Skouras v. Admiralty Enters., Inc. - 386 A.2d 674 (Del. Ch. 1978)

Rule:

A proper purpose is defined in Del. Code Ann. tit. 8, § 220 as one which is reasonably related to such person's interest as a stockholder, and it is clearly proper for a stockholder to ask leave to examine corporate books and records to follow up his suspicions of corporate mismanagement, thereby acting not only on his own behalf but on that of the corporation and its other stockholders, a purpose which plaintiff asserts in this action, and one which finds support in Delaware decisional law.

Facts:

Plaintiff Plato A. Skouras, the holder of 2,871 shares of stock of the defendant Admiralty Enterprises, Inc., representing an interest of between four and five percent in said corporation's common stock, seeks an order of the Court granting him the right to inspect certain books and records of Admiralty as well as the books of such corporation's affiliates pursuant to the provisions of 8 Del.C. Section 220.

Issue:

Should Skouras’ request to inspect certain books and records of Admiralty and its affiliates pursuant to Del. Code Ann. tit. 8, § 220 be granted?

Answer:

Yes

Conclusion:

Although Skouras failed to completely comply with the requirement of Del. Code Ann. tit. 8, § 220(b) that stockholder's entire demand be under oath, Admiralty was fully aware of the reasons behind the demand and it could not rely upon a technical defect to defeat the claims. The court found Skouras’s primary purpose in seeking to examine corporate books and records to follow up his suspicions of corporate mismanagement was proper. It was not merely an attempt to harass, nor was it an attempt to compel a buy-out of holdings; instead, the sale offer was a possible alternative to litigation. The request to inspect a subsidiary's records were denied absent a showing of fraud or that the subsidiary was a mere alter ego of the parent. The demand was not barred by laches, as the concern was not retrospective, but intended to prevent future wrongdoing. However, the court limited the inspection to the time period after stockholder left his position as a member of the board of directors. Finally, the record did not support the fear that stockholder would divulge confidential corporate matters.