November 1, 2024
Del. Chancery Confirms Limits on Section 220 Demands
Last week, in Roberta Ann K.W. Wong Leung Revocable Trust U/A Dated 03/09/2018 v. Amazon.com, Inc. (Del. Ch.; 10/24), the Delaware Court of Chancery addressed a broad stockholder 220 demand seeking to inspect wide-ranging corporate and business records of Amazon following government allegations of antitrust violations. The opinion notes that “scrutiny over Amazon’s purported anticompetitive practices has twice prompted books and records suits in this court.”
After trial, the court determined, consistent with the referenced prior decision, that the stockholder failed to meet its burden to show, “by a preponderance of the evidence, a proper purpose entitling the stockholder to an inspection of every item sought.”
The desire to investigate potential wrongdoing or mismanagement has long been recognized as a proper purpose. Still, “more than a general statement is required for the [c]ourt to determine the propriety of a demand.” The stockholder must identify the matter it seeks to investigate, supported by “specific and credible allegations sufficient to warrant a suspicion of waste and mismanagement.”
The Trust’s demand runs afoul of this basic requirement because its stated purpose is astoundingly broad. The Trust wishes to investigate whether “Amazon’s fiduciaries have authorized or allowed the Company [to] take unlawful advantage of [its] dominant position to engage in anticompetitive practices, leading to U.S. and international regulatory scrutiny, lawsuits, and fines.” That is, its purpose concerns any possible anticompetitive conduct by a global conglomerate at any time anywhere in the world.
This Wachtell article argues that this is an important decision confirming limits on 220 demands, as the plaintiffs’ bar has “worked hard to expand the scope of Section 220, insisting on ever more intrusive inspection on the basis of even the thinnest allegations of corporate misconduct.” While “Section 220 remains a prominent feature of Delaware law and litigation, the decision “shows that there are limits to permissible inspection and corporations are not powerless to resist overbroad and abusive demands.”
– Meredith Ervine