Title: NVIDIA Corporation v. City of Westland Police & Fire Retirement System
Citation: N/A
Docket Number: 259, 2021
State: Delaware
Issuer: Delaware Supreme Court
Date: July 19, 2022

1 
 
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
NVIDIA CORPORATION, 
 
 
 
Defendant Below, 
 
 
Appellant, 
 
 
v. 
 
CITY OF WESTLAND POLICE AND 
FIRE RETIREMENT SYSTEM, 
DENNIS HORANIC, ELLEN HOKE, 
KALLESTAD TRUST, and STEPHEN 
P. FARKAS, 
 
 
 
Plaintiffs Below, 
 
 
Appellees. 
 
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No. 259, 2021 
 
 
Court Below – Court of Chancery  
 
of the State of Delaware 
 
 
 
C.A. No. 2020-0075 
 
Submitted: April 20, 2022 
Decided:   July 19, 2022 
Revised:     July 25, 2022 
 
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and 
MONTGOMERY-REEVES, Justices, constituting the Court en banc. 
 
Upon appeal from the Court of Chancery. AFFIRMED IN PART, REVERSED 
AND REMANDED IN PART. 
 
Gregory P. Williams, Esquire, Brock E. Czeschin, Esquire, Christian C.F. Roberts, 
Esquire, RICHARDS, LAYTON, & FINGER, P.A., Wilmington, Delaware; John 
C. Dwyer, Esquire, Patrick E. Gibbs, Esquire (argued), Claire A. McCormack, 
Esquire, COOLEY LLP, Palo Alto, California; for Appellant NVIDIA Corporation. 
 
Seth D. Rigrodsky, Esquire, Gina M. Serra, Esquire, Herbert W. Mondros, Esquire, 
RIGRODSKY LAW, P.A., Wilmington, Delaware; Frank R. Schirripa, Esquire 
(argued), Hillary Nappi, Esquire, HACH ROSE SCHIRRIPA & CHEVERIE LLP, 
New York, New York; Gregory Mark Nespole, Esquire, Daniel Tepper, Esquire, 
LEVI & KORSINSKY, LLP, New York, New York; Travis E. Downs III, Esquire, 
Erik W. Luedeke, Esquire, ROBBINS GELLER RUDMAN & DOWD LLP, San 
2 
 
Diego, California; Thomas J. McKenna, Esquire, Gregory M. Egleston, GAINEY 
MCKENNA & EGLESTON, New York, New York; Beth A. Keller, 
MONTEVERDE & ASSOCIATES PC, New York, New York; for Appellees City 
of Westland Police and Fire Retirement System, Dennis Horanic, Ellen Hoke, 
Kallestad Trust, and Stephen P. Farkas. 
 
 
3 
 
MONTGOMERY-REEVES, Justice, for the Majority: 
This appeal arises from a final judgment of the Court of Chancery that ordered 
NVIDIA Corporation (“NVIDIA” or the “Company”) to produce books and records 
to certain NVIDIA stockholders under Section 220 of the Delaware General 
Corporation Law.  In the underlying action, the stockholders alleged that certain 
NVIDIA executives knowingly made false or misleading statements during 
Company earnings calls that artificially inflated NVIDIA’s stock price, and then 
those same executives sold their stock at inflated prices.  As such, the stockholders 
sought to inspect books and records to investigate possible wrongdoing and 
mismanagement at the Company, to assess the ability of the board to consider a 
demand for action, to determine whether the Company’s board members are fit to 
serve on the board, and to take the appropriate action in response to the investigation.   
NVIDIA argued that the stockholders were not entitled to the relief they 
sought because (1) the scope of the original demands failed to satisfy the form and 
manner requirements; (2) the documents sought at the trial were not requested in the 
original demands; (3) the stockholders failed to show a proper purpose; (4) the 
stockholders failed to show a credible basis to infer wrongdoing; and (5) the requests 
were overbroad and not tailored to the stockholders’ stated purpose.   
The Court of Chancery rejected these arguments and ordered the production 
of two sets of documents—certain communications with the CEO and certain 
4 
 
specific sets of emails.  NVIDIA has appealed and challenges each of the Court of 
Chancery’s rulings. 
Having reviewed the parties’ briefs and the record on appeal, and after oral 
argument, the Court holds that: (1) the stockholders’ original demands did not 
violate Section 220’s form and manner requirements; (2) the stockholders did not 
expand their requests throughout litigation; (3) the Court of Chancery did not err in 
holding that sufficiently reliable hearsay evidence may be used to show proper 
purpose in a Section 220 litigation, but did err in allowing the stockholders in this 
case to rely on hearsay evidence because the stockholders’ actions deprived NVIDIA 
of the opportunity to test the stockholders’ stated purpose; (4) the Court of Chancery 
did not err in holding that the stockholders proved a credible basis to infer 
wrongdoing; and (5) the documents ordered to be produced by the Court of Chancery 
are essential and sufficient to the stockholders’ stated purpose.  Thus, the judgment 
of the Court of Chancery is AFFIRMED in part, REVERSED in part, and 
REMANDED for proceedings consistent with this opinion. 
I. 
RELEVANT FACTS AND PROCEDURAL BACKGROUND 
A. 
General Background 
NVIDIA is a California-based technology company that designs, 
manufactures, and markets, among other things, graphics processing units 
5 
 
(“GPUs”).1  GPUs are computer chips that perform rapid mathematical calculations.2  
Traditionally, NVIDIA sold its GPUs for video gaming; these GPUs are marketed 
under the name “GeForce” (“Gaming GPU”).3  NVIDIA’s gaming segment 
generates the vast majority of its revenue.4  
In early 2017, NVIDIA experienced an increase in Gaming GPU sales as 
consumers began purchasing the product for use in cryptocurrency mining.5  In 
response, NVIDIA created a new GPU specifically for mining that does not contain 
graphics capabilities (“Crypto GPU”).6  NVIDIA’s goal in producing the Crypto 
GPU was to protect the Gaming GPU supply for gaming customers.7  This strategy, 
however, did not appear to work; crypto miners continued to purchase Gaming 
GPUs for mining purposes.8   
The increase in demand for Gaming GPUs created a unique problem for 
NVIDIA.  NVIDIA does not sell Gaming GPUs directly to end users, but rather 
through a multi-level distribution channel.9  The channel encompasses the time from 
 
1 App. to the Opening Br. 35 (hereinafter “A__”); Opening Br. Ex. A, at 4 (hereinafter, 
“Ex. A at __”). 
2 A35. 
3 Opening Br. 7. 
4 A35. 
5 Id. 
6 Id. 
7 Opening Br. 8; A389. 
8 A36. 
9 Opening Br. 7. 
6 
 
when NVIDIA sells the GPU to when an end user purchases it.10  The channel will, 
at any given time, have some GPUs in inventory.11  And while NVIDIA suggests a 
retail price for its GPUs, it does not control channel or retail prices.12  “If sales at the 
end of the channel accelerate suddenly, before NVIDIA can increase the supply 
coming into it, supply for end users can get tight and prices can increase beyond 
what some are willing to pay.”13  Thus, during the increase in purchases of Gaming 
GPUs by crypto miners, Gaming GPUs were scarce and prices increased.14  This had 
the effect of pricing gamers out of the market.15 
B. 
The Earnings Calls and Stock Sales 
From mid-2017 to late-2018, NVIDIA executives made a series of statements 
in various earnings calls about the effect of crypto mining on the channel and 
NVIDIA’s revenue and about NVIDIA’s ability to manage the increasing demand 
for Gaming GPUs.  These statements, detailed below, are the basis for various 
lawsuits against NVIDIA, including this action. 
On an August 10, 2017 earnings call, NVIDIA executives discussed an 
increase in GPU sales driven by a spike in cryptocurrency prices.16  During the call, 
 
10 Id. 
11 Id. 
12 Id.; A403. 
13 Opening Br. 7. 
14 A530. 
15 Id. 
16 Ex. A at 6. 
7 
 
Jensen Huang, NVIDIA’s CEO, stated, “There’s still small miners that buy Gaming 
GPUs here and there, and that probably also increased the demand of Gaming 
GPUs. . . .   [T]here’s still cryptocurrency mining demand that we know is out 
there.”17  Collette Kress, NVIDIA’s CFO, agreed that GPU sales “were lifted by 
demand from increasing mining activity” and noted that NVIDIA’s “strategy is to 
stay alert to this fast-changing market . . . .”18   
On November 9, 2017, during an earnings call, Kress suggested that NVIDIA 
“remains nimble in [its] approach to the cryptocurrency market.”19   
During a February 8, 2018 earnings call, Kress stated that miners were buying 
both Crypto GPUs and Gaming GPUs.20  On this call, Huang stated that gamers’ 
difficulty in purchasing Gaming GPUs due to the spike in crypto mining was leading 
to “fairly sizeable pent-up demand . . . .”21 
During earnings calls on May 10, 2018, and August 16, 2018, Huang and 
Kress expressed optimism that “the gaming demand is strong” because there was 
still pent-up demand for Gaming GPUs from gamers.22  During the August call, 
Huang stated that “channel inventory would work itself out” and “we’re not 
 
