Court of Chancery Allows 30(B)(6) Depositions as a Tool in Section 220 Discovery

Discovery in a Delaware books and records action involves striking a balance between the right of the parties to prepare for trial and the statutory mandate to afford a summary treatment of relief. Striking such a balance in practice can be exceedingly difficult, and oftentimes, results in litigants burdening the court with motion practice. In Wei v. Zoox, C.A. No. 2020-1036-KSJM (Del. Ch. Jan. 17, 2023), Chancellor Kathaleen McCormick addressed the use and appropriate parameters for a Rule 30(b)(6) deposition as a tool in connection with Section 220 discovery. Petitioners in Zoox are stockholders that dissented from respondent Zoox, Inc.’s acquisition by Amazon, Inc. They served a books and records demand on the company that was refused, but the transaction closed before they could file an action to enforce the demand. Instead, they filed an appraisal action and sought discovery equivalent to what they had requested in their books and records demand. Zoox produced “formal board materials,” but resisted further discovery and moved for a protective order. In a previous decision, Wei v. Zoox, 268 A.3d 1207 (Del. Ch. Jan. 31, 2022), Chancellor McCormick noted that generally, a plaintiff may not file a lawsuit and seek discovery for the sole purpose of investigating claims to pursue in future lawsuits except through a Section 220 action. However, exercising the court’s broad discretion over the discovery process, the chancellor held that because the petitioners were prevented from obtaining inspection of books and records through no fault of their own and had filed the appraisal action to investigate pre-suit potential breach of fiduciary duty claims, they would be entitled to discovery equivalent to a Section 220 inspection. The court was careful to note that because the scope of discovery in appraisal proceedings is broader than under Section 220, stockholders should not be encouraged to use appraisal actions as a more attractive alternative for pre-suit information-gathering. In other words, where an appraisal proceeding is pursued because the Section 220 path is blocked, stockholders could use appraisal proceedings solely to gather the information that they would have been permitted to obtain under Section 220, had books and records discovery been available.

The court further noted in the 2022 opinion that inspection in a Section 220 action is “frequently limited to board-level documents that formally evidence the directors’ deliberations and decisions,” and that the parties had not addressed whether the petitioners “already received the documents that they would have received in a Section 220 action.” That issue—whether the company had already produced all documents that Section 220 required and what additional discovery the petitioners were entitled to—was left open, and was now before the court by way of a motion filed by the company seeking protection against a Rule 30(b)(6) deposition.