Background
Max Glass, a member of RWA Company, LLC, made records demands under 6 Del. C. § 18-305 to value his Class B membership interest and investigate possible fiduciary misconduct. RWA produced its operating agreement and financial statements, but said it had no board minutes, resolutions, or written consents for the requested period. Glass later expanded his requests after asserting that the financial information supplied was insufficient.
Two days before his initial demand, Glass filed a separate plenary action against RWA and others alleging, among other things, fraud, fiduciary-duty breaches, corporate-opportunity usurpation, contract breach, conspiracy, and unjust enrichment. After discovery disputes arose in that action, Glass brought this books-and-records case seeking documents overlapping with the plenary litigation.
The Court’s Holding
Magistrate in Chancery Caroline C. Brittingham recommended granting RWA’s motion to dismiss and dismissing the Section 18-305 complaint with prejudice. The magistrate concluded that Glass could not use a books-and-records demand to obtain material for claims he had already placed at issue in a pending plenary action.
The report recognized that parallel plenary and inspection actions are not categorically barred, but held that Glass did not establish the special circumstances required to proceed. The King exception did not apply because Glass’s plenary claims had not been dismissed with leave to amend; he had already amended his complaint. Nor did Khanna apply, because Glass identified no defendant-caused timing pressure comparable to an impending limitations problem. His route to the requested information was discovery in the plenary action, if appropriate there.
Key Takeaways
- A member generally cannot use Section 18-305 as a substitute for discovery in a pending, overlapping plenary case.
- A stated valuation purpose did not save the demand where the requested records directly related to the claims and relief sought in the plenary action.
- Exceptions for parallel inspection litigation are limited and require genuine special circumstances.
Why It Matters
The report reinforces Delaware’s preference for the usual sequence of investigating through books and records before filing merits litigation. Once a plaintiff has sued over the same alleged misconduct, an inspection action ordinarily cannot be used to bypass discovery limits or a pending stay request in the merits case.
Because this was a final report under Court of Chancery Rule 144(d)(2), the parties could file exceptions within three business days.