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A party seeking to inspect books and records must have a proper purpose. In the language of the statute, a proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder.
Plaintiff bank was a trustee of two (2) funds that held Yahoo stock. Plaintiff demanded to inspect the books and records of respondent Yahoo pursuant to Section 220 of the Delaware General Corporation Law. Plaintiff's stated purpose was to investigate the potential mismanagement surrounding the hiring and subsequent firing of Yahoo's Chief Operating Officer. Yahoo denied the request because it did not believe the plaintiff had a credible basis to infer wrongdoing. Plaintiff filed this action.
Did the plaintiff have a proper purpose to inspect the respondent's books and records?
There was a credible basis to suspect wrongdoing in connection with Chief Operating Officer's hiring and firing, and possible wrongdoing could constitute a breach of fiduciary duty or waste. A stockholder's desire to investigate wrongdoing or mismanagement is a "proper purpose.” To conduct an inspection, a stockholder is not required to prove by a preponderance of the evidence that waste and mismanagement are actually occurring. A stockholder need only show a credible basis from which a court can infer there is possible mismanagement that would warrant further investigation.