Amalgamated Bank v. Yahoo! Inc.

Delaware Court of Chancery · Corporations

CorporationsBooks and records inspectionSection 220Executive compensationDerivative litigationDGCL Section 220books and recordscredible basis

Facts

Amalgamated sought Yahoo books and records to investigate the hiring and subsequent firing of COO Henrique de Castro, whose compensation package and severance were unusually large. The record showed that CEO Marissa Mayer negotiated de Castro's compensation, provided incomplete or inaccurate information to the compensation committee, and made material changes to the final offer letter that the committee had not approved. Yahoo later terminated de Castro without cause, resulting in approximately $69.96 million in severance, even though a for-cause termination would have caused forfeiture of unvested equity awards. Yahoo produced board-level materials but refused broader categories, including certain officer-level documents.

Issue

Whether Amalgamated satisfied Section 220's stockholder, form-and-manner, and proper-purpose requirements to inspect Yahoo's books and records concerning de Castro's hiring, compensation, performance, termination, and board independence. If so, what additional documents beyond board-level materials were necessary and essential, and whether the court could condition production on incorporation by reference in any later derivative complaint.

Rule

Under Section 220, a stockholder must prove by a preponderance of the evidence that it is a stockholder, complied with the statute's form-and-manner requirements, and has a proper purpose reasonably related to its interests as a stockholder. To inspect books and records for investigating wrongdoing or mismanagement, the stockholder need only show a credible basis from which the court can infer possible mismanagement warranting further investigation, and any production must be carefully tailored to documents that are necessary or essential and sufficient for that purpose. Electronic documents, including emails, can qualify as books and records, and the Court of Chancery may impose conditions on inspection, including an incorporation-by-reference condition for later derivative pleadings.

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Priya Desai, trustee for two index funds in Chicago, sent a sworn demand to inspect the books and records of Lakefront Robotics, Inc., a Delaware corporation based in Austin. She attached brokerage statements dated four days before the demand showing the funds held shares, but she did not send daily updated statements during the next two months of correspondence.

If Lakefront argues the demand failed because the ownership proof was not dated the same day as the demand and was not continuously updated, how should the court rule?

Explanation. A stockholder must comply strictly with Section 220’s form-and-manner requirements, but recent documentary evidence sufficiently proximate to the demand date can corroborate the sworn averment of ownership. The majority also rejected any requirement that the demanding stockholder provide an ongoing stream of daily ownership records after the demand. Thus, proof dated a few days before the demand is enough absent some contrary issue. (Derived from Amalgamated Bank v. Yahoo! Inc. (n.d.).)