145 A.3d 990
Del. Ch.2016Background
- Grand Acquisition, LLC (owner of ~0.186% of Passco Indian Springs DST) demanded the trust’s current beneficial-owners list (names, contact info, ownership percentages). Passco Trust refused.
- Grand Acquisition asserted both a contractual demand under Section 5.3(c) of the Trust Agreement and a statutory demand under 12 Del. C. § 3819 (DST Act).
- Section 5.3(c) grants owners the right to "inspect, examine and copy the Trust’s books and records" during normal business hours; the Trust Agreement separately defines "Ownership Records" (including the Requested Information) and obligates the Manager to maintain them.
- Passco Trust argued Section 3819’s procedural and "proper purpose" requirements still apply (relying on Cargill), that Ownership Records were excluded from Section 5.3(c), and that disclosure might breach confidentiality or harm the Trust (an "improper purpose").
- The Court treated cross-motions as a submission on the record, applied the preponderance standard, and resolved whether the contractual inspection right was independent of the DST Act and whether the Trust proved an improper-purpose defense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trust Agreement’s books-and-records right incorporates § 3819’s procedural and proper-purpose limits | Section 5.3(c) grants an unconditional contractual right to inspect books and records, independent of § 3819 | § 3819’s prefatory language means the governing instrument must expressly disclaim the statute to avoid its preconditions | The contractual right in §5.3(c) is independent and not subject to §3819’s preconditions or defenses |
| Whether the Requested Information (Ownership Records) is excluded from the contractual inspection right | The Trust’s customary "books and records" include owner lists; Ownership Records definition and §5.3(i) do not limit owner access | The express definition of "Ownership Records" plus §5.3(i) shows the Agreement intentionally reserves those records (only Trustee receives them) | The Requested Information falls within the contractual books-and-records right; the Agreement does not exclude Ownership Records |
| Whether an "improper purpose" defense permits withholding under the contractual right | Plaintiff: no contractual proper-purpose requirement; even if defense applies, Plaintiff’s stated investor-communication purpose is proper | Defendant: Plaintiff is affiliated with Maxus and will use the list for disruptive, adverse ends; past disputes support fear of harm | Defendant failed to prove by a preponderance that disclosure would more likely than not harm the Trust; improper-purpose defense fails |
| Whether the Trust could rely on §3819 good-faith defenses to deny the contractual demand | Plaintiff: contractual right displaces statutory defenses | Defendant: even if contractual right stands, statutory good-faith/confidentiality defenses should apply alternatively | Court held contractual right controls; statutory defenses do not permit withholding of the Requested Information under the contract |
Key Cases Cited
- Bond Purchase, L.L.C. v. Patriot Tax Credit Props., L.P., 746 A.2d 842 (Del. Ch. 1999) (contracts can create inspection rights independent of statutory books-and-records rights and statutory preconditions)
- Cargill, Inc. v. JWH Special Circumstance LLC, 959 A.2d 1096 (Del. Ch. 2008) (governing instrument silence on a duty means default statutory or common-law trust principles apply)
- Schwartzberg v. CRITEF Assocs. Ltd. P’ship, 685 A.2d 365 (Del. Ch. 1996) (articulating the "improper purpose" defense to contractual inspection rights)
- In re Paine Webber Qualified Plan Prop. Fund Three, L.P. (Paine Webber II), 698 A.2d 389 (Del. Ch. 1997) (contractual inspection rights need not be conditioned on statutory proper-purpose requirements)