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Khanna v. Covad Communs. Group

Court of Chancery of Delaware, New Castle

December 15, 2003, Submitted ; January 23, 2004, Decided

C.A. No. 20481-NC

Opinion

This is an action brought under 8 Del. C. § 220 by Petitioner Dhruv Khanna ("Khanna") to inspect certain books and records of Respondent Covad Communications Group, Inc. ("Covad"), a Delaware corporation. Khanna is the largest individual holder of Covad's common stock and is a former general counsel and executive vice president. He claims to have sought inspection of Covad's books and records to advance his investigation into an alleged pattern of self-dealing by several members of Covad's board. Many, if not most, of the events which hold Khanna's interest occurred during his tenure as general counsel. This is the Court's decision following trial.

On June 10, 2003, Khanna made demand (the "Demand") upon Covad to inspect certain corporate records. 1 He set forth the following purposes for his demand:

The purposes of this demand are: (1) to enable [Khanna] to investigate whether the Company's directors (a) breached their fiduciary duties [*2]  in connection with the investigation of [his] allegations of wrongdoing, as well as in connection with the underlying transactions themselves or (b) otherwise acted unlawfully to the detriment of shareholders; and (2) to enable [Khanna] to evaluate whether a valid basis exists to bring a shareholder action to challenge the transactions, Board member actions or elections or otherwise seek shareholder redress.

Khanna listed the documents which he sought to inspect:

1. all Company Board of Directors' (the "Board" or the "Board of Directors") minutes and resolutions from May 1, 2002 to the present, including minutes and resolutions from any and all Board committees or subcommittees;

2. all Company Board of Directors' minutes and resolutions authorizing, ratifying or otherwise approving (a) the Company's investment in Certive, Inc. on or about November 1999, (b) the Company's acquisition of BlueStar Communications Group, Inc. ("BlueStar") on or about September 2000,  [*3]  (c) the Company's post-BlueStar acquisition pay-out of additional shares of the Company to former BlueStar shareholders based on these shareholder's earn-out rights on or about April 2001, or (d) the Company's settlement with DishnetDSL on or about February 2002;

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2004 Del. Ch. LEXIS 11 *; 2004 WL 187274

Khanna v. Covad Communications Group, Inc.

Subsequent History: Motions ruled upon by, Motion to strike denied by, Dismissed by, in part Khanna v. McMinn, 2006 Del. Ch. LEXIS 86 (Del. Ch., May 9, 2006)

Disposition: Petitioner entitled to inspect certain books and records of Respondent.

CORE TERMS

documents, shareholder, inspect, derivative action, wrongdoing, allegations, books and records, transactions, stockholder, discovery, purposes, proper purpose, Communications, termination, motion to dismiss, investigate, challenged transaction, board of directors, attorney-client, subcommittee, disclosures, retention, minutes, argues, work product doctrine, executive officer, general counsel, reflecting, credible, rights

Civil Procedure, Class Actions, Derivative Actions, General Overview, Discovery & Disclosure, Disclosure, Mandatory Disclosures, Discovery, Methods of Discovery, Inspection & Production Requests, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Sanctions, Baseless Filings, Business & Corporate Law, Shareholder Actions, Actions Against Corporations, Directors & Officers, Management Duties & Liabilities, Direct Actions, Record Inspection & Maintenance, Inspection Rights, Directors, Shareholders, Shareholders, Meetings & Voting, Voting Shares, Proxy Agreements, Evidence, Burdens of Proof, Governments, Fiduciaries, Privileged Communications, Work Product Doctrine, Opinion Work Product, Privileges, Attorney-Client Privilege, Scope, Corporate Governance, Corporations, Shareholder Duties & Liabilities