On October 23, 2023, Magistrate in Chancery Selena Molina of the Court of Chancery of the State of Delaware ordered, in a stockholder books and records action brought under Section 220 of the Delaware General Corporation Law (8 Del. C. 220), that the production of corporate books and records for the stockholder's legitimate purpose of valuation be subject to a confidentiality restriction based upon a clause in the stockholder's subscription agreement.
While recent decisions of the Delaware Supreme Court and the Court of Chancery have indicated that corporations' interests in confidentiality in stockholder books and records productions can be overcome by a stockholder's legitimate interests in public communication about the information in such productions, this decision illustrates how that principle can be overcome.
Here, the corporation protected its interest through a subscription agreement confidentiality clause. Sometimes, investors and even sponsors of business entities overlook the importance of subscription agreement provisions. However, as this case demonstrates, these agreements can substantively affect a stockholder's (or member's or limited partner's, in the case of alternative entities) rights in their investment. Generally, Delaware courts will not relieve the parties of their obligations under a valid contract, and particularly, Delaware courts have recently indicated that contractual agreements can override statutory rights under the Delaware General Corporation Law.
Because Delaware law respects private ordering, it is important to carefully consider the interplay of different governing documents and other agreements entered into in connection with an investment into a Delaware entity. Any one of those agreements – and not necessarily the agreement that parties would expect to find such a provision in – could affect the parties substantive rights within the Delaware entity.