficient information to do so. In short, the Company has not proven that the 

acts of mismanagement Schnatter seeks to investigate through his Demand 

necessarily concern the same conduct he put at issue in the Fiduciary Action. 
35

c. The Company Has Failed to Prove that Schnatter’s 

Purpose Is Improper Based on His Alleged Lack of 

Familiarity with the Demand

Apart from the four reasons already discussed, the Company contends that 

Schnatter’s purpose is improper because he “had no idea” why he is seeking many 

of the documents requested in the Demand.125 For support, the Company relies on 

Wilkinson v. A. Schulman, Inc.

126

 In that case, the court found that a stockholder

who had served as a plaintiff for an “entrepreneurial law firm” in at least seven 

lawsuits did not have a proper purpose for inspecting a corporation’s books and 

records.

127

 The court reasoned that “the purposes for the inspection belonged to” the 

law firm, which (i) initiated the process, (ii) drafted “a demand to investigate 

different issues than what motivated the stockholder to respond to the law firm’s 

solicitation,” and (iii) pursued the inspection and litigation “with only minor and 

non-substantive involvement from the ostensible stockholder principal.”128 

 

125 Def.’s Opening Br. 20. The Company also contends that Schnatter’s “varying sworn 

testimony” concerning the stated purpose for his Demand proves that he has no proper 

purpose. Id. 22-24. I disagree. As discussed above (see supra Section III.A.1), there was 

some confusion about Schnatter’s stated purpose, but the asserted variations in Schnatter’s 

testimony are overblown and largely explainable by the reality that, in order to investigate 

mismanagement by others, a director must first become informed himself about the 

underlying facts and circumstances.

126 2017 WL 5289553 (Del. Ch. Nov. 13, 2017).

127 Id. at *2-3.

128 Id.
36

This case bears no resemblance to Wilkinson. Here, a director of a corporation 

with a presumptive right to access corporate books and records made an inspection 

demand in response to a specific sequence of events, i.e., the Company’s handling 

of the fallout from the Earnings Call and Forbes Article. The record here does not 

support the conclusion that Schnatter was so disengaged from the process that the 

actual purpose for the Demand was to benefit his counsel.129

* * * * *

For the reasons explained above, the court finds that the Company has failed 

to prove that Schnatter’s purpose for making the Demand is not reasonably related 

to his position as a director of the Company. The court turns next to determining the 

appropriate scope of the inspection to which Schnatter is entitled.

B. Scope of Production

“If [a director’s] inspection of [a corporation’s] records is to effectuate its 

purpose of enabling him to determine whether management wrongdoing has 

occurred, his access to [the corporation’s] records must necessarily be broad and 

unrestricted.”130 At the same time, even a director “must direct the Court to specific 

 

129 Contrary to the Company’s portrayal, Schnatter was conversant in many details about 

the Demand. See, e.g., Schnatter Dep. 62 (explaining why date range in Demand was 

chosen); Schnatter Dep. 105 (explaining why he seeks certain documents related to 

formation of Special Committee). 

130 Holdgreiwe, 1993 WL 144604, at *7 (granting plaintiff-director’s requests “fully and 

completely”). 
37

books and records related to the [director’s] proper purpose. Without such direction, 

the Court is unable to direct production of an appropriate set of documents, and 

unwilling to burden the corporation to search for the same.”

131

 

As discussed previously, only Requests Nos. 1-4 remain in dispute. To 

reiterate, those requests seek:

1. Communications with and between Counsel to the 

Company and any officer or director of the Company from October 31, 

2017 through the formation of the Special Committee at the July 15, 

2018 meeting of the Board of Directors (the “July 15 Meeting”) 

referring or relating to me. For purposes of this Demand, Counsel shall 

mean any outside counsel to the Company, including without 

limitation, Hogan Lovells US LLP, Gibson Dunn & Crutcher, LLP, inhouse counsel to the Company, and any counsel representing any 

director in connection with such director’s service on the Board of 

Directors (the “Board”).

2. Communications between or among directors, and/or any 

director and Counsel from October 31, 2017 through the July 15 

Meeting relating to the article on Forbes.com’s website published on or 

about 5:00 a.m. on July 11, 2018 referring to me (the “Forbes Article”).

3. Communications between or among directors, and/or any 

director and Counsel from October 31, 2017 through the July 15 

Meeting referring or relating to me.

4. Communications between or among directors and Counsel 

from October 31, 2017 through the July 15 Meeting referring or relating 

to Schnatter Group Arrangements as that term is defined in the 

resolutions adopted at the July 15 Meeting appointing the Special 

Committee (the “July 15 Resolutions”).

