Court Opinion

ID: 4662997
Source: CourtListenerOpinion
Date Created: 2021-02-25 19:02:49.501698+00
Date Added: 2024-06-11T08:02:25.751554
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

DENNIS JACOB and                        )
MICHAEL BOLOURI,                        )
                                        )
                       Plaintiffs,      )
                                        )
              v.                        )    C.A. No. 2020-0023-JRS
                                        )
BLOOM ENERGY CORPORATION,               )
                                        )
                       Defendant.       )

                        MEMORANDUM OPINION

                      Date Submitted: December 7, 2020
                       Date Decided: February 25, 2021

Blake A. Bennett, Esquire of Cooch and Taylor, P.A., Wilmington, Delaware and
Sam Bonderoff, Esquire, James Ostaszewski, Esquire and Matthew Hendrickson,
Esquire of Zamansky LLC, New York, New York, Attorneys for Plaintiffs Dennis
Jacob and Michael Bolouri.

Kevin G. Abrams, Esquire, John M. Seaman, Esquire and Eliezer Y. Feinstein,
Esquire of Abrams & Bayliss LLP, Wilmington, Delaware, Attorneys for Defendant
Bloom Energy Corporation.

SLIGHTS, Vice Chancellor
         On September 17, 2019, forensic analysts at Hindenburg Research published

a 54-page report (the “Hindenburg Report”), which concluded that Defendant,

Bloom Energy, Inc. (“Bloom” or the “Company”), had misrepresented its financials

and the performance of its “green” energy technology.1 The Hindenburg Report

drew on public disclosures, private interviews with industry experts and customers,

as well as previously filed lawsuits to make its case that Bloom was misleading its

shareholders. It also disclosed that Hindenburg “ha[d] taken a short position in

shares of Bloom.”2 The day the Hindenburg Report was published, Bloom’s stock

price dropped over 21%, closing at $3.31 per share. 3

         In response, on September 18, 2019, Bloom filed a Form 8-K with the

Securities and Exchange Commission (“SEC”) to refute the claims made in the

Hindenburg Report.4 In February 2020, the Company filed another Form 8-K, where

it disclosed that it would revise how the Company accounts for certain of its

revenues.5

1
 Joint Trial Exhibit (“JX”) 9. I cite to the docket items as “D.I. __,” the Pre-Trial Stip.
and Order (D.I. 34) as “PTO __,” the Verified Am. Compl. Pursuant to 8 Del. C. § 220 to
Compel Inspection of Books and Records (D.I. 7) as “Compl. __” and the Section 220 Trial
Transcript (D.I. 38) as “Tr. __.”
2
    PTO ¶ 4; JX 9 at 2, 51–52.
3
    Compl. ¶ 47.
4
    JX 10.
5
    JX 32.

                                            1
         Shareholders apparently were not comforted by either of Bloom’s reactive

Form 8-K filings. A Bloom shareholder filed a securities action in California

(the “Roberts Complaint”), in which it was alleged that the questionable accounting

practices highlighted by the Hindenburg Report violated Generally Accepted

Accounting Principles (“GAAP”) and positive law. 6 And Plaintiffs, Dennis Jacob

and Michael Bolouri, separately demanded to inspect Bloom’s books and records

(the “Demands”) under Section 220 of the Delaware General Corporation Law

(“Section 220”) in their capacity as Bloom stockholders for multiple stated purposes,

including to investigate potential mismanagement by Bloom’s board of directors

(the “Board”) and officers. 7 Bloom rejected the Demands on the grounds that the

Hindenburg Report, as a short report, was inherently unreliable and could not

support a credible basis to suspect wrongdoing, and that the scope of documents

sought was too broad. This litigation followed.

         After conducting trial on a paper record and carefully considering the trial

presentations, I deny Bolouri’s demand for inspection because he has not met his

burden to demonstrate compliance with Section 220’s form and manner

6
    JX 44 (“Roberts Compl.”).
7
    Compl. ¶¶ 1–2; PTO ¶¶ 9–18.

                                           2
requirements. 8 For reasons explained below, I grant Jacob’s demand for inspection

but narrow the scope of documents Bloom must produce.

                                  I. BACKGROUND

         The Court presided over a one-day trial on December 7, 2020. 9 The following

facts were proven by a preponderance of the evidence against the backdrop of

Section 220’s credible basis standard.10

      A. The Parties

         Plaintiff, Dennis Jacob, is the beneficial owner of Bloom common stock,

having continuously held his shares since at least August 2019.11 Plaintiff, Michael

Bolouri, claims to be a beneficial owner of Bloom common stock, having first

acquired his shares one year prior to the time his counsel made his Demand.12

8
    See Tr. at 54:16–21, 107:5–22, 108:2–21.
9
    See id. at 1; PTO ¶ 38.
10
   Plaintiffs’ evidence is comprised mainly of publicly available information, including
newspaper reports. They also rely (to a limited extent) on interviews with anonymous
experts, as cited in the Roberts Complaint and Hindenburg Report. I am mindful that these
sources are hearsay and, in some cases, double hearsay. “Even so, in a Section 220
proceeding, ‘[h]earsay statements may be considered, provided they are sufficiently
reliable.’” In re Facebook, Inc. Section 220 Litig., 2019 WL 2320842, at *2 n.10 (Del. Ch.
May 30, 2019) (quoting Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 778 (Del. Ch.
2016)). Given the minimal weight I have given this evidence in relation to other evidence,
I am satisfied it is admissible to support Plaintiffs’ credible basis showing.
11
     JX 13 Ex. A.
12
     JX 24 Ex. A at 2.

