Opinion ID: 1991103
Heading Depth: 1
Heading Rank: 7

Heading: Standard Achieves Balance

Text: Investigations of meritorious allegations of possible mismanagement, waste or wrongdoing, benefit the corporation, but investigations that are indiscriminate fishing expeditions do not. [32] At some point, the costs of generating more information fall short of the benefits of having more information. At that point, compelling production of information would be wealth-reducing, and so shareholders would not want it produced. [33] Accordingly, this Court has held that an inspection to investigate possible wrongdoing where there is no credible basis, is a license for fishing expeditions and thus adverse to the interests of the corporation: [34] Stockholders have a right to at least a limited inquiry into books and records when they have established some credible basis to believe that there has been wrongdoing. . . . Yet it would invite mischief to open corporate management to indiscriminate fishing expeditions. [35] A stockholder is not required to prove by a preponderance of the evidence that waste and [mis]management are actually occurring. [36] 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 [37]  a showing that may ultimately fall well short of demonstrating that anything wrong occurred. [38] That threshold may be satisfied by a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing. [39] Although the threshold for a stockholder in a section 220 proceeding is not insubstantial, [40] the credible basis standard sets the lowest possible burden of proof. The only way to reduce the burden of proof further would be to eliminate any requirement that a stockholder show some evidence of possible wrongdoing. That would be tantamount to permitting inspection based on the mere suspicion standard that Seinfeld advances in this appeal. However, such a standard has been repeatedly rejected as a basis to justify the enterprise cost of an inspection. [41] In Delaware and elsewhere, [42] the credible-basis-from-some-evidence standard is settled law. Under the doctrine of stare decisis, settled law is overruled only for urgent reasons and upon clear manifestation of error. [43] A review of the cases that have applied the credible basis standard refutes Seinfeld's premise that requiring some evidence constitutes an insurmountable barrier for stockholders who assert inspection rights under section 220. Requiring stockholders to establish a credible basis for the Court of Chancery to infer possible wrongdoing by presenting some evidence has not impeded stockholder inspections. Although many section 220 proceedings have been filed since we decided Security First and Thomas & Betts, Verizon points out that Seinfeld's case is only the second proceeding in which a plaintiff's demand to investigate wrongdoing was found to be entirely without a credible basis. [44] In contrast, there are a myriad of cases where stockholders have successfully presented some evidence to establish a credible basis to infer possible mismanagement and thus received some narrowly tailored right of inspection. [45] We remain convinced that the rights of stockholders and the interests of the corporation in a section 220 proceeding are properly balanced by requiring a stockholder to show some evidence of possible mismanagement as would warrant further investigation. [46] The credible basis standard maximizes stockholder value by limiting the range of permitted stockholder inspections to those that might have merit. [47] Accordingly, our holdings in Security First and Thomas & Betts are ratified and reaffirmed.