Seinfeld v. Verizon Comm., Inc. 909 A.

2d 117 (2006)

Facts:
Frank D. Seinfeld (plaintiff) is a beneficial owner of stock in Verizon Communications, Inc. (Verizon)
(defendant). Seinfeld sued in the Court of Chancery to compel Verizon to allow inspection of books and records on
the basis of possible corporate mismanagement and waste stemming from the compensation packages of three
executives.
Seinfeld could provide no evidence of any wrongdoing. The court concluded that Seinfeld had not met his
burden of showing a proper purpose for demanding inspection and granted summary judgment in favor of Verizon.
Seinfeld appealed to the Delaware Supreme Court.
The appellate court reaffirmed the rule that stockholders seeking inspection under Del. Code Ann. title 8, § 220,
had to present some evidence to suggest a credible basis from which a court could infer that mismanagement, waste,
or wrongdoing may have occurred. In his deposition, the stockholder acknowledged he had no factual support for his
claim that mismanagement had taken place. He admitted that the three executives did not perform any duplicative
work. The stockholder also admitted there was a possibility that the executive compensation amount he calculated
was wrong. The appellate court agreed with the trial court that the stockholder failed to state a reasonable ground for
suspicion that the executives' compensation rose to the level of waste.

Issue:
Whether a stockholder seeking inspection under section 220 be entitled to relief without being required to
show some evidence to suggest a credible basis for wrongdoing. No

Ruling:
The settled law of Delaware required Seinfeld to present some evidence that established a credible basis from
which the Court of Chancery could infer there were legitimate issues of possible waste, mismanagement or
wrongdoing that warranted further investigation. Seinfeld argues that burden of proof "erects an insurmountable
barrier for the minority shareholder of a public company." We have concluded that Seinfeld's argument is without
merit.
We reaffirm the well-established law of Delaware that stockholders seeking inspection under section 220 must
present "some evidence" to suggest a "credible basis" from which a court can infer that mismanagement, waste or
wrongdoing may have occurred. The "credible basis" standard achieves an appropriate balance between providing
stockholders who can offer some evidence of possible wrongdoing with access to corporate records and
safeguarding the right of the corporation to deny requests for inspections that are based only upon suspicion or
curiosity.

Doctrine: There must be a “credible basis” from which the court can infer that there is possible mismanagement or
wrongdoing such that further investigation is in order.