In Paramount Global v. State of Rhode Island Office of the General Treasurer, __ A.3d __, 2026 WL 820647 (Del. Mar. 26, 2026), the Delaware Supreme Court, sitting en banc, affirmed the Delaware Court of Chancery’s decision that a stockholder had a credible basis to suspect wrongdoing in connection with the sale of Paramount Global. In doing so, the high court held that the Court of Chancery did not err in considering post-demand evidence and information reported from confidential sources.
In 2024, a stockholder-plaintiff sought to investigate potential wrongdoing based on articles suggesting that Shari Redstone, in her capacity as Paramount’s ultimate controlling stockholder, attempted to block the sale of Paramount in favor of a sale of just her controlling interest. The sale process continued after the books and records action was filed. News reports indicated that Redstone tried to walk away from the potential transaction due to, inter alia, the lack of sufficient consideration for her high voting shares, and the absence of indemnification for her personally. Paramount’s public filings also confirmed the resignations of special committee members and the removal of Paramount’s chief executive officer, all purportedly due to clashes with Redstone over the transaction. On appeal from a trial before a Magistrate in Chancery, Vice Chancellor J. Travis Laster held the stockholder had a credible basis to suspect wrongdoing, reasoning that the court could properly consider post-demand developments and reporting based on confidential sources. The Delaware Supreme Court accepted Paramount’s interlocutory appeal.
Justice Gary F. Traynor authored the majority’s opinion, which reasoned, among other things, that there was “nothing in [8 Del. C.] Section 220’s text that prohibits the consideration of post-demand evidence.” The Supreme Court acknowledged competing policy considerations, including that “allowing post-demand evidence to be considered at trial does carry some risk that stockholders might serve thinly supported demands in the hope of backfilling their case for inspection with post-demand evidence.” But on the other hand, the court reasoned that a blanket prohibition could result in inefficiencies created by, for example, a repetitive process of updated demands and complaints. The high court reasoned it was “confident” in the Court of Chancery’s “ability to monitor its Section 220 docket and take appropriate steps to discourage abusive practices by stockholder plaintiffs.” The Supreme Court accordingly endorsed the following principles set forth in the Court of Chancery’s opinion below:
As a general matter, a stockholder should be limited to the evidence identified in a demand or what the stockholder knew at the time of demand because that constraint helps parties resolve Section 220 demands without judicial involvement. But there are settings when a stockholder can legitimately rely on post-demand evidence at trial, such as when a material event occurs after the demand but before trial, and when the stockholder’s reliance on those post-demand events does not prejudice the corporation.
The high court similarly affirmed the Court of Chancery’s decision to consider hearsay in confidentially sourced news reports in circumstances where, as the court-below found, the hearsay was sufficiently reliable. In doing so, the Supreme Court disagreed with Paramount’s characterization of the court’s finding as relying exclusively on publications’ reputations, when the court-below also considered issues like the number of articles, their level of specificity, and that parts of the articles had been confirmed in Paramount’s public filings.
While they agreed with the majority’s opinion concerning confidentially sourced hearsay, Chief Justice Collins J. Seitz Jr. and Justice Karen L. Valihura respectfully dissented from the majority’s holding allowing consideration of post-demand evidence in some circumstances. In their view, the “better choice” would be to “bar admission of post-demand evidence”, which would “discourage a premature race to the courthouse.” They pointed to, inter alia, Section 220’s five-business-day period for a corporation to consider a demand, which past decisions recognized was intended to guaranty “a brief litigation-free window” to address and possibly resolve the demand before litigation. They also reasoned that a discretionary case-by-case approach may lead to new disputes over whether developments are sufficiently “material,” potentially adding “one more layer of complexity” to a summary books and records proceeding.
Originally published in ALM's Delaware Business Court Insider
