No “Lucid Purpose” Filter: Delaware Supreme Court Re-Affirms the Low “Credible-Basis” Threshold Under 8 Del. C. § 220

Introduction

In Roberta Ann K.W. Wong Leung Revocable Trust U/A Dated 03/09/2018 v. Amazon.com, Inc., the Delaware Supreme Court reversed the Court of Chancery’s denial of a stockholder’s books-and-records request under 8 Del. C. § 220 (“Section 220”). The reversal has two headline holdings:

The Court of Chancery may not refuse inspection simply because it deems the stockholder’s stated purpose “too broad” or insufficiently “lucid”; it must engage the traditional credible-basis analysis on the evidence presented.
Government antitrust litigation that has survived a motion to dismiss—together with related regulatory actions and foreign fines—constitutes sufficient “some evidence” to supply a credible basis to suspect wrongdoing. No additional “plus-factor” is required.

As a result, the opinion clarifies and slightly recalibrates Section 220 jurisprudence, making it easier for stockholders to obtain inspection when credible public-domain evidence of government enforcement exists.

Summary of the Judgment

Court: Delaware Supreme Court (Seitz, C.J.; LeGrow and Griffiths, JJ.)
Disposition: Reversed and remanded. The Trust is entitled to inspection; the Court of Chancery must set scope and confidentiality conditions.
Key Holdings:
- A purportedly overbroad purpose is not a stand-alone ground to deny inspection; the court must still test whether “some evidence” shows a credible basis.
- The credible-basis standard remains “the lowest possible burden of proof under Delaware law” and is satisfied by government actions that advance past the pleadings.

Detailed Analysis

1. Precedents Cited and Their Influence

Seinfeld v. Verizon (Del. 2006) – Articulated the “credible basis” test; repeatedly quoted to reaffirm that the burden is minimal and prohibits “fishing expeditions.”
AmerisourceBergen v. Lebanon Cty. (Del. 2020) – Recognised corporate wrongdoing as a proper purpose and endorsed government investigations as potent evidence; heavily relied upon for standard of review.
NVIDIA Corp. v. City of Westland Police (Del. 2022) – Confirmed flexibility in narrowing requests during litigation; used here to validate the Trust’s post-demand narrowing (U.S./EU focus, 2018-present).
Pettry v. Gilead (Del. Ch. 2020) – Held that claims surviving a motion to dismiss satisfy credible basis; the Supreme Court extends that reasoning to government antitrust suits.
In re Facebook Section 220 (Del. Ch. 2019) – Example of credible basis where FTC consent decree and U.K. parliamentary report supplied evidence; supports the idea that advanced enforcement activity can be enough without a merits finding.
Oklahoma Firefighters v. Amazon (Del. Ch. 2022) – Earlier Amazon Section 220 case; Chancery found no credible basis because inquiries were at preliminary stages; Magistrate and Vice-Chancellor relied on it, but the Supreme Court distinguishes it due to subsequent events (FTC complaint, fines, California and Washington actions).

2. Legal Reasoning of the Supreme Court

Proper Purpose v. Scope Objections
• “Proper purpose” is satisfied if investigation of wrongdoing is linked to stockholder interests.
• The Chancery Court erred by treating breadth (“facial impropriety”) as a threshold bar. Section 220 handles over-breadth later, at the scope-and-necessary-and-essential stage.
• Requiring a narrower, “lucid” statement would create a new, higher hurdle inconsistent with precedent.
Credible-Basis Standard Re-affirmed
• Evidence need not show actual wrongdoing—only give the court “reason to suspect.”
• Government litigation that has proceeded past Rule 12(b)(6) is intrinsically weighty because the pleading standard there (plausibility) exceeds Section 220’s “some evidence.”
• Aggregating multiple enforcement signals (U.S. FTC, California AG, Washington consent decree, €1.13 b Italian fine) comfortably meets the threshold.
No “Plus-Factor” Requirement
• The Magistrate read Amazon 2022 as imposing an “additional evidence” or “plus-factor” rule beyond ongoing investigations. The Supreme Court rejects that reading: the credible-basis test is static; earlier cases were fact-specific, not doctrinal.
Litigation Narrowing Is Permissible
• Citing NVIDIA, the Court blesses the Trust’s clarified geographic and temporal limits, finding no prejudice to Amazon.

3. Potential Impact

Section 220 Practice: Trial judges must engage in an evidentiary, not facial, evaluation. Motions to dismiss § 220 complaints based on vague purpose language will now be more difficult.
Corporate Governance: Boards of large-cap issuers facing advanced government investigations can expect more inspection demands; early settlement decisions (e.g., consent decrees) may now strengthen stockholders’ access rights.
Litigation Strategy: Plaintiffs may rely heavily on government complaints that have survived dismissal to clear the credible-basis hurdle, reducing need for “smoking-gun” documents pre-filing.
Antitrust Context: The ruling recognises antitrust enforcement as a “corporate trauma” capable of triggering books-and-records rights, signalling Delaware’s attentiveness to competition law risk.

Complex Concepts Simplified

What is 8 Del. C. § 220?

Section 220 lets a stockholder inspect a Delaware corporation’s “books and records” if three requirements are met: (1) the requester is a stockholder; (2) the request followed the statutory form; and (3) the inspection is “for a proper purpose” (i.e., reasonably related to stockholder interests).

“Credible Basis” Standard

To investigate wrongdoing, the stockholder must show “some evidence” that misconduct may have occurred—not proof that it did occur. It is the “lowest possible” burden in Delaware law, lower than “probable cause” and far lower than “preponderance.”

Proper Purpose vs. Scope

“Proper purpose” asks why the stockholder wants documents; “scope” asks what documents they can actually get. The Court of Chancery conflated the two by striking down the purpose as “overbroad.” The Supreme Court reminds practitioners that breadth questions are handled later when tailoring production to what is “necessary and essential.”

Government Litigation as Evidence

When regulators sue a company and the claims survive a motion to dismiss, the court treating those allegations as “plausible” is stronger than the “credible basis” threshold. Therefore, the stockholder’s burden is essentially met.

Conclusion

The Delaware Supreme Court’s decision in Trust v. Amazon reinforces two core principles: (1) Courts must decide Section 220 cases on the established credible-basis framework, not on subjective assessments of purpose “lucidity,” and (2) Advanced government enforcement proceedings themselves often satisfy that framework. The opinion lowers procedural obstacles for stockholders seeking to police fiduciary conduct and cautions boards that ignoring credible regulatory red flags can swiftly open the company’s books. Going forward, practitioners should focus less on word-smithing the purpose paragraph and more on assembling concrete public evidence—particularly government complaints that withstand Rule 12(b)(6)—to clear the minimal credible-basis bar.