Teamsters Local 443 Health Services & Insurance Plan v. John C. Chou, CA No. 2019-0816-SG

Background:

AmerisourceBergen (ABC) subsidiary Medical Initiatives, Inc. (MII) prepared pre-filled oncology syringes and harvested vial "overfill" for resale; plaintiffs alleged unsafe, unlawful repackaging and pooling that produced regulatory exposure.
DOJ opened parallel criminal and civil investigations; ABSG (the specialty group) pleaded guilty to an FDCA misdemeanor and paid a $260 million criminal penalty and later settled civil claims for $625 million, with related compliance obligations.
Stockholders filed a derivative suit alleging directors and officers breached Caremark oversight duties and unjust enrichment; Vice Chancellor Glasscock previously denied dismissal under Rule 23.1, finding demand futility and that a majority of the board faced substantial litigation risk.
The Board appointed a one-member Special Litigation Committee (SLC), Dennis Nally, who conducted a seven-month investigation (reviewing millions of documents and 77 interviews) and issued a detailed 365-page report recommending dismissal, concluding the Board had adequate compliance systems and responded to alleged "red flags."
The Court applied the Zapata framework, reviewed the SLC’s independence, investigation, and conclusions with heightened scrutiny for a sole-member SLC, and held that the SLC’s inquiry and conclusions were reasonable.
Result: the Court granted the SLC’s motion to dismiss the derivative action, finding the SLC independent, its investigation in good faith and of reasonable scope, and its recommendation to dismiss within a range of reasonableness.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. SLC independence and good faith (Zapata prong one)	Nally lacked independence due to social ties to former chairman Gozon and prior litigation history; single-member SLC inherently suspect	Nally had attenuated social ties, no preexisting relationship with defendants, and conducted an extensive, document- and witness-based inquiry	Court found Nally independent and SLC acted in good faith and conducted a proper investigation
2. Scope and adequacy of SLC investigation	SLC failed to investigate FCA/kickback theories, DOJ materials, and officer culpability sufficiently	SLC reviewed DOJ presentations, proffers, prior legal reviews, interviewed witnesses, and examined documents; limited reliance on duplicative proffers was reasonable	Court held the SLC’s scope and methodology were reasonable and covered plaintiffs’ theories adequately
3. Caremark oversight liability for directors	Multiple corporate "red flags" (Davis Polk review, qui tam, FDA search, press attention, expansion decisions) show bad faith oversight and breach of fiduciary duty	Board had a robust, evolving compliance program; Audit Committee actively monitored issues and escalated matters; responses to events were reasonable	Court concluded plaintiffs unlikely to prove bad-faith oversight; SLC’s conclusion that directors satisfied Caremark was reasonable
4. Whether court should reject SLC recommendation under Zapata prong two	Corporate trauma and large settlements justify independent judicial rejection and further litigation	SLC’s factual findings and legal analysis fall within a reasonable range; dismissal avoids costly, low-probability litigation	Court applied independent review and, exercising business judgment, found dismissal within range of reasonableness and granted it

Key Cases Cited

Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) (establishes two‑prong test for judicial review of an SLC recommendation to dismiss a derivative suit)
In re Oracle Corp. Deriv. Litig., 824 A.2d 917 (Del. Ch. 2003) (describes procedural standard for SLC motions akin to summary judgment inquiry)
Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831 (Del. 2011) (discusses Zapata framework and court’s role in independent review)
Kaplan v. Wyatt, 484 A.2d 501 (Del. Ch. 1984) (limits first‑prong inquiry to the SLC’s conduct and investigation)
Chesapeake Corp. v. Shore, 771 A.2d 293 (Del. Ch. 2000) (advises heightened scrutiny for single‑member committees; the "gimlet eye" principle)
In re Primedia, Inc. S’holder Litig., 67 A.3d 455 (Del. Ch. 2013) (explains Zapata prong two reasonableness standard)
Sutherland v. Sutherland, 958 A.2d 235 (Del. Ch. 2008) (sets forth independence inquiry for SLC members)
Lewis v. Fuqua, 502 A.2d 962 (Del. Ch. 1985) (single‑member SLCs merit close scrutiny)