Aleta Thompson, V. Amazon.com, Inc.

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

ALETA THOMPSON,
No. 84066-5-I
Respondent,
DIVISION ONE
v.
PUBLISHED OPINION
AMAZON.COM INC., a Delaware
corporation,

Appellant.

BIRK, J. — Aleta Thompson, a stockholder of Amazon.com Inc., a Delaware

corporation headquartered in Seattle, sued under the Delaware General

Corporation Law, Delaware Code title 8, § 220(b)-(c) (Section 220), to compel

inspection of Amazon’s corporate books and records. Thompson seeks to

investigate possible wrongdoing by Amazon in violating privacy laws “including”

the Illinois Biometric Information Privacy Act (BIPA), 740 Illinois Compiled Statutes

(Ill. Comp. Stat.) 14/1-14.99. This claim requires that Thompson establish a

“credible basis” that Amazon engaged in wrongdoing. Thompson relies on four

lawsuits that others filed against Amazon accusing it of violating BIPA, together

with certain admissions Thompson attributes to Amazon. After the superior court

allowed inspection, the lawsuit on which Thompson principally relies was resolved

in Amazon’s favor on summary judgment. Because the record is now insufficient

to establish a credible basis of wrongdoing, we vacate the superior court’s

inspection order and remand with instructions to dismiss Thompson’s complaint.
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No. 84066-5-I/2

I

A

On July 14, 2020, two plaintiffs filed a putative class action lawsuit against

Amazon designated Class Action Complaint, Vance v. Amazon.com, Inc., No.

C20-cv-01084-JLR (W.D. Wash.). The complaint alleged facial recognition

technology is increasingly used by “[p]ublic and private entities” to identify

individuals. The complaint described this as concerning for individual privacy and

because of the inaccuracy of facial recognition software currently available,

especially in correctly identifying women and people of color. The complaint

alleged Amazon offers a facial recognition product known as “Rekognition.”

The Vance complaint described the Gender Shades study on the accuracy

of facial recognition products.1 The complaint alleged the Gender Shades study

found that “each product more accurately classified: (a) males than females; and

(b) lighter individuals than darker individuals.” The Vance complaint alleged this

study found that Rekognition “had an error rate of 31.37% with respect to

identifying dark-skinned females, as opposed to an error rate of 0.00% with respect

to identifying light-skinned males.” It alleged, “In the aftermath” of the Gender

Shades study, International Business Machines Corporation (IBM) released “a

new dataset consisting of one million images” whose purpose was to assist in

“improving the ability of facial recognition systems to fairly and accurately identify

all individuals.” The complaint referred to this as the “Diversity in Faces” dataset.

1 Joy Buolamwini & Timnit Gebru, Gender Shades: Intersectional Accuracy

Disparities in Commercial Gender Classification, 18 PROC. MACH. LEARNING RSCH.
1 (2018) [https://perma.cc/U5SD-H7A9].

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No. 84066-5-I/3

IBM’s Diversity in Faces dataset had been culled from a larger dataset.

Flickr, described as a photo-sharing website, compiled approximately 100 million

photographs posted by its users into a dataset that it made publicly available. The

Vance complaint alleged Flickr did so “without informing or receiving the consent

of the individuals who uploaded the[] photographs to Flickr or who appeared in

the[] photographs.” In creating the Diversity in Faces dataset from the Flickr

release, IBM reportedly scanned the facial geometry of each image to create a

comprehensive set of data about facial features. The Vance complaint alleged

IBM “did not seek or receive permission” from “Plaintiffs or Class Members” to

include “their” images in the Diversity in Faces dataset. It alleged IBM made the

Diversity in Faces dataset available to other companies that developed, produced,

marketed, sold, or otherwise used facial recognition products. Amazon

downloaded the Diversity in Faces dataset.

The Vance plaintiffs asserted claims under BIPA. They alleged they were

two residents of Illinois, who had, in Illinois, uploaded to Flickr photographs of

themselves and others, which were subsequently incorporated into IBM’s Diversity

in Faces dataset, and which were subsequently downloaded by Amazon without

their authorization. They alleged Amazon “profited from the biometric identifiers

and information contained in the Diversity in Faces” dataset because that

information “allowed Amazon to improve its facial recognition products and

technologies.”

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No. 84066-5-I/4

In orders entered on March 15, 2021 and April 14, 2021, the court hearing

the Vance matter denied Amazon’s motion to dismiss the BIPA claims pursuant to

Federal Rule of Civil Procedure (Fed. R. Civ. P.) 12(b)(6). Vance v. Amazon.com

Inc., 525 F. Supp. 3d 1301, 1316 (W.D. Wash. 2021); Vance v. Amazon.com Inc.,

534 F. Supp. 3d 1314, 1329 (W.D. Wash. 2021). The court first addressed

Amazon’s argument that its use of the Diversity in Faces dataset did not occur in

Illinois, such that it was not subject to BIPA. Vance, 525 F. Supp. 3d at 1309.

