In the decision of Deann M. Totta, et al. v. CCSB Financial Corp., C.A. No. 2021-0173-KSJM (Del. Ch. May 31, 2022), the Court of Chancery held that the board of directors of Defendant, CCSB Financial Corp. (“CCSB”), misapplied a vote aggregation provision in the corporation’s charter that disenfranchised the shareholder Plaintiffs and, furthermore, was unenforceable under equitable principles.

CCSB’s charter includes a provision which prohibits shareholders from exercising more than 10% of the company’s voting power in an election (the “Voting Limitation”).  Facing a proxy contest from one of the named Plaintiffs, Park G.P., Inc., the directors aggregated Plaintiffs’ shares on the grounds that they were acting in concert and, pursuant to the Voting Limitation, did not count Plaintiffs’ votes above the 10% limit.  This instruction caused Plaintiffs’ nominees to lose the Board election, and Plaintiffs accordingly filed suit under 8 Del. C. § 225 to invalidate the Board’s instruction.

[For a general discussion of Section 225 of the DGCL, which permits challenges to an election of directors of a Delaware corporation, click here.]

As a threshold matter, CCSB argued that the Court should apply the highly deferential business judgment rule as its standard of review, primarily based on a provision in its charter that states any application by the board of the Voting Limitation “‘shall be conclusive and binding upon the Corporation and its stockholders.’”  (Mem. Op. at 4-5.)  Chancellor McCormick denied this reasoning on the grounds that a corporation cannot alter its directors’ fundamental fiduciary obligations unless such alteration has been authorized by statute—which it has not.  Therefore, the Court applied the well-established standard of review under Delaware corporate law that requires the Board’s actions to be tested twice—first, to determine whether the action was legally compliant and, second, to determine whether the action was equitable.

Applying this two-step analysis, the Court of Chancery found that the Voting Limitation does provide a basis for the Board to exclude stockholder votes when acting in concert, but found that the Plaintiffs had not, in fact, acted in concert.  A simple agreement that stockholders vote similarly is insufficient to prove an action in concert—there must be an agreement, arrangement or understanding of the alignment, which was not present here.

Finally, the Court of Chancery also found that the Board’s vote instruction did not satisfy the equitable test articulated under Blasius Industries, Inc. v. Atlas Corp.  According to Chancellor McCormick, Defendant’s argument that it must protect its shareholders from Plaintiffs’ alleged effort to take control of the company assumed that the directors knew better than the shareholders, which is not a legitimate reason to limit stockholder votes.  Therefore, the Court of Chancery found that the Board’s exercise of the Voting Limitation was both legally invalid and failed under Blasius’s equitable test.

Key Takeaway: An application of a voting limitation will be assessed under the “twice-tested” standard of review to assess legality and equitability.  Directors should remember that the shareholders have a fundamental right to exercise their voting power—a right that the Court of Chancery will be hesitant to curtail without a compelling, legitimate reason.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In the recent decision of Oklahoma Firefighters Pension and Retirement System v. Amazon.com, Inc., C.A. No. 2021-1484-LWW (Del. Ch. Jun. 1, 2022) (Mem. Op.), the Court of Chancery denied Plaintiff’s Section 220 request to demand additional inspection of Amazon’s books and records, finding that Plaintiff had not set forth a proper purpose for its investigation and that Amazon had adequately responded to Plaintiff’s demand.

Plaintiff filed its demand under 8 Del. C. § 220 to inspect Amazon’s books and records to examine potential corporate mismanagement and determine the independence and disinterestedness of Amazon’s directors.  The demand sought nineteen different categories of documents spanning eleven years.  Although Amazon questioned the legitimacy of Plaintiff’s purpose, it agreed to produce a targeted set of responsive materials, including relevant Board or committee meeting minutes and redacting any non-responsive content.  Plaintiff, in turn, filed this litigation to demand production of all documents responsive to its Section 220 demand.

