A question often arises as to whether a party making a books and records demand under 8 Del. C. § 220 must enter into a confidentiality agreement in order to inspect responsive documents of the corporation.
The Delaware Supreme Court, in the decision of Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del. Aug. 7, 2019), shed light on this question. In this opinion, the High Court held that conditioning the inspection of documents demanded under Section 220 of the Delaware General Corporation Law (“DGCL”) upon entry into a confidentiality agreement should be the exception, not the rule, and justification for confidentiality must be provided by the corporation in order to be enforceable.
In the memorandum opinion, the Delaware Supreme Court wrote:
We hold that, although the Court of Chancery may—and typically does— condition Section 220 inspections on the entry of a reasonable confidentiality order, such inspections are not subject to a presumption of confidentiality. We further hold that when the court, in the exercise of its discretion, enters a confidentiality order, the order’s temporal duration is not dependent on a showing of the absence of exigent circumstances by the stockholder. Rather, the Court of Chancery should weigh the stockholder’s legitimate interests in free communication against the corporation’s legitimate interests in confidentiality.
Id. at 934.
In light of this ruling, Delaware corporations receiving a Section 220 inspection demand should be prepared to demonstrate the need for confidentiality, and stockholders making such a demand should be prepared to address the need for free and open communication in connection with the inspection materials.