## Facts

- Robert Corwin and Marilyn Corwin, as trustees of the Beatrice Corwin Living Irrevocable Trust (the Trust), owned 500 shares of Pfizer, Inc., a Delaware corporation.
- After reading a news article discussing U.S. companies’ overseas earnings and related U.S. “repatriation tax” consequences, the trustees focused on Pfizer’s financial statements and disclosures about foreign earnings treated as “indefinitely reinvested.”
- Under the relevant GAAP guidance (including ASC 740-30), a company generally must recognize and disclose a deferred tax liability for U.S. taxes that would be due upon repatriation of certain foreign earnings, unless the company states that determining the amount is “not practicable.”
- Pfizer’s public filings did not quantify a deferred repatriation-tax liability for certain foreign earnings and invoked the “not practicable” position.
- The Trust served a demand under 8 Del. C. § 220 to inspect Pfizer’s books and records, stating purposes that included: (1) valuing the Trust’s Pfizer shares; (2) investigating possible mismanagement and breaches of fiduciary duty related to accounting compliance; and (3) evaluating possible stockholder or derivative litigation.
- At trial, the Trust relied mainly on testimony from its accounting witness, who opined that calculating the repatriation-tax amount would be practicable because Pfizer performed other annual tax calculations that were similar in kind.
- Pfizer responded that its board and audit committee met with management and Pfizer’s independent auditor, KPMG, about Pfizer’s financial statements and received KPMG’s unqualified audit opinion that Pfizer’s financial statements were prepared in conformity with GAAP.
- The Trust did not contend, and did not present evidence, that Pfizer’s directors failed to rely on KPMG, believed KPMG’s opinion was outside KPMG’s competence, or selected KPMG without reasonable care.

## Issues

1. Whether the Trust established a credible basis to infer possible board-level wrongdoing or mismanagement—such that inspection was warranted to investigate a potential oversight (Caremark-type) claim based on alleged GAAP noncompliance.
2. Whether the Trust proved that the requested books and records were necessary and essential to value its Pfizer shares.

## Decision

- The Court of Chancery entered judgment for Pfizer and denied the § 220 inspection request.
- On the mismanagement purpose, the Trust failed to present a credible basis to infer board-level wrongdoing; its evidence addressed a technical accounting dispute (whether a calculation was “practicable”) rather than director conduct, board knowledge, ignored warnings, or an oversight breakdown.
- Pfizer’s showing that the board and audit committee relied on KPMG’s unqualified audit opinion weighed against an inference of director misconduct, and the Trust offered no evidence calling that reliance into question.
- On valuation, the Trust failed to show the requested nonpublic materials were necessary and essential to valuing shares of a widely traded public company with extensive public disclosures.

## Legal Principles

- A stockholder seeking inspection under 8 Del. C. § 220 must prove (i) a proper purpose reasonably related to stock ownership and (ii) that the requested documents are necessary and essential to achieve that purpose.
- Investigating possible wrongdoing and valuing shares can be proper purposes, but a plaintiff seeking inspection to investigate wrongdoing must present “some evidence” supporting a credible basis from which wrongdoing may be inferred; conjecture and disagreement with business or accounting judgments are not enough.
- When the asserted theory is an oversight claim, the stockholder’s evidence must connect the suspected problem to board-level action or inaction (for example, an absence of reporting systems, a failure to monitor, or disregard of warning signs), not merely show that a disclosure or accounting treatment may be incorrect.
- Directors may rely in good faith on reports and opinions from accountants and other advisors selected with reasonable care; where the record shows such reliance and the plaintiff offers no evidence challenging it, that reliance can defeat an inference of board misconduct at the § 220 stage.
- For valuation of publicly traded shares, § 220 does not permit inspection of internal records simply because they might be helpful; the plaintiff must show why public information is inadequate and why the particular categories sought are essential to the valuation analysis.

## Conclusion

In Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., the Delaware Court of Chancery denied the Trust’s § 220 demand because the Trust did not supply evidence supporting a credible inference of board-level wrongdoing tied to an oversight theory and did not show that internal records about Pfizer’s tax-accounting treatment were necessary and essential to valuing a small stake in a heavily disclosed, widely traded public company.


Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., 2016 WL 4548101 (2016)