                                               3
Defendant, Bloom, is a Delaware corporation operating in the alternative energy

space. 13

      B. Bloom’s Business

         Bloom was founded in 2001 to offer a reliable and affordable source of

energy. 14 The Company manufactures solid-oxide fuel cells that provide customers

with an alternative to accessing energy from the electrical grid. 15 Its primary product

is the Bloom Energy Server (“Energy Server”), a stationary power generation

platform which Bloom claims can deliver reliable, constant power that is both clean

and sustainable. 16 Energy Servers use an innovative fuel cell technology to convert

standard low-pressure natural gas or biogas into electricity through an

electrochemical process without combustion.17 According to Bloom, the process

allows for more efficient energy generation, with reduced operating costs and lower

greenhouse gas emissions, as compared to conventional fossil fuels.18 The Energy

13
     PTO ¶ 1.
14
     JX 1 at 134.
15
     Tr. 56:3–6.
16
     Id. at 56:6–9.
17
     JX 1 at 150; Tr. 56:10–17.
18
     JX 8 at 10.

                                           4
Servers are installed on-site to increase electrical reliability and improve the energy

grid’s resiliency and security. 19

           Bloom generates revenue in three principal ways: (1) selling Energy Servers,

(2) installing Energy Servers at a customer’s location, and (3) providing maintenance

after the Energy Servers have been installed. 20 Customers can access the Company’s

technology by any of several methods, including purchasing the servers outright,

leasing servers from a bank financing party or paying for power without purchasing

the servers themselves. 21 Despite these multiple sources of revenue, Bloom has

sustained net losses for every period from 2016 to present and depends heavily on

government subsidies. 22 Thus, Bloom’s shareholders made their investments based

not on the Company’s current profits, but rather on the promise of its technology and

the scalability of its business model as marketed.

      C. The Hindenburg Report

           On September 17, 2019, Hindenburg Research published the Hindenburg

Report, a 54-page document detailing an investigation that led Hindenburg to

conclude, contrary to the Company’s public representations, that Bloom’s

19
     Id.
20
     Tr. 56:18–22; JX 1 at 154.
21
     Tr. 56:23–57:3.
22
     Id. at 57:8–9, 77:23–78:4; JX 4; JX 5; JX 6; JX 7; JX 8; JX 22; JX 23.

                                              5
technology was neither profitable nor clean. 23 Specifically, the Hindenburg Report

claimed: (1) Bloom’s debt had reached “unsustainable levels”; (2) Bloom used

deceptive accounting practices to hide servicing liabilities in its Master Servicing

Agreements (“MSAs”); (3) Bloom inaccurately estimated the life of its fuel cells;

(4) Bloom booked substantial write-downs in the pre-IPO period (where investors

could not see the write-downs) while booking new revenue that improved the

financials disclosed publicly in the IPO; and (5) Bloom was not a “clean” energy

company, placing the government subsidies it had garnered on that account in

jeopardy. 24

          To substantiate its claims, the Hindenburg Report drew on news reports,

Bloom’s securities disclosures, data on the Company’s Energy Servers made

publicly available on state government websites, prior lawsuits and interviews with

Bloom customers and expert witnesses.25 Appendices were provided to explain

Hindenburg’s methodology and link its collected data, providing readers with the

tools to verify its work by replicating the analysis. 26 There was a customary

23
     See generally JX 9.
24
     Id. at 1–2.
25
     Id. at 29–31, 38–42, 46–50.
26
     Id. at 46–48.

                                          6
disclosure in the report that Hindenburg “ha[d] taken a short position in shares of

Bloom.”27

      D. The Hindenburg Report’s Fallout

           The day the Hindenburg Report was published, Bloom’s stock price dropped

over 21%, closing at $3.31 per share.28 The next day, September 18, 2019, Bloom

responded to the Hindenburg Report by filing a Form 8-K with the SEC. 29 In the

Form 8-K, Bloom stated its position that the Hindenburg Report contained “factual

inaccuracies” and “misleading allegations” and explained that it “fe[lt] obligated to

correct the record . . . .” 30

           Five months later, on February 12, 2020, Bloom filed a Form 8-K with the

SEC in which it disclosed:

           On February 11, 2020, the Audit Committee of the Board of Directors
           (the “Audit Committee”) of Bloom Energy Corporation
           (the “Company” or “Bloom”) determined that its previously issued
           financial statements as of and for the year ended December 31, 2018,
           as well as financial statements for the three-month period ended
           March 31, 2019, the three- and six-month periods ended June 30, 2019
           and 2018 and the three- and nine-month periods ended September 30,
           2019 and 2018 (collectively, the “Prior Period Financial Statements”),

27
     PTO ¶ 4.
28
     Compl. ¶ 47.
29
     JX 10.
30
     Id.

                                             7
          should no longer be relied upon due to an error in accounting for the
          Company’s Managed Services Agreements (the “Impacted MSAs”).31

Though the Hindenburg Report criticized Bloom’s accounting for liabilities

associated with MSAs, the Form 8-K was not responsive to that criticism since it

addressed accounting for revenues derived from the MSAs.32

          On April 21, 2020, Bloom stockholders brought a class action in the Northern

District of California, styled Roberts v. Bloom Energy Corp., asserting claims of

securities fraud against Bloom, along with several of its officers and directors.33