17 Id. 
18 Id. 
19 App. to the Answering Br. 59 (hereinafter “B__”). 
20 A398. 
21 Id. 
22 A530, 539; Ex. A at 7. 
8 
 
concerned about channel inventory.”23  Huang also stated that “‘the larger of a GPU 
company you are, the greater ability you could [sic] absorb the volatility [and] 
because we have such large volumes, we have the ability to rock and roll with this 
market as it goes.’”24 
Between August 11, 2017, and September 28, 2018, NVIDIA’s stock price 
rose from $155.96 to $281.02 per share.25  On September 6, 2017, Huang sold 
110,000 shares of NVIDIA for $18.2 million.26  And, pursuant to a 10b-5 plan, Kress 
sold 36,333 shares for $7.7 million between October 2017 and September 2018.27 
On November 15, 2018, NVIDIA announced that the pent-up gaming demand 
it predicted had not materialized, leading to excess inventory in the channel and a 
revenue miss.28  Huang stated that “excess channel inventory . . . declined slower 
than we expected and – but while it was declining, we were expecting sales volume 
to grow, demand to grow and for pricing to be – for volume to be elastic with 
pricing.”29  NVIDIA’s stock price declined 28.5 percent in the days following the 
call.30  On November 19, 2018, NVIDIA closed at $144.70 per share.31 
 
23 Ex. A at 7-8. 
24 A43. 
25 A42. 
26 A49. 
27 See id. 
28 A568. 
29 Id. 
30 A37. 
31 A48. 
9 
 
On January 28, 2019, NVIDIA lowered its earnings estimate for the fourth 
quarter of 2019, explaining that “[t]he Q4 guidance [] in November reflected the 
effect of excess channel inventory of Pascal mid-range GPUs that resulted from the 
sharp decline of cryptocurrency demand.  We delayed the planned production ramp 
of several new products to allow excess channel inventory to deplete, which resulted 
in the significantly lowered Q4 guidance.”32 
On February 14, 2019, NVIDIA announced that Gaming GPU revenue for the 
fourth quarter was down forty-five percent year-over-year and forty-six percent 
quarter-over-quarter.33   
By November 2019, NVIDIA’s stock price returned to over $200 per share.34  
C. 
Federal Securities Class Action 
On June 21, 2019, certain NVIDIA stockholders filed a consolidated class 
action complaint (the “Securities Complaint”) in the United States District Court for 
the Northern District of California (the “Securities Class Action”).35  The Securities 
Class Action, which named NVIDIA and several of its directors as defendants, 
including Huang and Kress, alleged that the defendants violated federal securities 
laws by making false or misleading statements about the effect of crypto mining on 
 
32 B102. 
33 Ex. A at 9. 
34 Id. 
35 B110. 
10 
 
NVIDIA’s revenue and the demand for Gaming GPUs.36  The Securities Complaint 
supported its allegations with public filings, NVIDIA transcripts and presentations, 
testimony from relevant experts, and information from former NVIDIA employees, 
among other things.37   
On March 16, 2020, the United States District Court for the Northern District 
of California dismissed in part the Securities Class Action, holding that the plaintiffs 
failed to meet the standard of proof for falsity and raise a strong inference of scienter 
with respect to any of the individual defendants.38  The court dismissed the motion 
with leave to amend.39  The plaintiffs then filed an amended securities complaint (the 
“Amended Securities Complaint”). 
The Amended Securities Complaint added anonymous testimony from a 
former NVIDIA employee, named FE 1, alleging that Huang and other executives 
had specific knowledge of the impact of cryptocurrency on the channel.40  Relevant 
to this appeal, the Amended Securities Complaint alleged that during a March 2017 
meeting, FE 1 warned Senior Vice President and Head of Gaming, Jeff Fisher, and 
other executives that NVIDIA had to “take care” given the growing reliance on 
 
36 B110-74 
37 Ex. A at 10. 
38 B229-54. 
39 Id. 
40 A692-778. 
11 
 
crypto miners in China, which Fisher called “dangerous” during the meeting.41  The 
Amended Securities Complaint also alleged a close relationship between Fisher and 
Huang, noting that “Fisher reported directly to Huang,” that Fisher was one of 
NVIDIA’s oldest employees, and that Fisher met with Huang weekly.42  It also 
alleged that weekly sales reports quantifying the impact of crypto-mining demand 
on Gaming GPU sales was sent to Fisher and other executives throughout 2017.43  
NVIDIA filed a motion to dismiss the Amended Securities Complaint, which the 
court granted.44 
D. 
Procedural History 
Between February 22, 2019, and April 16, 2019, City of Westland Police and 
Fire Retirement System, Dennis Horanic, Ellen Hoke, Kallestad Trust, and Stephen 
P. Farkas, all NVIDIA stockholders, (collectively, the “Stockholders”), separately 
served Section 220 demands to NVIDIA (the “Original Demands”).45  Although 
these demands contained a variety of requests, City of Westland’s first demand was 
for “[a]ll documents forming the basis, if any, for NVIDIA’s public statements about 
its ability to manage the inventory, supply chain and sales channel concerns around 
the cryptocurrency boom experienced by NVIDIA during the time period from 2017 
 
41 A767. 
42 A706. 
43 A724-26. 
44 A904-25. 
45 A50. 
12 
 
to 2019.”46  The Stockholders eventually served NVIDIA with consolidated requests 
(the “Consolidated Demands”), which sought, among other things, “[a]ll documents 
and/or communications used by NVIDIA’s CEO, CFO and/or other executives with 
direct reporting responsibilities to the Board concerning the demand for the 
Company’s GPUs, GPU inventory levels, sales channel conditions and other key 
business metrics monitored by the NVIDIA Board during the time period from 2017 
to 2019.”47   
NVIDIA produced 78 documents that totaled about 530,000 pages.48  In 
response, the Stockholders requested “the documents that formed the basis of 
Huang’s and Kress’s public statements about the Company’s ability to manage its 
GPU sales considering the increased cryptocurrency demand . . . .”49  NVIDIA 
responded that it had not agreed to that request and that such a request was too broad 
and could not be answered.50   
On February 10, 2020, the Stockholders filed an action in the Court of 
Chancery seeking inspection of various NVIDIA books and records.51  In their 
complaint, the Stockholders alleged that NVIDIA executives and Board members, 
 
46 A663. 
47 A676. 
48 Ex. A at 12. 
49 A686. 
50 A690. 
51 A33-65. 
13 
 
including Huang and Kress, “knowingly made, or allowed to be made, false and 
misleading public statements concerning the Company’s internal controls, 
prospects, and earnings, while contemporaneously selling $147 million of Company 
stock at artificially inflated prices.”52  In particular, the Stockholders alleged that the 
following twelve public statements made by either Huang or Kress during earnings 
calls were false or misleading (collectively, the “Public Statements”): 
• “[W]hen you think about crypto in the context of our 
company overall, the thing to remember is that we’re 
the largest GPU computing company in the world. And 
our overall GPU business is really sizable and we have 
multiple segments.”  
• “[C]rypto usage of GPUs will be small but not 0 for 
some time.”  
• “[T]here’s a fairly sizable pent-up demand going into 
this quarter” among gamers looking to purchase 
NVIDIA GPUs. 
• The GPU supply “channel is relatively lean,” and 
NVIDIA was “working really hard to get GPUs down 
to the marketplace for the gamers.”  
• “[W]e try to as transparently reveal our numbers as we 
can. And . . . our strategy is to create a[n] SKU that 
allows the crypto miners to fulfill their needs . . . as 
much as possible, fulfill their demand that way.”  
• “[We are] ‘not concerned about the channel inventory 
. . . .’”  
• “We are masters at managing our channel, and we 
understand the channel very well.” 
• “GPU sales [] benefited from continued cryptocurrency 
mining” . . . the Company “remains nimble in our 
approach to the cryptocurrency market” . . . “[the 
 
52 A35. 
14 
 
crypto-currency boom]” will not distract us from 
focusing on our core gaming market.”  
• “[C]hannels had been influenced by not only the 
strength of the overall gaming that we had seen for the 
overall holiday season, but also the large uptick that 
we’ve seen in the overall valuation of cryptocurrency.” 
. . . “[We are] mak[ing] sure [] gamers worldwide 
receive the cards that we want to do.”  
• “[W]e do believe we can serve [cryptocurrency miners] 
primarily with those specialized cards and that’s going 
to be our goal going forward” . . . “we’re going to really 
try our hardest to really focus our overall GPUs for 
gaming for overall gamers going forward.”  
• “[NVIDIA] met some of this [cryptocurrency] demand 
with a dedicated board in our OEM business, and some 
was not met with our gaming GPUs. . . .” “[T]his 
contributed to lower than historical channel inventory 
levels of our gaming GPUs throughout the quarter.”  
• “[O]verall contribution of cryptocurrency to our 
business . . . was a higher percentage of revenue than 
the prior quarter . . . .” “[O]ur main focus remains on 
our core gaming market.”53  
 
The Stockholders also alleged that the NVIDIA insiders materially benefited by 
selling their stock when stock prices were artificially high.54   
Before trial, the Stockholders told NVIDIA that they had not yet determined 
which witnesses they were going to call to testify regarding the purpose of the 
demand.55  NVIDIA similarly did not identify witnesses, instead reserving the right 
to depose and cross-examine any witnesses identified by the Stockholders.56  The 
 
53 A44-46. 
54 A48-50. 
55 A219. 
56 See id.; A788. 
15 
 
Stockholders then told NVIDIA “very late in the process” that they were considering 
using an affidavit instead of live witness testimony; NVIDIA responded that it would 
need to see the affidavit and then depose any individual testifying by affidavit.57  The 
Stockholders eventually chose not to call any witnesses to testify to their purpose, 
instead relying on the purpose expressed in the Original Demands and 
interrogatories.58   
On February 10, 2021, the Court of Chancery issued a transcript ruling.59  The 
court started its analysis by determining whether the Stockholders had established a 
proper purpose.60  The court found that the Company’s demand stated the following 
purpose: 
investigating potential wrongdoing and mismanagement 
at the Company related to NVIDIA’s GPU sales and 
insider stock sales; assessing the ability of the board to 
consider a demand for action; determining whether the 
current directors are fit to continue serving on the Board; 
and taking appropriate action in response, including 
discussing potential reforms with the board and 
management or filing a derivative action.61 
 
