In Barry Leistner v. Red Mud Enterprises LLC, C.A. No. 2023-0503-SEM (Del. Ch. Dec. 8, 2023), the Delaware Court of Chancery addressed Plaintiff Barry Leistner’s exceptions to a Magistrate’s Final Report that denied his books and records request regarding Red Mud Enterprises LLC. Leistner, a member and investor of the company, previously obtained a default judgment against Red Mud’s principals but continued business relations with them. After becoming a member of Red Mud, he made a comprehensive books and records demand, which the company deemed unreasonable.
The Magistrate found the company’s denial justified, asserting that Leistner’s purposes were primarily to pursue his interests as a judgment creditor and to involve himself in the company’s day-to-day management, a role not guaranteed by the LLC agreement. Upon review of Leistner’s exceptions, Vice Chancellor Glasscock concurred with the Magistrate’s decision, emphasizing that Leistner’s document request was excessively broad, extending beyond what was necessary for a stockholder’s purpose.
The Court rejected Leistner’s request to at least tailor the demand for valuation materials, maintaining that the decision is without prejudice to him seeking books and records in the future upon a reasonable demand for valuation or other stockholder purposes. The Court held that late-discovered evidence is considered relevant to potential future litigation.
The Court also acknowledged the separate contract-based litigation seeking documents, but specific performance was deemed unnecessary as the records have already been produced. In conclusion, the Court denied Plaintiff’s exceptions based on the Magistrate’s well-reasoned ruling, emphasizing the overbroad nature of Leistner’s document request.
This decision underscores the need for a plaintiff seeking to inspect a Delaware company’s books and records to ensure that their request is narrowly tailored to a stated proper purpose. Overbroad requests not tethered to a stockholder interest will be subject to denial by the Court.