The Roberts Complaint comprises 522 paragraphs and alleges Bloom misled

investors by, inter alia, (i) “improperly accounting for loss contingencies relating to

its Energy Servers”; (ii) “misrepresenting the life cycle of its fuel cells”;

(iii) “improperly accounting for revenue”; (iv) “failing to review weaknesses in its

internal controls”; and (v) “misrepresenting the efficiency and pollution output of its

Energy Servers.”34

          Like the plaintiffs in the Roberts action, Plaintiffs here were concerned by the

issues raised in the Hindenburg Report and directed demands for inspection of books

31
     PTO ¶ 6.
32
     Id at ¶¶ 3, 6.; JX 9.
33
     PTO ¶ 7; Roberts Compl.
34
     Roberts Compl. ¶ 3.

                                              8
and records to Bloom on September 25, 2020 (Jacob) and November 25, 2020

(Bolouri). 35 Both Demands stated four purposes for inspection: (i) to investigate

potential wrongdoing, mismanagement and breaches of fiduciary duties by

management and the Board in connection with the events, circumstances, and

transactions described in the Hindenburg Report; (ii) to assess the ability of the

Board to impartially consider a demand for action; (iii) to seek an audience with the

Board to discuss potential reforms; and (iv) to take appropriate action in the event

management and the Board did not properly discharge their duties, including the

preparation and filing of a stockholder derivative lawsuit, if appropriate.36

         For his part, Jacob’s Demand identified four categories of documents for

inspection dating back to July 2017:

         1. Board Materials relating to, concerning or reflecting: (a) Bloom’s

           accounting practices; (b) the Company’s servicing costs and liabilities;

           (c) any discrepancies between the actual and anticipated servicing costs and

           liabilities; (d) the Company’s “clean” energy claims; (e) the Company’s

           CO2 emissions; (f) the meetings of the Board and any of its committees

           (without limitation); (g) any and all inquiries or investigations of the

35
     JX 13 (Jacob’s Demand); JX 24 (Bolouri’s Demand).
36
     JX 13 (Jacob’s Demand); JX 24 (Bolouri’s Demand).

                                           9
              Company by any federal, state, or local government regulators or law

              enforcement agencies regarding the Company’s accounting practices; and

              (h) any internal investigations by the Company of any employees or

              officers for accounting irregularities.

         2. Documents reflecting the Company’s investigation by any federal, state, or

              local government regulators or law enforcement agencies for accounting

              irregularities.

         3. Documents reflecting the Company’s investigation of any officer or

              employee for accounting irregularities.

         4. Documents reflecting the servicing costs and liabilities that the Company

              expected to incur. 37

Bolouri’s Demand was nearly identical but did not include Categories 1(d), 1(e),

3 or 4 and sought documents dating back to May 2018. 38 Plaintiffs initiated this

Section 220 action after Bloom rejected both Demands.

37
     JX 13.
38
     JX 24.

                                               10
      E. Procedural History

          On March 9, 2020, Plaintiffs jointly filed their operative Complaint. 39 The

parties submitted Pre-Trial Briefing on November 25, 2020.40 Trial convened on

December 7, 2020, and the matter was submitted for decision that day.41

                                      II. ANALYSIS

          A plaintiff seeking to inspect books and records under Section 220

“must establish by a preponderance of the evidence that [he] is a stockholder, has

complied with the statutory form and manner requirements for making a demand,

and has a proper purpose for conducting the inspection.”42               If each of these

requirements are met, the plaintiff must then show “that each category of the books

and records requested is essential and sufficient to the stockholder’s stated

purpose.” 43

          Bloom objects to the Demands on three grounds. First, Bloom argues that one

of the Plaintiffs—Bolouri—has failed to comply with Section 220’s form and

manner requirements. Second, Bloom asserts that neither Plaintiff has stated a

39
     Compl. at 1.
40
     D.I. 32, 33.
41
     Tr. at 1.
42
     Pettry v. Gilead Scis., Inc., 2020 WL 6870461, at *9 (Del. Ch. Nov. 24, 2020).
43
     Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).

                                              11
proper purpose for inspection. Finally, Bloom contends that the scope of the

Demands is overly broad. I address each objection in turn.

      A. The Form and Manner Objection

         “Delaware courts require strict adherence to the [S]ection 220 inspection

demand        procedural   requirements.” 44        Those   requirements   are   stated   in

Section 220(b), where the General Assembly has directed that a stockholder’s

demand for inspection must “state [under oath] 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.”45 Documentary evidence of ownership should be “at a point proximate to the

date of the Demand.” 46 As Chancellor Chandler explained in Smith v. Horizon

Lines, Inc., “[t]he purpose of § 220 is not served if the shareholder supplies a

document that does not actually evidence that she is the beneficial owner of the

company’s stock on the relevant date.” 47

         Contrary to Section 220(b), the Bolouri Demand was not accompanied by

satisfactory documentary evidence demonstrating that he was a Bloom stockholder

44
     Cent. Laborers Pension Fund v. News Corp., 45 A.3d 139, 145 (Del. 2012).
45
     8 Del. C. § 220(b).
46
     Amalgamated Bank, 132 A.3d at 776.
47
     Smith, 2009 WL 2913887, at *2 (Del. Ch. Aug. 31, 2009).

