Yesterday, the Delaware Supreme Court released its opinion in Wong v. Amazon. A copy of the decision is here.

A stockholder sent a letter to Amazon, demanding to inspect books and records under Delaware’s Section 220. The stockholder’s stated purpose was to investigate Amazon’s possible wrongdoing and mismanagement by engaging in anticompetitive activities.

The request kicked of an extended legal battle. A Magistrate conducted a one-day trial that led to a report siding with Amazon that the the stockholder had not alleged a “credible basis” to infer possible wrongdoing by Amazon. The stockholder took exception. A Vice Chancellor also sided with Amazon, but on a different basis–finding that the stockholder’s purposes was overbroad, “facially improper,” and not lucid. The stockholder appealed and the Delaware Supreme Court reversed.

Under Delaware law, investigating corporate wrongdoing is a legitimate purpose, but stockholders must present “some evidence to suggest a credible basis from which a court can infer that mismanagement, waste or wrongdoing may have occurred.” The Supreme Court found that the Vice Chancellor had erred in its interpretation of the scope of the stockholder’s purpose and should have engaged “with the evidence presented by the [stockholder].”

On the evidentiary front, the stockholder pointed to a history of investigations, lawsuits, fines, and one Federal Trade Commission action against Amazon that survived a motion to dismiss. The Delaware Supreme Court stressed that the credible basis standard is the “lowest possible burden of proof under Delaware law.” It requires more than a “mere untested allegation of wrongdoing but does not require that the underlying litigation result in a full victory on the merits against the company.” Collectively, these predicates sufficed to “establish a credible basis from which a court can infer that Amazon has engaged in possible wrongdoing through its purported anticompetitive activities.” Now the matter heads back to Chancery to “determine the scope and conditions of production.”

Stockholder inspection rights meaningfully differ between states. And it’s an open issue as to whether the internal affairs doctrine will always cover inspection rights.

This would have turned out differently if Amazon were a Nevada corporation. Nevada’s statute does not authorize books and records actions for public companies. In Nevada, inspection rights “do not apply to any corporation that furnishes to its stockholders a detailed, annual financial statement or any corporation that has filed during the preceding 12 months all reports required to be filed pursuant to section 13 or section 15(d) of the Securities Exchange Act, 15 U.S.C. §§ 78m or 78o(d).” Instead of having courts gatekeep inspection demands for public companies, Nevada tells stockholders to read the securities filings.

Delaware takes a more judicial approach and carefully considers requests. To resolve this issue, Delaware courts and magistrates issued three opinions/reports over a span of time, likely generating millions in legal fees. Whatever one thinks of how Nevada answers this question, it’s cheap, clear, and straightforward. In Delaware, Amazon was represented by Ross Aronstam & Moritz and Wachtell Lipton. They are not cheap.

Amazon’s expenses seem likely to grow. These firms will likely continue to defend Amazon through the production and in some future stockholder action using the materials procured as the basis for a complaint. That action may be righteous. It may generate net benefits for stockholders. Or it may drive costs and distract management.