In the recent decision of Oklahoma Firefighters Pension and Retirement System v. Amazon.com, Inc., C.A. No. 2021-1484-LWW (Del. Ch. Jun. 1, 2022) (Mem. Op.), the Court of Chancery denied Plaintiff’s Section 220 request to demand additional inspection of Amazon’s books and records, finding that Plaintiff had not set forth a proper purpose for its investigation and that Amazon had adequately responded to Plaintiff’s demand.
Plaintiff filed its demand under 8 Del. C. § 220 to inspect Amazon’s books and records to examine potential corporate mismanagement and determine the independence and disinterestedness of Amazon’s directors. The demand sought nineteen different categories of documents spanning eleven years. Although Amazon questioned the legitimacy of Plaintiff’s purpose, it agreed to produce a targeted set of responsive materials, including relevant Board or committee meeting minutes and redacting any non-responsive content. Plaintiff, in turn, filed this litigation to demand production of all documents responsive to its Section 220 demand.
The Court found that Plaintiff had not, as a threshold matter, stated a proper purpose for its investigation. First, Plaintiff’s reference to closed or pending investigations and litigation failed to establish a credible basis for its desire to investigate possible mismanagement at Amazon. The investigations and litigation had either closed without any adverse findings or were pending, and the only evidence of wrongdoing—a fine issued to Amazon from Italy—was irrelevant as Plaintiff only sought to investigate potential U.S. antitrust violations. The Court found that Plaintiff had also failed to provide a credible basis for its desire to investigate the directors’ independence—stockholder curiosity is insufficient under Delaware law, and any evidence presented by Plaintiff was more speculative than reliable.
Perhaps more importantly, though, the Court of Chancery found that Plaintiff’s request for additional document production pursuant to 8 Del. C. § 220 failed because Amazon had already complied with Plaintiff’s demand. Specifically, the Court found that Plaintiff had not shown that investigation of the additional books and records sought was essential to its investigation. The Court also found that Amazon had produced all reasonably responsive documents, stating: “[f]ormal board-level documents are often the beginning and end of a Section 220 production where a plaintiff aims to investigate whether directors exercised proper oversight.” (Mem. Op., at 30-31.) In fact, the Court went so far as to commend Amazon for its effort to cooperate with Plaintiff by not outright rejecting its demand, but instead producing the core board materials that typically satisfy a Section 220 request. Plaintiff had not justified its need for any specific documentation past what Amazon had already produced and, therefore, was overreaching.
Key Takeaway: When issuing a Section 220 demand to inspect corporate books and records, a plaintiff should first heed this Court’s decision by including a proper purpose for its investigation with a credible basis for the suspected misconduct. Additionally, the responding company may be able to restrict its production to only those board and committee minutes that are relevant to the plaintiff’s stated purpose for inspection.
Carl D. Neff is a partner with the law firm of FisherBroyles, LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at Carl.Neff@FisherBroyles.com.