Observing the plaintiffs “[did] not allege where Amazon obtained the dataset,” the

court ruled, “more discovery is needed to explore whether and to what extent

Amazon’s alleged acts involving the Diversity in Faces dataset occurred in Illinois.”

Vance, 525 F. Supp. 3d at 1308-09. The court concluded, if BIPA applied, the

allegations that Amazon downloaded the Diversity in Faces dataset were sufficient

to fall within Section 15(b) of BIPA, which is triggered when a person “ ‘otherwise

obtain[s]’ ” biometric data. Id. at 1312 (alteration in original) (quoting 740 Ill. Comp.

Stat. Ann. 14/15(b)). In the second order, the court concluded the Vance plaintiffs’

allegations “support the inference that Amazon received some benefit from the

biometric data through increased sales of its improved products,” and were

sufficient to state a claim under Section 15(c) of BIPA providing that “[n]o private

entity’ ” may “ ‘otherwise profit’ ” from biometric data. Vance, 534 F. Supp. 3d at

1321, 1324 (quoting 740 Ill. Comp. Stat. Ann. 14/15(c)).

B

By letter dated October 8, 2021, Thompson submitted a demand for

inspection of Amazon’s books and records under Section 220. Thompson stated

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No. 84066-5-I/5

her proper purpose was “to investigate potential corporate mismanagement,

wrongdoing, and waste” by Amazon fiduciaries. Thompson described the

wrongdoing she suspected as Amazon’s unauthorized collection and use of

individuals’ information in violation of state privacy laws.2 Thompson described

concerns expressed by government agencies and privacy groups over the use of

facial recognition software increasing the risk of identity theft, clandestine tracking

or government surveillance, and erroneous identification. Thompson’s demand

substantially echoed the Vance allegations concerning Rekognition, the Gender

Shades study, misidentification of females and dark-skinned individuals, IBM’s

creation of the Diversity in Faces dataset, IBM’s culling that dataset from the Flickr

release, IBM’s scanning the facial geometry of the culled images, IBM’s and

Flickr’s acting without consent of those who had uploaded the images or who had

been photographed, IBM’s making the database available to other companies, and

Amazon’s downloading the Diversity in Faces dataset. Thompson asserted a

“federal consumer class action lawsuit” had been filed against Amazon in the U.S.

District Court for the Western District of Washington “alleging that Amazon

unlawfully obtained and used [the plaintiffs’] biometrics information and identifiers.”

Thompson asserted the U.S. District Court had denied Amazon’s motion to dismiss

the action on the ground the plaintiffs had “sufficiently stated claims” under BIPA

and “Amazon faces significant liability in this action.”

2 Thompson’s briefing and evidence does not identify any specific privacy

law that Amazon allegedly violated other than BIPA.

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No. 84066-5-I/6

Thompson demanded inspection of 10 categories of documents generally

concerning Amazon’s “biometrics identifier collection processes, including, without

limitation, its facial recognition software.” Amazon did not allow inspection in

response to Thompson’s demand. Thompson filed this action to compel inspection

under Section 220 in King County Superior Court.3 The parties agree Thompson

is an Amazon stockholder and Amazon is a Delaware corporation.

At trial, Thompson relied on the allegations in Vance, together with its

having survived dismissal, as her support for the statements in her Section 220

demand concerning biometric information, the Gender Shades study, the Flickr

dataset, the IBM Diversity in Faces dataset, and Amazon’s alleged use of and profit

from the Diversity in Faces dataset. Thompson submitted three other lawsuits to

support her Section 220 demand. In Naughton v. Amazon.com, Inc., which also

survived a motion to dismiss, an Amazon employee at a warehouse in Joliet,

Illinois alleged that during the COVID-19 pandemic Amazon required wellness

checks that “included scans of Naughton’s facial geometry,” during which Amazon

collected “sensitive biometric data” without consent and disclosed it to other parties

in violation of BIPA.4 20-cv-6485, 2022 WL 19324, at *1 (N.D. Ill. Jan. 3, 2022). In

Reid v. Amazon.com, Inc., the plaintiff alleged Amazon surreptitiously collected

3 Thompson originally pleaded a second claim under the Washington
Business Corporations Act, chapter 23B.16 RCW, but Thompson voluntarily
dismissed this claim and only her Section 220 claim remains at issue.
4 Naughton was later recaptioned. Order Granting Second Amended
Complaint, No. 20-cv-6485 (N.D. Ill. Jan. 13, 2022) (amended for the sole purpose
of substituting Cynthia Redd for Naughton); Redd v. Amazon.com, Inc., No. 20-cv-
06485, 2022 WL 705899 (N.D. Ill. Jan. 13, 2022) (second amended complaint).
For consistency we refer to the action as “Naughton.”