 

131 Chammas, 2016 WL 767714, at *8 n.98.
38

Although the term “Counsel” is defined in the Demand to include any personal 

counsel “representing any director in connection with such director’s service” on the 

Board, Schnatter no longer seeks such communications and their production will not 

be required.132 Schnatter also has limited the potential custodians to the following: 

the other directors, Ritchie, and Caroline Oyler, the Company’s General Counsel.133 

This list is reasonable. I also find that the time period covered by Requests Nos. 1-

4 is reasonable. Each request covers a limited period of less than nine months that 

begins with the Earnings Call, when the concerns to which Schnatter testified began 

to arise, and ends with the formation of the Special Committee. 

As stated, however, Requests Nos. 1-4 are overbroad relative to the attested 

purpose for the Demand in one key respect. For example, to the extent those requests

seek communications “referring or relating” to Schnatter without further 

qualification (e.g., Requests Nos. 1 and 3), they are not sufficiently related to 

Schnatter’s purpose of investigating mismanagement and must be narrowed. In my 

opinion, Schnatter is entitled to the communications sought in Requests Nos. 1-4

only to the extent such communications reflect any consideration of changing 

Schnatter’s relationship with the Company, which would include assessments of his

 

132 Post-Trial Tr. 78.

133 See Dkt. 63 at 2; Post-Trial Tr. 84-85.
39

behavior or performance in his various roles at the Company (e.g., as a director, 

officer, or spokesman), during the specified time period.

Two issues remain concerning the scope of production: (i) Schnatter’s request 

to obtain emails and text messages from personal accounts and devices, and (ii) 

privileged communications. These issues are addressed, in turn, below.

1. Production of Emails and Text Messages from Personal

Accounts and Devices

Schnatter requests access to emails and text messages from personal accounts 

and stored on personal devices. In Indiana Electrical Workers Pension Trust Fund 

IBEW v. Wal-Mart Stores, Inc., a stockholder sought to inspect emails and other 

documents stored on the directors’ personal devices concerning the board’s handling 

of a bribery scandal involving Wal-Mart’s Mexican division.134 Then-Chancellor 

Strine ordered production, observing that a director usually owes an obligation to 

the corporation “to share that information with the company when the company 

needs it.”

135

 Subsequently, this court has both granted and denied access to personal 

email accounts and devices of directors and officers in Section 220 actions.

136

 

 

134 C.A. No. 7779-CS, at 81, 97 (Del. Ch. May 20, 2013) (Strine, C.) (TRANSCRIPT).

135 Id. at 98.

136 Compare Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 792-93 (Del. Ch. 2016) 

(granting access to CEO’s personal email account), with In re Lululemon Athletica Inc. 220 

Litig., 2015 WL 1957196, at *6-7 (Del. Ch. Apr. 30, 2015) (denying access to directors’ 

personal email accounts).
40

In opposing Schnatter’s request for emails and text messages from personal 

accounts and devices, the Company relies on Chammas v. NavLink, Inc.

137

 In that 

case, two directors of NavLink who suspected that other board members had been 

meeting without them sought access under Section 220(d) to certain communications 

between or among management, the board Chairman, and/or any of the other board 

members during a defined period.138 In rejecting this request, the court explained:

Mere suspicions of pre-meeting collusion among board members or 

board members and management, in the context of a Section 220 action, 

is insufficient to compel the production of private communications 

between such officers and directors, even to the extent that such 

communications are stored on the defendant company’s servers. While 

directors’ access to company books and records is broader than that of 

stockholders, the requested information itself must qualify as a book or 

record of the company before the Court will order its production.139

 

The Chammas court then articulated a three-part test for determining when a 

request for communications among corporate directors and officers may be produced 

in response to a Section 220 demand:

The Court notes that while this holding is not to be interpreted as a 

blanket prohibition against inspection of private communications 

among directors, subjecting Section 220 proceedings to such broad 

requests, even by directors, runs contrary to the ‘summary nature of a 

Section 220 proceeding.’ As such, any request for communications 

among corporate directors and officers must (1) state a proper purpose, 

(2) encompass communications constituting books and records of the 

corporation, i.e., those that affect the corporation’s rights, duties, and 

 

137 2016 WL 767714.

138 Id. at *6.

139 Id. at *7 (internal citations omitted).
41

obligations, and (3) be sufficiently tailored to direct the Court to the 

specific books and records relevant to the director’s proper purpose.140

With respect to the second element, the court cited Estate of Polin v. Diamond State 

Poultry Co. for the proposition that “documents subject to a Section 220 request are 

limited to ‘those which were intended to reflect on the business, condition or legal 

rights of the corporation.’”141

Focusing on the second element of the Chammas test, the Company resists the 

production of emails and text messages from personal accounts and devices, arguing 

that “Schnatter is just curious about what his fellow fiduciaries were saying about 

him.”142 The Company would have a point if the custodians were required to 

produce documents referring to Schnatter without qualification. As discussed above, 

however, the court has limited the scope of the Company’s production in response 

to Requests Nos. 1-4 to communications reflecting any consideration of changing 

Schnatter’s relationship with the Company, including assessments of Schnatter’s 

behavior or performance in his various roles at the Company, during the specified 

time period. Modified in this way, Requests Nos. 1-4 seek documents that satisfy 

the definition suggested in Chammas and the earlier precedent on which it relies for 

what constitutes books and records of a corporation for purposes of Section 220.

