                                                               EFiled: May 30 2014 03:22PM EDT
                                                               Transaction ID 55522262
                                                               Case No. 7048-VCN
                                 COURT OF CHANCERY
                                       OF THE
                                 STATE OF DELAWARE

 JOHN W. NOBLE                                                        417 SOUTH STATE STREET
VICE CHANCELLOR                                                       DOVER, DELAWARE 19901
                                                                     TELEPHONE: (302) 739-4397
                                                                     FACSIMILE: (302) 739-6179


                                        May 30, 2014



R. Bruce McNew, Esquire                             David A. Jenkins, Esquire
Wilks, Lukoff & Bracegirdle, LLC                    Smith Katzenstein & Jenkins LLP
1300 N. Grant Avenue, Suite 100                     800 Delaware Avenue, Suite 1000
Wilmington, DE 19806                                Wilmington, DE 19801

       Re:     The Ravenswood Investment Company, L.P. v.
               Winmill & Co. Incorporated
               C.A. No. 7048-VCN
               Date Submitted: February 20, 2014

Dear Counsel:

       Plaintiff The Ravenswood Investment Company, L.P. (“Ravenswood”) is a

stockholder of Defendant Winmill & Co. Incorporated (“Winmill”). Ravenswood

initiated this proceeding pursuant, in part, to 8 Del. C. § 220 to inspect certain of

the company’s books and records. Perhaps because Ravenswood also asserted

breaches of fiduciary duty against Winmill’s directors in the same complaint1 (or



1
  See Ravenswood Inv. Co., L.P. v. Winmill & Co., Inc., 2013 WL 396178, at *2 (Del. Ch.
Jan. 31, 2013) (deferring resolution of the defendants’ motion to dismiss the fiduciary duty claim
until after the Court addressed the integrally related Section 220 claim).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 2

perhaps because this is not the only pending lawsuit between the parties2), it has

taken an unusual length of time for Ravenswood’s Section 220 claim to advance to

this point.

       The present dispute before the Court is narrow in scope. Ravenswood has

received access to most of the books and records it initially requested—except for

the company’s financial statements.               The delay regarding this category of

information stems from a contentious dispute over an apparently novel legal

question: whether, under Delaware law, Winmill may require Ravenswood to

agree not to trade in Winmill stock as a condition to inspect its nonpublic financial

statements. During an earlier oral argument in this proceeding, Ravenswood’s

counsel stated twice that the trading restriction is the sole, substantive Section 220

issue in dispute.3       He made a similar statement during an oral argument in



2
  See, e.g., Ravenswood Inv. Co., L.P. v. Winmill, 2013 WL 6228805 (Del. Ch. Nov. 27, 2013)
(addressing the plaintiff’s motion for partial summary judgment and resolving certain discovery
disputes); Ravenswood Inv. Co., L.P. v. Winmill, 2011 WL 2176478 (Del. Ch. May 31, 2011)
(granting in part and denying in part the defendants’ motion to dismiss).
3
  See Tr. of Oral Arg. Pl.’s Mot. to Compel and for Sanctions 29 (“The only real dispute here in
the 220 action, the 220 count, is whether the defendants can require you [i.e., Ravenswood] to
surrender preexisting rights and leverage your access to information on this surrender of those
rights [to trade].”); id. 44 (“The real dispute here will be on the trading and transfer restrictions
that they [i.e., Winmill] want to impose. That’s where the dispute is. If they took that out of
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 3

Ravenswood’s related litigation against Winmill’s directors.4 And, despite arguing

generally that the facts revealed in discovery do not justify confidential treatment

of Winmill’s financial statements, Ravenswood made plain on the first page of its

opening brief that the parties’ key Section 220 disagreement centers not on

confidentiality but on the legality of conditioning inspection rights on the proposed

trading restriction.5

       These statements are binding on Ravenswood.6 Winmill stipulated to submit

this matter to the Court on briefs in lieu of a trial based, in part, on them.



