Opinion ID: 2556088
Heading Depth: 2
Heading Rank: 2

Heading: Under Delaware Precedent King Had A Proper Purpose

Text: Disney, McKesson HBOC, and Melzer make it clear that Delaware case law does not support the Court of Chancery's conclusion that King lacked a proper purpose for bringing a Section 220 action solely because he first elected to file a derivative suit in the California Federal Court. To reiterate, the California Federal Court dismissed King's derivative complaint without prejudice and with leave to amend. In response to that court's suggestion, King then sought a Section 220 inspection of VeriFone's books and records to aid him in pleading demand futility in a to-be-amended derivative complaint. Under Delaware case law, that was a proper purpose under Section 220. [64] The result we reach here reaffirms longstanding Delaware precedent which recognizes that it is a proper purpose under Section 220 to inspect books and records that would aid the plaintiff in pleading demand futility in a to-be-amended complaint in a plenary derivative action, where the earlier-filed plenary complaint was dismissed on demand futility-related grounds without prejudice and with leave to amend. That holding should not be read as an endorsement by this Court of proceeding in that way. We caution that filing a plenary derivative action without having first resorted to the inspection process afforded by 8 Del. C. § 220 may well prove imprudent and cost-ineffective. But, absent some other, sufficient ground for dismissal, that sequence is not fatal to the prosecution of a Section 220 action.