                                               12
at a point proximate to the date of the Demand. Rather, Bolouri attached an

E*TRADE account statement purporting to show that he acquired 25 shares of

Bloom Class A Common Stock on October 12, 2018, and held those shares through

October 31, 2018.48 This documentation did not allow Bloom to assess whether

Bolouri was a stockholder at the time Bolouri’s Demand was made—more than a

full year later, on November 25, 2019. 49

           Though Bolouri’s documentary evidence was accompanied by an affidavit in

which he swore the attached documents were “true and correct,”50 Section 220

requires both “‘documentary evidence of beneficial ownership of the stock’ and that

the beneficial owner ‘state that such documentary evidence is a true and correct copy

of what it purports to be.’”51 As the court in Smith aptly observed, “[i]f a sworn

statement alone is sufficient, then what purpose would be served by ‘documentary

evidence of beneficial ownership?’”52 Indeed, by Section 220(b)’s terms, the

affidavit serves only to affirm the truthfulness of what the requisite documentary

48
     See JX 24.
49
     Id.
50
     Id.
51
     Smith, 2009 WL 2913887, at *2 (quoting 8 Del. C. § 220(b)) (emphasis added).
52
     Id.

                                            13
evidence of beneficial ownership “purports to be.” 53 In other words, the affidavit

itself is not the evidence of ownership; the affidavit simply verifies that the actual

evidence of ownership is true and correct.

         Section 220’s form and manner requirements strike the appropriate balance

between a stockholder’s right to inspection and the company’s ability to function

free from a flood of baseless shareholder demands for documents. 54 Weighed on

these scales, the burden placed on the stockholder to provide proper documentary

evidence of beneficial ownership of stock at a point proximate to the date of his

demand is relatively minimal and it must be fulfilled before the company will be

expected to respond. Because Bolouri failed to comply with Section 220’s form and

manner requirements, the Company was justified in rejecting his demand for

inspection.55

53
     8 Del. C. § 220(b) (emphasis added).
54
     See Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 122–23 (Del. 2006).
55
   Bolouri’s subsequent attempt to cure the deficiency through a letter from his attorney
was likewise deficient. See JX 29. The letter lacked the required oaths, a power of
attorney, disclosure of Bolouri’s purported purposes in making the demand or any clear
statement of the documents Bolouri sought to inspect. See Weisman v. W. Pac. Indus., Inc.,
344 A.2d 267, 267–68 (Del. Ch. 1975) (holding that an attorney letter following rejection
of the original demand did not independently meet the statutory requirements and would
“not be considered . . . in testing the sufficiency of” the original demand).

                                             14
      B. The Proper Purpose Objection to the Jacob Demand

         Bloom does not dispute that Jacob’s Demand complied with the statutory form

and manner requirements.56 Instead, Bloom maintains that Jacob’s stated purpose

of investigating wrongdoing, while proper on its face, is not actually proper because

Jacob has failed to carry his burden of presenting a credible basis to suspect

wrongdoing.

         “[C]redible basis” is the “lowest burden of proof known in our law; it requires

merely that the plaintiff put forward some evidence of wrongdoing.”57 In other

words, “a stockholder is not required to prove that wrongdoing occurred, only that

there is possible mismanagement that would warrant further investigation.”58

The stockholder may carry its burden of proof through the presentation of

“documents, logic, testimony or otherwise,” 59 and may point to “on-going lawsuits,

investigations, circumstantial evidence, and even hearsay statements evincing

possible wrongdoing.” 60

56
     See Def.’s Pre-Trial Br. (D.I. 32) at 29.
57
   Kosinski v. GGP Inc., 214 A.3d 944, 953 n.77 (Del. Ch. 2019) (internal quotations and
citation omitted).
58
  AmerisourceBergen Corp. v. Lebanon Cty. Emps.’ Ret. Fund, 243 A.3d 417, 432
(Del. 2020) (“AmerisourceBergen II”) (internal quotations and citations omitted).
59
     Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 568 (Del. 1997).
60
     Pettry, 2020 WL 6870461, at *11.

                                                 15
      According to Bloom, Jacob has failed to meet his credible basis burden for

two reasons. First, he has relied almost entirely upon incompetent evidence—

namely the Hindenburg Report. Second, he has failed to account for the fact that the

Company thoroughly rebutted the Hindenburg Report’s allegations in its responsive

Form 8-K filings. For reasons explained below, I disagree on both fronts.

      Bloom’s characterization of the state of our law regarding the weight to be

given to so-called “short reports” when assessing the strength of a stockholder’s

credible basis showing is exaggerated. It is true, as Bloom points out, that this Court

has observed that those who write short reports, like the Hindenburg Report, have

incentives to spin financial analyses to suit their own investment strategies.61

But such observations cannot and should not be construed as a declaration that all

short reports, and all content within a short report, carry no probative weight as the

court assesses the quantum of evidence supporting a stockholder’s stated purpose

for inspection. Here, by Bloom’s own admission, the Hindenburg Report relies

primarily on publicly available and vetted information, along with litigation filings

and expert testimony. While there may well be bases to undermine that evidence,

61
   See, e.g., Haque v. Tesla Motors, Inc., 2017 WL 448594, at *11 (Del. Ch. Feb. 2, 2017)
(finding that opinions expressed in a short report based on skewed analyses of financial
data had limited evidentiary potency).

