As we’ve discussed previously, it is imperative that a stockholder making a books and records demand under Section 220 of the Delaware General Corporation Law (DGCL) comply with all statutory requirements. The recent decision of Martin Floreani et al. v. FloSports, Inc., C.A. No. 2023-0684-LM (Del. Ch. Oct. 31, 2024) underscores this important principle. As discussed below, the Court’s ruling emphasizes that failure to comply with Section 220’s technical requirements will doom an inspection demand, regardless of its underlying merits.

This case arose from three books and records demands served by plaintiff stockholders Martin, Christina, and Charlene Floreani against FloSports, Inc. under Section 220 of the DGCL. The Delaware Court of Chancery, with Chancellor McCormick presiding, examined each of the three demands and found them all deficient under Section 220.

The Court found the first demand deficient because it was sent by counsel without a power of attorney, was not made under oath, and did not identify the stockholders on whose behalf it was sent. The second demand failed because counsel, rather than the plaintiffs themselves, signed the oath – a requirement the Court likened to complaint verification requirements. The third demand failed under Section 220(c) because the plaintiffs petitioned the Court before the mandatory five-business-day waiting period had expired.

The Court emphasized that while Section 220’s form-and-manner requirements are not onerous, Delaware courts strictly enforce them. The Court granted FloSports’s exceptions to the Magistrate’s Final Report and entered judgment for FloSports, though it declined to award attorney’s fees.

Key Takeaway

This decision reinforces that Delaware courts take a strict approach to enforcing Section 220’s procedural requirements. Stockholders seeking books and records must carefully comply with all technical requirements, including proper execution of demands under oath by the stockholders themselves, inclusion of necessary documentation, and observance of statutory waiting periods. Even minor procedural defects can be fatal to a books and records demand.

For a more fulsome discussion of Section 220 books and records demands, we’ve prepared an updated primer discussing the statutory requirements and associated case law.