Opinion ID: 2258949
Heading Depth: 1
Heading Rank: 3

Heading: The Scope of the Books and Records Inspection

Text: Absent any apparent error of law, this Court reviews for abuse of discretion the decision of the trial court regarding the scope of a stockholder's inspection of books and records. [25] The plaintiff bears the burden of proving that each category of books and records is essential to the accomplishment of the stockholder's articulated purpose for the inspection. [26] Section 220(c) provides that [t]he Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection. While the trial court has wide latitude in determining the proper scope of inspection, it is the responsibility of the trial court to tailor the inspection to the stockholder's stated purpose. Undergirding this discretion is a recognition that the interests of the corporation must be harmonized with those of the inspecting stockholder. [27] In the instant case, the Court of Chancery found that plaintiff's request to inspect books and records was self-tailored. [28] We disagree. Plaintiff sought, and the Court of Chancery granted, inspection of the following: a. The agreement by and between Security First and Mid Am reported to have been made on or about September 1, 1994, and any amendments and modifications thereof (hereinafter the Agreement); b. All minutes, notes, records, memoranda, writings, correspondence, telephone messages or the like which in any way directly or indirectly deal with or discuss the Agreement; c. All press releases relative to the Agreement; d. Any and all documents or records discussing the relationship between the employees of Security First after the completion of the merger contemplated by the Agreement; e. Minutes of all proceedings of directors or committees of directors from January 1, 1994; f. All minutes, notes, records, memoranda, writings, correspondence, telephone calls or the like which in any way directly or indirectly deal with or discuss the payment of $275,000 to Mid Am and/or a penalty to be paid if Security First and/or its assets are sold to another in the future; g. Any and all bank or savings and loan regulatory applications and amendments thereto related to the Agreement; h. Any and all correspondence with federal and/or state bank or savings and loan regulatory agencies in connection with the Agreement; and i. The most recent list of stockholders. We find that plaintiff has not met its burden of proof on this record to establish that each category of books and records requested is essential and sufficient to its stated purpose. For example, Paragraph 8(e) of the Amended Complaint requests Minutes of all proceedings of directors or committees of directors from January 1, 1994. Security First did not enter into discussions with Mid Am until the Spring of 1994. While plaintiff argues that the pre-merger meeting minutes are reasonably related to its purpose, this determination is for the trial court to make. [29] The scope of the production which the Court of Chancery ordered in this case is more akin to a comprehensive discovery order under Court of Chancery Rule 34 than a Section 220 order. The two procedures are not the same and should not be confused. A Section 220 proceeding should result in an order circumscribed with rifled precision. Rule 34 production orders may often be broader in keeping with the scope of discovery under Court of Chancery Rule 26(b). It may well be that upon remand a record will be developed to justify the breadth of all or a significant portion of the order before us in accordance with this standard. Accordingly, we remand this case to the Court of Chancery to determine whether the stockholder met its burden of showing, by a preponderance of the evidence, a proper purpose entitling the stockholder to an inspection of each category of the documents it seeks.