                                           16
should it see the light of plenary litigation, it is, on this record, “‘some evidence’

of . . . wrongdoing.” 62

         Bloom’s argument that its September 18, 2019, Form 8-K and press release

(JX 10) fully discredited the Hindenburg Report reflects an improper attempt to

“draw the court into adjudicating merits defenses to potential underlying claims in

order to defeat [an] otherwise properly supported Section 220 demand[].”63 To be

clear, “a Section 220 proceeding does not warrant a trial on the merits of underlying

claims.”64

         In this case, Jacob’s credible basis showing rests on firm evidentiary ground.

First and most fundamentally, there is some evidence suggesting Bloom

misleadingly overestimated the lifetime of its products and underestimated its

liabilities for servicing those products through certain accounting practices,

purportedly masking $2.2 billion of servicing liabilities from its stockholders and

62
   Kosinski, 214 A.3d at 953; see also Paul v. China MediaExpress Hldgs., Inc.,
2012 WL 28818, at *5 (Del. Ch. Jan. 5, 2012) (noting that short seller reports will be given
more weight where “the events that occurred after the publication of the challenged
reports . . . reinforce[d] the shortsellers’ claims”).
63
   Lavin v. West Corp., 2017 WL 6728702, at *1 (Del. Ch. Dec. 29, 2017); see also
AmerisourceBergen II, 243 A.3d at 437 (observing, “the interjection of merits-based
defenses—defenses that turn on the quality of the wrongdoing to be investigated—
interferes with [the ‘summary’ and expedited] process” of Section 220 litigation).
64
     Barnes v. Sprouts Farmers Mkt., 2018 WL 3471351, at *5 (Del. Ch. Jul. 18, 2018).

                                            17
the market. 65       Public data on Bloom’s projects, sourced from various state

governments’ utility records and made available through state government websites,

suggest Bloom understated in public disclosures the rate at which its fuel cells

degrade. 66 The information obtained was corroborated by interviews with business

clients such as Home Depot, the testimony of two experts in fuel cells (one with

14 years of experience and the other with 19 years of experience and a Ph.D. in

mechanical engineering), as well as a fuel cell technology graduate professor.67

Though Hindenburg’s decision not to identify the experts by name detracts from the

weight to be given this evidence, the volume, expertise and tenor of the testimony

still register on the undeniably sensitive credible basis scale.

         As for the accounting, Bloom was in the practice of providing customers with

generous guarantees for servicing its equipment for the life of the contract under an

MSA.68 While these relationships typically lasted up to 25 years, Bloom would

report its servicing liabilities for only one year by giving customers the “option” to

renew the MSA on an annual basis.69 Though Bloom points out the Hindenburg

65
     JX 9 at 14, 38–42, 46–48.
66
     Id. at 46–48.
67
     Id. at 14, 38–42.
68
     See JX 6 at 90–91.
69
     See id. at 14, 39, 90–91.

                                           18
Report leaves open whether either of these practices violated GAAP, 70 the Roberts

Complaint closes that circle, for Section 220 purposes, by connecting those practices

to violations of positive law. Specifically, the Roberts Complaint explains how the

servicing work related to MSAs was required to be disclosed differently under

Section 11 of the Securities Act, not only because this information was material

(and therefore deserving of disclosure in its own right) but also because the liabilities

were reasonably estimable and, as such, were required to be disclosed under both

Item 303 of Regulation S-K and GAAP.71 By Bloom’s own admission in its public

disclosures, “virtually no customers have elected to cancel their maintenance

agreements.”72      It follows syllogistically, therefore, that Bloom’s maintenance

agreements are reasonably estimable by virtue of the Company’s high customer

retention rates and therefore, at least arguably, should be disclosed differently.

70
  See Beatrice Corwin Living Irrevocable Tr. v. Pfizer, Inc., 2016 WL 4548101, at *1, *4–
7 (Del. Ch. Aug. 31, 2016) as revised (Sept. 1, 2016) (rejecting a stockholder’s demand
that attempted to establish credible basis through evidence that the company failed to
comply with GAAP after the stockholder failed to connect the alleged noncompliance with
the board’s oversight, and the plaintiff’s only stated purpose was to pursue a Caremark
claim).
71
     Roberts Compl. ¶¶ 65–73.
72
   JX 9 at 9 (quoting page 123 of Bloom’s IPO Prospectus); see also JX 6 (Bloom’s
statement in its 10-K that “[h]istorically, our customers have almost always exercised their
option to renew . . . .”).

                                            19
      While these are, of course, only allegations, this court has made clear that

“[o]ngoing investigations and lawsuits can provide the necessary evidentiary basis

to suspect wrongdoing or mismanagement warranting further investigation.”73

And again, the low credible basis threshold is met where wrongdoing is merely

possible—it need not be proven.

      Even if the Court were to entertain Bloom’s merits-based defense, Jacob

correctly observes that the Company’s Form 8-K filings actually may support, rather

than defeat, an inference of wrongdoing. Specifically, Jacob argues that Bloom’s

reactive filing of a second Form 8-K shortly after the Hindenburg Report was

published, in which it disclosed “an error in accounting for the Company’s [MSAs],”

suggests the Company knew it had to get out in front of the impact of the Hindenburg

Report as best it could. 74 Though both parties agree the revenue restatement did not

relate directly to the servicing liability-oriented allegations in the Hindenburg

Report, it nonetheless provides some credence to Jacob’s concern regarding the

robustness of Bloom’s independent controls on their financial reporting. Bloom’s

contrary contention—that a restatement signals an energized Audit Committee—is,

without more context, debatable given that the restatement came so shortly after the

73
  Lebanon Cty. Emps.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *9
(Del. Ch. Jan. 13, 2020) (“AmerisourceBergen I”), aff’d, 243 A.3d 417 (Del. 2020).
74
  PTO ¶ 6. As noted, the accounting error resulted in a write-down of $180 million in
revenue. See JX 32.

