SS M&A Litigation Outlook - Flipbook - Page 18
Pettry v. Gilead Sciences, lnc.,
C.A. No. 2020-0173-KSJM (Del. Ch. Nov. 24, 2020)
Why it is important
In this ruling, the Delaware Court of Chancery
found that Section 220 of the Delaware General
Corporation Law may be used to grant precomplaint discovery to stockholders contemplating
a derivative suit against the company. In a detailed
opinion, the court rejected Gilead’s arguments,
including that inspection should be limited to
formal board materials. Instead, the court ordered
the company to produce multiple categories of
documents that it held were “necessary and essential
to the plaintiffs’ stated purposes,” and granted
the plaintiffs’ leave to seek their attorney fees. In
contrast to prior decisions, this decision reinforces
the low burden to obtain Section 220 discovery and
also signals that companies resisting Section 220
demands face a risk of an attorneys’ fees award to
the plaintiff.
Summary
In 2001, Gilead received FDA approval for a lifesaving HIV drug, Viread® (tenofovir disoproxil
fumarate (TDF)). In late 2019 and early 2020, four
sets of plaintiffs sent Gilead books and records
demands under Section 220 of the Delaware General
Corporate Law. The demands alleged that Gilead
sought to protect the market for TDF by delaying
market entry of generic versions of TDF and delaying
the development of a safer substitute of TDF,
tenofovir alafenamide (TAF). The plaintiffs sought to
inspect documents relating to these allegations.
After Gilead declined to provide documents in
response to the demands, each of the plaintiffs filed
suit. Gilead answered the complaints and requested
that the court order the plaintiffs to coordinate their
efforts, which the parties subsequently stipulated
to do. Gilead moved for a protective order against
discovery requests directed at it, which the court
denied. The court held a trial on June 23, 2020 and
the parties completed post-trial briefing on August
26, 2020.
wrongdoing is probable.” The court concluded
that the plaintiffs met this standard, rejecting all of
Gilead’s arguments, which the court characterized as
largely going to the merits of the dispute. Ultimately,
the court found that the plaintiffs had put forward
sufficient evidence to demonstrate that there was
a “credible basis” to seek books and records from
Gilead under Section 220. In addition, the court
granted the plaintiffs leave to move for fee-shifting.
Based on all the evidence before it, the court
ordered that Gilead produce certain categories of
documents and pay the plaintiffs’ attorneys fees. In
Delaware, “[w]hen a stockholder seeks inspection
for the purpose of investigating wrongdoing, the
stockholder must demonstrate a credible basis to
suspect possible wrongdoing.” The “credible basis”
standard imposes “the lowest possible burden of
proof,” which does not require a stockholder to
prove that the wrongdoing “actually occurred,” or
“to show by a preponderance of the evidence that
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