In Seinfeld v. Verizon Communications, read opinion here, the Delaware Supreme Court on September 25 provided clarification for the requirements of DGCL Section 220. Describing what the court referred to as well-settled prerequisites that must be satisfied before a shareholder can successfully demand books and records of a corporation, the high court affirmed the Chancery Court’s decision denying inspection.
The Chancery Court decision was summarized on my blog here . This was a long and expensive fruitless fight for a shareholder who was seeking data to support a claim that some Verizon executives received excess compensation and/or were paid more than provided in their contract. See also another recent decision summarized here , that denied inspection under DGCL Section 220 due to the request being overly broad. The Supreme Court often instructs litigants to use DGCL 220 to obtain details before filing a complaint, but this case is a good example that a demand under Section 220 is not a simple matter and can be a costly and unproductive exercise if not done carefully and correctly.
Here is a key quote from the court’s decision:
We reaffirm the well-established law of Delaware that stockholders seeking inspection under section 220 must present “some evidence” to suggest a “credible basis” from which a court can infer that mismanagement, waste or wrongdoing may have occurred. The “credible basis” standard achieves an appropriate balance between providing stockholders who can offer some evidence of possible wrongdoing with access to corporate records and safeguarding the right of the corporation to deny requests for inspections that are based only upon suspicion or curiosity.