Amerisourcebergen Corp v. Lebanon County Employees' Retirement Fund
No specific reporter citation provided in text (Decided December 10, 2020) (2020)
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Rule of Law:
A stockholder seeking to inspect corporate books and records under Section 220 to investigate possible wrongdoing states a proper purpose without specifying the ultimate action to be taken with the information. The stockholder must only establish a 'credible basis' to suspect wrongdoing and is not required to demonstrate that the potential wrongdoing is legally actionable.
Facts:
- AmerisourceBergen Corporation is one of the largest distributors of opioids in the United States and is subject to federal regulations requiring it to prevent the diversion of controlled substances.
- In 2007, the Drug Enforcement Administration (DEA) suspended the license of an AmerisourceBergen distribution center for failing to maintain effective controls against drug diversion, leading to a settlement in which the company agreed to implement a compliance program.
- Despite the 2007 settlement, AmerisourceBergen has been the subject of numerous investigations by federal prosecutors and state attorneys general since 2012 concerning its opioid distribution practices.
- In 2018, two separate U.S. congressional reports found that AmerisourceBergen had failed to report suspicious opioid orders as required by federal law.
- The New York Attorney General filed a complaint alleging AmerisourceBergen's policies were inadequate for identifying suspicious orders and that it was unwilling to flag them compared to competitors.
- AmerisourceBergen is a defendant in a large multi-district federal litigation consolidating over 1,500 lawsuits brought by various governmental and other entities.
- In an effort to settle the multi-district litigation, AmerisourceBergen and two other distributors offered to pay $10 billion, but regulators rejected the offer and demanded $45 billion.
- To date, AmerisourceBergen has spent more than $1 billion in connection with opioid-related lawsuits and investigations.
Procedural Posture:
- Plaintiffs Lebanon County Employees’ Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan served a Section 220 demand on AmerisourceBergen Corporation to inspect its books and records.
- AmerisourceBergen rejected the demand in its entirety.
- Plaintiffs filed an action in the Delaware Court of Chancery (the court of first instance) seeking to compel inspection.
- After a trial on a paper record, the Court of Chancery found the Plaintiffs had a proper purpose and ordered AmerisourceBergen to produce certain 'Formal Board Materials'.
- The Court of Chancery also, sua sponte, granted Plaintiffs leave to take a post-trial Rule 30(b)(6) deposition to inquire about other existing records.
- AmerisourceBergen (Appellant) was granted an interlocutory appeal of the Court of Chancery's decision to the Delaware Supreme Court (the highest court); Plaintiffs are the Appellees.
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Issue:
Does a stockholder's demand to inspect corporate books and records under Section 220 of the Delaware General Corporation Law fail to state a proper purpose if the demand does not specify the ultimate objective of the investigation or establish that the suspected wrongdoing is actionable?
Opinions:
Majority - Justice Traynor
No. When the purpose of a Section 220 inspection is to investigate corporate wrongdoing, the stockholder is not required to specify the ends to which it might use the books and records. Further, the stockholder need only show a credible basis to infer possible wrongdoing and does not need to demonstrate that the wrongdoing is actionable. Investigating credible allegations of mismanagement is, in itself, a purpose reasonably related to the stockholder's interest. The court explicitly overruled its prior summary affirmance in AbbVie to the extent it suggested that merits-based defenses, such as a Section 102(b)(7) exculpatory provision, could be used to defeat a Section 220 demand. Injecting such defenses improperly turns the summary Section 220 proceeding into a premature adjudication of the merits of a potential future lawsuit. Finally, the Court of Chancery acted within its discretion by permitting a post-trial deposition to determine the scope of document production, particularly because AmerisourceBergen had thwarted the Plaintiffs' pre-trial discovery efforts to identify existing records and their custodians.
Analysis:
This decision significantly strengthens the ability of stockholders to use Section 220 as an investigatory tool by clarifying and lowering the barriers to inspection. By firmly rejecting an 'actionability' requirement, the Court prevents corporations from bogging down summary Section 220 proceedings with complex, merits-based defenses that belong in a subsequent plenary action. This ruling clarifies a developing split in Court of Chancery precedent and solidifies the 'credible basis' standard as the sole gateway test, ensuring that Section 220 remains an efficient mechanism for stockholders to uncover facts about potential mismanagement before commencing derivative litigation.
