## Facts

- Amalgamated Bank, a beneficial owner of Yahoo! Inc. stock, made a written demand (Feb. 24, 2014) under 8 Del. C. § 220 to inspect books and records.
- The stated purpose was to investigate potential mismanagement relating to executive compensation, focusing on the hiring and firing of COO Henrique de Castro.
- Yahoo produced approximately 677 pages, mainly board and compensation committee materials, but refused to produce additional categories, including certain emails and other electronically stored information (ESI).
- Amalgamated filed a § 220 action in the Delaware Court of Chancery (Mar. 10, 2015); the matter proceeded to a paper-record trial (Sept. 29, 2015).
- Yahoo’s board and compensation committee were involved in negotiating and approving a high-value, equity-heavy compensation package for de Castro, including “make-whole” equity and severance protections.
- De Castro was terminated without cause after roughly 14 months, resulting in a substantial payout.
- Amalgamated asserted there was reason to suspect management and board-level failures in the approval process, later modifications to the offer terms, and the decision to terminate without cause.

## Issues

1. Whether the stockholder’s demand satisfied § 220’s form-and-manner requirements, including proof of ownership and continuous ownership.
2. Whether the stockholder established a proper purpose and a credible basis to infer possible mismanagement or wrongdoing related to de Castro’s compensation and termination.
3. What scope of inspection was “necessary and essential” to the stated purpose, including whether § 220 may require production of emails and other ESI.
4. Whether the court may condition inspection on an agreement that produced documents will be deemed incorporated by reference in any later derivative complaint concerning the demand’s subject matter.

## Decision

- The court held Amalgamated proved a proper purpose and met the “credible basis” standard to investigate potential mismanagement or wrongdoing.
- The court rejected Yahoo’s technical objections to standing and form, finding the ownership proof and continuous ownership showing sufficient under § 220.
- The court ordered a tailored inspection that included targeted production of emails and other ESI where necessary to fulfill the inspection purpose.
- The court imposed an “Incorporation Condition,” deeming produced documents incorporated by reference in any subsequent derivative complaint relating to the demand’s subject matter.

## Legal Principles

- A § 220 inspection requires a proper purpose; investigating potential mismanagement or wrongdoing is a proper purpose.
- To obtain inspection for investigative purposes, a stockholder must show a “credible basis” to infer mismanagement, waste, or wrongdoing may have occurred; this is a low evidentiary burden requiring some evidence, not proof of wrongdoing.
- The scope of inspection must be limited to documents that are “necessary and essential” to the stated purpose; § 220 does not authorize full discovery.
- “Books and records” under § 220 may include emails and other ESI when those materials are necessary to evaluate suspected mismanagement and when formal board materials are insufficient.
- The court may condition inspection on incorporation by reference of the produced documents in later derivative litigation to reduce selective use of documents and permit fair evaluation at the pleading stage.

## Conclusion

The Court of Chancery enforced a stockholder’s qualified right under § 220 to conduct a targeted investigation into executive-compensation-related mismanagement, held that § 220 can reach necessary emails and other ESI, and conditioned production on incorporation by reference in any later derivative complaint to ensure accurate and complete use of the inspection record.


Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. 2016)