The Court found that Plaintiff had not, as a threshold matter, stated a proper purpose for its investigation.  First, Plaintiff’s reference to closed or pending investigations and litigation failed to establish a credible basis for its desire to investigate possible mismanagement at Amazon.  The investigations and litigation had either closed without any adverse findings or were pending, and the only evidence of wrongdoing—a fine issued to Amazon from Italy—was irrelevant as Plaintiff only sought to investigate potential U.S. antitrust violations.  The Court found that Plaintiff had also failed to provide a credible basis for its desire to investigate the directors’ independence—stockholder curiosity is insufficient under Delaware law, and any evidence presented by Plaintiff was more speculative than reliable.

Perhaps more importantly, though, the Court of Chancery found that Plaintiff’s request for additional document production pursuant to 8 Del. C. § 220 failed because Amazon had already complied with Plaintiff’s demand.  Specifically, the Court found that Plaintiff had not shown that investigation of the additional books and records sought was essential to its investigation.  The Court also found that Amazon had produced all reasonably responsive documents, stating: “[f]ormal board-level documents are often the beginning and end of a Section 220 production where a plaintiff aims to investigate whether directors exercised proper oversight.”  (Mem. Op., at 30-31.)  In fact, the Court went so far as to commend Amazon for its effort to cooperate with Plaintiff by not outright rejecting its demand, but instead producing the core board materials that typically satisfy a Section 220 request.  Plaintiff had not justified its need for any specific documentation past what Amazon had already produced and, therefore, was overreaching.

Key Takeaway: When issuing a Section 220 demand to inspect corporate books and records, a plaintiff should first heed this Court’s decision by including a proper purpose for its investigation with a credible basis for the suspected misconduct.  Additionally, the responding company may be able to restrict its production to only those board and committee minutes that are relevant to the plaintiff’s stated purpose for inspection.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In a recent action brought under Section 225 of the DGCL, the Delaware Court of Chancery validated a written consent removing Defendants Long Deng and Mark Fang from iFresh, Inc.’s (“iFresh”) Board of Directors and appointing new directors in their stead. A summary of the decision can be found here. Defendants filed an appeal with the Delaware Supreme Court and then sought a stay pending that appeal, which the Court of Chancery has now denied in Dengrong Zhou v. Long Deng and Mark Fang, C.A. No. 2021-0026-JRS (Del. Ch. May 23, 2022).

The Court’s analysis followed the factors laid out in Kirpat, Inc. v. Del. Alcoholic Beverage Control Comm’n, 741 A.2d 356 (Del. 1998): (i) preliminary assessment on the movant’s likelihood of appellate success; (ii) whether the movant will suffer irreparable harm without a stay; (iii) whether another interested party would suffer substantial harm with a stay; and (iv) whether a stay serves the public interest.  Because Delaware law supports granting a stay if factors (ii) through (iv) weigh in favor of one, Vice Chancellor Slights began his analysis there.

Under Kirpat factor (ii), Defendants argued that a change in iFresh’s Board of Directors would risk unauthorized Board action and, thus, irreparable harm.  Yet the Court of Chancery found that loss of board control alone does not constitute irreparable harm—a party must identify injury other than strict compliance with the Court’s Order, and Defendants had not done so here.  Under Kirpat factor (iii), Defendants argued the stay would be brief and unharmful to other parties, but could negatively affect iFresh’s relationship with its commercial lender.  Vice Chancellor Slights found this argument equally unpersuasive—Defendants had not surrendered their Board positions for over a year following the written consent, and further delay was unnecessary.  The Court also noted that the lender was perfectly capable of protecting itself from a change in Board control through negotiation of favorable forbearance terms.  Lastly, in consideration of Kirpat factor (iv), the Court decidedly found that control of a company’s Board of Directors is a predominantly private interest, not public, and any public interest would nonetheless be countered by Delaware’s interest in quickly executing on actions brought under Section 225.

Only after finding that Kirpat factors (ii) through (iv) weigh in favor of a stay must a court analyze the likelihood of the movant’s success on appeal.  While that was not the case here, the Court of Chancery still found that the Defendants had not offered serious legal questions for review by the Delaware Supreme Court.  Specifically, the Court noted that its Section 225 Opinion “did not break new legal ground or extend settled law.”  Id. at par. 9.  In light of each Kirpat factor, Vice Chancellor Slights denied Defendants’ motion for a stay.

