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Chancery Rejects Claims for Books and Records Per Section 220, For Lack of Proper Purpose

By Francis G. X. Pileggi, Esq.

Beiser v. PMC-Sierra, Inc., (Del. Ch., Feb. 26, 2009). This Chancery Court opinion rejected a claim under DGCL Section 220 for books and records of a corporation based on the court's finding that the "proper purpose" for such a demand was not satisfied. The reasoning was that this suit was an attempt to circumvent the stay that was imposed on discovery in a related securities suit in federal court pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA) and the Securities Litigation Uniform Standards Act of 1998 (SLUSA).

The court cites cases at footnote 23 for the statement that both Delaware and federal courts have ruled that neither the PSLRA nor the SLUSA preempt Section 220 actions, especially where safeguards are present, such as not using the records obtained in the related PSLRA case pending. In the instant Delaware case, however, the court determined that the only purpose for the Section 220 demand was to use any data obtained  in the pending federal securities case, which was not a "proper purpose" under Section 220. Thus, the court dismissed the demand for books and records with prejudice.

N.B. An unrelated recent Chancery Court decision that also rejected a Section 220 claim and also involved a related federal securities proceeding, was highlighted by Kevin Brady here.

Full post as published by Delaware Corporate and Commercial Litigation Blog on February 26, 2009 (boomark / email).