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Lebanon Cty. Emps.’ Ret. Fund v. AmerisourceBergen Corp.,
C.A. No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020)
Why it is important
In this decision, the Delaware Court of Chancery
ruled that a stockholder of AmerisourceBergen
Corp. (AmerisourceBergen) was permitted to access
books and records of the company pursuant to
Section 220 of the Delaware General Corporate
Law in order to investigate potential wrongdoing
in connection with the distribution of opioids. In
so ruling, the court rejected numerous arguments
advanced by AmerisourceBergen that arguably
have been endorsed by recent Delaware precedent,
including that stockholders who want to investigate
mismanagement also must state upfront what they
plan to do with the materials sought (the “purpose
plus an end” test), and that stockholders must also
present evidence of demonstrating a credible basis
to infer actionable wrongdoing (the “actionablewrongdoing” requirement). By rejecting these lines
of authority, the court teed up a potential conflict
in Section 220 jurisprudence that it subsequently
certified for interlocutory review by the Delaware
Supreme Court. In its February 12, 2020 decision
certifying the decision for interlocutory review,
the court (Laster, J.) held that its rejection of these
additional requirements for Section 220 inspection,
as well as its holding that a trial court may permit
discovery to determine the scope of a permitted
inspection, raise “substantial issues of material
importance for purposes of actions to obtain books
and records pursuant to Section 220.” On March 5,
2020, the Delaware Supreme Court accepted the case
for interlocutory review. Together with the appeal
recently heard by the Delaware Supreme Court in
another Section 220 decision, High River Limited
Partnership, et al. v. Occidental Petroleum Corp.
(prior coverage here), the Delaware Supreme Court’s
decision in this case can be expected to shape future
Section 220 demands and litigation, including those
seeking books and records to investigate potential
Caremark duty-of-oversight claims reinvigorated by
recent Delaware precedent.
Summary
AmerisourceBergen Corp. (AmerisourceBergen),
one of the three largest pharmaceutical wholesale
distributors in America, is a defendant in
multidistrict litigation brought by consumers
and state attorneys general and is the target of
several congressional investigations relating to
the opioid epidemic. Some of these investigations
have determined that AmerisourceBergen may
have violated settlement agreements with the Drug
Enforcement Agency requiring that it properly
oversee its distribution of opioids to prevent them
from being improperly diverted. Analysts have
predicted that resolving all of the litigation will
collectively cost AmerisourceBergen and the other
opioid distributors roughly US$100 billion.
In light of this “corporate trauma,” certain
shareholders of AmerisourceBergen launched an
investigation into whether the company engaged in
wrongdoing in connection with the distribution of
opioids. As part of this investigation, stockholders
demanded access to AmerisourceBergen’s books
and records under Section 220 of the Delaware
General Corporation Law relating to the company’s
handling of opioid distribution and the board of
directors’ oversight of those efforts since 2010.
AmerisourceBergen rejected the demands in their
entireties, contending that the plaintiffs lacked a
proper purpose for their demands and that the stated
purposes were overly broad. The plaintiffs brought
suit to enforce their rights.
The Court of Chancery agreed with the plaintiffs,
compelled AmerisourceBergen to turn over books
and records from board meetings, and permitted
the plaintiffs to take a Rule 30(b)(6) deposition to
determine what books and records existed and in
what form. The court held that the findings from the
congressional probes and the allegations in the lawsuits
were sufficient to show that there was a credible
basis to infer corporate wrongdoing on the part of
AmerisourceBergen and therefore a “proper purpose”
supporting the plaintiffs’ Section 220 demand.
The court also rejected AmerisourceBergen’s
argument that the request was improper because it
only sought records for litigation, finding that other
Court of Chancery rulings requiring that shareholders
show a “purpose-plus-an-end” were either
distinguishable based on their facts or at odds with the
statutory language in Section 220. Instead, the court
found that a plaintiff need only state a proper purpose
for demanding access to books and records, not for
the ultimate use of the materials demanded. The court
also rejected AmerisourceBergen’s related claim that
if litigation is envisioned in the demand, a plaintiff
must show a credible basis to suspect actionable
wrongdoing on the part of the company. The court
held that a plaintiff need only show a credible basis
for inferring possible corporate wrongdoing – not that
the wrongdoing must also be actionable.
Acknowledging that its ruling appeared to conflict
with recent Court of Chancery precedent, the Court
of Chancery granted AmerisourceBergen’s request
to permit an interlocutory appeal to the Delaware
Supreme Court, which accepted the case for
interlocutory review on March 5, 2020.
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