Key Takeaway:  This opinion holds that loss of board control alone does not constitute irreparable harm and likewise does not support a stay of a Section 225 order pending appeal.  Similarly, the constitution of a company’s Board of Directors is a predominantly private issue and likely does not affect public interest such that a stay would be granted. Therefore, if a party seeks a stay pending a Section 225 appeal, it will need to articulate an injury outside of strict compliance with the Order it wants stayed.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In the decision of Dengrong Zhou v. Long Deng and Mark Fang, C.A. No. 2021-0026-JRS (Del. Ch. Apr. 6, 2022) (Mem. Op.), the Delaware Court of Chancery found that a majority of stakeholders from iFresh, Inc. (the “Control Group”) had validly executed a written consent (the “Consent”) removing Defendants Deng and Fang from the iFresh Board of Directors and replacing them with two new members.

Plaintiff Dengrong Zhou sought a judicial declaration affirming the Consent’s validity pursuant to 8 Del. C. § 225, and Defendants filed counterclaims alleging the Control Group had fraudulently purchased their stock in iFresh, thus rendering the Consent invalid.  As a preliminary matter, Vice Chancellor Slights made clear that a Section 225 action “is summary in nature, and narrow in purpose,” and his ruling would only determine the validity of the Consent.  Mem. Op., at 8.  The Court then addressed Defendants’ three allegations of fraud as follows.

First, Defendants claimed that iFresh’s CFO had breached her fiduciary duty by supporting Plaintiff’s purported scheme to acquire control of iFresh, and this breach had wrongfully enabled the Control Group to acquire the shares used to supplant Defendants.  Vice Chancellor Slights denied this allegation on procedural grounds—Defendants did not raise this alleged breach of fiduciary duty until their post-trial brief and, therefore, had waived the argument.

Second, Defendants sought to invalidate votes cast by one of the Control Group stockholders, HK Xu Ding Co. Ltd. (“HK XD”), for breach of contract because it initially only paid $5 million of a $7 million stock purchase in iFresh (of note, HK XD paid the additional $2 million to Deng after he prevailed on a breach of contract claim in New York).  While the Court acknowledged that a breach of contract could invalidate a corporate election, that breach of contract must relate to the election for it to also affect its validity.  The Court specifically stated that its previous decision in Zohar II 2005-1, Ltd. V. FSAR Hldgs., Inc., 2017 WL 5956877 (Del. Ch. Nov. 30, 2017) “does not stand for the proposition that any showing of a breach of contract provides a basis to set aside a stockholder vote in a Section 225 action.”  Mem. Op. at 19 (emphasis in original).  Accordingly, the Court ruled that the breach of contract by HD XD had already been resolved and did not affect the validity of the Consent.

Third, Defendants alleged that the Control Group members had fraudulently obtained their shares in iFresh, and the Court separately analyzed each of the three stock purchase agreements at issue.  In general, though, the Court noted that each allegation relied on a common law duty for a shareholder to disclose intent to take control of a company when purchasing stock in that company.  Vice Chancellor Slights found that no such common law duty existed and for this reason, among others, Defendants’ allegations of fraud failed.  Having denied each of Defendants’ claims of breach of fiduciary duty, breach of contract, and fraud, the Court of Chancery found the Consent was valid in removing Defendants from iFresh’s Board of Directors and replacing them with alternative members.

Key Takeaway: Any general allegation of fraud will not invalidate a corporate election under Section 225.  Instead, a party seeking such invalidation will need to show how a breach of duty relates to the corporate election at issue.  And, specifically, Delaware does not enforce a common law duty for a stockholder to disclose an intent to take control of a company when purchasing that company’s stock.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In the decision of Badr Abdelhameed Dhia Jafar v. Vatican Challenge 2017 LLC, C.A. No. 2020-0151-SG, 2022 WL 365142 (Del. Ch. Feb. 8, 2022) (Letter Op.), the Delaware Court of Chancery held the Plaintiff, a member of the Defendant LLC, responsible for the fees accrued by an appointed Receiver during her oversight of records production in the Section 220 action.