 

140 Id. at *8 (internal citations omitted).

141 Id. at *8 n.97 (quoting Polin, 1981 WL 7612, at *3 (Del. Ch. Apr. 14, 1981)).

142 Def.’s Opening Br. 33.
42

A further word is in order regarding emails and text messages from personal 

accounts and devices. The reality of today’s world is that people communicate in 

many more ways than ever before, aided by technological advances that are 

convenient and efficient to use. Although some methods of communication (e.g., 

text messages) present greater challenges for collection and review than others, and 

thus may impose more expense on the company to produce, the utility of Section 

220 as a means of investigating mismanagement would be undermined if the court 

categorically were to rule out the need to produce communications in these formats. 

Accordingly, I decline to adopt that approach.

In my view, consistent with the sentiments then-Chancellor Strine expressed 

in Wal-Mart, if the custodians identified here—the Company’s other directors, CEO, 

and General Counsel—used personal accounts and devices to communicate about

changing the Company’s relationship with Schnatter, they should expect to provide 

that information to the Company.143 That would apply not only to emails, but also 

to text messages, which in the court’s experience often provide probative 

information. In so holding, I do not mean to suggest any form of a bright-line rule. 

 

143 According to Schnatter’s counsel, the Company’s directors do not have Company email 

addresses. Post-Trial Tr. 79. The Company has not suggested otherwise. Nor did the 

Company introduce at trial a policy indicating that it views any information from the 

personal accounts or on the personal devices of its directors or officers to be “personal 

unrestricted information” outside the control of the Company. See Wal-Mart, C.A. No. 

7779-CS, at 97-98.
43

To the contrary, when considering requests for information from personal accounts 

and devices in Section 220 proceedings, the court should apply its discretion on a 

case-by-case basis to balance the need for the information sought against the burdens 

of production and the availability of the information from other sources, as the 

statute contemplates.144 

2. Privileged Communications

It is well-established under Delaware law that, subject to certain recognized 

limitations, a “director’s right to information extends to privileged material.”145 

Here, with one possible exception, no argument has been made that, to the extent the 

court finds that Schnatter is entitled to inspect books and records of the Company, 

his entitlement would not extend to privileged communications to which his fellow 

directors were privy. 

The possible exception concerns documents involving communications with 

Akin Gump during the two-day period between July 13, 2018, when the firm was 

contacted to represent the yet-to-be-formed Special Committee, and the July 15 

Meeting, when the Special Committee formally was established. This issue was the 

 

144 8 Del. C. § 220(d) (“The Court may, in its discretion, prescribe any limitations or 

conditions with reference to the inspection, or award such other and further relief as the 

Court may deem just and proper.”); see also id. § 220(c) (substantively identical provision 

for stockholder inspection demands).

145 In re CBS Corp. Litig., 2018 WL 3414163, at *4 (Del. Ch. July 13, 2018) (quoting 

Kalisman v. Friedman, 2013 WL 1668205, at *4 (Del. Ch. Apr. 17, 2013)).
44

subject of briefing, but it is unclear to the court whether the parties resolved the 

matter in reaching a resolution of Requests Nos. 5-17 of the Demand, which include 

a series of requests concerning the Special Committee. If the parties have not 

resolved this issue, they should so inform the court in connection with submitting a 

proposed form of order to implement this decision. Subject to this caveat, privileged 

communications responsive to Requests Nos. 1-4, as modified by the court, to which 

other directors of the Company were privy shall be produced to Schnatter.

C. Conditions on Production

The Company argues that any production of documents to Schnatter that

results from this action should only be made subject to entry of an order containing 

three conditions: that Schnatter be (1) required to comply with the Board’s

confidentiality policy; (2) prohibited from using any such documents in his 

Fiduciary Action or a future fiduciary action; and (3) prohibited from sharing any 

such documents with his counsel in this action. 

With respect to the first proposed condition, the Company acknowledges that

“Delaware law has long suggested that directors need not sign confidentiality 

agreements to obtain documents under Section 220.”146 Rather, there is a 

“presumption that the production of nonpublic corporate books and records to a 

 

146 Def.’s Opening Br. 47.
45

stockholder making a demand pursuant to Section 220 should be conditioned upon 

a reasonable confidentiality order.”147 This distinction is logical because directors, 

unlike stockholders, are fiduciaries who owe the corporation a duty to protect its 

information.148 Given that Schnatter already is obliged as a fiduciary to protect the 

Company’s information, and given that he confirmed during his trial testimony that 

he would abide by the Board’s confidentiality policy with respect to any documents 

provided to him in this action,149 I decline the Company’s first request.

