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Originally published in ALM's Delaware Business Court Insider
Books and records demands are important for stockholders investigating potential mismanagement before bringing derivative claims. The Delaware Supreme Court has long encouraged stockholders to use the “tools at hand” to develop information necessary to sustain a derivative complaint. In 2025, the Delaware General Assembly adopted amendments to clarify the appropriate scope of inspection for all demands made after Feb. 17, 2025. In Wong Leung Revocable Trust v. Amazon.com, C.A. No. 2023-1251-BWD (Nov. 5, 2025), the Delaware Court of Chancery addressed the scope of discovery and conditions of discovery for a demand originally made in October 2023, including whether defendant Amazon could impose a forum limitation on any claims brought based on the documents ordered produced. Because many Section 220 demands or actions currently being litigated were initiated prior to Feb. 17, 2025, Wong Leung Revocable Trust provides guidance on the Delaware common law standards that govern such demands independent of the recent statutory amendments.
The stockholder plaintiff’s (plaintiff) demand sought information concerning Amazon’s alleged anticompetitive behavior taking unlawful advantage of its market dominance to engage in anticompetitive practices “leading to U. S. and international regulatory scrutiny, lawsuits and fines.” See Wong Leung Revocable Trust at 3. Amazon responded that the demand was overbroad but agreed to produce a narrow set of materials subject to the execution of a confidentiality agreement which included a jurisdictional limitation restricting use in litigation of the materials produced to a Delaware forum. The plaintiff did not agree. Following a one-day trial, the Magistrate in Chancery ruled that the plaintiff had failed to demonstrate a credible basis to investigate corporate wrongdoing. The plaintiff took exceptions which the Court of Chancery overruled on the ground that the plaintiff’s purpose was so overbroad as to be facially improper. The Delaware Supreme Court reversed, finding that the plaintiff had pleaded sufficient specific examples of alleged anticompetitive conduct and had met its burden of establishing a credible basis of wrongdoing based on findings in various U.S. state court actions, an FTC action and an Italian Competition Authority fine. The Supreme Court remanded to the Court of Chancery to determine the scope of the inspection and whether to impose any conditions on the inspection.
The Court of Chancery held that Amazon must produce formal board materials that evidence the board’s deliberations and that comprise the materials the directors formally received and considered related to Amazon’s compliance with antitrust or competition laws concerning an FTC action, a California action, a Washington action, and an Italian Competition Fine, finding that those materials are necessary and essential to the plaintiff’s investigative purpose. It rejected as overbroad other requests, including for “how the company processes search results on its website, including algorithms used”, documents concerning “the price surveillance group or team and the algorithms that team uses”, and “complaints from sellers regarding prices.” The court also ordered production of books and records sufficient to identify policies and procedures at Amazon to ensure compliance with antitrust laws is adequately and timely reported to management and the board, and Amazon’s formal communications with any governmental agencies in the United States and Italy. Because the plaintiff had identified a credible basis to investigate wrongdoing, the court also ordered production of director questionnaires to investigate director independence but no additional documents on this subject. Likewise, the court rejected a request for documents produced in response to any other Section 220 demand as lacking the “rifled precision” Delaware law requires.
In addition to a confidentiality agreement, the Court of Chancery ordered that the plaintiff agree to a forum restriction requiring a Delaware forum for any action based on the books and records produced. The plaintiff failed to articulate any reason why it needed to file outside of Delaware. The court gave weight to the fact that Amazon already had received four demands related to anticompetitive conduct which “presents a concrete risk that future derivative litigation arising from those demands may, in the absence of a forum restriction, span multiple forums, run up defense costs, and yield inconsistent results.” The court also gave weight to Amazon having adopted a forum selection bylaw after the October 2023 demand. The plaintiff contended that the court should reject an after the fact bylaw adoption, but the court held that it was aware of “no precedent compelling [the court] to ignore the board’s highly relevant determination that internal affairs litigation should proceed in a single Delaware forum.” Finally, the court rejected the plaintiff’s contention that an order requiring the plaintiff to file in Delaware restricted what the plaintiff could do with the records, as opposed to where it may bring litigation.
Wong Leung Revocable Trust demonstrates how the Court of Chancery reviews a demand made or action filed prior to Feb. 17, 2025, for books and records that adequately alleges a credible basis to investigate mismanagement. A plaintiff is unlikely to obtain more than formal board materials and director questionnaires relevant to independence absent a showing that such materials do not exist. If formal board materials exist, then for more, a stockholder plaintiff must demonstrate a compelling need. A stockholder plaintiff also can expect to have to agree to a confidentiality agreement, including a forum selection provision, even if the company’s by-laws at the time of the demand did not so require, unless it can articulate a legitimate reason why it may need to file outside of Delaware.
Books and records demands are important for stockholders investigating potential mismanagement before bringing derivative claims. The Delaware Supreme Court has long encouraged stockholders to use the “tools at hand” to develop information necessary to sustain a derivative complaint. In 2025 the Delaware General Assembly adopted amendments to clarify the appropriate scope of inspection for all demands made after Feb. 17, 2025.
