Race to File Shareholder Derivative Suits in Delaware Slowed by Judicial Roadblock

Delaware courts have, for some time now, been insisting that plaintiffs seeking to file derivative litigation on behalf of a company against its own officers and directors first use 8 Del. C. ' 220 to request an opporunity to review relevant books and records of the corporation. These so-called “books-and-records” requests can provide a shareholder with the ability to conduct a limited pre-suit investigation in order to assess whether litigation is appropriate. See, e.g., Wood v. Baum, 953 A.2d 136, 144 (Del. 2008); Beam v. Stewart, 845 A.2d 1040, 1056-57 (Del. 2004); White v. Panic, 783 A.2d 543, 556-57 (Del. 2001); Brehm v. Eisner, 746 A.2d 244, 266-67 (Del. 2000); Grimes v. Donald, 623 A.2d 1207, 1216 (Del. 1996); In re Dow Chem. Co. Derivative Litig., No. 4349-CC, 2010 WL 66769 (Del. Ch. Jan. 11, 2010); Desimone v. Barrows, 924 A.2d 908, 951 (Del. Ch. 2007); Rattner v. Bidzos, No. Civ.A. 19700, 2003 WL 22284323, at *14 (Del. Ch. Sept. 30, 2003); Guttman v. Huang, 823 A.2d 492, 493 (Del. Ch. 2003). But the plaintiffs bar has simply not heeded the direction of the Delaware courts.

As any corporate attorney advising a company that has had to deliver bad news to the market can attest, derivative litigation is often commenced within days of a negative announcement ' many times by multiple law firms. Vice Chancellor Laster's recent jurisprudence offers hope, however, that this practice will change. But any change in litigation tactics will be accompanied by new challenges for those advising companies that have attracted the attention of a plaintiffs lawyer ' particularly in responding to books and records requests aimed at securing ammunition for later litigation.