Background
Albert Richards, a beneficial owner of CNI Holdings stock and trustee of the Kawishiwi Partners Revocable Trust, sought inspection of CNI’s books and records under 8 Del. C. § 220. Although his earlier demand also sought information concerning director independence for related litigation, valuation of his minority interest was his sole remaining purpose at trial.
CNI produced annual balance sheets, income statements, and cash-flow statements for 2022 through 2024, along with certain capitalization and valuation materials. Richards sought further valuation information, including statements of stockholders’ equity and more current financial information. He also sought fees based on CNI’s conduct during the demand process, including its failure to produce bylaws after twice saying it would do so.
The Court’s Holding
The Court found that valuing Richards’s shares was a proper Section 220 purpose. It granted inspection of additional records necessary and essential to that purpose, to the extent they exist and have not already been produced. Statements of stockholders’ equity for 2022 through 2024 fell within the ordinary meaning of “financial statements” under Section 220(a)(1)(g), and the Court also held that reasonably current financial information, including 2025 information to the extent available, was necessary and essential for valuation.
The Court declined to consider fifteen additional categories Richards identified in an April 23, 2026 email, because they were raised shortly before trial and, to the extent not otherwise covered by the December demand, would improperly expand the action without giving CNI a meaningful opportunity to respond. The Court awarded reasonable attorneys’ fees and expenses only for work attributable to obtaining CNI’s bylaws, finding bad faith in CNI’s repeated promises to produce them followed by its unexplained failure to do so.
Key Takeaways
- Valuation of a minority stake in a privately held Delaware corporation is a proper Section 220 purpose.
- “Financial statements” include statements of stockholders’ equity, in addition to balance sheets, income statements, and cash-flow statements.
- Requests raised shortly before trial cannot enlarge a Section 220 action beyond the demand’s properly identified categories.
- Repeated promises to produce plainly requested records, followed by unexplained nonproduction, can support limited fee shifting for bad faith.
Why It Matters
The report applies the amended Section 220 framework by distinguishing enumerated financial statements from additional records that require clear and convincing proof of necessity and essentiality. It also confirms that current financial information may be needed to value a privately held company, rather than relying only on older historical results.
For corporations, the decision underscores that voluntary assurances to produce records should be honored: failure to follow through can create a discrete fee-shifting exposure even where other aspects of the company’s response are not bad faith.