 
57 A219-20, 788; Ex. A at 15. 
58 A220. 
59 See generally Ex. A. 
60 Id. at 16. 
61 Id. at 16-17. 
16 
 
For purposes of the ruling, the court treated these purposes as a single purpose to 
“investigat[e] potential wrongdoing” and found that “the investigation of 
mismanagement is a proper purpose under Delaware law . . . .”62   
The court next tackled the question of whether the Stockholders had 
established a credible basis for inspection with respect to wrongdoing.  In finding a 
credible basis for demand, the court stated that “[v]iewed collectively, the categories 
support a finding that there is a credible basis to infer that an insider trading scheme 
existed.”63   
Finally, the court determined the scope of relief to be granted and ultimately 
required NVIDIA to produce:  
(i) communications about the statements Fisher is alleged 
in [the Amended Securities Complaint] to have made to 
Huang, if any, regardless of where they are found, be it in 
email, or in written notes taken by Fisher, Huang, or others 
present for conversations between them; (ii) the Top 5 
emails sent to or by Huang or Kress during the Relevant 
Period to the extent they relate to the Responsive Topics.64 
 
II. 
STANDARD OF REVIEW 
On appeal, this Court applies a de novo standard of review to determine 
“which types of books and records are included in the actual written demand, except 
to the extent that the written demand is ambiguous and there are factual 
 
62 Id. at 17. 
63 Id. at 28. 
64 Opening Br. Ex. B, at 3 (hereinafter, “Ex. B at __”). 
17 
 
determinations underlying the Court of Chancery’s resolution of that ambiguity.”65  
We review questions of law, including whether a proper purpose can be established 
with hearsay evidence, de novo.66  “When a stockholder seeks to investigate 
corporate 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.”67  “This Court reviews the scope of relief ordered in a books 
and records action for abuse of discretion.”68   
III. 
ANALYSIS 
Under Section 220 of the Delaware General Corporation Law, stockholders 
have a right to inspect corporate books and records.69  This right, however, is not 
unfettered.  Section 220 first imposes strict form and manner requirements.70  Next, 
the stockholder must have a proper purpose to inspect corporate books and records.71  
“A proper purpose shall mean a purpose reasonably related to such person’s interest 
 
65 KT4 Partners LLC v. Palantir Techs. Inc., 203 A.3d 738, 749 (Del. 2019). 
66 Pipher v. Parsell, 930 A.2d 890, 892 (Del. 2007). 
67 AmerisourceBergen Corp. v. Lebanon Cnty. Emps.’ Ret. Fund, 243 A.3d 417, 424-25 
(Del. 2020) (citing City of Westland Police & Fire Ret. Sys. v. Axcelis Techs., Inc., 1 A.3d 
281, 287 (Del. 2010)). 
68 AmerisourceBergen, 243 A.3d at 425 (citing Wal-Mart Stores, Inc. v. Ind. Elec. Workers 
Tr. Fund IBEW, 95 A.3d 1264, 1272 (Del. 2014)). 
69 8 Del. C. § 220. 
70 Id. at 220(b). 
71 Id. 
18 
 
as a stockholder.”72  “[A] stockholder has the burden of proof to demonstrate a proper 
purpose by a preponderance of the evidence.”73   
“It is well established that a stockholder’s desire to investigate wrongdoing or 
mismanagement is a ‘proper purpose.’”74  But where a stockholder seeks to 
investigation wrongdoing, the stockholder must also “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 . . . .”75  Finally, 
“[t]he [stockholder] bears the burden of proving that each category of books and 
records is essential to accomplishment of the stockholder’s articulated purpose for 
the inspection.”76 
NVIDIA challenges whether the Stockholders have satisfied each of these 
requirements.  First, NVIDIA argues that the Stockholders’ demand for all 
documents forming the basis of the Public Statements is overbroad, in violation of 
the statute’s form and manner requirements.77  The Company also contends that the 
Stockholders constantly changed their requests throughout litigation, adding entirely 
new categories of documents in violation of the statute’s form and manner 
 
72 Id. 
73 Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del. 2006). 
74 Id.  
75 Id. at 123. 
76 Thomas & Betts Corp. v. Leviton Mfg. Co. Inc., 681 A.2d 1026, 1035 (Del.1996)). 
77 Opening Br. at 19. 
19 
 
requirements.78  Second, NVIDIA argues that the Stockholders’ reliance on 
impermissible hearsay evidence to establish a proper purpose failed to meet the 
burden of proof required by the statute.79  Third, NVIDIA argues that the 
Stockholders did not show a credible basis from which the court could infer 
wrongdoing or mismanagement.80  Fourth, the Company alleges that the court’s 
order of production is not essential and sufficient to the stockholders’ stated 
purpose.81  We address each challenge in turn.    
A. 
The Stockholders’ Request Does Not Violate Section 220’s Form 
and Manner Requirements 
 
 
NVIDIA argues that the Stockholders’ request for documents that formed the 
basis of the Public Statements violates Section 220’s form and manner requirements 
because it is impermissibly broad.82  The Company also contends that the 
Stockholders expanded their document requests throughout litigation in violation of 
Section 220’s form and manner requirements.83  We disagree.  
A stockholder’s right to inspect the books and records of a corporation is 
codified in Section 220(b) of the Delaware General Corporation Law.84  Under the 
 
78 Id. at 20-24. 
79 Id. at 25-30. 
80 Id. at 31-42. 
81 Id. at 18-20. 
82 Id.   
83 Opening Br. at 20-24. 
84 8 Del. C. § 220(b).   
20 
 
statute, “[a]ny stockholder, in person or by attorney or other agent, shall, upon 
written demand under oath stating the purpose thereof, have the right . . . to inspect 
for any proper purpose . . . [t]he corporation’s . . . books and records . . . .”85  
Beneficial stockholders are permitted to inspect a corporation’s books and records 
if “the demand under oath shall state the person’s status as a stockholder, be 
accompanied by documentary evidence of beneficial ownership of the stock, and 
state that such documentary evidence is a true and correct copy of what it purports 
to be.”86  Section 220(c) provides that stockholders seeking to inspect the 
corporation’s books and records, other than stockholder lists, “‘shall first establish 
that: (1) [s]uch stockholder is a stockholder; (2) [s]uch stockholder has complied 
with [section 220] respecting the form and manner of making demand for inspection 
of such documents; and (3) [t]he inspection such stockholder seeks is for a proper 
purpose.’”87 
As such, the statute suggests that the form and manner requirements are 
expressed in Section 220.  They include, for example, requirements that the 
stockholder provide a written demand, under oath, that states the person’s status as 
a stockholder, and for beneficial stockholders that includes documentary evidence 
 
85 Id. 
86 Id.   
87 Cent. Laborers Pension Fund v. News Corp., 45 A.3d 139, 144 (Del. 2012) (quoting 8 
Del. C. § 220(c)). 
21 
 
of beneficial ownership of the stock that states that such documentary evidence is a 
true and correct copy of what it purports to be.  The plain language of Section 220 
does not explicitly address the scope or breadth of the documents available for 
inspection, other than to make clear that stockholders may inspect both stockholder 
lists and other books and records.  Simply put, a determination of the appropriateness 
of the scope of a stockholder’s requests, or any change to the stockholder’s requests, 
has no bearing on whether the plaintiff has satisfied the statute’s form and manner 
requirements.  To be sure, a Company can challenge the appropriateness of the scope 
of document requests and changes to the document requests, but we do not view 
those challenges as form and manner requirement challenges.     
Thus, we hold that the scope of the Stockholders’ requests, even if they were 
initially overbroad, and changes to the Stockholders’ requests throughout litigation, 
do not violate Section 220’s form and manner requirements. 
The Company next appears to argue that under Highland Select Equity Fund, 
L.P. v. Motient Corp.,88 the court does not have the “responsibility to pick through 
the debris” of an overbroad demand and should instead deny any overbroad demand 
outright.89  In Highland Select, the court analyzed “whether the stockholder made a 
proper demand or, instead, has presented such a sweeping and overbroad request as 
 
88 906 A.2d 156 (Del. Ch. 2006). 
89 Opening Br. 19. 
22 
 
to constitute an impermissible use of the statutory right to inspect the corporation’s 
books and records.”90  In denying the stockholder’s request as overbroad, the court 
stated, “Section 220 is also not a way to circumvent discovery proceedings, and is 
certainly not meant to be a forum for the kinds of wide-ranging document requests 
permissible under Rule 34.”91  It then noted that “it is not the court’s responsibility 
to pick through the debris of a Section 220 demand.”92  According to the Company, 
this language created a blanket rule in which the Court of Chancery must deny all 
demands that are overbroad.93 
There is no blanket rule that requires the Court of Chancery to outright deny 
those demands that it finds to be overbroad.  In Highland Select the court opted not 
to determine which documents were necessary and essential to the stockholder’s 
purpose after determining that the stockholder’s impermissibly broad demand, 
coupled with its improper purpose, abused the Section 220 process.  The Court of 
Chancery has discretion to look at an overbroad demand and either identify the 
records that should be produced or to decide that it will not “pick through the debris” 
of an impermissibly overbroad demand that abuses the Section 220 process.  Here, 
the Court of Chancery did not abuse its discretion by refusing to deny the demand 
 
