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Ravenswood Investment Co., L.P. v. Winmill & Co. Inc.

Court of Chancery of Delaware

May 30, 2014

The Ravenswood Investment Company, L.P.
Winmill & Co. Incorporated

Date Submitted: February 20, 2014

R. Bruce McNew, Esquire Wilks, Lukoff & Bracegirdle,

David A. Jenkins, Esquire Smith Katzenstein & Jenkins LLP

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 complaint[1] (or perhaps because this is not the only pending lawsuit between the parties[2]), 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 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. 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.


Winmill, a Delaware corporation, is a holding company[7] 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 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 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, upon executing a confidentiality agreement that did not include a trading restriction, ...

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