150

 

With respect to the second proposed condition, as discussed above, 

Schnatter’s counsel represented during post-trial argument that Schnatter would not 

use any documents produced in response to the Demand to assert a claim as a 

stockholder without first obtaining the Company’s consent to do so. For the sake of 

clarity, the court will require that the parties include a provision formally 

documenting this representation in the implementing order.

 

147 Disney v. Walt Disney Co., 857 A.2d 444, 447 (Del. Ch. 2004) (emphasis added).

148 See Edward P. Welch et al., 1 Folk on the Delaware General Corporation Law § 

141.02[A], at 4-41 (6th ed. 2018) (“A director’s duties include a duty to protect corporate 

information.” (citing Shocking Techs., Inc. v. Michael, 2012 WL 4482838, at *9 (Del. Ch. 

Oct. 1, 2012))).

149 Tr. 147-48; see also JX 35; JX 100. 

150 See Holdgreiwe, 1993 WL 144604, at *6 (commenting that conditioning a director’s 

right to inspect books and records “on his entry into an agreement binding him not to 

disclose any of the information he obtains to any third parties . . . seems to me to add little. 

He is already under an obligation to maintain the confidences of Nostalgia . . . . Disclosure 

of such information . . . is a violation of duty whether or not an undertaking is entered.”).
46

The last proposed condition concerns Schnatter’s counsel in this action:

Glaser Weil and his Delaware counsel, Bayard, P.A. Relying on this court’s 

decisions in Henshaw v. American Cement Corp.

151 and Holdgreiwe v. Nostalgia 

Network, Inc.,

152 the Company argues that both firms should be prohibited from 

seeing any documents produced to Schnatter as a result of this action because those 

firms also represent him in the Fiduciary Action. The Company further argues that 

Glaser Weil should be prohibited in the same manner for the additional reason that 

the firm represents two women who have made sexual harassment allegations 

against Company management.153 

In Henshaw and Holdgreiwe, the court barred a director from sharing 

corporate books and records with other persons (including their lawyers) who had 

interests adverse to the corporation.154 Here, by contrast, the Company seeks to bar 

Schnatter from using his own lawyers to inspect the Company’s books and records. 

I am not persuaded that Schnatter’s own counsel should be barred because of the 

 

151 252 A.2d 125 (Del. Ch. 1969).

152 1993 WL 144604.

153 Tr. 153-54; JX 85.

154 See Henshaw, 252 A.2d at 130 (prohibiting a director (Henshaw) from conducting an 

inspection using (i) a law firm that represented another director (Caldwell) in a lawsuit 

against the corporation and (ii) Caldwell’s administrative assistant); Holdgreiwe, 1993 WL 

144604, at *1, *7 (prohibiting a director (Holdgreiwe) from conducting an inspection using 

any professionals who had been employed by Concept Communications, Inc., which was 

engaged in a struggle for control of the corporation, or any of its affiliates “for any purpose 

other than this inspection of documents”). 
47

pendency of the Fiduciary Action from reviewing documents Schnatter is entitled to 

see himself as a director. Barring Schnatter’s lawyers from helping him with the 

inspection would be prejudicial to Schnatter because it would require him to retain 

new counsel to perform that task. Furthermore, the risk that the documents could be 

used adversely to the Company can be mitigated by subjecting Schnatter’s lawyers 

to the same use limitation to which he has consented, i.e., not to use the documents 

to press a claim as a stockholder without first obtaining the Company’s consent. 

With respect to Glaser Weil’s representation of the two alleged victims of 

sexual harassment, there is insufficient information in the record to permit the court 

to assess the nature and level of Glaser Weil’s potential adversity to the Company

based on this representation. The record also is insufficient to permit the court to 

assess whether or not any alleged conflict could be handled—as Glaser Weil 

contends it could—using ethical walls within the firm.155 As such, the court will not 

bar Glaser Weil from assisting Schnatter based on its representation of these 

individuals. Of course, it will be incumbent upon Glaser Weil to take whatever 

measures are necessary to ensure compliance with its professional responsibilities.

 

155 See Post-Trial Tr. 105, 109-10.
48

IV. CONCLUSION

For the reasons explained above, Schnatter is entitled to inspect documents 

responsive to Requests Nos. 1-4, as modified by the court, in accordance with this 

opinion. The parties are directed to confer and submit an implementing order within 

five business days. 

IT IS SO ORDERED.