90 Highland Select, 906 A.2d at 157. 
91 Id. at 165. 
92 Id. at 168. 
93 Opening Br. 18-19. 
23 
 
outright due to its breadth.  In other words, it was not an abuse of discretion for the 
Court of Chancery to choose to craft a production order circumscribed with rifled 
precision.  Plaintiffs in Section 220 proceedings, however, should take heed that the 
deference we afford the Court of Chancery in these instances means that a 
Chancellor’s or Vice Chancellor’s denial of a demand as impermissibly overbroad 
will also be subject to an abuse of discretion standard and deference from this Court. 
B. 
The Stockholders Did Not Improperly Change Their Requests 
Throughout Litigation 
 
NVIDIA next argues that the Stockholders improperly changed their requests 
throughout litigation.94 
Delaware case law has held that Section 220 plaintiffs cannot broaden the 
scope of their requests throughout litigation, as such a change would be prejudicial 
to the corporate defendant.  For example, in Fuchs Family Trust v. Parker Drilling 
Company, the Court of Chancery denied the plaintiff’s inspection demand because 
the plaintiff attempted to broaden its request eight days before trial and after briefing: 
On November 4, 2014, just eight days before trial, Fuchs 
issued a supplemental inspection demand, to provide, in 
part, sufficient proof of its beneficial ownership of Parker 
stock.  In addition to requesting documents sufficient to 
identify the anonymous wrongdoers, Fuchs attempted to 
broaden its demand (shortly before trial and after briefing 
had commenced) to include any report prepared by 
Parker’s board, or any committee thereof, concerning 
investigation of the Nigerian Bribing Scheme, and all 
 
94 Id. at 20-24. 
24 
 
documents relied upon by the board or any committee 
thereof.  Given the circumstances, Fuchs’s late attempt to 
expand its inspection must be rejected.95  
 
But Delaware case law has also held that Section 220 plaintiffs may narrow 
their requests throughout litigation when the narrowing is made in good faith: 
While Plaintiffs’ lack of precision in formulating its 
Demand, particularly with respect to the scope of 
documents requested, has provoked justified frustration 
and has prompted questions regarding possible abuse of 
the Section 220 process, I am satisfied there has been no 
such abuse here.  Plaintiffs’ stated purposes for inspection 
have remained constant throughout the various iterations 
of their Demand.  And their lack of focus regarding the 
documents they seek, while unfortunate, does not evidence 
a lack of good faith.  In my view, the proper approach here 
is to hold Plaintiffs to the request for documents as stated 
in the Pre-Trial Order, a request that was refined by the 
parties’ several meet and confer sessions.96 
 
Thus, under Delaware case law, Section 220 plaintiffs may narrow their requests 
during litigation if they do so in good faith and such narrowing is not prejudicial to 
the company.  
In one of the Original Demands made upon NVIDIA, the Stockholders sought 
the following: “All documents forming the basis, if any, for NVIDIA’s public 
statements about its ability to manage the inventory, supply chain and sales channel 
concerns around the cryptocurrency boom experienced by NVIDIA during the time 
 
95 Fuchs Fam. Tr. v. Parker Drilling Co., 2015 WL 1036106, at *4 (Del. Ch. Mar. 4, 2015). 
96 In re Facebook, Inc. Section 220 Litig., 2019 WL 2320842, at *18 (Del. Ch. May 30, 
2019). 
25 
 
period from 2017 to 2019.”97  Before litigation, on May 28, 2019, the Stockholders 
sent NVIDIA the Consolidated Demands, the first of which requests “[a]ll 
documents and/or communications used by NVIDIA’s CEO, CFO and/or other 
executives with direct reporting responsibilities to the Board concerning the demand 
for the Company’s GPUs, GPU inventory levels, sales channel conditions and other 
key business metrics monitored by the NVIDIA Board during the time period from 
2017 to 2019.”98  Although the wording is slightly different, the gist of the request 
remains the same—the Stockholders want documents and communications used by 
NVIDIA’s executives that informed the Public Statements regarding NVIDIA’s 
ability to manage its supply chain and cryptocurrency demand. 
On September 24, 2019, before this litigation began, the Stockholders again 
reiterated their request: “Accordingly, the Stockholders demand to know by the close 
of business on October 1, 2019, whether NVIDIA will be producing the documents 
that formed the basis of Huang’s and Kress’s public statements about the Company’s 
ability to manage its GPU sales considering the increased cryptocurrency demand  
. . . .”99   
In the complaint, the Stockholders made the exact same request, seeking “only 
the documents that formed the basis of Huang’s and Kress’s public statements about 
 
97 A663. 
98 A675-76.   
99 A686. 
26 
 
the Company’s ability to manage both its GPU inventory levels and sales channels 
considering the increased demand in GPUs was a product of cryptocurrency demand 
and not traditional gaming.”100  
In the pre-trial order and stipulation, the Stockholders sought “documents 
(including email) from the period of August 2017 and November 2018 received or 
authored by Huang and or any member of NVIDIA’s Board or Officers/senior 
members of management relating to . . . the impact of cryptocurrency on the GPU 
market,” “the Company’s sales of GPUs between August 2017 and November 2018” 
and “the Company’s strategy with respect to cryptocurrency.”101  This request is 
consistent with the request for those documents forming the basis of the Public 
Statements, as all of the Public Statements relate to “the impact of cryptocurrency 
on the GPU market” and “the Company’s strategy with respect to cryptocurrency.”  
But this request also is narrower because it identifies potential custodians of 
responsive documents and shortens the time period in which those documents might 
have been received or authored.   
In their post-trial brief, the Stockholders further narrowed their request by 
identifying five specific categories of documents (the “Five Requests”): 
(1) sales data specifically identifying and quantifying 
global GeForce sales to cryptominers consolidated in a 
central database that Huang had access to; (2) documents 
 
100 A38. 
101 A791-92 (emphasis added). 
27 
 
pertaining to quarterly internal meetings in which 
NVIDIA’s vice presidents presented crypto specific 
GeForce sales to Huang, particularly from Fisher, Alben, 
and Tomassi, not dozens of insiders; (3) weekly reports 
sent directly to Huang, at his request, detailing 
cryptominers’ voracious demands for GeForce GPUs from 
regions around the world; (4) usage data from a software 
program bundled into the GeForce GPUs, called GeForce 
Experience, which reflected how the processors were 
being utilized by end users that was compiled in monthly 
reports sent to Huang, and accessed by Kress; and (5) 
weekly sales emails quantifying GeForce sales to 
cryptominers in NVIDIA’s largest market in an internal 
study.102 
 
These categories of documents fall within the pre-trial order and stipulation’s request 
for documents relating to “the impact of cryptocurrency on the GPU market” and 
“the Company’s strategy with respect to cryptocurrency.”  But based on information 
learned in the Amended Securities Complaint, the Stockholders identified precise 
topics, meetings, reports, data, and documents that relate to NVIDIA’s control of the 
channel in light of the increase in cryptocurrency mining. 
As such, an examination of the Stockholders’ requests throughout litigation 
reveals that they did not broaden their requests; instead, they consistently sought 
those records and communications that formed the basis of the Public Statements.  
 
102 A881-82. 
28 
 
And any changes to the Stockholders’ requests had the effect of narrowing exactly 
which documents and records might fulfill that demand.103   
If a Section 220 plaintiff’s overarching request remains the same, the plaintiff 
may narrow the scope of that request throughout litigation, if such narrowing does 
not prejudice the defendant.104  Notably, the Company does not argue that it was 
prejudiced by the Stockholders narrowing requests. 
The Company makes a final argument on this point that we are compelled to 
address.  The Company argues that the Stockholders’ improperly and constantly 
changing requests confused the Court of Chancery and caused it to order the 
production of records that do not exist.105  We disagree. 
As an initial matter, we reiterate that the Stockholders’ request was narrowed, 
not broadened or completely changed, for the reasons stated above.  Next, we note 
that the Court of Chancery was far from confused.  The Amended Securities 
Complaint contains allegations from an anonymous former employee who “was 
 
103 We note that the Company faults the Stockholders for not identifying these specific 
records from the outset.  But the information that allowed the Stockholders to narrow its 
requests was not available at the time of the Original Demand or the Consolidated Demand.  
The Stockholders created their Five Requests based on information alleged in the Amended 
Securities Complaint about (1) communications between Fisher and Huang regarding the 
effect of cryptocurrency on the channel, as alleged by a former NVIDIA employee, and (2) 
the Top 5 emails.  The Amended Securities Complaint was not filed until May 2020, which 
occurred after the Original and Consolidated Demands.  In other words, the Company asks 
us to rule that the Stockholders should have identified a specific set of records it did not 
know existed until after it made its Original Demand.  We decline to do so. 
104 See In re Facebook, Inc. Section 220 Litig., 2019 WL 2320842, at *18. 
105 Opening Br. 21-23. 
29 
 
employed by NVIDIA for over 10 years as a Senior Account Manager in China  
. . . .”106  The Amended Securities Complaint states that this former employee gave 
“a presentation in March 2017 to other high-level NVIDIA executives—including 
Fisher []—that emphasized the explosion of crypto-related sales of GeForce GPUs 
in China and reported that sales to crypto miners had caused GeForce sales to almost 
double in a short period.  At this meeting, Fisher called crypto-related demand 
‘dangerous.’”107  Moreover, the Amended Securities Complaint claims a close 
relationship existed between Fisher and Huang:  
Huang and Kress had ready access to Fisher, whose office 
was no more than 100 yards from Huang’s, who met with 
Huang on a weekly basis, and who, as described above, 
received detailed crypto specific GeForce sales data on a 
weekly and quarterly basis, traveled to China to review the 
effect of crypto-related demand on GeForce sales, and 
commissioned a study that quantified sales to miners on a 
monthly basis in China and addressed how NVIDIA could 
exploit the trend.108 
 
The Amended Securities Complaint then states that “[i]t is absurd to think that Fisher 
did not relay this data to Huang or otherwise discuss the effect of crypto related 
demand—which he deemed ‘dangerous’—on the Gaming segment, which was 
NVIDIA’s most important business unit and the source of more than half of the 
 
106 A706. 
107 A767. 
108 Id. 
30 
 
Company’s revenues.”109  Essentially, the Amended Securities Complaint stops a 
hair short of alleging that Fisher told Huang about the “dangerous” effect of crypto 
mining on the channel.  Given the allegations in the Amended Securities Complaint, 
it was reasonable for the Court of Chancery to infer that Fisher and Huang 
communicated about topics detailed in the Five Requests. 
 
