Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The majority of a divided Delaware Supreme Court recently affirmed a Chancery decision holding that reliance on post-demand, confidentially sourced news stories of alleged director wrongdoing could be a “credible basis” for an investor’s books-and-records suit over Paramount Global directors’ purportedly skewed negotiations to sell their multimedia giant, in Paramount Global v.  State of Rhode Island, No.129, 2025 (Del. March 25, 2026).

Justice Gary Traynor, writing the majority opinion on behalf of Justices Abigail LeGrow and Christopher Griffiths, rejected Paramount’s interlocutory appeal issues concerning both the alleged unreliability of “hearsay“ claims and evidence submitted after the records demand was filed.

The Court of Chancery found that, on the facts of this case, the news articles and the hearsay statements contained within them “bear sufficient reliability to be considered.” Justice Traynor wrote that, “[N]ews articles from reputable publications that rely on anonymous sources will generally be sufficiently reliable for a court to consider when assessing whether a stockholder has a credible basis.”

In a ruling that corporate litigators should study, the minority opinion by Chief Justice Collins Seitz Jr. and Justice Karen Valihura argued that, instead of adding an additional  layer of litigation over post-demand  materiality, “the better choice is to bar admission of post-demand evidence; instead of a case-by-case basis discretionary decision proposed by the Majority, our rule will discourage a premature race to the courthouse.”

Background

According to the court, the dispute arose because Shari Redstone controlled National Amusements Incorporated, which owned a majority of the voting shares of Paramount Global.  So, Redstone, through her control of National Amusements, controlled Paramount and in 2023, Redstone considered selling National Amusements, which meant Paramount shareholders would be swept along in the process.

When major newspapers—citing confidential and unnamed sources close to the negotiations—reported on the various offers that Redstone fielded and how Redstone and Paramount’s directors reacted them on behalf of their shareholders, some of those investors came to believe that the directors had breached their duty to represent their interests rather than those of the controlling National Amusements. The State of Rhode Island filed suit under Section 220 of the Delaware General Corporation Law.

Paramount objected that the plaintiff did not present a proper propose for its books and records demand and did not provide a credible basis for a charge of wrongdoing; the Court of Chancery  assigned a magistrate to decide the question.  But when the magistrate  ruled in favor of Paramount, Chancery declined to accept that finding because there was a credible basis to infer wrongdoing. Paramount  took exceptions and appealed.

The majority opinion

On the two main appeal issues, the majority found that, “When a stockholder seeks to investigate wrongdoing, the Court of Chancery’s determination that a credible basis to infer wrongdoing exists is a mixed finding of fact and law, to which we afford considerable deference.”  And likewise, whether hearsay in news articles is sufficiently reliable as to be worthy of consideration in the trial court’s “credible basis” inquiry is a fact-specific inquiry. “We will disturb the result of that inquiry only if the trial court has abused its discretion.”

In addition, the majority noted that, “The “credible basis” standard has been described as the “lowest possible burden of proof” but when determining whether a stockholder has shown a credible basis to suspect wrongdoing, the court may consider evidence concerning events that are disclosed or occur after the stockholder has served its demand.  The majority pointed out that the Court of Chancery determined “[a] stockholder can rely on hearsay to provide a credible basis to suspect wrongdoing, so long as the hearsay carries sufficient guarantees of trustworthiness.”

The minority opinion

The minority said the high court accepted Paramount’s interlocutory appeal to resolve two issues:

— whether a stockholder can rely on post-demand or post-petition evidence at trial to determine the credible basis for a Section 220 demand; and

–whether a stockholder can rely on information from confidential sources without identifying the sources and assessing the speaker’s credibility.” 

 The minority said that while it agrees with the majority’s analysis and conclusion on the confidential source issue, “it disagrees about the use of post-demand/post-petition evidence at trial to determine the credible basis for the demand.”

Better than a new litigation layer?

Instead of adding a new layer of litigation over timing of evidence  “the better choice is to bar admission of post-demand evidence, instead of a case-by-case basis discretionary decision proposed by the majority,” the minority argued, urging that “stockholder books and records demand litigation should be prompt, streamlined and narrow. That purpose is best served by holding stockholders to the basis for their demand at the time of the demand. “