Amalgamated Bank v. Yahoo! Inc.
132 A.3d 752
| Del. Ch. | 2016Background
- In 2012 Yahoo hired Henrique de Castro as COO with a compensation package (target $56M) approved by the Compensation Committee and Board based on limited materials; Marissa Mayer negotiated the deal.
- Mayer revised the offer after Committee approval, increasing accelerated-vesting benefits (e.g., 12‑month tail, full vesting of make-whole RSUs) and reallocating value among award types, without clear Committee approval.
- De Castro was terminated without cause ~14 months later; accelerated vesting produced a nearly $60M payout (largely magnified by Yahoo’s stock price rise).
- Amalgamated Bank (stockholder) served a Section 220 demand seeking board/compensation materials, Mayer’s files/emails, director communications, and related documents to investigate possible mismanagement, director independence, and the hiring/firing.
- Yahoo produced formal board/committee materials but refused broader officer- and director-level documents and sought a condition that any derivative complaint incorporate the full Section 220 production; Amalgamated sued to compel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Form & manner of demand | Amalgamated provided recent brokerage statements and sworn trustee attestation; satisfied §220 formalities | Yahoo argued evidence not exactly dated same day and challenged standing | Court: documentation proximate to demand date and trustee attestation were sufficient; form/manner satisfied |
| Proper purpose to inspect (mismanagement/waste / director independence) | Need only show a "credible basis" to infer possible wrongdoing; alleged facts about Mayer’s withholding/misstatements and unilateral changes create that basis | Yahoo relied on charter exculpation and argued plaintiffs seek litigation, not a proper purpose | Court: Amalgamated met the low "credible basis" standard; exculpation did not bar inspection because allegations could implicate non-exculpated conduct (officer claims, bad‑faith/waste theories) |
| Scope — officer/emails (Mayer documents) and director files | Mayer’s files/emails and certain director communications are essential to show what Mayer knew, what she told the Board, and whether directors deliberated | Yahoo limited production to formal board-level materials; objected to broad officer and director searches and to production of personal/extra-board materials | Court: ordered production of Mayer documents (including emails, electronic records) because she was the central actor; limited additional director/officer production to Committee members (Webb, James, Ligouri, Wilson) and targeted custodians for nomination materials; counsel documents to be privilege-logged first |
| Scope — counsel/privilege materials | If essential, plaintiff can overcome privilege via Garner test; seeks related counsel materials | Yahoo asserted attorney-client and work-product protections and resisted broad waiver | Court: plaintiff did not justify broad waiver now; Yahoo must identify Counsel Documents on a privilege log; further privilege intrusion may be addressed later under Garner framework |
| Conditioning use of production (Incorporation Condition) | Amalgamated argued Rule 11 controls and condition unnecessary | Yahoo sought condition that any derivative complaint incorporate by reference the entire Section 220 production to prevent cherry-picking and aid fair pleadings/motions | Court: granted condition — production is conditioned on Amalgamated representing that any derivative complaint incorporating material from the production will be deemed to incorporate the full production (to prevent misleading cherry-picked pleadings) |
Key Cases Cited
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (sets the "credible basis" standard for a proper purpose under §220)
- Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563 (Del. 1997) (Section 220 relief must be carefully tailored; plaintiff bears burden to show documents are essential)
- Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264 (Del. 2014) (officer-level documents may be required where misconduct by officers is alleged; electronic records are producible)
- In re Walt Disney Co. Deriv. Litig., 825 A.2d 275 (Del. Ch. 2003) (Disney III) (board process failure allegations can survive when directors acted with ostrich-like indifference; Section 220 can provide pre-suit tools)
- In re Walt Disney Co. Deriv. Litig., 907 A.2d 693 (Del. Ch. 2005) (Disney IV) (ultimate merits resolution; discusses limits on officer conduct and board oversight)
- United Techs. Corp. v. Treppel, 109 A.3d 553 (Del. 2014) (Court has broad discretion to condition §220 inspections; conditions may balance shareholder and corporate interests)
- Saito v. McKesson HBOC, Inc., 806 A.2d 113 (Del. 2002) (§220 should provide sufficient information to address alleged wrongdoing; board-level materials are often dispositive)
- Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (officers owe fiduciary duties to the corporation analogous to directors)