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The City of Cambridge Retirement System v. Universal Health Services, Inc., C.A. No. 2017-0322-SG (Del. Ch. Oct. 12, 2017) (Glasscock, V.C.)


In this memorandum opinion, the Court of Chancery conditioned a production of documents pursuant to a Section 220 demand on plaintiff’s agreement that a complaint in any subsequent litigation relying on the documents in the Section 220 production be deemed to incorporate by reference the entire Section 220 production. 

After receiving plaintiff’s demand letter, defendant responded that it would produce certain documents if plaintiff agreed to its confidentially agreement.  The confidentiality agreement contained an incorporation by reference provision.  Plaintiff refused to agree to the incorporation by reference provision and filed a complaint to compel inspection of books and records pursuant to Section 220.  Plaintiff argued that incorporation by reference conditions allow companies to manipulate the universe of documents produced and thereafter frustrate the prosecution of meritorious cases.  Plaintiff also argued that in a Section 220 demand, a stockholder has substantially less ability to test the sufficiency of a production compared with a party receiving discovery in litigation.  In reaching its conclusion, the Court noted that the concerns raised by plaintiff were not frivolous, but found that the interests of judicial and litigants’ economy outweighed plaintiff’s points.  In particular, the Court concluded that the risk of a defendant manipulating the universe of documents produced in response to a Section 220 demand did not outweigh “the benefit of allowing the court to eliminate complaints involving misleading citations to a limited subset of records.”  Thus, noting that Section 220 grants the Court discretion to “‘prescribe any limitations or conditions’ on the inspection of corporate records by a demanding stockholder ‘as the Court may deem just and proper’” on a case-by-case basis, the Court conditioned defendant’s Section 220 production on the incorporation by reference condition in defendant’s proposed confidentiality agreement.

The full opinion is available here