Opinion ID: 2266317
Heading Depth: 1
Heading Rank: 5

Heading: The Scope of the Inspection

Text: After trial, the Court of Chancery found that Thomas & Betts had failed to meet its burden of establishing that it sought inspection in furtherance of its concerns regarding accounting and mismanagement. The trial court found that Thomas & Betts' primary purpose for inspection was to further its plans for acquiring Leviton and that this interest was antithetical to the interests of the corporation. Despite Thomas & Betts' initially improper motives, the Court acknowledged that Thomas & Betts had experienced a fundamental change of circumstances. The court reasoned that, owing to Harold Leviton's unwillingness to negotiate a change-of-control transaction, Thomas & Betts was now in the unenviable position of a locked-in minority stockholder. Based on this fact, the trial court allowed inspection of certain Leviton books and records, but limited the scope of that inspection to those documents which are essential and sufficient to Thomas & Betts' valuation purpose. Thomas & Betts now contends that the Court of Chancery abused its discretion in limiting the scope of its inspection of Leviton's books and records. 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. 8 Del.C. § 220(c); CM & M Group, 453 A.2d at 794. The plaintiff bears the burden of proving that each category of books and records is essential to accomplishment of the stockholder's articulated purpose for the inspection. Helmsman Management Servs., 525 A.2d at 168. The plain language of 8 Del.C. § 220(c) provides that [t]he Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection. (emphasis supplied). The responsibility of the trial court to narrowly tailor the inspection right to a stockholder's stated purpose is well established. See BBC Acquisition Corp., 623 A.2d at 88-89 (entitlement is restricted to those books and records needed to perform the task). In discharging this responsibility, the trial court has wide latitude in determining the proper scope of inspection. Undergirding this discretion is a recognition that the interests of the corporation must be harmonized with those of the inspecting stockholder. Here, the trial court has found that Thomas & Betts' primary purpose for inspection is at odds with the interests of the corporation. In this posture, it was entirely appropriate for the Court of Chancery to limit plaintiff's inspection to those documents which are essential and sufficient to its valuation purpose. Moreover, even in a case where no improper purpose has been attributed to the inspecting stockholder, the burden of proof is always on the party seeking inspection to establish that each category of the books and records requested is essential and sufficient to the stockholder's stated purpose. Helmsman Management Servs., 525 A.2d at 167. The trial court specifically found that Thomas & Betts had not met its burden of proof as to certain of the books and records of Leviton. This finding is supported by the record and is the product of an orderly and logical deductive process. Levitt, 287 A.2d at 673. Accordingly, the finding of the Court of Chancery and its concomitant decision to limit inspection will not be disturbed on appeal.