Opinion ID: 1991103
Heading Depth: 1
Heading Rank: 6

Heading: Credible Basis From Some Evidence

Text: In a section 220 action, a stockholder has the burden of proof to demonstrate a proper purpose by a preponderance of the evidence. [24] It is well established that a stockholder's desire to investigate wrongdoing or mismanagement is a proper purpose. [25] Such investigations are proper, because where the allegations of mismanagement prove meritorious, investigation furthers the interest of all stockholders and should increase stockholder return. [26] The evolution of Delaware's jurisprudence in section 220 actions reflects judicial efforts to maintain a proper balance between the rights of shareholders to obtain information based upon credible allegations of corporation mismanagement and the rights of directors to manage the business of the corporation without undue interference from stockholders. In Thomas & Betts, this Court held that, to meet its burden of proof, a stockholder must present some credible basis from which the court can infer that waste or mismanagement may have occurred. [27] Six months later, in Security First, this Court held [t]here must be some evidence of possible mismanagement as would warrant further investigation of the matter. [28] Our holdings in Thomas & Betts and Security First were contemporaneous with our decisions that initially encouraged stockholders to make greater use of section 220. In Grimes v. Donald , decided just months before Thomas & Betts, this Court reaffirmed the salutary use of section 220 as one of the tools at hand for stockholders to use to obtain information. [29] When the plaintiff in Thomas & Betts suggested that the burden of demonstrating a proper purpose had been attenuated by our encouragement for stockholders to use section 220, we rejected that argument: Contrary to plaintiff's assertion in the instant case, this Court in Grimes did not suggest that its reference to a Section 220 demand as one of the tools at hand was intended to eviscerate or modify the need for a stockholder to show a proper purpose under Section 220. [30] In Security First and Thomas & Betts, we adhered to the Court of Chancery's holding in Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc . that: A mere statement of a purpose to investigate possible general mismanagement, without more, will not entitle a shareholder to broad § 220 inspection relief. There must be some evidence of possible mismanagement as would warrant further investigation of the matter. [31]