Although corporations and their counsel still should highlight the overbreadth or vagueness of a demand’s stated purpose, this should be coupled with a challenge to the sufficiency of a demand’s evidence regarding its credible basis.

On July 28, 2025, the Delaware Supreme Court issued an opinion in Roberta Ann K.W. Wong Leung Revocable Trust U/A v. Amazon.com, Inc., ---A.3d.---, 2025 WL 2104036 (Del. July 28, 2025), clarifying the standards applicable to assessing the legitimacy of a books-and-records demand’s stated purpose and its satisfaction of the “credible basis” requirement.

Background

The Books-and-Records Demand

In October 2023, the Roberta Ann K.W. Wong Leung Revocable Trust U/A, a stockholder of Amazon.com Inc., sent a books-and-records demand to Amazon under Section 220 of the Delaware General Corporation Law. Section 220 allows a stockholder to inspect a corporation’s books and records if the stockholder demonstrates, among other things, a “proper purpose.” Courts have established that a stockholder’s investigation of possible corporate mismanagement or wrongdoing can constitute a “proper purpose,” but the stockholder must present “some evidence” to suggest a credible basis from which a court can infer that mismanagement or wrongdoing may have occurred.

In Amazon, the stockholder’s demand stated that its “proper purpose is to investigate potential corporate mismanagement, wrongdoing, and waste by fiduciaries of [Amazon], including the Board of Directors … and executive officers of Amazon.” The demand also alleged that:

Amazon’s fiduciaries have authorized or allowed [Amazon to] take unlawful advantage of [its] dominant [marketplace] position to engage in anticompetitive practices, leading to U.S. and international regulatory scrutiny, lawsuits, and fines[, and that] Amazon utilized a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power that benefits the products it makes and sells internally versus third-party sellers that utilized [Amazon]’s marketplace.

The demand included a chronology of “Amazon’s history of monopolistic behavior” and referenced several events, including:

Multiple investigations from 2019 to 2022 by the European Commission into Amazon’s possible anticompetitive behavior, one of which resulted in Amazon making formal commitments to address the European Commission’s concerns and avoid a $47 billion fine;

• An April 2020 Wall Street Journal article concerning Amazon’s use of independent seller data that purportedly violated Amazon’s internal policies;
• A report from the U.S. Congressional Subcommittee on Antitrust, Commercial and Administrative Law of the Judiciary Committee of the U.S. House of Representatives making policy recommendations following testimony from Amazon’s former CEO;
• Remedial measures and a €1.13 billion fine imposed by the Italian Competition Authority following a 2021 finding that certain Amazon subsidiaries engaged in practices that infringed European Union competition rules;
• A 2022 consent decree in which Amazon agreed to stop its “Sold by Amazon” program and to give annual updates on its compliance with antitrust laws, following a lawsuit by the state of Washington regarding Amazon’s treatment of third-party sellers; and
• A 2022 lawsuit by the state of California alleging that Amazon violated California antitrust and unfair-competition laws relating to third-party sellers and wholesale suppliers.

In addition to these lawsuits and investigations, the demand relied on a lawsuit that the Federal Trade Commission (FTC) and 17 states filed following a four-year FTC investigation. The FTC action alleged that Amazon violated state and federal antitrust laws and had a “durable monopoly power” in the “online superstore market.” Although the FTC lawsuit was not yet resolved, most claims survived Amazon’s motion to dismiss.

The stockholder demanded to inspect books and records related to, among other things, Amazon’s:

[C]ompliance with antitrust or competition laws, including state and federal antitrust laws in the U.S. and in the EU, including investigations into Amazon’s compliance with such laws and lawsuits filed against [Amazon] regarding antitrust laws or anticompetitive conduct, including, but not limited to, the FTC [c]omplaint, California’s lawsuit, and Washington’s lawsuit.

In response, Amazon challenged the legitimacy of the purpose alleged, arguing that it was overbroad in scope. Amazon nevertheless agreed to produce a “targeted set of materials” on the condition that the stockholder enter into a confidentiality agreement. The stockholder declined and brought the Section 220 action in December 2023.

The Magistrate’s Final Report and the Court of Chancery’s Opinion

In April 2024, following a one-day trial before the Court of Chancery, the magistrate issued a final report recommending that the court deny the stockholder’s inspection demand on the ground that it “failed to present sufficient evidence to suggest a credible basis from which the [c]ourt can infer possible wrongdoing.” In her report, the magistrate relied in part on a prior Section 220 action against Amazon in which the Court of Chancery denied a stockholder’s books-and-records demand and held that “the evidence of potential malfeasance regarding alleged anticompetitive conduct lacks the sort of ‘plus factor’ found in” similar Section 220 actions “where ongoing government investigations and lawsuits contributed to the satisfaction of the credible basis standard.” The magistrate also stated that the current FTC complaint “pleads allegations, not evidence.” She further concluded that the circumstances and outcomes of the other lawsuits and investigations fell short of establishing a “credible basis to investigate wrongdoing” because they identified “a handful … of lawsuits, many of which merely repeat the allegations in the FTC [c]omplaint” and establish only that Amazon has paid “relatively minor amounts.”

