In Seinfeld v. Verizon Communications, Inc., download file, the Chancery Court, based on cross-motions for summary judgment, ruled that a shareholder had not demonstrated the requirement under Section 220 of the DGCL, that there was a “credible basis” for its claims of mismanagement and excessive compensation and, therefore, did not carry the burden to establish a “proper purpose” for its demand for books and records. The court reasoned as follows:
While it is well established that an investigation into corporate waste and mismanagement is a proper purpose for books and records inspection under Section 220, a mere suspicion of wrongdoing, such as the claim the plaintiff is making in this action, is insufficient. The statute places the burden of proving a
proper purpose on the stockholder who seeks inspection of the company’s books and records. This burden is not insubstantial and “mere curiosity or a desire for a fishing expedition will not suffice.” The stockholder must “present some credible basis from which the court can infer that waste or mismanagement may
have occurred.” Although the plaintiff does not have to prove actual wrongdoing, “a mere statement of a purpose to investigate possible general mismanagement, without more, will not entitle a shareholder to broad Section 220 inspection relief.”
UPDATE: Other posts on this blog regarding recent decisions on Section 220 books and records inspections can be found here and here and here. See also my post here on Haywood v. Ambase Corp., where, based on an expert report about executive compensation, limited inspection was allowed.