their confidentiality agreement, we told them we would sign it. . . . So that’s where we’ll be
focused at trial.”).
4
  See Tr. of Oral Arg. Pl.’s Mot. to Compel 40-45, Ravenswood Inv. Co., L.P. v. Winmill, C.A.
No. 3730-VCN (Del. Ch. May 14, 2013) (“Your Honor, if I could speak about a chief issue. It’s
the sole issue in this case, and they [i.e., Winmill] have said so in their response. . . . [T]he only
real issue is the trading restrictions and the scope of the trading restriction which they’re insisting
on. . . . My client’s obligation under the federal securities laws do or do not depend on what
Your Honor says they get. They still have issues with that. Agreed. But it looks like a pure
legal issue.”).
5
  See Pl.’s Opening Br. in Lieu of Trial (“Pl.’s Opening Br.”) 1 (“As this Court is aware, the
dispute between the parties does not relate to ‘confidentiality,’ but instead to provisions in
Winmill’s proposed Confidentiality Order, which would amount to a complete surrender by
Ravenswood of any right to trade its stock in the future.”).
6
  See Barlow v. Finegan, 76 A.3d 803, 805 (Del. 2013) (noting that an attorney has the general
authority under Delaware law to act on behalf of a client “in the prosecution of an action for
which [the attorney] has been retained”); see also Trans World Airlines, Inc. v. Summa Corp.,
394 A.2d 241, 245 (Del. Ch. 1978) (“[I]t is essential, in advancing the interests of justice, that
the attorney-client relationship, one of principal and agent, permit an attorney to enter into
stipulations and admissions in the course of representing his client.”).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 4

Accordingly, the legality of conditioning access to the company’s financial

statements on a trading restriction is the only substantive Section 220 issue now

before the Court. Separately, Ravenswood also requests that the Court order

Winmill to pay its attorneys’ fees for alleged bad faith conduct throughout this

proceeding.

       For the following reasons, the Court concludes that it is inappropriate for

Winmill to condition Ravenswood’s access to its financial statements on the

proposed trading restriction. The Court also concludes that Ravenswood is not

entitled to have Winmill pay its attorneys’ fees.

                                    I. BACKGROUND

       Winmill, a Delaware corporation, is a holding company7 for various

investment securities.8 Ravenswood owns 10,000 shares of its non-voting stock.

Although Winmill is not a reporting company under the federal securities laws, its

    In its brief, Ravenswood cites to Delaware case law on the standard for the Court to conclude
that a party has waived a statutory or contractual right. See, e.g., Bantum v. New Castle Cty. Vo-
Tech Educ. Ass’n, 21 A.3d 44, 50-51 (Del. 2011); AeroGlobal Capital Mgmt., LLC v. Cirrus
Indus., Inc., 871 A.2d 428, 444-45 (Del. 2005). That standard does not govern whether an issue
is properly before the Court.
7
  Defs.’ Am. Answer to and Mot. to Dismiss the Am. Verified Compl. under 8 Del. C. § 220 and
Class Action and Derivative Compl. for Breach of Fiduciary Duty (“Answer”) ¶ 2.
8
  Am. Verified Compl. under 8 Del. C. § 220 and Class Action and Derivative Compl. for Breach
of Fiduciary Duty (“Compl.”) ¶ 2.
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 5

stock trades on the over-the-counter market.9 The last time that the company

released financial information was on February 17, 2010, when it announced

certain results for the nine months ending September 30, 2009.10

       In September 2011, Ravenswood demanded to inspect four categories of

Winmill’s books and records: (i) quarterly and annual financial statements for the

previous two years and for all subsequent periods until the company complies with

the inspection demand; (ii) compensation records for the company’s directors,

officers, and voting stockholders; (iii) a stockholder list; and (iv) a list of trading in

