Section 220 of the General Corporation Law of the State of Delaware provides stockholders with the right to inspect the books and records of a corporation for a “proper purpose” that is “reasonably related to such person’s interest as a stockholder.” Delaware courts have long urged stockholders to utilize Section 220 investigations as one of the “tools on hand” prior to filing derivative lawsuits. Use of Section 220 by stockholders has increased steadily in recent years and has been met with what the Delaware Court of Chancery has recently characterized as “massive resistance” by defendant corporations. In Pettry v. Gilead Sciences, 2020 WL 6870461 (Del. Ch. Nov. 24, 2020), the Court of Chancery observed that the defendant’s “overly aggressive defensive strategy epitomized a trend” in which “defendants are increasingly treating Section 220 actions as ‘surrogate proceedings to litigate the possible merits of the suit’ and ‘place obstacles in the plaintiffs’ way to obstruct them from employing it as a quick and easy pre-filing discovery tool.’” Suggesting the desire to curtail this kind of behavior, the court granted the plaintiffs leave to move for fee-shifting. This “trend” in “overly aggressive defensive strategy”—if such trend does exist—is likely in response to the recent proliferation of books and records demands, especially in the context of stockholder investigations of potential Caremark claims, and the ever-broadening categories of documents that are being sought in such demands.

The increased focus on the fiduciary duty of oversight following Marchand v. Barnhill, 2019 WL 2509617 (Del. 2019), has led to a rise in Section 220 demands brought by stockholders for the purpose of investigating potential breaches of such fiduciary duty (also known as “Caremark claims”). For example, in In re Facebook Section 220 Litigation, 2019 WL 2320842 (Del. Ch. May 31, 2019), the Delaware Court of Chancery ordered Facebook to produce to certain stockholders documents that were deemed “necessary and essential to their investigation of Caremark-based claims” arising from an unauthorized release of confidential Facebook user data to Cambridge Analytica, a data analytics firm. In Pettry v. Gilead, the Delaware Court of Chancery held that the plaintiffs had established a credible basis to infer wrongdoing in connection with the development and commercialization of Gilead’s HIV treatments and therefore had stated a proper purpose for inspection under Section 220. In Jacob v. Bloom Energy, 2021 WL 733438 (Del. Ch. Feb. 25, 2021), the Delaware Court of Chancery granted stockholder the right to inspect certain documents for the purpose of investigating potential mismanagement by the company’s board of directors in connection with alleged misrepresentations in Bloom’s financial statements and the performance of its “green” energy technology. In one of the more recent cases, Gross v. Biogen, 2021 WL 1399282 (Del. Ch. Apr. 14, 2021), the Delaware Court of Chancery granted stockholders the right to inspect certain board documents for the purpose of investigating potential wrongdoing by the board in connection with certain state and federal investigations into Biogen’s sales and promotional practices and potential violations of federal kick-back rules. This trend suggests corporations can generally anticipate that, following a public announcement of bad news, it is becoming increasingly likely they will receive one or more Section 220 demands from stockholders seeking to investigate potential oversight failures by directors or officers in connection with the underlying event.