Moreover, it is likely because the court makes this inference that the court’s 
order only requires the production of communications between Huang and Fisher to 
the extent they exist: “communications about the statements Fisher is alleged in [the 
Amended Securities Complaint] to have made to Huang, if any . . . .”110   
Thus, the Court of Chancery was not confused by the Stockholders’ request 
and did not err in determining that the Stockholders’ Five Topics request narrowed 
their original request.111  
C. 
Although Sufficiently Reliable Hearsay Is Admissible in a Section 
220 Action, the Court of Chancery Erred by Allowing Stockholders 
to Establish Their Purpose with Hearsay Evidence in This Case 
 
In its opinion, the Court of Chancery held that that the Stockholders could 
establish a proper purpose through hearsay statements contained in their demand 
 
109 A767-68. 
110 Ex. B at 3. 
111 The Company also alleges that the Court of Chancery erred in ordering the production 
of documents that the Stockholders did not request in their complaint or pre-litigation 
demands.  Given our holding that the Five Requests are encompassed within the pre-
litigation demands, we need not address this argument. 
31 
 
letters and interrogatory responses.  In coming to this conclusion, the court first 
analyzed the nature of Section 220 actions, noting that the statute imposes form and 
manner requirements and gives the Court of Chancery discretion to resolve such 
actions as summary proceedings.112  The court then observed that “[s]ummary 
proceedings are a special type of proceeding under Delaware law.  Delaware courts 
have interpreted the statutory designation to mean[] that judges should aim to resolve 
the action ‘expeditiously,’ as our high court explained in AmerisourceBergen.”113  
The court noted that requiring Section 220 plaintiffs to establish a proper purpose 
without hearsay, absent a stipulation to proceed on a paper record, would amount to 
a requirement that all Section 220 plaintiffs testify live at trial, resulting in 
“inefficiency in the process.”114  The court then held that the Original Demands are 
sufficient to establish a proper purpose because they state that the Stockholders want 
to investigate possible wrongdoing, comply with the form and manner requirements, 
are made under oath and under penalty of perjury, and are accompanied by power of 
attorney.115 
The Company argues that the Court of Chancery erred in allowing the 
Stockholders to establish a proper purpose with their demand letters and 
 
112 Ex. A at 20. 
113 Id. 
114 Ex. A at 23-24. 
115 Id. at 24-25. 
32 
 
interrogatory responses because those pieces of evidence are inadmissible 
hearsay.116  And because the Delaware Uniform Rules of Evidence apply in all 
actions and proceedings in Delaware courts, without an exception for Section 220 
proceedings, the court erred in accepting inadmissible hearsay as competent 
evidence of a proper purpose.117  The Company also argues that requiring live 
testimony from Section 220 plaintiffs would not result in any meaningful delay; but 
even if inefficiencies were a legitimate concern, the Company contends that is no 
justification to set aside the rules of evidence.118  The Company further avers that the 
inadmissible hearsay was no longer reliable evidence of Stockholders’ purpose 
because “trial occurred about 19 months after [Stockholders] identified their purpose 
in their [Original] Demands” and, during that time,  “NVIDIA’s stock price more 
than doubled, and the channel inventory issue had proven to be short-lived.”119 
In response, the Stockholders argue that Delaware case law permits the use of 
hearsay in a Section 220 proceeding so long as the hearsay is sufficiently reliable.120  
The Stockholders add that Delaware case law “imposes no . . .  limitation on the 
ways sufficiently reliable hearsay may be used in a books and records 
 
116 Opening Br. 25-30. 
117 Id. at 26. 
118 Id. at 28. 
119 Id. at 30. 
120 Answering Br. 27-30. 
33 
 
proceeding.”121  The Stockholders then aver that the Original Demands are 
sufficiently reliable because they are made under penalty of perjury and that their 
verified complaint, which restated their purpose, was notarized and attested to the 
correctness and truthfulness of the filing.122  The Stockholders contend that because 
they submitted multiple sworn statements of their proper purpose, their burden was 
satisfied and that the Company now carries the burden of proving that their purpose 
was not proper.123 
Delaware Uniform Rules of Evidence, Rule 1101(a) provides that the Rules 
of Evidence “apply to all actions and proceedings in all the courts of [Delaware].”  
Rule 1101(b) outlines exceptions, but no one argues that those exceptions apply here.  
Rule 801(c) defines hearsay as a statement that “the declarant does not make while 
testifying at the current trial or hearing” and that “a party offers in evidence to prove 
the truth of the matter asserted in the statement.”124  The parties agree that the 
Stockholders’ statements of a proper purpose, which are made in the Original 
Demands and the interrogatories, are out-of-court statements.  They also agree that 
the statements are offered for the truth of the matter asserted—that the Stockholders 
want the documents for the purpose of investigating wrongdoing.  Thus, the parties 
 
121 Id. at 28. 
122 Id. at 30-31. 
123 Id. at 31-32. 
124 D.R.E. 801(c). 
34 
 
agree that the statements at issue are hearsay.  Rule 802 provides that “[h]earsay is 
not admissible except as provided by law or by the[] Rules.”  The parties do not 
argue that any exception provided in the Rules applies here.  Thus, the parties agree 
that, under the plain language of the Rules, the Original Demands and interrogatories 
are not admissible to show the stockholder’s proper purpose.  The parties dispute, 
however, whether there is (or should be) an exception, by law, that would permit the 
Stockholders to rely on hearsay evidence in a books and records action to establish 
a proper purpose. 
To answer this question, the parties focus on a line of cases from the Court of 
Chancery (stretching back for at least eighteen years) that holds that hearsay is 
admissible in books and records litigation to show that a credible basis to infer 
wrongdoing exists.125  These cases rely on this Court’s ruling in Thomas & Betts 
 
125 Opening Br. 25-28; Answering Br. 27-30; see Amalgamated Bank v. Yahoo! Inc., 132 
A.3d 752, 778 (Del. Ch. 2016); accord Gross v. Biogen Inc., 2021 WL 1399282, at *9 
(Del. Ch. Apr. 14, 2021); Jacob v. Bloom Energy Corp., 2021 WL 733438, at *1 n.10 (Del. 
Ch. Feb. 25, 2021); Georgia Notes 18, LLC v. Net Element, Inc., No. 2021-0246-JRS, at 
*7-8 (Del. Ch. Aug. 31, 2021); Pettry v. Gilead Sciences, Inc., 2020 WL 6870461, at *11 
(Del. Ch. Nov. 24, 2020); Woods Tr. of Avery L. Woods Tr. v. Sahara Enters., Inc., 238 
A.3d 879, 894 (Del. Ch. 2020); Brown v. Empire Resorts, No. 2019-0908-KSJM, at *35 
(Del. Ch. Feb. 20, 2020); Lapetus Cap. II LLC v. Verso Corp., No. 2019-1040-KSJM, at 
*21 (Del. Ch. Jan. 17, 2020); AmerisourceBergen Corp., 2020 WL 132752, at *8 (Del. Ch. 
Jan. 13, 2020), aff’d, 243 A.3d 417 (Del. 2020); Bucks Cnty. Emps. Ret. Fund v. CBS Corp., 
2019 WL 6311106, at *2 n.14 (Del. Ch. Nov. 25, 2019); Southeastern Pa. Transp. Auth. v. 
Facebook, Inc., 2019 WL 5579488, at *2 n.7 (Del. Ch. Oct. 29, 2019); In re Facebook, 
Inc. Section 220 Litig., 2019 WL 2320842, at *2 n.10; In re UnitedHealth Grp., Inc. Section 
220 Litig., 2018 WL 1110849, at *6 (Del. Ch. Feb. 28, 2018), aff’d, 196 A.3d 885 (Table) 
(Del. 2018); In re Plains All Am. Pipeline, L.P., 2017 WL 6016570, at *2 (Del. Ch. Aug. 
8, 2017); Elow v. Express Scripts Holding Co., 2017 WL 2352151, at *5 (Del. Ch. May 
35 
 
Corp. v. Leviton Mfg. Co., Inc.126  The Court of Chancery has interpreted that case 
as refusing to accept hearsay in a Section 220 action to show a credible basis because 
it was “unreliable.”127  Thus, the argument goes, if hearsay is sufficiently reliable, it 
can be used to show a credible basis.   
In Thomas & Betts, the plaintiff corporation, Thomas & Betts, desired to either 
acquire or pursue a joint venture with the defendant corporation, Leviton.128  After 
preliminary negotiations proved unfruitful, the plaintiff purchased a 29.1 percent 
stake in Leviton from one of Leviton’s employees and former group vice president, 
Thomas Blumberg.129  Blumberg also provided the plaintiff with confidential 
internal Leviton documents and disclosed information about Leviton’s internal 
strategies and accounting figures.130  After the plaintiff acquired a minority stake in 
Leviton, it attempted to negotiate an amicable working relationship with Leviton, 
which was rebuffed.131  At that point, the plaintiff served the defendant with a 
demand seeking inspection of ten categories of documents.132  The plaintiff then 
 