Winmill stock and options by the company’s directors, officers, and voting

stockholders.11     In its letter, Ravenswood offered to execute an “appropriate”

confidentiality agreement to access these books and records. It also identified its

purpose for inspecting the company’s financial statements as “determining the

value of its investment in and the economic performance of Winmill.”12

       Winmill, in response, noted that it would provide the compensation and

stockholder list information, subject to Ravenswood’s executing a proposed

9
  Answer ¶ 1; Compl. ¶ 1.
10
   Answer ¶ 6; Compl. ¶ 6.
11
   App. to Defs.’ Answering Br. in Lieu of Trial (“Defs.’ Ex.”) 1.
12
   Id.
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 6

confidentiality agreement. But, it refused to provide the financial statements or list

of trading activity because Ravenswood would not agree “to be bound by a

restriction forbidding it to trade in Winmill stock after it receives material, non-

public information.”13 The company was apparently concerned about potential

“tipper” liability under the federal securities laws. In essence, Winmill believed

that Ravenswood would only have refused a trading restriction if it intended to

trade, and the company thereby concluded that trading on material, nonpublic

information was not a proper purpose for Ravenswood to inspect the financial

books and records.14

       Thus, Ravenswood brought this action in late 2011. The company has since

provided access to all but one category of books and records demanded by

Ravenswood. First, through discovery in the related lawsuit alleging breaches of

fiduciary duty by Winmill’s directors, Ravenswood received the compensation

records and the list of trading activity (there was none) for the company’s

directors, officers, and voting stockholders during the relevant period.15 Second,


13
   Defs.’ Ex. 7.
14
   Id.
15
   Defs.’ Ex. 27.
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 7

upon executing a confidentiality agreement that did not include a trading

restriction, Ravenswood received the most recent Winmill stockholder list.16 Thus,

only Ravenswood’s request for financial statements remains unsatisfied.

                                         II. ANALYSIS

A. Ravenswood’s Access to Winmill’s Financial Statements

       Winmill maintains that a trading restriction is necessary and appropriate to

avoid potential liability under the federal securities laws.       John Ramirez, the

company’s senior associate general counsel, testified at his deposition to that

effect.17 Winmill has also framed its position as an extension of the company’s

“Insider Trading Procedures,” which are internal policies intended “to ensure that

material, non public information is not misused by the Company and its affiliates

or their directors, officers, or employees.”18

       From the beginning of the parties’ negotiations on a confidentiality

agreement for Ravenswood to receive the financial statements, Winmill has sought

to include a trading restriction. Its most recent proposal provides, in relevant part:


16
   Defs.’ Exs. 28, 29, 30, 31.
17
   Defs.’ Ex. 42 (Ramirez Dep.) 42-50.
18
   Defs.’ Ex. 32.
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 8

       The Requesting Parties [i.e., Ravenswood] agree not to trade in
       Winco’s [i.e., Winmill’s] stock until the sooner of (A) three business
       days after the financial information received by them as part of the
       Documents becomes publicly available or (B) one year from the date
       they receive the Documents. Notwithstanding the foregoing sentence,
       the Requesting Parties may trade in Winco’s stock at any time with a
       sophisticated person who has received the Documents pursuant to a
       signed Undertaking . . . . The Requesting Parties acknowledge that
       they are aware of the restrictions imposed by federal and state
       securities laws on a person possessing material non-public
       information about a company.19

This restriction is similar to one in a separate agreement (the “Sullivan

Agreement”) under which the company provided certain financial information to

another stockholder in May 2012.20

       Winmill’s position is premised on its understanding of so-called tipper

liability under the federal securities laws for disclosing material, nonpublic

information to a recipient who then trades on that information.                  In its brief,

Winmill cites considerable federal case law outlining the contours of tipper

liability under Section 10(b) of the Securities Exchange Act of 1934. 21 Noticeably

absent from its argument, however, is a statement by the Delaware Supreme Court

19
   Defs.’ Ex. 38.
20
   Defs.’ Ex. 40.
21
   Def.’s Answering Br. in Lieu of Trial (“Def.’s Answering Br.”) 30-31 (citing United States v.
O’Hagan, 521 U.S. 642 (1997); SEC v. Obus, 693 F.3d 276 (2d Cir. 2012)).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 9

or this Court endorsing a trading restriction, in order to protect the corporation

from tipper liability, as a lawful prerequisite for a stockholder to access financial

books and records pursuant to Section 220.               Ravenswood rejects Winmill’s

