Saito v. McKesson HBOC, Inc.

Supreme Court of Delaware · 2002 · Corporations

CorporationsStockholder inspection rightsDelaware General Corporation Law § 220DGCL § 220books and recordsproper purposenecessary and essentialcorporate wrongdoing

Facts

McKesson agreed to merge with HBOC in October 1998, and Saito bought McKesson stock shortly after the merger agreement was announced. After the merger closed, McKesson HBOC announced major financial restatements attributed to HBOC accounting irregularities. Following the dismissal without prejudice of derivative claims, Saito made a § 220 demand to investigate possible fiduciary breaches relating to oversight of accounting and financial reporting and to gather information to supplement the derivative complaint. He sought categories of documents including pre-merger due diligence materials, communications with accountants and investment bankers, and board discussions concerning HBOC's accounting practices.

Issue

Whether a stockholder with a proper purpose under § 220 may inspect (1) documents created before he acquired stock, (2) documents prepared by third-party advisors but held by the corporation, and (3) documents originating from a subsidiary when the stockholder owns only the parent's stock.

Rule

Under 8 Del. C. § 220, once a stockholder establishes a proper purpose, inspection extends to those books and records that are necessary and essential to accomplish that purpose. The date of stock acquisition does not automatically limit the temporal scope of inspection, and the source of documents does not bar inspection if the documents are in the corporation's possession, custody, or control and are necessary to the proper purpose. A parent's stockholder may not inspect a subsidiary's separate books and records absent grounds to disregard separateness, but may inspect relevant subsidiary-origin documents that were provided to the parent or are otherwise in the parent corporation's possession.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Nora Patel bought shares of Cascadia Diagnostics, Inc. in June 2024 after the company announced a major write-down tied to an acquired target's inventory practices. Nora made a sworn demand to inspect board materials from January through May 2024, arguing she needed to investigate whether Cascadia's directors ignored warning signs before and immediately after the acquisition closed.

If Cascadia argues that Nora may inspect only documents created after she became a stockholder, how should a court likely rule?

Explanation. Under the majority rule, the stockholder's purchase date does not automatically define the temporal scope of inspection. If the stockholder has a proper purpose—such as investigating possible corporate wrongdoing—she may inspect pre-purchase documents when they are reasonably related to her interest as a stockholder and are necessary and essential to understanding the alleged wrongdoing. Section 220 remains limited; it does not permit all records, only those specifically shown to be essential.