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No. 84066-5-I/7

voiceprints of users of certain of its products, in violation of BIPA. No. 21-cv-06010

(N.D. Ill. Nov. 9, 2021) (Class Action Complaint).

Last, Thompson submitted the complaint in Nelson v. Bezos, a stockholder

derivative action filed on behalf of Amazon as nominal defendant three days before

trial on Thompson’s Section 220 claim. No. 22-cv-00559, 2022 WL 1238248 (W.D.

Wash. Apr. 26, 2022). The Nelson complaint bases fiduciary, waste, and unjust

enrichment claims on alleged unlawful conduct exposing Amazon to multiple class

action lawsuits under BIPA. In a supplemental brief in the superior court,

Thompson relied on Nelson’s venue in the Western District of Washington as a

reason why the court should not condition any inspection of books and records on

future litigation occurring in Delaware, without pointing to its allegations as further

evidence supporting Thompson’s claims of wrongdoing. The Nelson complaint

alleged Amazon was exposed to “at least fourteen separate class action lawsuits

for violation of BIPA,” Amazon had faced over 75,000 arbitration demands alleging

privacy violations by devices, and Amazon’s Securities Exchange Commission

(SEC) filings omitted or understated risks posed by Amazon’s alleged possession

and use of biometric information in light of its potential liability under BIPA,

including in Vance.

In its answer to Thompson’s complaint, Amazon admitted, “IBM issued a

blog post announcing the release of the Diversity in Faces Dataset.” Amazon

admitted it downloaded the Diversity in Faces dataset via links provided by IBM.

And it admitted the dataset included “links to certain photographs from Flickr and

various metadata about those photographs, including the username of the Flickr

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No. 84066-5-I/8

user who uploaded the photo, the date the photo was taken, the date the photo

was uploaded, and, where available, geolocation data.”

C

The parties agreed Delaware law governs Thompson’s Section 220 claim.

Thompson initially sought a merits determination of her Section 220 claim by

obtaining an ex parte order to show cause why Amazon should not permit

inspection. Amazon moved to dismiss Thompson’s complaint. The superior court

ultimately did not adjudicate Thompson’s Section 220 claim through a show cause

procedure and Amazon withdrew its motion to dismiss. Following the practice of

the Delaware Court of Chancery, the superior court set the matter for an expedited

bench trial on affidavits to determine the merits of Thompson’s Section 220 claim.5

The superior court entered “Findings of Fact, Conclusions of Law, and Final

Order and Judgment Allowing Inspection.” In support of its finding that Thompson

had shown a credible basis that Amazon had engaged in wrongdoing, the superior

court pointed to Vance and the fact it had survived dismissal. The court

acknowledged “[n]o independent report of a third party substantiat[ed] the

allegations” in Vance, and there was “no government investigation into whether

5 This is an appropriate procedure for a Washington court to follow when

adjudicating a Section 220 claim. Cf. Jacob v. Bloom Energy Corp., No. 2020-
0023-JRS, 2021 WL 733438, at *1 (Del. Ch. Feb. 25, 2021) (determining Section
220 claim based on one-day trial on paper record). When a claim is determined
under the substantive law of another jurisdiction, we generally apply Washington
procedural law. See Boudreaux v. Weyerhaeuser Co., 10 Wn. App. 2d 289, 313
n.14, 448 P.3d 121 (2019). The superior court appropriately adopted a procedure
reflecting that Section 220 proceedings “are intended to be ‘summary,’ and thus
‘managed expeditiously.’ ” AmerisourceBergen Corp. v. Lebanon County Emps.’
Ret. Fund, 243 A.3d 417, 437 (Del. 2020). An expedited discovery plan and trial
on a Section 220 claim may be requested through a motion under CR 16.

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No. 84066-5-I/9

Amazon has violated BIPA.” The superior court viewed Vance as supporting a

violation “potentially affecting a significant number of the public.”