                                         20
Hindenburg Report and appears, at least on this record, to have been prompted

by it.75

         As a final observation on Bloom’s merits defense, I note the Hindenburg

Report cited public information evidencing that Bloom issued misleading

representations regarding its technology’s environmental hallmarks. Specifically,

the report cites data tracked by governments “collected from hundreds of Bloom

projects” to show the Company’s projects “generate more CO2 than the electric grid

in key states they operate in and produce CO2 levels comparable to modern natural

gas power plants.”76 Bloom’s government subsidies, which Bloom admits are

foundational to its commercial viability, are contingent on Bloom’s status as a

“green” energy alternative.77

         Bloom responds by arguing the Demands, Jacob’s Complaint and subsequent

briefing never identify any misstatements related to Bloom’s “green” company

status, never identify any specific actions that were taken to reduce or eliminate

Bloom’s subsidies, and never explain how a decision to discontinue some or all of

75
   Compare JX 9 (the Hindenburg Report, published September 17, 2019), with JX 32
(the Form 8-K restatement, published February 12, 2020).
76
     JX 9 at 4.
77
   Tr. 77:23–78:4 (Bloom’s admission that “[i]t’s . . . true that the company relied on
subsidies”); see also JX 9 at 5–6, 21–34, 49–50 (linking to articles documenting
jurisdictions’ reduction or revocation of Bloom’s subsidies).

                                          21
Bloom’s government subsidies would be evidence of wrongful conduct. Here again,

Bloom winks at the evidentiary record. The Roberts Complaint highlights an

independent study conducted by the University of Delaware published in 2019

showing that Bloom overstates the efficiency of its fuel cells by 20% in public

disclosures. 78 It also documents how a group of Delaware Senators relied upon

Bloom’s apparently misleading public data to suggest a “substantial fine

(e.g., $100,000) for every day that CO2 emissions from Bloom fuel cells exceeds

700 pounds per MWH.”79 The perceived state of Bloom’s emissions prompted

Delaware State Senator David Lawson to declare the following with respect to

Bloom: “I think we were sold a bill of goods.” 80

         In a last gasp, Bloom contends that Jacob must, but has not, demonstrated that

Bloom’s officers and directors were specifically complicit in or aware of the

underlying wrongdoing. But our Supreme Court in AmerisourceBergen II recently

“dispel[led] the notion that a stockholder who demonstrates a credible basis from

which the court can infer wrongdoing or mismanagement must demonstrate that the

wrongdoing or mismanagement is actionable.” 81 Accordingly, at this stage, to earn

78
     Roberts Compl. ¶ 98.
79
     Roberts Compl. ¶ 102 (quoting directly from the Delaware Senators’ letter).
80
     JX 9 at 31.
81
     AmerisourceBergen II, 243 A.3d at 431.

                                              22
his inspection rights, Jacob need not attempt to connect Bloom’s possible

wrongdoing directly to individual members of the Board or Company officers. 82

                                      * * * * *

         To reiterate, Jacob’s burden to demonstrate a proper purpose did not present

a Herculean task; instead, it presented the lowest burden of proof recognized in our

law. Jacob has carried that burden with ease. 83

      C. The Scope Objection

         As part of his prima facie burden, a Section 220 plaintiff must prove “that

each category of the books and records requested is essential and sufficient to [his]

stated purpose.”84        “[W]here a § 220 claim is based on alleged corporate

wrongdoing, . . . the stockholder should be given enough information to effectively

address the problem, either through derivative litigation or through direct contact

with the corporation’s directors and/or stockholders.”85

82
     See Seinfeld, 909 A.2d at 123.
83
     See Pettry, 2020 WL 6870461, at *13–14.
84
   Thomas & Betts, 681 A.2d at 1035; see also Saito v. McKesson HBOC, Inc., 806 A.2d
113, 115 (Del. 2002) (holding that a plaintiff should receive “access to all of the documents
in the corporation’s possession, custody or control, that are necessary to satisfy
[the plaintiff’s] proper purpose”); KT4 P’rs LLC v. Palantir Techs. Inc., 203 A.3d 738, 752
(Del. 2019) (observing that, under Section 220, the stockholder is entitled to inspect what
is “essential” but not what is beyond “sufficient”).
85
     Saito, 806 A.2d at 115.

                                             23
      Jacob seeks four categories of documents for the period starting July 1, 2017,

through the date of the Demands. Bloom objects that each individual category is too

broad. But first, it asserts two blanket objections that apply equally across all

categories.

      First, Bloom asserts that Bolouri’s Demand is narrower than Jacob’s Demand

in several respects and, given that both Demands were prepared by the same law

firm and state similar purposes, Jacob’s Demand should be trimmed to mirror

Bolouri’s. I disagree. Each stockholder has his own right to make a demand on the

company in which he holds shares. Thus, the yardstick against which the Court will

measure the appropriate scope of inspection is not another stockholder’s demand,

however similar in purpose, but rather the stockholder’s own demand, including the

purposes stated and scope of documents requested therein.