Vice Chancellor Glasscock had entered a default judgment in favor of the Plaintiff in the underlying action and, accordingly, placed the first responsibility of the Receiver’s compensation on the defaulting Defendant.  However, after holding the Defendant in contempt for its failure to compensate the Receiver, the Vice Chancellor placed the secondary responsibility for compensation on the “benefiting party”—here, the Plaintiff.  Letter Op., at 6.

The Court reasoned that the Receiver had been appointed “at the request of and for the benefit of the [Plaintiff],” id., and noted that due to the Defendant’s insolvency, no funds existed from which the Defendant could pay the Receiver.  While the Plaintiff can choose to seek recoupment from the Defendant, the Court held that equity required the Plaintiff be held responsible for the fees owed under the agreed-upon Receivership Order.

The Court then analyzed the reasonableness of the Receiver’s fees.  It held that fees incurred during the performance of duties pursuant to the Receivership Order were reasonable and payable by the Plaintiff.  The fees incurred in the Receiver’s efforts to secure payment did not need to be paid by the Plaintiff, though, consistent with the general principle that a party is responsible for its own litigation costs, absent special circumstances.

Key Takeaway: Litigants seeking the appointment of a receiver to assist in a Section 220 books and records demand could ultimately be held responsible for the compensation of that receiver if the opposing party is unable to pay the receiver’s fees.

In the recent decision of In re Forum Mobile, Inc., C.A. No. 2020-0346-JTL (Del. Ch. Feb. 3, 2022), the Delaware Court of Chancery denied a petition to appoint a custodian under 8 Del. C. § 226(a)(3) where petitioner sought to take a defunct corporation whose shares are traded over the counter to use as a blank check company through a reverse merger.

We previously discussed here on this blog custodianship proceedings under Section 226 of the Delaware General Corporation Law (“DGCL”).

Vice Chancellor Laster preliminarily noted that “Delaware decisions have enforced a public policy against permitting capital markets entrepreneurs to use sections of the DGCL to revive defunct Delaware entities with still extant listings and use them as vehicles to access the public markets.” Slip op. at 1.

The Court then analyzed the text of Section 226 itself. Petitioner sought appointment of a custodian over Forum under 8 Del. C. § 226(a)(3), which allows the Court of Chancery to appoint a custodian when “[t]he corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate, or distribute its assets.”

Section 226(b) provides that “the authority of the custodian is to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the court shall otherwise order and except in cases arising under paragraph (a)(3) of this section or § 352(a)(2) of this title.”

The Court held that a custodian appointed under Section 226(a)(3) does not have authority to continue the business of the corporation, under the express terms of Section 226(b). That is what the petitioner sought to do so in this action. Rather, a custodian appointed under Section 226(a)(3) may only liquidate the affairs of the abandoned corporation and distribute its assets.

Key Takeaway: The Forum Mobile decision makes clear that a petitioner may not rely upon Section 226(a)(3) of the DGCL to revive a defunct, publicly registered shell company as a blank check company.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In the recent decision of Swift v. Houston Wire & Cable Co., C.A. No. 2021-0525-LWW (Del. Ch. Dec. 3, 2021), the Delaware Court of Chancery considered whether a plaintiff lacked standing to inspect a Delaware corporation’s books and records under 8 Del. C. § 220 when the complaint was filed just hours after a merger went effective that cancelled plaintiff’s shares.

Defendant Houston Wire & Cable Co. (“Houston”) moved to dismiss the complaint in light of the pre-suit merger that caused plaintiff to cease being a stockholder of the corporation.  In opposing the motion, Plaintiff argued that the closing of the merger, rather than the “Effective Time” set forth in the merger agreement, should dictate when plaintiff lost his standing to file the Section 220 complaint.  The timing was important, because the complaint was filed just hours after the Effective Time set forth in the merger agreement, but, as plaintiff argued, technically before the closing date.