31, 2017); Walther v. ITT Educ. Servs., Inc., 2015 WL 545331, at *6 (Del. Ch. Feb. 10, 
2015); Paul v. China MediaExpress Holdings, Inc., 2012 WL 28818, at *5 (Del. Ch. Jan. 
5, 2012); Troy Corp. v. Schoon, 959 A.2d 1130, 1135 (Del. Ch. 2008); Marmon v. Arbinet-
Thexchange, Inc., 2004 WL 936512, at *4 (Del. Ch. Apr. 28, 2004). 
126 681 A.2d 1026 (Del. 1996). 
127 Yahoo! Inc., 132 A.3d at 778. 
128 Thomas & Betts, 681 A.2d at 1028. 
129 Id. at 1028-29. 
130 Id. at 1029. 
131 Id.  
132 Id. 
36 
 
offered, yet again, to buy the remainder of Leviton’s shares, threatening litigation if 
the final offer was rejected.133  Leviton refused the offer and the inspection 
demand.134  The plaintiff then filed a Section 220 action seeking to compel inspection 
of the defendant’s books and records, stating that its purpose was to investigate waste 
and mismanagement.   To show a credible basis for its purpose, the plaintiffs offered 
witness testimony from its own employees who relayed the discussions they had 
with Blumberg regarding Leviton’s accounting mismanagement.135  The court 
characterized these statements as hearsay.136   
The Court of Chancery denied the plaintiff’s request for two reasons: (1) the 
plaintiff was not motivated by its stated purpose, but was actually attempting to 
acquire Leviton; and (2) the plaintiff did not show a credible basis for 
mismanagement because it did not meet a “greater-than-normal evidentiary 
burden.”137  On appeal, the plaintiff argued that the Court of Chancery applied the 
wrong legal standard for showing a credible basis and that the Court of Chancery 
incorrectly determined that the testimonial evidence presented to show a credible 
basis was hearsay.138   
 
133 Id. 
134 Id. 
135 Id. at 1031. 
136 Id. 
137 Id. at 1030-31. 
138 Id. at 1031. 
37 
 
On appeal, the Supreme Court held that the Court of Chancery correctly 
determined that the testimony contained hearsay, but the Supreme Court held that 
the Court of Chancery applied the wrong legal standard.  Applying the correct legal 
standard and addressing the hearsay evidence, the Court reasoned that “as the trial 
court found, Blumberg was actively engaged in the process of defecting to the 
Thomas & Betts camp.  Statements made in this context lack independent guarantees 
of trustworthiness and are inherently unreliable.”139  The Court then noted that 
“[m]ore significantly, the trial court did not exclude this testimony.  Rather, the Vice 
Chancellor heard the testimony and found it unworthy of belief.  In this posture, 
plaintiff’s evidentiary objections carry little weight.”140   
Next, the Court considered another Court of Chancery case that it determined 
admitted hearsay testimony in the context of examining the purpose of the demand.  
The Court stated, “Similarly, Thomas & Betts’ citation to Skoglund v. Ormand 
Industries is unavailing . . . .  As in the case at bar, the Skoglund court allowed 
hearsay testimony regarding statements made by a corporate insider.  Unlike the 
instant case, however, the trial court in Skoglund chose to credit that testimony as 
worthy of belief.” 141  Thus, the Court ruled that the hearsay evidence in Thomas & 
Betts could not be used, not because it was inadmissible hearsay, but because it was 
 
139 Id. 
140 Id.at 1032 (emphasis added). 
141 Id.at 1032 (citing Skoglund v. Ormand Indus., Inc., 372 A.2d 204 (Del. Ch. 1976). 
38 
 
unreliable.  Stated differently, when faced with a direct question regarding the 
admissibility of hearsay evidence in a books and records action, the Court examined 
two cases, one that considered the hearsay evidence in the context of examining the 
stockholder’s purpose and one that did not consider the hearsay evidence in the 
context of examining the credible basis.  The Court then ruled that the analysis 
regarding admissibility turned, not on the fact that the testimony was inadmissible 
hearsay, but instead on the reliability of the evidence.     
Thus, it appears to us, that this Court, twenty-six years ago, created an 
exception in the 220 context that allows the use of sufficiently reliable hearsay in 
books and records actions.  The Court of Chancery has applied this exception many 
times since that ruling.  That this exception encompasses more than just the credible 
basis context seems inherent in this Court’s reference to Skoglund, a case in which 
sufficiently reliable hearsay was permitted to show the stockholder’s purpose.  In 
laying out the hearsay exception for showing a credible basis, this Court noted that 
it was ruling differently than Skoglund because of the reliability of the hearsay—not 
because of what the hearsay was being used to show.  If this Court wanted to limit 
the hearsay exception to the credible basis context, it would not have used Skoglund 
approvingly as a point of comparison.  As such, it appears to us that Thomas & Betts 
has provided an answer to the hearsay issue: hearsay is admissible in a Section 220 
proceeding when that hearsay is sufficiently reliable.   
39 
 
We note that the Company does not argue that Thomas & Betts was wrongly 
decided and does not ask us to revisit that decision.  The Company does not argue 
that the numerous cases since Thomas & Betts that hold that hearsay is admissible 
in 220 actions are wrongly decided.142  Instead, the Company argues that the 
Chancery cases relying on Thomas & Betts should not be extended to apply to the 
proper purpose requirement.  However, as mentioned above, Thomas & Betts stands 
for the proposition that hearsay is admissible in a Section 220 action if it is 
sufficiently reliable; and the ruling does not appear to be limited to the credible basis 
context.  We are not inclined to reconsider Thomas & Betts when neither party has 
asked us to do so.  Moreover, because overruling precedent requires a complex 
analysis that involves consideration of factors such as reliance interests, the 
 
142 See e.g. Yahoo! Inc., 132 A.3d at 778; accord Biogen Inc., 2021 WL 1399282, at *9; 
Bloom Energy Corp., 2021 WL 733438, at *1 n.10; Georgia Notes 18, LLC, No. 2021-
0246-JRS, at *7-8; Gilead Sciences, Inc., 2020 WL 6870461, at *11; Woods Tr. of Avery 
L. Woods Tr., 238 A.3d at 894; Empire Resorts, No. 2019-0908-KSJM, at *35; Lapetus 
Cap. II LLC, No. 2019-1040-KSJM, at *21; AmerisourceBergen Corp., 2020 WL 132752, 
at *8, aff’d, 243 A.3d 417 (Del. 2020); Bucks Cnty. Emps. Ret. Fund, 2019 WL 6311106, 
at *2 n.14; Southeastern Pa. Transp. Auth., 2019 WL 5579488, at *2 n.7; In re Facebook, 
Inc. Section 220 Litig., 2019 WL 2320842, at *2 n.10; In re UnitedHealth Grp., Inc. Section 
220 Litig., 2018 WL 1110849, at *6, aff’d, 196 A.3d 885 (Table) (Del. 2018); In re Plains 
All Am. Pipeline, L.P., 2017 WL 6016570, at *2; Elow v. Express Scripts Holding Co., 
2017 WL 2352151, at *5; ITT Educ. Servs., Inc., 2015 WL 545331, at *6; China 
MediaExpress Holdings, Inc., 2012 WL 28818, at *5; Schoon, 959 A.2d at 1135; Arbinet-
Thexchange, Inc., 2004 WL 936512, at *4. 
40 
 
workability of the precedent, and the age of the precedent,143 we decline to overrule 
Thomas & Betts without proper briefing and arguments on those points.   
The Company next argues that even if a Section 220 plaintiff can rely on 
sufficiently reliable hearsay to show a proper purpose, the evidence submitted here 
should be excluded for two reasons: (1) the Stockholders deprived the Company of 
its ability to test that purpose through cross-examination by using misleading tactics 
as to their plans regarding witnesses; and (2) the evidence is unreliable.144   
It is established that a company in a Section 220 action has a right to depose 
the stockholder.145  It is also clear that these depositions can be and often are used to 
test the stockholder’s stated purpose.146  In this case, the Company asked the 
Stockholders to provide a list of persons they intended to call as witnesses in order 
for the Company to depose those persons identified.147  The Stockholders then 
suggested that they were considering affidavits in lieu of live testimony; the 
 
143 See Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1278 (Del. 2021) (laying 
out the factors that should be considered when re-examining a question of law in a prior 
case). 
144 Opening Br. 29-30. 
145 McCarthy v. Cablevision Sys. Corp., 2007 WL 1309399, at *1 (Del. Ch. Apr. 24, 2007) 
(“Defendant is entitled to depose the plaintiff in a § 220 proceeding, unless there is 
evidence of abuse of process, alternative means of equivalent discovery, or improper 
delay.”); see Arbitrium Handels AG v. Technicorp Int’l II, Inc., 1994 WL 89017, at *1 
(Del. Ch. Feb. 4, 1994). 
146 See Meltzer v. CNET Networks, Inc., 2007 WL 2593065, at *2 (Del. Ch. Sept. 6, 2007) 
(“For similar reasons, CNET must also be permitted to ask plaintiffs questions about their 
purpose for bringing this action.”). 
147 A787. 
41 
 