On appeal, the vice chancellor adopted the magistrate’s report and denied the stockholder’s inspection demand. The vice chancellor concluded, however, that it was unnecessary to decide whether the stockholder satisfied its credible basis burden because “[t]here is a more fundamental problem with the … demand: the scope of its stated purpose is facially improper.” According to the vice chancellor, the books-and-records demand’s stated purpose was “astoundingly broad” as it concerned “any possible anticompetitive conduct by a global conglomerate at any time anywhere in the world.” The vice chancellor then concluded that the determination of whether the stockholder presented sufficient evidence to satisfy the credible basis standard is “meaningless when it failed to articulate a lucid purpose in the first place.”

The stockholder appealed both the vice chancellor’s ruling as to the scope of the demand’s stated purpose and the magistrate’s ruling as to the evidentiary burden required to establish a credible basis.

The Delaware Supreme Court’s Reversal

The Delaware Supreme Court reversed, rejecting both the Court of Chancery’s and the magistrate’s analyses. The court held that the vice chancellor erred by “beginning and ending” her analysis solely on the scope of the demand’s stated purpose. As the court explained:

[D]enying an inspection demand based on a facial evaluation of the “scope” of the purpose, without considering whether the evidence stablished a credible basis for that purpose, is not the framework under which [the Court of Chancery] evaluate[s] Section 220 demands.

The court acknowledged that a stockholder’s “mere statement of a purpose to investigate possible general management, without more, is insufficient to establish entitlement to inspection.” But the court explained that the required “more” is not a narrower or clearer purpose but rather satisfaction of the credible basis standard, i.e., some evidence to establish a credible basis of mismanagement or wrongdoing warranting further investigation. The vice chancellor therefore could not reject the demand solely based on the scope of its purpose; rather, the vice chancellor “was required to continue [her] analysis by engaging with the evidence presented by the [stockholder].”[1]

The Delaware Supreme Court then separately rejected the magistrate’s finding that the stockholder did not present sufficient evidence of a “credible basis.” The court began by noting that demonstrating a credible basis does not require a stockholder to show actual waste or mismanagement, and that the credible basis standard requires the “lowest possible burden of proof under Delaware law”:

[Stockholders] need only show, by a preponderance of the evidence, a credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation—a showing that may ultimately fall well short of demonstrating that anything wrong occurred.” [Internal quotations omitted.]

The Delaware Supreme Court also rejected the magistrate’s conclusion—based on a reading of Oklahoma Firefighters Pension & Retirement System v. Amazon.com, Inc., C.A. No. 2021-0484, 2022 WL 1760618, at *8 (Del. Ch. June 1, 2022)—that a demand must satisfy the higher burden of containing “additional evidence” or a “plus factor” in cases primarily concerning government investigations and litigation. According to the court, the credible basis standard is not elevated even in such cases, and although satisfying this standard often requires more than a mere untested allegation of wrongdoing, it does not require that the underlying litigation result in a full victory on the merits against the company. As the court explained:

[W]here a stockholder presents evidence of ongoing investigations and lawsuits, and those investigations and lawsuits have advanced beyond untested allegations, then the evidence can be sufficient to meet the credible basis standard, especially when liability or fines could result in a corporate trauma.

The court then concluded that the evidence presented by the stockholder—i.e., the FTC complaint (most of which survived Amazon’s motion to dismiss), the lawsuit by the state of California (which continues following a court’s denial of Amazon’s demurrer), the lawsuit by the state of Washington (which culminated in a consent decree and Amazon providing annual updates on compliance with antitrust laws) and the action by the Italian Competition Authority (which resulted in a €1.13 billion fine paid by Amazon)—“[when] taken together … are sufficient to establish a credible basis from which a court can infer that Amazon has engaged in possible wrongdoing through its purported anticompetitive activities.” The Delaware Supreme Court therefore reversed the judgment of the Court of Chancery and remanded the case for further proceedings to determine the scope and conditions of production consistent with its decision.

Takeaways

Amazon makes clear that a corporation cannot defeat a Section 220 books-and-records demand solely by attacking the scope of the demand’s stated purpose without also analyzing whether the demand presents some evidence of a credible basis of mismanagement or wrongdoing warranting further investigation. Although corporations and their counsel still should highlight the overbreadth or vagueness of a demand’s stated purpose, this should be coupled with a challenge to the sufficiency of a demand’s evidence regarding its credible basis.

As Amazon demonstrates, such analyses will be highly fact dependent. Arguing that a government investigation or lawsuit remains pending or did not result in an adjudication adverse to the corporation will not, by itself, defeat the establishment of a credible basis, particularly given the Delaware Supreme Court’s rejection of a plus-factor requirement in cases resting primarily on government investigations and litigation. On the other hand, if such ongoing investigations or lawsuits have not “advanced beyond untested allegations,” then corporations would be well served to emphasize the nascency of these proceedings in their credible basis challenges.

Additionally, any challenge to a books-and-records demand should account for the recent amendments to Section 220, which provide, among other things, that a stockholder may inspect a copy of the corporation’s books and records only if (i) the stockholder’s demand is made in good faith and for a proper purpose, (ii) the demand describes with “reasonable particularity” the stockholder’s purpose and the books and records the stockholders seeks to inspect, and (iii) the books and records sought are “specifically related” to the stockholder’s purpose. These amendments provide important additional grounds to challenge an improper demand.

For More Information

If you have any questions about this Alert, please contact Richard L. Renck, Michael A. Cabin, Brad D. Feldman, Gregory D. Herrold, any of the attorneys in our Securities Litigation Group, any of the attorneys in our Trial Practice Group or the attorney with whom you are regularly in contact.

Notes

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.