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Books-and-Records Action Dismissed Where No Credible Evidence to Justify Investigation of Alleged Misconduct

Seinfeld v. Verizon Communications, Inc., C.A. No. 1100-N, 2005 WL 3272365 (Del. Ch. Nov. 23, 2005). Shareholder sought to compel inspection of books and record under 8 Del.C. -220 related to three senior executives' compensation, which Plaintiff claimed to be excessive and wasteful. Plaintiff's complaint claimed that those executives received total compensation of $205 million for ostensibly performing the same services as co-chief executives. The complaint also alleged that Verizon's long-term bonus plan was amended shortly after at least two of the three employee contracts were entered into, which caused a further increase in the executives' total compensation. After discovery, the parties cross-moved for summary judgment, and the court granted judgment in the company's favor. The court denied Plaintiff's motion for summary judgment and granted Defendant's cross-motion on the grounds that Plaintiff failed to demonstrate a proper purpose to justify the requested inspection because his demand for inspection was made entirely on the basis of suspicion or curiosity. While the investigation of corporate waste or mismanagement normally constitutes a proper purpose, the court found that Plaintiff failed to present any credible basis to infer that such conduct may have occurred. Specifically, the court noted that Plaintiff failed to allege any facts challenging the process by which the underlying compensation discussions were made. The court also noted that Plaintiff failed to offer any evidence showing that the executives did not earn the amounts paid to them under their employment agreements or the options awarded to them under Verizon's bonus plan. The Court of Chancery ruling was affirmed on appeal. Share

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