In the case of The Ravenswood Investment Company, L.P. v. Winmill & Co. Inc., C.A. No. 7048-VCN (Del. Ch., Jan. 31, 2013), the Court of Chancery analyzed motions filed by both plaintiff and defendant in a Section 220 action that was filed simultaneously with a breach of fiduciary duty claim.

Background

Plaintiff Ravenswood Investment Co., L.P. (“Ravenswood”) filed a Section 220 action and a fiduciary duty claim against Defendant, Winmill & Co., Inc. (“Winmill”) for declining to provide books and records to Ravenswood.  Ravenswood’s litigation efforts are premised on the belief that Winmill’s board withholds information with the expectation that Winmill’s share price will fall because of investor reluctance to acquire shares in a company that refuses to disclose corporate documentation. 

Winmill filed a motion with the Court, objecting to the comingling of a Section 220 action with a fiduciary duty action.  Winmill also sought dismissal of the fiduciary duty claim, based on the fact that Delaware law does not impose reporting or disclosure requirements on a corporation’s board of directors except when seeking shareholder approval.  Additionally, Ravenswood filed a motion to compel, seeking to depose Winmill’s board members in support of its Section 220 action.  In addition to the corporate representative produced by Winmill, Ravenswood also seeks to depose two of its directors.

Analysis

The Court stated that the Section 220 and fiduciary duty claim should not have been brought together, and therefore could have dismissed the fiduciary duty claim.  However, the Court determined that the more pragmatic approach would be to separate the Section 220 claim from the fiduciary duty claim.   After adjudicating the Section 220 claim, it will then move onto the fiduciary duty claim, if it remains.  As a result, the Court deferred, for the time being, on the sufficiency, as a matter of pleading, of Ravenswood’s fiduciary duty claim.

In connection with Ravenswood’s motion to compel, the Court noted that the discovery obligation confronted by a corporate defendant is “relatively minimal,” which has been described as “narrow is purpose and scope.”  Accordingly, the deposition of the corporate representative of the corporation, and not its directors, should suffice.  If such representative is not in possession of the requisite knowledge, then deposition of the directors may become necessary.  If Winmill continues to deny Ravenswood the opportunity to depose its directors, however, then Court ruled that they will not be allowed to testify at trial on the Section 220 claims.

Conclusion

This case is significant because it shows the need to assert a Section 220 claim prior to bringing more substantive claims against a company or its directors, such as for breach of fiduciary duty.  See, e.g., our prior post summarizing Central Laborers Pension Fund v. News Corporation, C.A. No. 6287-VCN (Del. Ch. Nov. 30, 2011), which dismissed a Section 220 claim filed after a derivative action.   Not only is it improper to bring such claims simultaneously, but by bringing a books and records action simultaneously with a breach of fiduciary duty claim, a plaintiff will slow the pace of the books and records action, which is intended to be a summary proceeding.   For more information concerning summary proceedings, see our Directors’ and Shareholders’ Reference Guide to Summary Proceedings in the Delaware Court of Chancery.