      Bloom’s second blanket scope objection is temporal: Bloom argues Jacob’s

request to inspect documents dating back to July 1, 2017, is arbitrary since it would

require the production of documents that predate the Company’s Initial Public

Offering on July 24, 2018, and the time Jacob first acquired shares in the Company.

The temporal scope of a Section 220 inspection that is based on suspected

wrongdoing or mismanagement extends to the time when the evidence reveals the

                                         24
wrongdoing or mismanagement began.86 Here, the record reveals there is a credible

basis to suspect that Bloom’s misrepresentations regarding the scope of its salutary

environmental impact date back to 2016.87             As for the fuel cells, Bloom’s

IPO Prospectus represented that the expected lifespan for its fuel cells “from 2017

onwards,” i.e., one year prior to the IPO, would “average over five years between

replacements.” 88 Jacob has presented a credible basis to suspect that representation

was false. 89 And Jacob has presented evidence to support a credible basis to suspect

the issues surrounding Bloom’s misstated financial statements likely predated

86
  See AmerisourceBergen I, 2020 WL 132752, at *27. It follows that, contrary to Bloom’s
contention, a stockholder may inspect records that predate his initial stock purchase in the
company that is the target of his inspection demand. Id.
87
   JX 9 at 27 (discussing a lawsuit against Bloom in which it was alleged that the Company
was dumping hazardous waste into public landfills). The Court is mindful that past
lawsuits against a company do not necessarily constitute credible evidence of ongoing
malfeasance. See Louisiana Mun. Police Emps.’ Ret. Sys. v. Lennar Corp., 2012
WL 4760881, at *3–4 (Del. Ch. Oct. 5, 2012). As discussed, however, the evidence on
record (including independent academic studies and data collected and disclosed by state
government entities) provides a credible basis to believe that Bloom’s alleged
misrepresentations concerning its technology’s environmental impact persist. See JX 9
at 31; Roberts Compl. ¶¶ 98, 102.
88
     JX 9 at 47 (quoting page 61 of Bloom’s IPO Prospectus).
89
   Id. at 10–15 (interviewing experts who did not believe the Company’s fuel cells could
last for Bloom’s represented five-year term and sourcing public data tracking Bloom’s fuel
cells from state government websites, such as California and New York, to corroborate
those opinions).

                                            25
the IPO.90 Based on the record, I am satisfied that Jacob’s July 1, 2017, start date

for production is appropriate.

         Bloom’s other objections relate to the scope of each individual category of

requested documents, which I address in sequence. Turning to Category 1, Jacob

seeks Board Materials relating to, concerning or reflecting, (a) Bloom’s accounting

practices; (b) the Company’s servicing costs and liabilities; (c) any discrepancies

between the actual and anticipated servicing costs and liabilities; (d) the Company’s

“clean” energy claims; (e) the Company’s CO2 emissions; (f) the meetings of the

Board and any of its committees; (g) any and all inquiries or investigations of the

Company by any federal, state, or local government regulators or law enforcement

agencies regarding the Company’s accounting practices; and (h) any internal

investigations by the Company of any employees or officers for accounting

irregularities. 91 The term “Board Materials” is defined to include, but is not limited

to, “any memoranda, presentations, reports, correspondence, emails, minutes,

recordings, consents, agendas, resolutions, charters, summaries, analyses,

transcripts, notes, letters, packages and other similar documents created by,

90
   JX 9 at 36–37 (sourcing publicly filed court documents and a 2018 Wall Street Journal
article detailing Bloom’s role in promoting misstatements concerning its business that
resulted in an SEC lawsuit against brokers and a $16.7 million payment by Bloom to those
brokers); JX 44.
91
     JX 13.

                                          26
distributed to or received by or on behalf of the Board or any committees established

by the Board.”92

           I agree with Bloom that Category 1’s scope is overly broad. As noted, the

term Board Materials includes “emails . . . received by or on behalf of the Board or

any committees established by the Board.” This extends beyond the formal board

materials this court typically finds are “sufficient” to satisfy the stockholder’s

purpose. 93      “The starting point—and often the ending point—for a sufficient

inspection will be board level documents evidencing the directors’ decisions and

deliberations, as well as the materials that the directors received and considered.”94

Jacob cites Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp. for the

proposition that emails are necessary and essential here. 95 But unlike in Calgon,

where the record revealed the target company did not maintain formal board-level

documents reflecting its decision-making, no such evidence was presented here with

92
     Id.
93
     See Palantir, 203 A.3d at 752–53.
94
  In re Plains All Am. Pipeline, L.P., 2017 WL 6016570, at *4 (Del. Ch. Aug. 8, 2017)
(quoting Amalgamated Bank, 132 A.3d at 790).
95
  See Pl.’s Pre-Trial Br. (D.I. 33) at 42 (citing Inter-Local Pension Fund GCC/IBT v.
Calgon Carbon Corp., 2019 WL 479082, at *17–18 (Del. Ch. Jan. 25, 2019)).

                                           27
respect to Bloom’s Board. 96 Thus, Jacob failed to carry his burden to prove that

emails and other electronic communications among Company fiduciaries are

necessary and essential to fulfill his investigative purpose.