After the superior court’s final judgment, but before oral argument in this

court, the Western District of Washington resolved Vance in favor of Amazon on

summary judgment. Vance v. Amazon.com, Inc., No. C20-1084JLR, 2022 WL

12306231 (W.D. Wash. Oct. 17, 2022). The summary judgment order was based

on the testimony of an IBM researcher and seven Amazon employees 6 who were

engaged in research to improve the accuracy of Rekognition and who had worked

with the Diversity in Faces dataset. Id. at *2-5. Amazon employees in California

contacted IBM about the Diversity in Faces dataset stating they were interested in

the dataset for research and internal testing. Id. at *3. After Amazon employees

in California obtained a link to download the dataset, an Amazon employee in

Seattle downloaded version 1A of the Diversity in Faces dataset to an Amazon

data center in Oregon. Id. Amazon employees in Seattle and California concluded

that version 1A of the dataset was not suitable for their research purposes and did

not make further use of it. Id. at *4. Another Seattle Amazon employee examined

the dataset and concluded it would not be useful for research before he transferred

to Berlin, Germany. Id. An Amazon employee in Seattle downloaded version 1B

of the Diversity in Faces dataset. Id. An Amazon employee in Atlanta reviewed

6 At trial in this matter, Amazon submitted declarations by five of these

witnesses, which it had filed in support of its summary judgment motion in Vance.
As reflected both in our record and in the Vance summary judgment order, the
Vance court initially struck Amazon’s motion for summary judgment without
prejudice to permit the plaintiffs to depose the witnesses on whose testimony
Amazon relied. 2022 WL 12306231, at *5.

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No. 84066-5-I/10

version 1B and determined it was not suitable for her research purposes. Id. at *5.

By the time of the testimony in Vance, Amazon had deleted its known copies of

the Diversity in Faces dataset. Id. at *4-5. The Amazon employees testified that

to their knowledge Amazon did not use the Diversity in Faces dataset to train

Rekognition or integrate any information from it into any Amazon product. Id.

Based on this evidence, the court dismissed the Vance plaintiffs’ BIPA

claims on extraterritoriality grounds because “any connection between Amazon’s

conduct and Illinois is too attenuated for a reasonable juror to find that the

circumstances underlying Amazon’s alleged BIPA violations ‘occurred primarily

and substantially in Illinois.’ ” Id. at *8 (quoting Avery v. State Farm Mut. Auto. Ins.

Co., 216 Ill. 2d 100, 187, 835 N.E.2d 801 (2005)). The court granted Amazon

summary judgment on the Vance plaintiffs’ claims for unjust enrichment because

they “present[ed] only speculation—rather than evidence—that Amazon somehow

used the [Diversity in Faces] Dataset to improve its Rekognition product.” Vance,

2022 WL 12306231, at *9.

II

At oral argument, Thompson argued we should not consider the Vance

summary judgment order, because it is outside the record presented to the

superior court.7 The parties have not cited and we have not found a Delaware

decision answering whether a reviewing court may consider developments

7 Wash. Court of Appeals Oral Argument, Thompson v. Amazon.com, Inc.,

No. 84066-5-I (Jan. 11, 2023), at 9 min., 42 sec. to 10 min., 13 sec.,
https://tvw.org/video/division-1-court-of-appeals-
2023011180/?eventID=2023011180.

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No. 84066-5-I/11

occurring after a trial court has entered final judgment ordering inspection under

Section 220. We conclude Delaware law would likely allow this court to consider

the Vance summary judgment order.

Delaware law permits the Court of Chancery when evaluating a Section 220

demand to consider developments occurring after the stockholder submitted the

demand. In Oklahoma Firefighters Pension & Retirement System v. Amazon.com,

Inc., No. 2021-0484-LWW, 2022 WL 1760618, at *4 (Del. Ch. June 1, 2022)

(unpublished),8 the company produced documents responsive to a demand, and

the stockholder requested additional documents relating to alleged anticompetitive

practices and alleged tax law violations. Two events occurring after the demand

was served were a focus at trial: (1) a lawsuit filed by the Attorney General for the

District of Columbia against the company for alleged violations of the District of

Columbia Antitrust Act, and (2) a report that Italy’s antitrust regulator had fined the

company. Id. at *5. By the time of the decision of the Court of Chancery, but

before entry of final judgment, the District of Columbia litigation had been

dismissed, and the court relied on this among other reasons in denying the

stockholder’s demand for further inspection. Id. at *9-10, 14.

The Court of Chancery has indicated the basis for allowing a stockholder to

rely on events occurring after a Section 220 demand is “that the plaintiff may point

8 Under GR 14.1(b), the parties may cite unreported Delaware decisions if

permitted under Delaware law. “Delaware courts give such opinions substantial
precedential weight.” Crystallex Int’l Corp. v. Petroleos De Venezuela, SA, 879
F.3d 79, 85 n.8 (3d Cir. 2018) (citing Aprahamian v. HBO & Co., 531 A.2d 1204,
1207 (Del. Ch. 1987) (alteration in original) (“An unreported decision [is] entitled to
great deference”)).

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No. 84066-5-I/12

to those actions (if relevant) to bolster her showing of proper purpose.” Sutherland

v. Dardanelle Timber Co., Inc., No. CIV.A. 671-N, 2005 WL 1074357, at *2 (Del.

