Background
Neil Luthra and Vann Avedisian brought a books-and-records action under 6 Del. C. § 17-305 against HIR Holdings LP. A Magistrate in Chancery issued a post-trial final report addressing their inspection rights under the partnership’s limited partnership agreement and investment schedule. Neither side excepted to that report, and the Chancellor adopted it.
The parties later submitted competing implementing orders. The Magistrate largely adopted the plaintiffs’ proposal, and HIR excepted to two provisions. Vice Chancellor Bonnie W. David had previously held that HIR could not use those exceptions to relitigate the final report’s merits, but could challenge issues newly resolved by the implementing order.
The Court’s Holding
The court sustained HIR’s exceptions. The final report allowed plaintiffs to obtain confidential, proprietary, or sensitive information only if HIR had provided that information to qualifying nonemployee, nonfounder limited partners. That circumstance did not apply here.
Accordingly, the court held that Paragraph 7(f) of the implementing order improperly required production of confidential internal communications concerning capital-account reporting, tax matters, or financial information needed for plaintiffs’ proper purposes. The final report instead required nonconfidential or appropriately sanitized information for those purposes, which Paragraph 7(d) already covered.
The court also held that Paragraph 12’s definition of “Confidential” was too narrow because it limited confidentiality to information whose disclosure would cause concrete competitive harm or reveal identified third parties’ personal financial, tax, or account information. The final report permitted redaction, sanitization, or dissemination limits for sensitive information as well. The parties were directed to submit a revised order.
Key Takeaways
- Implementing-order exceptions may address issues not resolved in an adopted final report, but cannot relitigate that report’s merits.
- Inspection rights under the LPA did not entitle plaintiffs to confidential internal communications absent the agreement’s specified disclosure condition.
- An implementing confidentiality definition must preserve the ability to protect sensitive information, not only competitively harmful information.
Why It Matters
The decision underscores that a books-and-records implementing order must track the underlying merits ruling and the governing contractual limits. Even when inspection is warranted, the production remedy may be limited to nonconfidential or sanitized materials.