         I will also limit Category 1 to documents more precisely related to the issues

identified in Jacob’s Demand, which, by its terms, restricts the investigatory purpose

to “the events, circumstances, and transactions described.”97 Jacob’s Demand

identifies as suspected mismanagement or wrongdoing only the servicing liabilities

(and related accounting issues) and the misrepresentations of Bloom’s green energy

affinities.98 Accordingly, Categories 1(a), (g) and (h) should be limited to the

accounting practices flagged by Plaintiffs as prompting their Demand, namely those

relating to MSA servicing liabilities. Category 1(f) should be limited to only those

meetings of the Board and its committees where the Company’s relevant accounting

practices or topics pertinent to its “green energy” claims were discussed. With those

revisions, I find this category of documents necessary and essential to Jacob’s

96
  See Calgon Carbon Corp., 2019 WL 479082, at *17; see also Palantir, 203 A.3d at 742
(ordering the production of emails only after determining that the target’s board did not
keep formal records of its activities).
97
  JX 13 (emphasis added). See Calgon Carbon Corp., 2019 WL 479082, at *17 (limiting
production category to documents addressing transactions identified in the inspection
demand).
98
     JX 13.

                                           28
investigation of Bloom’s accounting and clean energy claims for which it has a

credible basis to suspect wrongdoing or mismanagement; they should be produced.99

            As for Category 2, I am satisfied, with some modifications, that these

documents also meet the necessary and essential test.                  Category 2 requests

“Documents reflecting the Company’s investigation by any federal, state, or local

government regulators or law enforcement agencies for accounting irregularities.”100

The term “Documents” is defined in the Demand to be “used in the broadest sense

and include electronically stored information.              Th[is] term[] also include[s]

accounting-related records such as audited and unaudited financial statements,

ledgers, reports, schedules, reconciliations, valuations, pro formas, back up, or work

papers.” 101

99
   I reject Bloom’s argument that Jacob is entitled to inspect only those documents that
were both presented to and considered by the Board. A document presented to but ignored
by the Board that reflects the Company was engaged in improper accounting practices or
false disclosures to the market would be relevant to an investigation of fiduciary
wrongdoing or mismanagement. See, e.g., Stone ex rel. AmSouth Bancorp v. Ritter,
911 A.2d 362, 369 (Del. 2006) (reiterating, in the oversight context, that a fiduciary breach
claim can rest on allegations that the fiduciary “intentionally fail[ed] to act in the face of a
known duty to act”).
100
   JX 13. I note the Demand defines “records” identically to “Documents,” but the term
“records” is used only to preface the Demand’s categories (and never within any individual
Category). For the avoidance of doubt, the term “records” should be defined identically to
Documents as set out in this decision, and it should not apply to Category 1 (the scope of
which is defined above through the Court’s definition of “Board Materials”).
101
      Id.

                                              29
      “This court regularly orders companies to produce communications related to

government investigations and litigation in Section 220 cases where those

investigations supply or support a credible basis for wrongdoing.” 102      Consistent

with the limitations imposed with respect to Category 1, the scope of documents to

be produced in response to Category 2 shall relate only to investigations of the

servicing liabilities (and related accounting issues) and the misrepresentations of

Bloom’s green energy affinities. Likewise, the definition of “Documents” will be

limited to formal Board documents (e.g., minutes, resolutions, etc.) and documents

submitted to or reviewed by the Board or senior management summarizing what the

investigation entailed, any conclusions of investigations, and internal reports and

follow-up reports relating to the investigation(s).103 These documents are necessary

and essential to reveal the degree of Bloom’s compliance with positive law and

government regulations.

      As for Categories 3 and 4, these documents are also necessary and essential,

albeit likely duplicative of documents responsive to Category 1. Category 3 requests

102
    Pettry, 2020 WL 6870461, at *26 (ordering that pertinent communications with
government regulators and investigatory materials be produced for inspection in addition
to board-level materials).
103
    See Wal-Mart Stores, Inc. v. Indiana Elec. Workers Pension Tr. Fund IBEW, 95 A.3d
1264, 1273, 1282 (Del. 2014) (affirming order requiring production of officer-level
materials); AmerisourceBergen I, 2020 WL 132752, at *25 (“In an appropriate case, an
inspection may extend further to encompass communications and materials that were only
shared among or reviewed by officers and employees.”).

                                          30
Documents reflecting the Company’s investigation of any officer or employee for

accounting irregularities.104 And Category 4 requests Documents reflecting the

servicing costs and liabilities that the Company expected to incur. 105 There appears

to be substantial overlap in discernable information between Category 1 and

Categories 3 and 4: Board Materials concerning accounting irregularities should

encompass investigations into officers and employees, which in all likelihood would

be reviewed at the Board level.           And internal documents related to expected

servicing costs and liabilities, as submitted to the Board, would likely be captured

by Categories 1(b) and (c). Nevertheless, for the sake of clarity, I confirm that Jacob

is entitled to inspect non-privileged documents relating to Company investigations

of officers and directors engaged in improper accounting practices relating to

servicing costs and liabilities, and internal documents submitted to the Board relating

to servicing costs and liabilities.

                                   III.   CONCLUSION

            For the reasons explained above, judgment is entered in favor of Bloom with

respect to Bolouri’s Demand, and judgment is entered in favor of Jacob with respect

to Jacob’s Demand. The parties shall confer regarding scope and conditions for

104
      See Pettry, 2020 WL 6870461, at *26–27.
105
      Id.

                                             31
inspection and submit either a joint or competing (with letter explanations) form of

implementing order(s) and final judgment(s) within twenty (20) days.

                                        32