position, contending that Delaware law does not, and should not, support the

trading restriction scheme contemplated by the company.22

       The Court concludes that the legal arguments offered by Winmill, based on

the company’s internal policies and its senior associate general counsel’s

testimony, are unpersuasive. Delaware law has long recognized that valuing stock

is a proper purpose to support a stockholder’s request for financial information

from a corporation under 8 Del. C. § 220.23 Ravenswood’s stated purpose, to value

its stock, is clearly proper. Because Winmill is a thinly traded company that does

not regularly release its financial information, the only practical way that

Ravenswood can accurately value the stock may be to inspect the requested

financial statements.24 Having established this primary purpose, “any secondary


22
   Pl.’s Reply Br. in Lieu of Trial (“Pl.’s Reply Br.”) 6-7.
23
   See, e.g., CM & M Gp., Inc. v. Carroll, 453 A.2d 788, 792 (Del. 1982) (citing State ex rel.
Rogers v. Sherman Oil Co., 117 A. 122, 125 (Del. 1922)) (“[T]he valuation of one’s shares is a
proper purpose for the inspection of corporate books and records.”).
24
   See Macklowe v. Planet Hollywood, Inc., 1994 WL 560804, at *4 (Del. Ch. Sept. 29, 1994)
(“When a minority shareholder in a closely held corporation whose stock is not publicly traded
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 10

purpose or ulterior motive of the stockholder becomes irrelevant.”25 Winmill’s

unsupported speculation that Ravenswood may unlawfully trade based on the

company’s material, nonpublic financial information does not sufficiently establish

that Ravenswood has an improper, actual purpose other than its proper, stated

purpose: valuing its stock.26

       The overall argument advanced by Winmill—that a corporation could

condition access to the information necessary for a stockholder to value its stock

on an agreement not to trade—would inappropriately frustrate this fundamental

stockholder right. The whole point of valuing stock is so that a stockholder can

determine what to do with it: to buy, to sell, or to use the value for some other

appropriate purpose. After all, is there even a readily ascertainable value to stock

that cannot be traded, under Winmill’s proposal, for possibly an entire year? The

Court is unwilling to incorporate such an inequitable notion into Delaware’s


needs to value his or her shares in order to decide whether to sell them, normally the only way to
accomplish that is by examining the appropriate corporate books and records.”); see also
Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 165 (Del. Ch. 1987).
25
   CM & M Gp., Inc., 453 A.2d at 792.
26
   See Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 817 (Del. Ch. 2007) (“A corporate
defendant may resist demand where it shows that the stockholder’s stated proper purpose is not
the actual purpose for the demand. . . . [T]he defendant must prove that the plaintiff pursued its
claim under false pretenses, and its primary purpose is indeed improper.”).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 11

Section 220 jurisprudence. Based on the arguments submitted by the parties, the

Court concludes that the trading restriction proposed by Winmill is contrary to

Delaware law.27

       Whether Ravenswood’s access to Winmill’s financial statements should

otherwise be contingent on executing an “appropriate” confidentiality agreement—

as Ravenswood itself proposed in its inspection demand letter—appears to be an

issue that is best initially addressed by the parties, not by the Court. If Winmill

and Ravenswood are to be bound by a confidentiality agreement, then they should

negotiate its terms.      Having decided what appears to have been the primary

disagreement surrounding Ravenswood’s Section 220 claim, the Court is hopeful

that the parties will continue to work together to advance this matter in an efficient

manner, or at a minimum to identify and submit promptly to the Court any

remaining aspects of the Section 220 dispute.28



27
   Of course, this is not to say that receiving information pursuant to 8 Del. C. § 220 in any way
exempts Ravenswood, as a Winmill stockholder, from the federal securities laws to which it may
otherwise be subject. Likewise, nothing in this decision should be interpreted as a conclusion on
whether a Delaware corporation may or may not have tipper liability for providing material,
nonpublic information to a stockholder pursuant to 8 Del. C. § 220.
28
   The Court’s decision does not address whether the requested financial statements should be
deemed confidential. If Winmill’s and Ravenswood’s confidentiality concerns have not been (or
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 12