Ch. Apr. 25, 2005). Sutherland distinguished a case in which a company answered

a Section 220 demand with a pretextual defense, which the Court of Chancery

relied on as some evidence supporting the credibility of the stockholder’s assertion

of wrongdoing. Id. at *1. In contrast, Sutherland rejected use of this principle in

Section 220 litigation to justify pretrial discovery seeking information merely

damaging to the company’s credibility. Id. at *1-2.

To the extent Delaware law discloses a rationale for allowing consideration

of events occurring after a Section 220 demand when determining the merits of

subsequent litigation, the Delaware Supreme Court would likely allow

consideration of the Vance summary judgment order here. If the purpose of

looking to later events is that they may add to the credibility of the assertion of

wrongdoing in a Section 220 demand, the converse is appropriately considered

when later events detract from its credibility. When a stockholder rests a Section

220 demand on allegations in another lawsuit, the credibility of the demand is

informed by the success of the lawsuit in establishing wrongdoing. A stockholder

relying on another lawsuit’s surviving dismissal is relying on the official act of the

court as bolstering the stockholder’s reason to believe wrongdoing may have

occurred. A stockholder must take this, also, subject to the court’s subsequent

official acts, such as a final judgment determining the wrongdoing did not occur.

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No. 84066-5-I/13

We conclude it is appropriate to consider the Vance summary judgment

order to the extent it bears on the legal sufficiency of Thompson’s Section 220

demand. Generally, an appellate court reviews a trial court’s Section 220

determination using a “highly deferential” abuse of discretion standard of review.

Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264,

1271-72 (Del. 2014). Rather than remanding for the trial court to consider a

changed record in the first instance, this court has discretion to address an

argument raised for the first time on review asserting a “failure to establish facts

upon which relief can be granted.” Roberson v. Perez, 156 Wn.2d 33, 40-41, 123

P.3d 844 (2005). We treat Amazon’s reliance on the Vance summary judgment

order as such an argument. Accordingly, we review the superior court’s record,

considering the additional fact that Vance was resolved in Amazon’s favor, and we

ask whether the record as it stands now suffices to “establish facts upon which

relief can be granted” under Delaware law. RAP 2.5(a)(2).

III

“One of the most traditional proper purposes for a [Section] 220 demand is

the investigation of possible wrongdoing by management.” KT4 Partners LLC v.

Palantir Techs. Inc., 203 A.3d 738, 758 (Del. 2019). “Such investigations are

proper, because where the allegations of mismanagement prove meritorious,

investigation furthers the interest of all stockholders and should increase

stockholder return.” Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del.

2006). A stockholder making a Section 220 claim for this purpose “need only show,

by a preponderance of the evidence, a credible basis from which the Court of

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No. 84066-5-I/14

Chancery can infer there is possible mismanagement that would warrant further

investigation.” Id. at 123. There is no need to show the wrongdoing or

mismanagement is actionable. AmerisourceBergen Corp. v. Lebanon County.

Employees’ Ret. Fund, 243 A.3d 417, 431 (Del. 2020). The “stockholder is not

required to prove that wrongdoing occurred, only that there is ‘possible

mismanagement that would warrant further investigation.’ ” Id. at 432 (footnote

omitted) (quoting Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563,

568 (Del. 1997)). This standard has been called “the lowest possible burden of

proof,” yet it is “not insubstantial” and demands more than “ ‘mere suspicion.’ ”

Seinfeld, 909 A.2d at 123. The standard “ ‘may be satisfied by a credible showing,

through documents, logic, testimony or otherwise, that there are legitimate issues

of wrongdoing.’ ” Id. (quoting Sec. First Corp., 687 A.2d at 568).

A

Thompson relies on Hightower v. SharpSpring, Inc., which stated, “When

evaluating whether a credible basis exists, the court may consider ongoing

lawsuits, investigations, circumstantial evidence, and even hearsay statements

evincing possible wrongdoing.” No. 2021-0720-KSJM, 2022 WL 3970155, at *7

(Del. Ch. Aug. 31, 2022). Emphasizing that Vance survived a motion under Fed.

R. Civ. P. 12(b)(6), Thompson relies on the statement in Pettry v. Gilead Sciences,

Inc. that “[t]he federal motion-to-dismiss standard is higher than Section 220’s

credible basis standard,” as a result of which “[i]t follows that allegations which

survive a motion to dismiss under the federal standard are sufficient to meet the

credible basis standard.” No. 2020-0132-KSJM, 2020 WL 6870461, at *13 (Del.

