On August 7, 2019, in Tiger v. Boast Apparel, Inc.,1 the Supreme Court of the State of Delaware affirmed the Court of Chancery's order and final judgment relating to a confidentiality order for books and records produced to a stockholder under Section 220 of the Delaware General Corporation Law. Although the Delaware Supreme Court affirmed the Court of Chancery's order and final judgment on the grounds that the lower court did not abuse its discretion, the Delaware Supreme Court held that while Section 220 inspections may be conditioned on the entry by the parties "of a reasonable confidentiality order, such inspections are not subject to a presumption of confidentiality." 2 The Court found that a confidentiality order's "temporal duration is not dependent on a showing of the absence of exigent circumstances by the stockholder." 3 The Court explained that the Court of Chancery should conduct a balancing test of the "stockholder's legitimate interests in free communication against the corporation's legitimate interests in confidentiality" in determining the scope of confidentiality and temporal duration of the limitation in a Section 220 production. 4
I. Background
In 2010, Alex Tiger, the plaintiff, and John Dowling revived the Boast Brand, an apparel brand created in 1973 by tennis pro Bill St. John and retired in the 1990s. 5 Tiger and Dowling started Boast Investors, LLC, which was converted into BAI Capital Holdings, Inc., the defendant, as well as Branded Boast, LLC. Boast Investors purchased the Boast intellectual property from Boast, Inc.
Over the next several years, Dowling loaned $4 million to Boast Investors and increased his equity stake through an amendment to Boast Investors' operating agreement, which allowed him to convert the loans into additional member units. 6 Tiger opposed this action and refused to participate in a preemptive rights offering that took place as part of the conversion, diluting Tiger's interest in Boast Investors. In December of 2014, Tiger delivered a Section 220 demand to BAI for certain corporate records. 7 Section 220 of the Delaware Corporation Law provides that any stockholder "shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from" certain enumerated corporate records. 8 Tiger stated that the purposes of the "inspection demand were to, among other things, (1) value his shares, (2) investigate potential mismanagement, and (3) investigate director independence." 9
Footnote
Tiger v. Boast Apparel, Inc., C.A. No. 2017-0776 (Del. Aug 7, 2019).
Id. at 2 (emphasis added).
Id. at 2 (emphasis added).
Id. at 2-3, 9.
Id. at 3.
Id. at 4.
Id. at 4.
8 Del. C. § 220(b).
Boast Apparel at 4.
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