B. Ravenswood’s Request for Attorneys’ Fees

       Litigants in this Court typically pay their own attorneys’ fees. This practice

is known as the American Rule.29 As a court of equity, however, this Court may

require one party to pay another’s attorneys’ fees, for example, upon a showing of

bad faith conduct during the litigation process.30 “The bad faith exception is not

lightly invoked.”31 For the Court to require Winmill to pay its attorneys’ fees,

Ravenswood “must produce ‘clear evidence’ of the bad faith conduct.”32

       The conduct of the parties and counsel in this litigation may not be pristine,

but it cannot be said to rise to the level of bad faith. As recounted in painstaking

detail in the briefs and during oral argument, much of the supposed bad faith

conduct stems from a series of unfortunate and untimely miscommunications

between counsel—from a misreading of the terms of an initial confidentiality

proposal, followed by an apparent lack of initiative in prioritizing access to

information outside the scope of the possible trading restriction, and even

cannot be) resolved, even in light of the Sullivan Agreement, then the Court is available to
address that issue in the appropriate context.
29
   See Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1164 (Del. 1989).
30
   See McGowan v. Empress Entm’t, Inc., 791 A.2d 1, 4 (Del. Ch. 2000).
31
   Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005).
32
   See ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC, 2013
WL 5152295, at *6 (Del. Ch. Sept. 16, 2013).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 13

including an errant copying of a subsequent confidentiality proposal.33 It appears

that many, if not all, of these miscommunications could have been resolved—

likely without much difficulty—if counsel had simply communicated more

effectively instead of having passively permitted mistakes to accumulate into a

potential critical mass that, only superficially, may justify an attorneys’ fee request.

       A Section 220 action is ultimately a summary proceeding.34 The timeline

contemplated by a summary proceeding requires a certain amount of cooperation

between counsel. From the starting block, the parties were already a step behind

schedule due to Ravenswood’s commingling of a Section 220 claim with a breach

of fiduciary duty claim.35 After the Court sought to focus the parties’ attention on

the Section 220 claim, the ideal pace of cooperation between counsel has still been

33
   See, e.g., Tr. of Oral Arg. on Brs. in Lieu of Trial 14-15, 22-25, 36-41, 43-48; Pl.’s Reply Br.
9-12; Def.’s Answering Br. 9-29, 43-49; Pl.’s Opening Br. 13-14. An example of conduct
annoying Ravenswood involves Winmill’s less-than-forthright disclosure of the Settlement
Agreement which Ravenswood obtained from a third party. One may wonder about the
uncertainty, inconsistency, or confusion, but bad faith on the part of Winmill is not part of the
mix. This topic is simply further evidence of the discovery miscommunications which seem all
too prevalent in these matters.
34
   See Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d 156, 157 (Del. Ch. 2006)
(“Section 220 is an important stockholder right that, by statute, this court is directed to resolve in
a summary proceeding.”), aff’d sub nom., Highland Equity Fund, L.P. v. Motient Corp., 922
A.2d 415 (Del. 2007) (TABLE).
35
   See Ravenswood Inv. Co., 2013 WL 396178, at *1 (citing TravelCenters of Am., LLC v. Brog,
2008 WL 868107, *1 (Del. Ch. May 31, 2008)) (“The Section 220 and fiduciary duty claim
should not have been brought together.”).
The Ravenswood Investment Company, L.P. v.
Winmill & Co. Incorporated
C.A. No. 7048-VCN
May 30, 2014
Page 14

less than forthcoming for both parties. In this context, the conduct identified by

Ravenswood does not meet the clear evidence standard of bad faith for the Court to

award attorneys’ fees against Winmill.

                              III. CONCLUSION

      For the foregoing reasons, the trading restriction contemplated by Winmill

for Ravenswood to be able to inspect the company’s financial statements is

inconsistent with Delaware law. Each party shall bear its own attorneys’ fees.

      IT IS SO ORDERED.

                                      Very truly yours,

                                      /s/ John W. Noble

JWN/cap
cc: Register in Chancery-K
