Jefferson v. Dominion Holdings, Inc., C.A. No. 8663-VCN (September 24, 2014) (Noble, V.C.)

By Jamie Bruce and Carty Bibee

On September 24, 2014, Vice Chancellor Noble issued his opinion in Jefferson v. Dominion Holdings, Inc., a matter involving a dispute between a corporation and one of its stockholders over the scope, and attendant confidentiality concerns, in the stockholder’s inspection of the books and records of the corporation under 8 Del. C. § 220.

The Court concluded after trial that the plaintiff stockholder Jefferson (“Plaintiff Stockholder”) demonstrated that valuing his stock in defendant Dominion Holdings, Inc. (“Defendant Corporation”) was a proper purpose for his requested inspection.  In this Order, Vice Chancellor Noble addressed two issues: (1) the scope of the production of books and records and (2) the confidentiality concerns of Defendant Corporation.

The Court reviewed the various record requests in connection with the purpose of valuing Plaintiff Stockholder’s stock and determined that certain of his requests were not appropriate.  In particular, Defendant Corporation’s tax returns and financial reports were deemed appropriate, but the request for “supporting documents relating thereto” was vague and the need for such additional documents was not apparent.  Next, Plaintiff Stockholder requested executive compensation information but also requested social security numbers and other personal information.  The Court held that the compensation information was appropriate, but the additional requests for social security numbers and personal information were not supported by any legitimate rationale.  The Court also held, with respect to financial statements, that the audited, consolidated annual financial statements of Defendant Corporation for 2010 through 2013 should be adequate for the valuation.  The Court found that Plaintiff Stockholder did not explain his need for unaudited financials or subsidiary-by-subsidiary financials.  The Court determined that “[i]t is not an objective of a Section 220 proceeding to require the corporation to compile various financial data in a particular format when it has not done so and when the stockholder has offered no reason why the corporation’s standard practices should not be respected.”  (Page 3).  Finally, the Court held that whether produced records are maintained in electronic format (readily usable by Plaintiff Stockholder) or paper format, production in such respective format is reasonable.

Because Defendant Corporation is a private corporation with no public reporting duties, confidential treatment of the produced books and records was a concern for Defendant Corporation.  The Court found that “[c]onfidentiality agreements provide a rational, reasonable, and enforceable methodology for dealing with corporate books and records that otherwise would not be subject to public review.”  (Page 4).  And, moreover, the Court held that “[a] closely held corporation does not need to make all of its records available to the public simply because it has a stockholder with a legitimate basis for inspecting corporate records.”  (Id.)  The Court went on to conduct a balancing of the needs of Plaintiff Stockholder and the reasonable expectations of Defendant Corporation and found that such a balance is best achieved through a confidentiality agreement that “both (a) reasonably protects the confidentiality of the books and records and (b) allows the stockholder to review the documents, not only with his advisors, but also with other shareholders who share similar views.”  (Page 5).  The Court, though, did not prescribe a form of confidentiality agreement or order for the parties.


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