Louisiana Municipal Police Employees' Retirement System v. Pyott
2012 Del. Ch. LEXIS 130
Del. Ch.2012Background
- Allergan settled with the DOJ in 2010, pleading guilty to misdemeanor misbranding and paying $600 million in fines.
- Specialized stockholder derivative actions were filed in Delaware and in the California federal court surrounding Allergan’s off-label Botox marketing.
- California action was dismissed with prejudice for failure to plead demand futility; Delaware action followed with Section 220 books-and-records obtained by UFCW.
- Board-approved strategic plans sought to expand off-label Botox uses not FDA-approved, supported by extensive physician promotion and reimbursement efforts.
- Allegations include off-label marketing through physician programs, reimbursement support, and monitoring of high-prescribing physicians, culminating in a government settlement and corporate-integrity obligations.
- Delaware court addresses whether California Judgment collateral estoppel applies, and whether Rule 23.1 demand futility and Rule 12(b)(6) claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateral estoppel precludes the Delaware action | California Judgment bars later derivative claim | California Judgment precludes all related claims under collateral estoppel | Collateral estoppel does not bar in this case |
| Whether the Delaware Rule 23.1 demand futility standard applies to privity and preclusion | Rule 23.1 demand futility shown by particularized facts; privity with corporation exists | Rule 23.1 dismissal in California precludes later actions against same issues | Rule 23.1 non-preclusive; adequate pleading shown; demand futility established |
| Whether the complaint states a cognizable Caremark/loyalty claim | Board approved a plan predicated on illegal off-label marketing; adequate facts alleged | No substantial link between board and illegal conduct; no Caremark link pleaded | Complaint pleads a substantial threat of liability; Caremark claim survives |
| Whether the Rule 12(b)(6) dismissal would be warranted | Rule 12(b)(6) should not dismiss given Rule 23.1 findings | If no Rule 23.1 viability, 12(b)(6) should follow | Rule 12(b)(6) denied; claims survive |
| Whether the fast-filer dynamics taint representation and preclusion | First-filed plaintiffs inadequately represented; Section 220 should be honored | First-filed status should control leadership and preclusion | Fast-filer do not dictate outcome; adequate representation analysis favors plaintiffs |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (two-fold derivative action: compel corporation to sue and the corporation sues)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (U.S. Supreme Court 1991) (internal affairs doctrine governs demand futility and corporate control)
- In re Caremark Int'l Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996) (monitors and Caremark liability for failure to monitor legality)
- In re Walt Disney Co. Deriv. Litig., 906 A.2d 27 (Del. Ch. 2006) (Caremark standard and duty to establish monitoring systems)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (pleading standard for demand futility; threshold facts sufficient)
- Desimone v. Barrows, 924 A.2d 908 (Del. Ch. 2007) (caremark-like liability and demanding pleading standards)
- Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003) (pleading standard for director duty and when good faith omitted)
- Cantor v. Sachs, 162 A.2d 73 (Del. Ch. 1932) (derivative action dual nature; plaintiff represents corporation)
- Ainscow v. Sanitary Co. of Am., Inc., 180 A.0 614 (Del. Ch. 1935) (demand futility and derivative standing principles)