Delaware, long the bastion of corporate America as it gave such great deference and protection to management vis-a-vis shareholder claims and rights, recently has been deciding some court cases with greater responsiveness to shareholder concerns.  A couple of weeks ago, the Delaware Supreme Court issued a convoluted opinion upholding a stockholder demand for the business records of Amazon.

To strip the case down to essentials: the shareholder sued for corporate records under the Delaware corporate law that requires a corporation to provide information “for a proper purpose” which includes uncovering mismanagement or wrong-doing. The shareholder must not only allege a proper purpose but also provide “some evidence” to support their suspicion.  This shareholder claimed illegal corproate efforts to create a monopoly, and the evidence adduced was this: a Wall Street Journal article, a Congressional report, a huge fine levied by the European Union, a consent degree against Amazon, and a pending FTC-17 State pending lawsuit where most claims survived motions to dismiss.

Although there was a lot of “smoke” there was not a single citation to a specific act on the part of Amazon.  To respond to such a broad request for information in response to such a wide demand could require a hoard of information concerning very many aspects of Amazon’s operations.  The lower courts dismissed the case as making an overbroad demand.

Reversing the judgment below, the Delaware Supreme Court first stated that the lower court started at the wrong place: first courts must identify the alleged wrongdoing, as the amount of disclosure to be permitted as relevant must reflect the scope of the alleged wrongful actions.  The Supreme Court then found in favor of the plaintiff: showing a credible basis for granting shareholder demands requires the “lowest possible burden of proof under Delaware law.”  It was specifically held that the aggregate of lawsuits and other other regulatory action, coupled with a fine of over a billion Euros paid by Amazon, created the requisite basis to infer wrongdoing.

This case may be hard to parse with the specific language of the Delaware statute (section 220 of the Delaware Corporation Law) which, as recently amended, requires a demand  to be made with “reasonable particularity.”  It seems that, as of today when in Delaware courts, enough smoke may be enough to believe that a fire reasonably can be inferred.