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Lebanon County Employees' Retirement Fund v. AmerisourceBergen Corporation

Court of Chancery of the State of Delaware · 2020 · Corporations
Updated
CorporationsSection 220Books and records inspectionCorporate oversightFiduciary dutiesDGCL 220proper purposecredible basis

Facts

AmerisourceBergen is a major opioid distributor subject to federal obligations to maintain controls against diversion and to identify and report suspicious orders. It had prior DEA enforcement issues, settled with the DEA in 2007, later faced numerous subpoenas, government investigations, reports, and lawsuits alleging failures to identify, halt, and report suspicious opioid orders, and had spent more than $1 billion on related litigation and costs. Plaintiffs, as stockholders, sought board materials and related records to investigate whether directors and officers engaged in mismanagement, breached fiduciary duties, or violated law in connection with opioid distribution, and also sought director independence questionnaires. AmerisourceBergen refused to produce any documents and also declined to provide discovery about what books and records existed or who possessed them.

Issue

Whether the stockholder plaintiffs established proper purposes under Section 220 to inspect AmerisourceBergen's books and records concerning opioid-distribution compliance and board oversight, and if so, what scope of inspection was necessary and sufficient. The court also had to decide whether plaintiffs were required to show an actionable Caremark-style claim against the board before obtaining inspection.

Rule

Under DGCL Section 220, a stockholder must prove stockholder status, compliance with statutory demand requirements, and a proper purpose; for investigating wrongdoing, the stockholder must show by a preponderance of the evidence a credible basis from which the court can infer possible mismanagement or wrongdoing warranting further investigation. The stockholder need not prove actual wrongdoing, need not show that wrongdoing is probable, need not demonstrate an actionable claim against directors, and need not commit in advance to a particular end use such as litigation. The inspection must be limited to books and records that are essential and sufficient to the stated purpose, with Formal Board Materials generally serving as the starting point.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.
Nora Patel owns shares of Cascade Harbor Foods, a Delaware corporation based in Portland. After state health regulators, two congressional committees, and several state attorneys general publicly accused the company of systematically shipping contaminated baby formula despite repeated warning signs, Nora made a Section 220 demand to investigate possible wrongdoing and board oversight failures.

What is Nora required to show to establish a proper purpose for inspection based on investigating wrongdoing?

Explanation. For a Section 220 demand aimed at investigating wrongdoing, the stockholder need only show by a preponderance of the evidence a credible basis to infer possible wrongdoing or mismanagement. The stockholder need not prove actual wrongdoing, need not satisfy Rule 23.1, and need not establish a non-exculpated actionable claim.