## Facts

- The Hershey Company (Hershey) was the largest chocolate producer in North America and sold chocolate products worldwide.
- Cocoa is a key ingredient in chocolate, and Hershey obtained a significant amount of cocoa (or cocoa-derived products) sourced from Ghana and the Ivory Coast.
- Ghana and the Ivory Coast outlawed child labor and forced labor, but public reporting described child labor and trafficking of children to work on cocoa farms in those countries as widespread.
- Hershey publicly participated in industry efforts aimed at reducing the worst forms of child labor in cocoa harvesting, including signing a 2001 protocol that targeted eliminating the worst forms of child labor by 2005 and contemplated voluntary certification.
- A 2011 report stated that child labor and trafficking in West African cocoa production remained a serious problem; by the time of the litigation, no comprehensive certification program had been implemented, though Hershey publicly stated it would begin using certified cocoa by 2020.
- Hershey maintained relationships with cocoa suppliers and, according to public information, Hershey executives (including Hershey’s chairman) visited cocoa farms.
- Louisiana Municipal Police Employees’ Retirement System (LAMPERS), a Hershey stockholder, served a demand under 8 Del. C. § 220 to inspect Hershey’s books and records.
- LAMPERS stated its purpose was to investigate possible mismanagement at Hershey arising from Hershey’s involvement in, knowledge of, or benefit from violations of Ghana or Ivory Coast law regarding child labor or forced labor in cocoa harvesting.
- The demand sought an expansive set of materials, including board-level and internal company documents relating to Hershey’s sourcing, supplier oversight, and awareness of labor practices in the cocoa supply chain.
- Hershey refused the demand, contending LAMPERS lacked a credible evidentiary basis to suspect wrongdoing or mismanagement at Hershey.
- LAMPERS filed a § 220 action in the Delaware Court of Chancery. The matter was referred to a Special Master, and Hershey moved to dismiss for failure to plead a credible basis to infer wrongdoing.
- The Special Master issued a final report recommending dismissal, and LAMPERS filed exceptions to that recommendation.

## Issues

1. Whether a stockholder seeking inspection under 8 Del. C. § 220 to investigate possible mismanagement must present some evidence supplying a credible basis to infer wrongdoing at the company whose records are sought.
2. Whether industry-wide reporting about unlawful child labor in cocoa production, combined with the company’s sourcing from affected regions and public commitments to improve sourcing, provides a credible basis to infer possible mismanagement or wrongdoing at the company.
3. Whether generalized statistical or probabilistic assertions about the prevalence of child labor in the cocoa supply chain can satisfy the credible-basis requirement without a sound methodology and a link to company-specific conduct.

## Decision

- The Special Master recommended that the Court of Chancery grant Hershey’s motion to dismiss the § 220 complaint, and the inspection demand was denied.
- The decision accepted that investigating potential mismanagement can be a proper purpose under § 220, but held that LAMPERS did not meet the “credible basis” requirement.
- The evidentiary showing pointed to widespread labor abuses in parts of the cocoa industry and to Hershey’s participation in industry initiatives, but it did not supply a non-speculative basis to infer that Hershey itself engaged in wrongdoing, knowingly benefited from illegal labor, or mismanaged the company in responding to those risks.
- To the extent LAMPERS relied on statistical or inferential reasoning (that a major buyer likely obtained cocoa connected to illegal labor), the showing was not supported by a sound, company-linked methodology or competent proof that would allow the court to infer possible Hershey wrongdoing from the prevalence of abuses elsewhere in the supply chain.
- Because LAMPERS failed to provide “some evidence” creating a credible basis to suspect mismanagement at Hershey (as opposed to problems in the broader cocoa supply chain), the § 220 action could not proceed to compel production.

## Legal Principles

- A stockholder seeking inspection of books and records under 8 Del. C. § 220 must establish (i) a proper purpose and (ii) a credible basis from which the court may infer possible wrongdoing or mismanagement.
- Investigating possible wrongdoing or mismanagement is a proper purpose, but the stockholder must present evidence—beyond suspicion or conclusory allegations—that supports a reasonable inference of potential misconduct.
- Evidence of illegal conduct affecting an industry or supply chain, without facts connecting the target company to the alleged misconduct, generally does not satisfy the credible-basis standard for a § 220 inspection.
- Statistical correlation may, in some circumstances, constitute evidence supporting a credible basis, but only if supported by a sound, logical methodology and competent proof; bare probability arguments tied only to market participation are insufficient.
- Section 220 is not a tool for broad discovery. Even where a proper purpose is shown, the requested inspection must be tied to the stated purpose and supported by an evidentiary foundation that justifies intrusion into internal corporate records.

## Conclusion

In *Louisiana Municipal Police Employees’ Retirement System v. The Hershey Co.*, the Court of Chancery (through a Special Master’s report) refused to compel a § 220 inspection where the stockholder relied mainly on public reporting about child labor in West African cocoa production and on Hershey’s sourcing from that region, but did not provide evidence linking Hershey itself to wrongdoing or mismanagement sufficient to meet Delaware’s credible-basis standard.


Louisiana Municipal Police Employees' Retirement System v. The Hershey Co., No. 7996-ML (2014)