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No. 84066-5-I/15

Ch. Nov. 24, 2020). Thompson argues her reliance on other lawsuits is buttressed

by Amazon’s admissions in this case, citing Jacob v. Bloom Energy Corp., in which

a company’s “reactive filing” of an amended Form 8-K with the SEC provided

“some credence to [the stockholder’s] concern regarding the robustness of [the

company’s] independent controls on their financial reporting.” No. 2020-0023-

JRS, 2021 WL 733438, at *7 (Del. Ch. Feb. 25, 2021). From these decisions,

Thompson reasons the existence of one or more lawsuits surviving a Fed. R. Civ.

P. 12(b)(6) motion, coupled with a company’s supportive admissions, satisfies

Section 220’s credible basis standard. We agree Delaware courts consider other

lawsuits in evaluating Section 220 claims, but we disagree these decisions support

inspection on the record Thompson has offered.

In Hightower, the court commented that “ongoing lawsuits” among other

types of “investigations” could support a Section 220 claim. 2022 WL 3970155, at

*7. Hightower’s examples cited in support of this proposition involved evidence-

based investigations supporting wrongdoing, such as where “ ‘governmental

agencies or arms of law enforcement have conducted the investigations,’ ” among

other things. Id. at *7 n.79 (quoting Lebanon County Emps.’ Ret. Fund v.

AmerisourceBergen Corp., No. 2019-0527-JTL, 2020 WL 132752, at *9 (Del. Ch.

Jan. 13, 2020), aff’d, 243 A.3d 417 (Del. 2020)). But Hightower did not involve or

further discuss the circumstances in which other lawsuits can support a Section

220 claim. Id. at *7.

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No. 84066-5-I/16

Pettry and Jacob involved Section 220 claims based in part on other

lawsuits. In Pettry, the company was accused of manipulating the market for HIV

(human immunodeficiency virus) drugs, with the stockholders seeking inspection

“join[ing] in chorus with a host of other accusers.” 2020 WL 6870461, at *1. These

“other accusers” included persons living with HIV, activists, regulatory agencies,

the Department of Justice, and Congress. Id. At the time of the Section 220 trial,

the company was “the subject of at least 250 tort actions pending in state and

federal courts in California, Delaware, and Florida.” Id. at *6. An antitrust

complaint spanning 134 pages reflected “significant research” describing “three

broad categories of conduct that allegedly delayed the entry of generic

competition” to the company’s drug. Id. at *12. The antitrust complaint described

how specific agreements between the company and others impeded entry into the

market of generic drugs that would compete with the company’s products. Id.

Pettry was supported by a mass tort action on behalf of 15,000 claimants, analysis

of the company’s patent filings, the company’s public statements, statistics

corroborated by the Centers for Disease Control and Prevention, studies

conducted by third parties, Food and Drug Administration findings, a lawsuit by the

U.S. government claiming infringement of Centers for Disease Control and

Prevention patents, Congressional testimony, and internal e-mails. Id. at *7, *13-

14.

It was in reference to the antitrust complaint’s surviving a Fed. R. Civ. P.

12(b)(6) motion that Pettry described the standard as being higher than Section

220’s credible basis standard. Id. at 13. The Fed. R. Civ. P. 12(b)(6) standard is

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No. 84066-5-I/17

a pleadings standard under which factual matter is “accepted as true.” Ashcroft v.

Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). In

contrast, the credible basis standard under Section 220 is an evidentiary standard.

It is a relaxed one, e.g. NVIDIA Corp. v. City of Westland Police & Fire Ret. Sys.,

282 A.3d 1, 22 (Del. 2022) (“hearsay is admissible in a Section 220 action if it is

sufficiently reliable”), but still one dependent on “a preponderance of the evidence,”

Seinfeld, 909 A.2d at 123. Although Pettry alluded to the federal pleading

standard, the focus of its discussion was not on court pleadings in and of

themselves but on the evidence described in the referenced lawsuits and

investigations. Pettry is best understood as comparing the persuasiveness

demanded by the respective standards, rather than the manner in which each must

be met.

In Jacob, the collateral lawsuit was a class action on behalf of company

stockholders asserting the company had misled investors by among other things

misreporting its financial performance and misrepresenting the performance of the

company’s main product. 2021 WL 733438, at *3. The lawsuit was based

substantially on a report by a short-seller—an interested party—piecing together

the performance deficiencies of the company’s product based on “news reports,

[the company’s] securities disclosures, data on the Company’s Energy Servers

made publicly available on state government websites, prior lawsuits and

interviews with [company] customers and expert witnesses.” Id. at *2. This was

supported by appendices describing the report’s methodology, collected data, and

the means to replicate its analysis. Id. The court did not stop at the litigation

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No. 84066-5-I/18

posture of the allegations against the company, but relied on the lawsuit and the

short-seller’s report showing that “[p]ublic data . . . sourced from various state

governments’ utility records and made available through state government

websites,” suggested the company “understated in public disclosures the rate at

which its fuel cells degrade.” Id. at *6. The information was attributed to the

company’s business clients and experts in its technology. Id.

