Ravenswood Investment Company, L.P. v. Winmill & Co. Incorporated, C.A. No. 7048-VCN (May 30, 2014)
This case revolved around a Delaware corporation’s denial of a shareholder request to provide the shareholder with the company’s updated non-public financial statements. The plaintiff-shareholder, in accordance with 8 Del. C. § 220, demanded to inspect the company’s financial statements for the purpose of “determining the value of its investment and the economic performance” of the defendant-company. In response, the defendant informed the plaintiff that the only way it would disclose the financial statements was if the plaintiff agreed to be bound by a restriction forbidding it to trade the company’s stock after it received the information. The defendant, whose stock traded on the over-the-counter-market, was concerned that disclosing such “material, non-public” information would violate federal securities law. The plaintiff, however, refused the restriction and filed suit to compel disclosure of the financial statements.
In deciding this case, the Court of Chancery was faced with a novel question of Delaware law: whether a Delaware corporation may require a shareholder to agree not to trade in its stock as a condition precedent to inspect its nonpublic financial statements. The Court answered this question in the negative, and in doing so, emphasized the fact that Delaware has “long recognized that valuing stock is a proper purpose to support” a request for financial statements. It further found that because that was the primary purpose of the plaintiff’s request, any secondary purpose for obtaining the financial information was irrelevant. Based on this reasoning, the court struck down the defendant’s restriction.