The Delaware Supreme Court ruled in favor of stockholders when affirming a Court of Chancery decision ordering the production of books and records in response to a Section 220 demand. Defendants in this case, AmerisourceBergen Corporation (“AmerisourceBergen” or “the Company”), challenged the lower court’s decision, arguing that plaintiffs failed to outline what the books and records would be used for and thus did not state the proper purpose required by Section 220. AmerisourceBergen also put forward that plaintiffs were required to aim their investigation towards an actionable wrongdoing.
The Court of Chancery held that plaintiffs demonstrated a proper purpose, finding that stockholders had strong circumstantial evidence that AmerisourceBergen may have violated positive law, that the Section 220 demand was not part of an indiscriminate fishing expedition, and that plaintiffs did not have to specify the intended uses of the demanded material but could reserve the ability to consider all courses of action. As such, the court ordered the production of Formal Board Materials relating to events listed in the demand. AmerisourceBergen then moved for an interlocutory appeal which brought the dispute to the Delaware Supreme Court.
On December 10, 2020 the Delaware Supreme Court issued their opinion affirming the Court of Chancery decision. In their decision, the court referenced the “lowest possible burden of proof” that satisfies a credible basis of proper purpose. The court found that corporate wrongdoing “in and of itself” is “a legitimate matter of concern that is reasonably related to a stockholder’s interest as a stockholder.” Stemming from this, the court reasoned that plaintiffs need not condition their investigation on the wrongdoing being actionable, and that a myriad of avenues were possible with the investigation. Further, the court believed that the Section 220 demand was not the proper time to decide the merits of possible, further actions.
With these holdings, stockholders can now review books and records while deciding what further steps to take. This means that stockholders can begin investigations in a timely manner and make decisions as to further action once they’re more well informed. It also narrowed the challenges that can be brought against Section 220 demands, allowing for these processes to be more efficient and move towards results faster. This case law will be useful in future stakeholder actions and increase the oversight into board actions.
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