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Lewis Lazarus, Morris James

Stockholders who seek to inspect the books and records of a Delaware corporation to investigate mismanagement merely have to demonstrate a “credible suspicion” that officers or directors have breached their fiduciary duties. That low standard means that in most instances either companies themselves or courts respond to narrowly tailored requests by producing, or ordering produced, necessary and specific information to enable a stockholder to investigate alleged wrongdoing. Recently, the scope of permissible inspection has extended to emails, leading some commentators to become concerned that the courts have tilted the playing field too much in favor of stockholders. As the recent case of Hoeller v. Tempur Sealy International, C.A. No. 2018-0336-JRS, demonstrates, however, the Delaware courts will not permit a stockholder any inspection if he cannot demonstrate a credible suspicion of cognizable wrongdoing, and the mere allegation that a company unexpectedly lost a major customer does not suffice to raise a credible suspicion of fiduciary wrongdoing.

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