## Facts

- AmBase Corporation, a publicly held Delaware company, primarily pursued litigation against the United States arising from FIRREA’s impact on its former savings-and-loan business.
- Richard Bianco served as chairman, president, and CEO.
- Stockholders George W. Haywood (about 12% holder) and Denis Cronin (about 1% holder) became concerned that Bianco received compensation and benefits they viewed as excessive given the company’s limited operations.
- After unsuccessful attempts to obtain an explanation, the stockholders made written demands to inspect books and records concerning Bianco’s compensation and the board’s and compensation committee’s deliberations and approvals.
- AmBase refused to produce the requested materials, and the stockholders filed an action under 8 Del. C. § 220 to compel inspection.

## Issues

1. Whether the stockholders established a “proper purpose” under 8 Del. C. § 220 to investigate possible mismanagement or wrongdoing related to executive compensation, supported by a “credible basis.”
2. What categories of books and records were “necessary and essential” to accomplish that purpose, and thus within the permissible scope of inspection.
3. Whether AmBase should be required to pay the stockholders’ attorneys’ fees for the § 220 action.

## Decision

- The court held the stockholders stated a proper purpose to investigate potential wrongdoing in connection with the CEO’s compensation and benefits.
- The court ordered AmBase to permit inspection of books and records related to the compensation investigation, but limited production to materials necessary and essential to that purpose.
- The court denied the request for attorneys’ fees, finding no basis for fee-shifting.

## Legal Principles

- A stockholder seeking inspection under 8 Del. C. § 220 must show a proper purpose reasonably related to the stockholder’s interests, and investigating suspected mismanagement (including allegedly excessive executive compensation) qualifies.
- To investigate wrongdoing, the stockholder must present “some evidence” establishing a credible basis to infer possible mismanagement; proof of actual wrongdoing is not required, and the burden is low.
- Any inspection ordered must be limited to books and records that are necessary and essential to the stated proper purpose; § 220 is a targeted investigatory device, not a substitute for full discovery.
- In evaluating executive compensation concerns, the board is expected to exercise its own business judgment rather than merely deferring to officers’ assertions.
- Attorneys’ fees are not shifted in a § 220 action absent circumstances such as bad-faith conduct sufficient to justify an exception to the American Rule.

## Conclusion

The Court of Chancery compelled a narrowed § 220 inspection to allow stockholders to investigate whether unusually high CEO compensation reflected possible board mismanagement, while refusing to shift fees because the company’s resistance did not warrant a bad-faith exception.


Haywood v. AmBase Corp., 2005 WL 2130614 (Del. Ch. Aug. 22, 2005)