Thompson additionally cites In re UnitedHealth Group, Inc. Section 220

Litigation, No. 2017-0681-TMR, 2018 WL 1110849 (Del. Ch. Feb. 28, 2018), aff’d

sub nom. UnitedHealth Grp. Inc. v. Amalgamated Bank, 196 A.3d 885 (Del. 2018).

There, the former director of finance at a UnitedHealth subsidiary filed a qui tam

action, alleging that for at least a decade, UnitedHealth violated the False Claims

Act, 31 U.S.C. §§ 3729-3733, by improperly upcoding risk adjustment data and

failing to delete incorrect diagnosis codes, resulting in overpayments by Medicare.

Id. at *2. The Department of Justice intervened, basing its allegations on a five

year investigation entailing depositions of 20 UnitedHealth employees and

UnitedHealth’s production of over 600,000 documents, including internal e-mails,

letters, audit reports, charts, attestations, policies, presentation materials, and

memoranda. Id. Stockholders proceeding under Section 220 pointed to the

Department of Justice’s allegations and voluminous documents and testimony

cited and attached to the Department of Justice complaint. Id. at *3-*6. The court

noted that while a complaint alone may not show a credible basis, the Department

of Justice complaint and qui tam action were based on extensive, documented

investigation. Id. at *7.

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No. 84066-5-I/19

Delaware courts have held other litigation does not necessarily establish a

credible basis. Oklahoma Firefighters explained, “Delaware law does not—as the

plaintiff suggests—provide that evidence of open inquiries and lawsuits alone

necessarily begets a credible basis from which the court can infer possible

mismanagement.” 2022 WL 1760618, at *6. If the mere fact of other pending

litigation satisfied Section 220, stockholders would improperly be “relieved of their

burden of ‘show[ing] some evidence of possible wrongdoing.’ ” Id. at *7 quoting

Seinfeld, 909 A.2d at 123). Referring to some of the authorities relied on by

Thompson and discussed above, the court said, “Delaware courts have routinely

looked to some additional evidence beyond ongoing inquiries or litigation,” noting

considerations such as “the scale of investigations and lawsuits, the severity or

results of those inquiries, and corporate trauma” as providing the necessary

indication of potential wrongdoing. Id.

The significance of a concluded lawsuit was addressed in Louisiana

Municipal Police Employees’ Retirement System v. Lennar Corp., in which the

court held that news articles reporting an industry-wide investigation by

government agencies concerning compliance with the Fair Labor Standards Act of

1938, 29 U.S.C. §§ 201-219 (2006) (FLSA), together with past lawsuits alleging

violations of the FLSA, were insufficient to support a Section 220 claim. No. 7314-

VCG, 2012 WL 4760881, at *1 (Del. Ch. Oct. 5, 2012). Between 2007 and 2009,

several employees alleged Lennar misclassified them as exempt from the FLSA

to avoid paying overtime. Id. The lawsuits settled. Id. In 2011, the Wall Street

Journal published articles stating governmental agencies were investigating

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certain employers’ compliance with the FLSA, including Lennar. Id. The court

concluded the settled lawsuits did not justify further investigation, and even with

the Wall Street Journal articles considered as well, taken together, “the probative

value of each item is so negligible that combining them is of no consequence.” Id.

at *4-5.

Delaware courts in Pettry, UnitedHealth, and Jacob, concluded the

information described in other lawsuits credibly supported the possibility that the

company was engaged in the alleged wrongdoing. The lawsuits on which

Thompson relies do not describe specific information, or specific sources of

information, about how Amazon used the Diversity in Faces dataset beyond the

admitted fact Amazon downloaded it. They do not describe any specific

information that Amazon otherwise violated BIPA or any other law. The evidence

described in the Vance summary judgment order—the depositions of the Amazon

employees who used the Diversity in Faces dataset—demonstrates that Amazon

did not use the Diversity in Faces dataset in a manner subject to or violating BIPA.

Thompson’s position before the superior court was that Amazon faced “massive

exposure” from Vance. This cannot be sustained now that Amazon has prevailed

in Vance.

Naughton, Reid, and Nelson, also, lack specific information that Amazon

violated any law. Naughton concerns a distinct allegation of wrongdoing—alleged

collection of employee information at an Illinois warehouse—but without stating

any information beyond an allegation that that is occurring. The Naughton

complaint says, for instance, “Amazon collects, captures, or otherwise obtains and

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No. 84066-5-I/21

stores Plaintiff’s biometric data.” But it describes no information supporting that

this is true other than simply stating it. Thompson did not show that Reid survived

a motion to dismiss, the superior court did not rely on this complaint, and neither

party mentions it in their briefs in this court. Similarly, Thompson did not show that

Nelson survived a motion to dismiss, and did not point to it as evidence of

wrongdoing.

