VeriFone Annual Report 2011

King v.VeriFone Holdings, Inc., Del. Supr., No. 330, 2010 (Jan. 28, 2011), read opinion here, is a Delaware Supreme Court decision that provides added clarity to practitioners regarding the "proper purpose" and related prerequisites that a shareholder must satisfy in order to successfully seek books and records under DGCL Section 220. This ruling reversed a Chancery decision that found a lack of proper purpose in part because the Section 220 action was filed after a derivative suit was filed. Delaware’s High Court explained that it remains preferable to file Section 220 suits to obtain books and records prior to filing a derivative suit, but following that chronology is not, per se, a fatal flaw in a Section 220 action. I plan to provide a fuller summary on this case later.

This decision also highlights how contentious, lacking in simplicity and expensive Section 220 cases can be. I say lacking in simplicity because it is rare for the members of the Delaware Supreme Court and Court of Chancery to disagree on the interpretation of the DGCL. Also, I say expensive because appeals to the Delaware Supreme Court don’t come cheap. And remember that after all that effort, what does one win in a Section 220 case? Books and records only.

Supplement

Notably, VeriFone provided most of the requested “categories of documents” that were sought before suit except one: “The Audit Committee Report with the results of an internal investigation regarding the issues surrounding the restatement of VeriFone’s financial statements.” This demand for books and records was pursuant to the specific direction of the federal court in which the derivative suit was pending, to use DGCL § 220 to amend the complaint in that case, in order to assist King in pleading demand futility in the California suit.

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