Company did not agree.  Instead, the Company stated that it would need to first see 
the affidavits in order to decide, yet again, whether to depose the affiants.148  The 
Stockholders, however, failed to identify any witnesses by the deadline articulated 
in the scheduling order.149  The Stockholders also failed to produce any affidavits for 
the Company’s review.150  Eight days after the deadline to identify trial witnesses, 
and only in response to an email from the Company alleging that the Stockholders 
could not “meet [their] burden of proof without testimony,” the Stockholders 
responded to the Company’s email by suggesting that they would discuss the 
Company taking the deposition testimony of certain Stockholders.151  At that point, 
the Company made the strategic decision to raise the issue to the Court of 
Chancery.152 
The hearsay exception articulated above inures to the benefit of Section 220 
plaintiffs.  That benefit, however, should not be abused.  Plaintiffs in a Section 220 
proceeding must be upfront about their plans regarding witnesses.  Such 
transparency ensures that companies can choose whether to depose the stockholders 
during discovery or call the stockholders as witnesses at trial.  Here, the Stockholders 
deprived the Company of the ability to test the Stockholders’ stated purpose by 
 
148 A788. 
149 A788-93. 
150 A788. 
151 A801. 
152 A801-02. 
42 
 
refusing to cooperate with the Company regarding the identification of trial 
witnesses or affiants.  This type of behavior creates the potential for gamesmanship, 
which should be discouraged.  If stockholders are going to introduce sufficiently 
reliable hearsay to establish a proper purpose, they must communicate honestly and 
early with companies regarding their intent so as to allow companies to decide 
whether to depose the stockholders or to identify their own witnesses for trial.   
This concern is especially critical here because the Company raised reasons 
to doubt the reliability of the evidence of the Stockholders’ purpose.  As the 
Company stated, “trial occurred about 19 months after [the Stockholders] identified 
their purpose in their [Original Demands].  During that time, NVIDIA’s stock price 
more than doubled, and the channel inventory issue had proven to be short-lived.”153  
Although the Company points to these facts and challenges the reliability of the 
hearsay, we need not decide that particular issue because we hold that a stockholder 
cannot hide its intent to rely on demands in what appears to be an effort to deprive 
the company of its right to examine the stockholder through depositions or 
otherwise.      
Therefore, we reverse the Court of Chancery’s holding that the Stockholders 
could show a proper purpose by relying on the Original Demands and 
interrogatories—not because sufficiently reliable hearsay may not be used to show 
 
153 Opening Br. at 30. 
43 
 
a proper purpose but because the Stockholders deprived the Company of its ability 
to test that purpose through depositions or otherwise—and remand for further 
proceedings consistent with this opinion.  Because we have found that the 
Stockholders deprived the Company of its ability to test the Stockholders’ purpose, 
requiring a remand, we need not address the remaining arguments.  Nonetheless, we 
do so in the interest of efficiency on remand. 
D. 
The Court of Chancery Did Not Err by Concluding That the 
Stockholders Proved a Credible Basis to Infer Wrongdoing 
 
The Stockholders relied on the following evidence to show a credible basis 
from which to infer wrongdoing: (1) NVIDIA’s response to the cryptocurrency 
demand, (2) the Public Statements, (3) the sale of personally held stock by Huang, 
Kress, and other NVIDIA insiders, (4) NVIDIA’s revision of its revenue guidelines, 
and (5) the Securities Class Action.154   The Court of Chancery grouped the evidence 
into the following three categories: (1) false or misleading public statements, (2) the 
securities litigation, and (3) insider stock sales.155 
The Company argues that the Court of Chancery erred in holding that the 
Stockholders established a credible basis to suspect wrongdoing because none of the 
Stockholders’ evidence, individually or collectively, is enough to infer an insider 
 
154 Ex. A at 28. 
155 Id. 
44 
 
trading scheme.156  As it relates to the stock sales, NVIDIA argues that the sales were 
not suspicious given the small amount of stock sold and the fact that the sales were 
made pursuant to 10b-5 plans.157  As to the Securities Class Action, the Company 
alleges that it cannot be used to infer wrongdoing because it did not contain 
allegations about insider trading.158  And as to the Public Statements, the Company 
contends that they do not give rise to an inference of wrongdoing because they are 
either forward-looking, objectively accurate, or immaterial.159  
In response, the Stockholders argue that the court correctly determined that 
they needed to show a credible basis to infer wrongdoing or mismanagement, not 
just insider trading.160  Thus, they contend, NVIDIA improperly “limits the 
reasoning of the Court of Chancery to a single purpose and to a specific iron-clad 
theory of NVIDIA’s wrongdoing.”161  The Stockholders aver, and the Court of 
Chancery agreed, that the court could infer that the timing and size of the stock sales 
were suspicious, despite being made pursuant to a 10b-5 plan.162  The Stockholders 
argue, and the lower court agreed, that the Public Statements, when viewed in light 
of other circumstances—such as Huang and Kress’ unfulfilled projections 
 
156 Opening Br. 31-32. 
157 Id. at 33-35. 
158 Id. at 36-38. 
159 Id. at 39-42. 
160 Answering Br. 36-37. 
161 Id. at 37.  
162 Id. at 39-41; Ex. A at 32-34. 
45 
 
concerning NVIDIA’s ability to meet mining demands, the inventory backlog, and 
the stock sales—support an inference of wrongdoing.163  Finally, the Stockholders 
argue, and the Court of Chancery agreed, that the Amended Securities Complaint 
supports an inference of wrongdoing because it alleges that Huang and Kress were 
aware of the discrepancy in demand between Crypto GPUs and Gaming GPUs.164   
In holding that the Stockholders met the low burden of showing a credible 
basis from which to infer the possibility of wrongdoing, the court weighed the 
evidence collectively, noting: 
At this stage, I must simply be able to “connect the dots” 
in order to be able to reasonably infer the possibility of 
wrongdoing.  As this Court held in Sprouts, considering 
[Stockholders] have presented evidence of insider stock 
sales, public statements that may have been false or 
misleading, and concurrent securities litigation that is 
bolstered by allegations supported by ample research, I 
can connect the dots here regarding the picture that 
[Stockholders] seek to portray of a possible insider trading 
scheme at NVIDIA.165 
 
The Stockholders’ asserted purpose for seeking books and records is to 
investigate wrongdoing or mismanagement.166 “[I]nvestigating corporate waste, 
mismanagement, or wrongdoing is a proper purpose for which to demand inspection 
 
163 Answering Br. at 41-43; Ex. A at 28-30. 
164 Answering Br. at 43-45; Ex. A at 30-32. 
165 Ex. A at 34 (citing Barnes v. Sprouts Farmers Mkt., Inc., 2018 WL 3471351 (Del. Ch. 
Jul. 18, 2018). 
166 A114. 
46 
 
of books and records.”167  “[A] stockholder whose stated purpose is investigating 
mismanagement must provide ‘some evidence’ to suggest a ‘credible basis’ from 
which this Court may infer possible mismanagement, waste, or wrongdoing may 
have occurred.”168  This standard does not require stockholders to show actual waste 
or mismanagement.169  “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 . . . .”170  The 
credible basis “threshold may be satisfied by a credible showing, through 
documents, logic, testimony or otherwise, that there are legitimate issues of 
wrongdoing.”171  It is “the lowest possible burden of proof” under Delaware law.172  
As an initial matter, we disagree with the Company that the Court of Chancery 
should have determined whether Stockholders showed a credible basis solely on the 
grounds of insider trading.  When showing a credible basis for possible wrongdoing, 
Section 220 plaintiffs are not confined to a single theory and “need not identify the 
particular course of action the stockholder will take . . . .”173 
 
167 Beatrice Corwin Living Irrevocable Tr. v. Pfizer, Inc., 2016 WL 4548101, at *4 (Del. 
Ch. Aug. 31, 2016). 
168 Id. (quoting Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 118 (Del. 2006)). 
169 Seinfeld, 909 A.2d at 123. 
170 Id. 
171 Id. (quoting Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 568 (Del. 
1997)). 
172 Id. 
173 AmerisourceBergen, 243 A.3d at 421. 
47 
 
Further, while each category of evidence individually might not be sufficient 
to establish a credible basis to suspect wrongdoing, when viewed collectively, we 
cannot conclude that the Court of Chancery abused its discretion in determining that 
the Stockholders established a credible basis for inspection.  When the Public 
Statements are overlaid on the stock sales and viewed in light of the allegations from 
the Amended Securities Complaint—that Huang and Kress were given data 
informing them of the incongruity in the demand between Crypto GPUs and Gaming 
GPUs—it is possible to infer that Huang and Kress knowingly made false or 
misleading statements that boosted NVIDIA’s stock price shortly before selling 
stock.  In other words, when looking at the Public Statements, stock sales, and the 
Amended Securities Complaint collectively, we cannot conclude that the Court of 
Chancery erred.  It did not abuse its discretion in determining that the Stockholders 
sufficiently showed that Huang and Kress were informed that there would be a lack 
of demand for Gaming GPUs after the crypto mining boost and used that information 
to bolster NVIDIA stock prices by making false or misleading statements about the 
demand for Gaming GPUs before selling stock at the bolstered stock price.  While 
this evidence likely would fall far short of that necessary to support an actual claim, 
we cannot say that it is insufficient to meet the lowest possible burden of proof—a 
credible basis from which the Court of Chancery can infer there is possible 
mismanagement that would warrant further investigation. 
48 
 
Thus, we affirm the Court of Chancery’s holding that the Stockholders 
properly demonstrated a credible basis for inspection. 
E. 
The Court of Chancery Did Not Err in Determining That the 
Records Ordered to Be Produced Are Essential and Sufficient to 
the Stockholders’ Stated Purpose 
 
NVIDIA argues that even if the Stockholders have properly narrowed the 
scope of their requests, “there is no evidentiary basis for finding that [the court’s 
ordered] documents are ‘necessary, essential and sufficient’ for [Stockholders’] 
stated purpose.”174  
A Section 220 plaintiff’s right to inspection is limited to those records that are 
“‘essential and sufficient to the stockholder’s stated purpose.’”175  “That 
determination is “‘fact specific and will necessarily depend on the context in which 
the shareholder’s inspection demand arises.’”176  “The plaintiff bears the burden of 
proving that each category of books and records is essential to the accomplishment 
of the stockholder’s articulated purpose for the inspection.”177  “A document is 
“essential” for Section 220 purposes if, at a minimum, it addresses the crux of the 
 