Thompson is not necessarily required to support her Section 220 demand

with the scale, severity, and corporate trauma evident in the cases involving

Department of Justice investigations, thousands of lawsuits, corporate

whistleblowers, or investor consequences. But the scale, severity, and corporate

trauma evident in Pettry, UnitedHealth, and Jacob bolstered the credibility of the

stockholders’ assertions of wrongdoing in ways Thompson lacks. These cases

show Delaware courts in Section 220 cases rely on a qualitative assessment of

the credibility of the information and sources of information disclosed in other

lawsuits. Thompson either lacks similar corroboration, or, in the case of Vance, is

countered by a merits determination that there was no wrongdoing. Because

Thompson relies on allegations that are unsupported or that were not borne out by

the evidence, she does not establish a preponderance of evidence supporting her

asserted credible basis.

A different situation was presented in Elow v. Express Scripts Holding Co.,

in which the court concluded the pleadings in a separate lawsuit, coupled with the

statements made by the defendant’s management, satisfied the credible basis

standard. No. 12721-VCMR, 2017 WL 2352151, at *6 (Del. Ch. May 31, 2017),

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No. 84066-5-I/22

abrogated on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del.

2019). Express Scripts entered into a 10 year contract with Anthem to provide

pharmacy benefit management services. Id. at *1. Express Scripts began

negotiations with Anthem for periodic pricing review. Id. at *2. During negotiations,

Express Scripts made public statements assuring its “great relationship with

Anthem.” Id. at *2. Negotiations failed, and Anthem initiated litigation alleging

Express Scripts had acted in bad faith and breached the contract. Id. A class

action lawsuit alleged Express Scripts violated federal securities laws by

representing the Anthem relationship was strong and accounting for the Anthem

agreement’s renewal in its financial statements. Id. at *3. Anthem’s lawsuit

evidenced Anthem’s dissatisfaction with the relationship, contradicting Express

Scripts’ public representations. That Anthem’s statements came in a lawsuit

perhaps made them more convincing, but the statements were probative because

Anthem made them. Thompson makes no analogous showing.

B

Thompson additionally relies on Amazon’s admissions in answer to her

Section 220 complaint concerning Amazon’s downloading the IBM dataset and

that dataset including certain metadata. In Jacob, five months after the publication

of the short-seller’s report, the company filed a Form 8-K with the SEC disclosing

that certain of its earlier filed financial statements “ ‘should no longer be relied upon

due to an error in accounting for the Company’s Managed Services Agreements.’ ”

2021 WL 733438, at *3 (quoting the Form 8-K). This was not directly responsive

to the criticisms of the short-seller’s report, but the Court of Chancery relied on it

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No. 84066-5-I/23

in part as supporting a credible basis of wrongdoing because it signaled concern

with the robustness of the company’s independent controls on financial reporting.

Id. at *3, *7. Even then, the Court of Chancery described the significance of the

subsequent Form 8-K as “debatable.” Id. at *7. Here, the admissions by Amazon

in response to Thompson’s Section 220 complaint are both more modest and less

compelling than the company’s SEC filing acknowledging financial reporting

deficiencies in Jacob. Thompson interprets Amazon’s admissions as admitting it

received, and possesses, biometric information from the IBM dataset. However,

Amazon’s answer did not admit receiving information that would be classified as

biometric for purposes of BIPA. Amazon has never disputed it obtained the IBM

dataset. But it has consistently denied violating BIPA, and the court in Vance

concluded there was no question of fact about its not having done so by obtaining

the IBM dataset. 2022 WL 12306231, at *7. Given there is now no basis in this

record for saying Amazon violated BIPA by downloading the IBM dataset, and

Thompson put on no evidence that Amazon violated any other law, Amazon’s

admissions concerning the IBM dataset do not aid Thompson in establishing a

credible basis of wrongdoing.

IV

The entire record, when evaluated in light of the Vance summary judgment

order, is insufficient to establish a credible basis of wrongdoing under Delaware

law. Because we conclude Thompson does not establish a proper purpose to

inspect Amazon’s books and records, we do not reach the scope of inspection

ordered by the superior court. We vacate the superior court’s order allowing

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No. 84066-5-I/24

inspection and remand with instructions to dismiss Thompson’s complaint.

Because neither party prevailed based on the record that was before the superior

court, the parties shall bear their own costs on appeal under RAP 14.2.

WE CONCUR:

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