The Court of Chancery found that, under the merger agreement, plaintiff ceased being a stockholder of the corporation upon the Effective Time.  The Court considered the time at which the Certificate of Merger was filed with the Delaware Secretary of State.  The filing date of that certificate was 12:19 p.m. Although trading occurred later in the afternoon, the Court found that such trading did not change “the reality that, under the Merger Agreement, the instruments being traded represented ‘only the right to receive the Merger Consideration payable in respect thereof.'” Slip op. at 13. Otherwise, the Court found that the shares had been cancelled.

The Court acknowledged that this may be a “harsh result”, as plaintiff called it, but the Court noted that “strict adherence to the requirements of 8 Del. C. § 220 is mandated.”  Id. As such, the Court dismissed the Section 220 books and records action.

Key Takeaway: In light of the Swift decision, it is important for any stockholder following the announcement of a merger to file a books and records complaint before the merger goes effective. Otherwise, the stockholder will be without standing to litigate the Section 220 demand.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

In the recent decision of Knott Partners L.P. v. Telepathy Labs, Inc., C.A. No. 2021-0583-SG (Del. Ch. Nov. 23, 2021), the Delaware Court of Chancery analyzed to what extent a corporation opposing a Section 220 books and records demand may rely upon its stock ledger to deny the demand.

Vice Chancellor Glasscock held that while a corporation may rely upon its stock ledger to reject an inspection demand under Section 220 when the ledger does not list plaintiff as a stockholder, it may not do so when the corporation was otherwise aware of plaintiff’s status as stockholder.

In other words, the court will not allow a corporation to “rely on [its] deficient stock ledger to achieve a dismissal, and to put the Plaintiff to the expense of a new demand and complaint.” Slip op. at 1. The Court further held that in a books and records action, “forcing litigants into the position of submitting extrinsic evidence of stockholder status would be a goad to inefficiency generally incompatible with such an action.” Id.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

On August 5, 2021, the Delaware Court of Chancery issued revised Guidelines for Persons Litigating in the Court of Chancery.   According to the Court’s press release, the Guidelines “review the expectations for remote and courtroom hearings and trials and offer best practices for litigating cases in the Court of Chancery.”  These Guidelines are a “must-read” for any litigator practicing before the Court of Chancery.

The Court of Chancery previously issued original Guidelines in 2012.  While the new Guidelines retain much of the content of the original version, they also address a range of additional topics and provide various insight into the expectations of the Court.  A brief summary of various updates can be found below:

  • The revised Guidelines include a section titled “Expectations for Remote Hearings and Trials”, in light of the substantially increased use of such technology since the start of the Covid-19 pandemic.  The Guidelines list four separate technology platforms used by the Court for remote hearings and trials: (i) conference call using a standard conference bridge; (ii) conference call using CourtSolutions; (iii) video conference using Zoom; and (iv) video conference hosted by CourtScribes.  See Section B.
  • The revised Guidelines clarify that parties should contact chambers to advise whether any party requests oral argument or whether the parties agree to submit the motion for decision without argument.  See Section A(1)(b).
  • The revised Guidelines include a section related to the use of a “Discovery Facilitator”, who may be appointed “to assist the parties in navigating the discovery process”.  In contrast to a Discovery Master, a Discovery Facilitator does not have the authority to decide discovery disputes.  The Court has historically appointed a Discovery Facilitator in cases exhibiting some or all of the following: highly complex facts, extensive discovery burden, an expedited schedule, difficult privilege questions, or a pattern of discovery disputes among counsel.  See Section 7(h).
  • Settlements should be promptly reported to the Court.  See Section C(4).
  • A section discussing prolonged lack of docket activity, which provides that the Court will request updates if there has been a prolonged period of inactivity.  The Guidelines note that if there has not been any docket activity in six months, then it would be recommended to provide a status letter to the Court.  See Section C(5)(f).
  • A section discussing Rule 56 summary judgment motions, which states that parties may include in a scheduling order provisions requiring that parties seek leave before filing a motion for summary judgment.  See Section C(6)(d).
  • Clarification that the Court does not have access to Lexis.  See Section C(8)(e).  Therefore, if counsel cites to Lexis decisions, it is important to provide Lexis versions in the compendium.