174 Ex. A at 23.  The Company also avers that it was error for the Court of Chancery to 
order NVIDIA to produce documents that the Stockholders did not request prior to 
litigation.   In other words, the Company believes that the scope of relief granted by the 
Court of Chancery exceeds the Original Demands.  Given our holding that the Stockholders 
did not reformulate their requests throughout litigation, we need not address this argument. 
175 KT4 Partners LLC, 203 A.3d at 752 (Del. 2019) (quoting Thomas & Betts Corp. v. 
Leviton Mfg. Co., Inc., 681 A.2d 1026, 1034 (Del. 1996)). 
176 Id. at 751 (quoting Espinoza v. Hewlett-Packard Co., 32 A.3d 365, 372 (Del. 2011)). 
177 Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 569 (Del. 1997). 
49 
 
stockholder’s purpose, and if the essential information the document contains is 
unavailable from another source.”178  “Keeping in mind that Section 220 inspections 
are not tantamount to ‘comprehensive discovery,’ the Court of Chancery must tailor 
its order for inspection . . . .  In other words, the court must give the petitioner 
everything that is ‘essential,’ but stop at what is ‘sufficient.’”179  This Court, in 
reviewing the Court of Chancery’s scope of relief, will only reverse the court’s order 
if it is an abuse of discretion.180  And “[w]hether any Informal Board Materials or 
Officer-Level Materials [or emails] are necessary and essential awaits the Court of 
Chancery’s ‘fact specific’ determination, which is committed to the court’s sound 
discretion.”181   
In determining whether the Stockholders’ request was essential and sufficient, 
the Court of Chancery first detailed the Five Requests demanded by the 
Stockholders.182  The court then identified the three types of records the Stockholders 
sought to cover: “formal board materials, informal board materials and officer-level 
materials, and electronic communications that might cross those categories . . . .”183 
 
178 Espinoza, 32 A.3d at 371-72 (Del. 2011). 
179 KT4 Partners, 203 A.3d at 751-52. 
180 AmerisourceBergen, 243 A.3d at 425 (citing Wal-Mart Stores, Inc. v. Ind. Elec. Workers 
Trust Fund IBEW, 95 A.3d 1264, 1272 (Del. 2014)). 
181 AmerisourceBergen, 243 A.3d at 439. 
182 Ex. A at 35-36. 
183 Id. 
50 
 
The court next noted that even though NVIDIA produced all formal board 
materials relating to the covered topics, informal board materials and officer-level 
materials relating to Huang’s communications with Fisher were necessary because 
of specific and concrete allegations in the Amended Securities Complaint that Huang 
and Fisher communicated about cryptocurrency and its impact on NVIDIA—the 
subject matter of the Stockholders’ request.184  Thus, the court found that any 
documents reflecting these communications, as alleged in the Amended Securities 
Complaint, were “necessary and essential because they address the crux of the 
[Stockholders’] purposes and they are unavailable from any other source.”185  The 
court next held that the production of certain emails, the Top 5 emails, was necessary 
and essential because the Stockholders presented evidence suggesting that Huang 
and Kress received and responded to emails that covered the requested topics.186  In 
particular, the court noted that the Top 5 emails detailed in the Amended Securities 
Complaint covered the impact of crypto-related demand on NVIDIA’s sales in 
various markets, which is encompassed by the topics from the Five Requests:  
In particular, the Amended Securities Complaint lists the 
“Top 5” emails sent to NVIDIA executives that detailed 
NVIDIA’s performance in various markets, as well as 
weekly Gaming GPU sales reports sent to NVIDIA 
executives. . . .  I view this as a discrete category, these 
emails that Huang and Kress supposedly sent, the Top 5 
 
184 Id. at 38-40. 
185 Id. at 40. 
186 Id. at 42. 
51 
 
emails sent to NVIDIA executives, that would be easily 
gathered, cover the topics, and seem, to me, necessary and 
essential to meet the [Stockholders’] stated purposes.187 
 
Thus, because both categories of the ordered documents derive from the 
evidence presented by the Stockholders and directly relate to the topics detailed in 
the Five Requests, the record does not support NVIDIA’s assertion that the 
production order fails to satisfy the “essential and sufficient” standard.  “Whether 
any Informal Board Materials or Officer-Level Materials [or emails] are necessary 
and essential awaits the Court of Chancery’s ‘fact specific’ determination, which is 
committed to the court’s sound discretion.”188  As such, we cannot hold that the court 
erred in ordering the production of those records. 
Thus, we affirm the judgment of the Court of Chancery on this issue. 
IV. 
CONCLUSION 
For the foregoing reasons, we AFFIRM in part, REVERSE in part, and 
REMAND for further proceedings consistent with this opinion.
 
187 Id. at 43 (emphasis added). We also note that even though the Stockholders did not 
request the Top 5 emails by name until the settlement demand, it was not abuse of 
discretion for the court to determine that the Top 5 emails fit the description of one or more 
categories of records from the Five Requests.  Thus, the Court of Chancery did not abuse 
its discretion in ordering the Company to produce these documents. 
188 AmerisourceBergen, 243 A.3d at 439. 
52 
 
TRAYNOR, Justice, concurring: 
 
I concur in the Majority’s conclusion that the Court of Chancery erred by 
allowing the Stockholders to prove that their purpose was proper relying exclusively 
on the hearsay statements in the Original Demand.  I write separately nevertheless 
because I harbor serious misgivings about the Majority’s statement, grounded in our 
Thomas & Betts opinion, that “hearsay is admissible in a Section 220 proceeding 
when that hearsay is sufficiently reliable.” 
 
In the first place, this rule statement seems to run counter to—if not, around 
in circles with—the underlying purpose of the rule against hearsay, which is the 
exclusion of inherently unreliable evidence.1    It seems questionable to me that the 
rule against hearsay, premised as it is on hearsay’s perceived unreliability, should 
give way—absent a rule-based hearsay exception—to ad hoc reliability 
determinations. 
 
I also believe that Thomas & Betts’s hearsay analysis rests on a shaky 
foundation.2  A crucial aspect of that analysis was that the challenged testimony was 
 
1 Admittedly, and as one learned treatise puts it, “the unreliability of hearsay can be easily 
overstated.”  10 McCormick on Evidence § 245 (8th ed. Jan. 2020).  But it remains the 
case that out-of-court statements offered to prove the truth of the matter asserted are not 
subject to cross-examination—“the greatest legal engine ever invented for the discovery of 
truth,” according to Wigmore—and, for this reason, their reliability is suspect.  5 Wigmore 
on Evidence § 1367, at 32. 
2 Despite my questions concerning the soundness of Thomas & Betts’s hearsay analysis, 
which I believe are worth asking in this concurring opinion, I cannot take serious issue 
with the Majority’s forbearance from reconsidering that opinion given that neither party 
has asked us to do so. 
53 
 
offered to show that there was a credible basis to suspect waste or mismanagement, 
i.e., wrongdoing.  In my view, the analysis took a wrong turn when it observed that 
“various Thomas & Betts insiders sought to prove that waste and mismanagement 
had occurred at Leviton by testifying to the substance of statements made by 
Blumberg during his negotiations with Thomas & Betts.”3  But a Section 220 
petitioner who has made an investigative demand is not required “to prove that waste 
and mismanagement ha[s] occurred.”  If she could do that, her need to inspect the 
corporation’s books and records would be diminished, if not eliminated. 
 
Similar to when a court evaluates a police officer’s probable cause to search, 
the issue to be decided in a Section 220 proceeding, the purpose of which is to seek 
books and records in furtherance of an investigation of wrongdoing, is not whether 
the wrongdoing has in fact occurred but whether sufficient evidence exists to justify 
the investigation.  The fact to be proved is not the suspected wrongdoing but rather 
the reasonableness of the suspicion.  Seen in this light, the out-of-court statements 
typically offered to satisfy the “credible basis” prong are not offered to prove their 
truth.  Thus, they are not hearsay.   
 
Of course, saying that an out-of-court statement might be admissible to show 
that there is a credible basis to infer wrongdoing that warrants further investigation 
does not mean that the court cannot reject it—as the Court of Chancery did in 
 
3 681 A.2d at 1032. 
54 
 
Thomas & Betts—as unreliable.  But evidence of the stockholder’s purpose—the 
context with which we are dealing here (unlike in Thomas & Betts)—stands on a 
different footing.  The issue to be decided in the “proper purpose” inquiry is 
frequently whether the stockholder’s stated purpose is her actual purpose.  As such, 
the truth of the stockholder’s statement of purpose is squarely at issue. 
 
Another distinction between the “credible basis” analysis and the “proper 
purpose” inquiry is worth noting.  A stockholder who is not an officer or employee 
of the corporation will rarely have first-hand knowledge of wrongdoing.  Whatever 
knowledge the stockholder might have will have been derived, in many cases, from 
information communicated to him by others (e.g., analyst reports, newspaper 
accounts, investigative reports from regulatory/law enforcement agencies, 
whistleblowers).  By contrast, the stockholder will always have knowledge of her 
purpose because it is, after all, her purpose. 
 
For these reasons, I would hold that hearsay evidence is inadmissible to show 
a stockholder’s purpose for an inspection of books and records under Section 220. 
Such a rule would not, in my view, limit a stockholder’s ability to use out-of-court 
statements to prove that there is a credible basis for her suspicion of wrongdoing.