Books and Records Action: Chancery Examines Scope of Documents

In the recent decision of Caspian Select Credit Master Fund, Ltd. v. Key Plastics Corp., Inc., C.A. No. 8625-VCN (Del. Ch. Sept. 3, 2014), the Court analyzed whether categories of documents requested by Caspian, the minority shareholder of Key Plastics, were “narrowly  tailored” to a proper purpose.

In an earlier decision, the Court found that Caspian had asserted a proper purpose to investigate possible waste and wrongdoing linked to a loan made to Key Plastics by its controlling shareholder.

In the September 2014 ruling, the Court found that the following categories of documents were necessary and essential to the purpose stated:

1. Communications between Key Plastics and Wayzata relating to the amendments to the Wayzate Exit Facility or decisions to seek, or not to seek, alternative financing.
2. Documents relating to communications with potential lenders.
3. All documents regarding the origination of the CapitalSource Loan, including communications with CapitalSource.
4. All business plans, projections, and pro forma financial statements shown to potential lenders.

While this decision is short in length, it provides a good illustration of the scope of documents to which a shareholder may be entitled in a Section 220 books and records action—especially in connection with a purpose of the demand relating to misconduct surrounding a loan made by a controlling shareholder to a company.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at [email protected].