Del. Code Ann. tit. 8, § 220 enables stockholders to investigate matters reasonably related to their interest as stockholders including, among other things, possible corporate wrongdoing. It does not open the door to the wide ranging discovery that would be available in support of litigation. Thus, where a § 220 claim is based on alleged corporate wrongdoing, and assuming the allegation is meritorious, the stockholder should be given enough information to effectively address the problem, either through derivative litigation or through direct contact with the corporation's directors and/or stockholders.
McKesson Corporation entered into a stock-for-stock merger agreement with HBO & Company ("HBOC"). On October 20, 1998, appellant, Noel Saito, purchased McKesson stock. The merger was consummated in January 1999 and the combined company was renamed McKesson HBOC, Incorporated. HBOC continued its separate corporate existence as a wholly-owned subsidiary of McKesson HBOC. McKesson HBOC announced a series of financial restatements triggered by its year-end audit process. During that four month period, McKesson HBOC reduced its revenues by $ 327.4 million for the three prior fiscal years. Saito was one of four plaintiffs in the Ash complaint, which alleged that: (i) McKesson's directors breached their duty of care by failing to discover the HBOC accounting irregularities before the merger; (ii) McKesson's directors committed corporate waste by entering into the merger with HBOC; (iii) HBOC's directors breached their fiduciary duties by failing to monitor the company's compliance with financial reporting requirements prior to the merger; and (iv) McKesson HBOC's directors failed in the same respect during the three months following the merger. Although the Court of Chancery granted defendants' motion to dismiss the complaint, the dismissal was without prejudice as to the pre-merger and post-merger oversight claims. The Court of Chancery held (1) that the proper purpose only extended to potential wrongdoing after the date on which the shareholder acquired his stock, (2) that the shareholder did not have a proper purpose to inspect documents relating to potential claims against third party advisors who counseled the boards in connection with the merger, and (3) that the shareholder was not entitled to pre-merger documents of the target because he was not a stockholder of the pre-merger target, and, with respect to post-merger target, he did not establish a basis on which to disregard the separate existence of the wholly-owned subsidiary.
Does a stockholder's statutory right to inspect corporate books and records have limitations?
Even where a stockholder's only purpose is to gather information for a derivative suit, the date of his or her stock purchase should not be used as an automatic "cut-off" date in a § 220 action. First, the potential derivative claim may involve a continuing wrong that both predates and postdates the stockholder's purchase date. In such a case, books and records from the inception of the alleged wrongdoing could be necessary and essential to the stockholder's purpose. Second, the alleged post-purchase date wrongs may have their foundation in events that transpired earlier. In this case, for example, Saito wants to investigate McKesson's apparent failure to learn of HBOC's accounting irregularities until months after the merger was consummated. Due diligence documents generated before the merger agreement was signed may be essential to that investigation. In sum, the date on which a stockholder first acquired the corporation's stock does not control the scope of records available under § 220. If activities that occurred before the purchase date are "reasonably related" to the stockholder's interest as a stockholder, then the stockholder should be given access to records necessary to an understanding of those activities.