An interesting Delaware Supreme Court decision just before the holidays may have escaped many people’s attention. In United Technologies Corp. v. Treppel, the Court concluded in the context of stockholder inspection rights that a corporation has a “legitimate interest in having consistent rulings on related issues of Delaware law” and reaffirmed board of director authority to adopt forum selection bylaws.
The Treppel Litigation Background…
In Treppel, the plaintiff requested the right to inspect United Technologies’ books and records under Section 220(c) of the Delaware General Corporation Law. He intended to use the materials for the purpose of evaluating potential stockholder litigation against the company in connection with previous Department of Justice and U.S. State Department investigations and penalties.
After a lot of back and forth, United Technologies offered to provide the requested information so long as the plaintiff entered into a confidentiality agreement stating that any claim “arising out of, related to, involving or in connection with” the investigation must be brought in a Delaware court. The plaintiff sued in Delaware to obtain access to the company’s books and records without this usage restriction. Then, while that suit was pending, the United Technologies board amended the company’s bylaws to add a forum selection provision.
The Supreme Court’s Holding…
Reversing the Court of Chancery, the Delaware Supreme Court noted that a stockholder’s inspection right is “qualified,” meaning that the lower court erred in concluding that it lacked statutory authority to restrict the use of inspection material to litigation in a specified jurisdiction.
Also interesting was the Court’s rejection of plaintiff’s argument that the new forum selection bylaw did not apply to him because it was adopted after he bought his United Technologies shares. The Court stated that because the bylaws empower the board to adopt amendments by a majority vote, the plaintiff “cannot now contend that he was not on notice that the board itself may act unilaterally to adopt bylaws addressing issues that are the subject of regulation by bylaw” under Delaware corporate law.
This holding is consistent with, and re-enforces, recent Delaware decisions on the same topic. (See this Doug’s Note.)
- In certain circumstances, a company may condition its response to a pre-litigation stockholder inspection request on the stockholder’s agreement to use that information only for litigation brought in Delaware.
- A board’s authority to unilaterally adopt a forum selection bylaw at any time now appears to be firmly settled.