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Chancery Rejects Section 220 Suit Filed After Derivative Suit

By Francis G.X. Pileggi

Baca v. Insight Enterprises, Inc., C.A. No. 5105-VCL (Del. Ch. June 3, 2010), read opinion here.

The Court of Chancery in this case rejects claims made under DGCL Section 220 based on the same reasoning in the recent Court of Chancery decision in King v. Verifone. See blog summary of that decision here.

In essence, this decision makes clear the general rule that if a Section 220 lawsuit is filed after a derivative or a class action suit involving the same issues, the Section 220 suit will be dismissed based on a lack of proper purpose. The reason for this conclusion is that the purpose for a Section 220 suit, in order for it to be proper, is so that information can be obtained before the filing of a plenary suit or a derivative suit. Footnote 1 to this opinion provides exceptions to that general rule that a Section 220 suit must be filed before a derivative suit and also addresses those circumstances where the suits might overlap as a result of the defendant's failure to comply with its Section 220 obligations. (See cases cited in footnote 1.) Otherwise, this case generally repeats the same reasoning in the recent King v. Verifone case cited above.
 

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 09, 2010 (boomark / email).