In addition to the above-referenced additions, the new Guidelines include much of the content of the original Guidelines, including:

  • hearing protocols and expectations of practitioners for in-court hearings;
  • the prohibition of hand-held electronic devices of any kind in the courtroom, with the exception that a laptop may be used for hearing or trial purposes only;
  • the requirement to consult about the use of technology needs prior to a hearing;
  • recommended scheduling guidelines for expedited and non-expedited cases; and
  • the fact that the concept of mere “local counsel”, whose role is limited to administrative or ministerial matters, has no place in the Court of Chancery. Rather, Delaware counsel are required to have an active role, especially in the discovery process, including in the collection, review and production of documents, and in the assertion of privilege.

Finally, similar to the original version, the revised Guidelines provide helpful links to various sample documents, including confidentiality stipulations, briefing and case scheduling stipulations, a sample document collection outline, and a sample quick-peek stipulation, among others.  The sample documents can be found here.

The revised Guidelines are an important and necessary read for both Delaware and out-of-state counsel practicing before the Delaware Court of Chancery.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.

Effective August 1, 2021, the Delaware Limited Liability Company Act (“LLC Act”), the Delaware Revised Uniform Limited Partnership Act (“LP Act”) and the Delaware Revised Uniform Partnership Act (“Partnership Act”) have been amended to require that the “necessary and essential” standard apply to books and records inspection demands made under statutory or contractual grounds, subject to the LLC or partnership agreement expanding or restricting such inspection rights.

The amendments specifically apply to Section 18-305 of the LLC Act (6 Del. C. § 18-305), Section 17-305 of the LP Act (6 Del. C. § 17-305), and Section 15-403 of the Partnership Act (6 Del. C. § 15-403).  The amendments were first introduced earlier this year in Delaware Senate Bill No. 114 (to amend the LLC Act), Senate Bill No. 115 (to amend the Partnership Act), and Senate Bill No. 116 (to amend the LP Act).

In light of the amendments, the scope of documentation to which a member of a Delaware LLC or partner of a Delaware limited partnership or general partnership is entitled is now more limited, consistent with 8 Del. C. § 220, the books and records inspection statute pertaining to Delaware corporations.  Under case law construing Section 220 of the Delaware General Corporation Law (DGCL), the burden is placed upon a stockholder to demonstrate that the requested books and records are “necessary and essential” to a stated purpose.

The amendments were adopted to address the Delaware Supreme Court decision of Murfey, et al. v. WHC Ventures, LLC, et al., Del. Supr., No 294, 2019 (July 13, 2020).  In Murfey, the Delaware Supreme Court found that the “necessary and essential” standard did not apply to a books and records demand made under a limited partnership’s agreement, because that condition was not expressly conditioned by the limited partnership agreement.

The author of this post represented the prevailing appellants in the Murfey appeal.  A prior post discussing the Murfey decision can be found here.

Under each of the amendments, the right to obtain or examine information may be expanded or restricted in the original LLC or partnership agreement, or in an amendment thereto signed by all members or partners of the entity or in compliance with any applicable requirements of the LLC or partnership agreement.

Key Takeaway:

Absent the LLC or partnership agreement stating otherwise, a member or partner seeking to inspect books and records of a Delaware alternative entity will now have the burden to show that the documents sought are “necessary and essential” to a stated purpose.  Accordingly, these inspection amendments should be considered by any party to a books and records dispute involving a Delaware limited liability company, limited partnership or a general partnership.

Moreover, members or partners and their counsel should consider these amendments when forming an alternative entity and entering into an LLC or partnership agreement.  If the members or partners desire to contract for full transparency into company books and records without the added burden of showing that such requested documents are “necessary and essential” to a stated purpose, they should consider negotiating for such rights at the onset and ensure that the agreement expands their inspection rights beyond the default now set by statute.

Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware.  You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.