AMERISOURCEBERGEN CORPORATION, Dеfendant Below, Appellant, v. LEBANON COUNTY EMPLOYEES’ RETIREMENT FUND and TEAMSTERS LOCAL 443 HEALTH SERVICES & INSURANCE PLAN, Plaintiffs Below, Appellees.
No. 60, 2020
IN THE SUPREME COURT OF THE STATE OF DELAWARE
December 10, 2020
Submitted: September 23, 2020; Court Below: Court of Chancery of the State of Delaware; C.A. No. 2019-0527-JTL
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and MONTGOMERY-REEVES, Justices, constituting the Court en Banc.
Upon appeal from the Court of Chancery. AFFIRMED.
Stephen C. Norman, Esq., Jennifer C. Wasson, Esq., Tyler J. Leavengood, Esq., POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Michael D. Blanchard, Esq. (argued), Amelia G. Pennington, Esq., MORGAN, LEWIS & BOCKIUS LLP, Boston, Massachusetts, for Appellant AmerisourceBergen Corporation.
Samuel L. Closic, Esq., (argued) Eric J. Juray, Esq., PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Gregory V. Varallo, Esq., BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, Wilmington, Delaware, for Appellees Lebanon County Employees’ Retirement Fund and Teamsters Local 443 Health Services and Insurance Plan.
Eric L. Zagar, Esq., Michael C. Wagner, Esq., Christopher M. Windover, Esq., KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania, for Appellee Lebanon County Employees’ Retirement Fund.
Frank R. Schirripa, Esq., Daniel B. Rehns, Esq., Hillary Nappi, Esq., HACH ROSE SCHIRRIPA & CHEVERIE LLP, New York, New York; David Wales, Esq., Andrew Blumberg, Esq., BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York, for Appellee Teamsters Local 443 Health Services and Insurance Plan.
This is an interlocutory appeal from a Court of Chancery memorandum opinion1 in an action brought under
In this opinion, we hold that, when a
I. BACKGROUND
During the ongoing opioid epidemic, AmerisourceBergen, one of the country’s largest opioid distributors, has been investigated by numerous law enforcement and government agencies. The Court of Chancery discussed these investigations in depth; we briefly summarize them here.
A. Factual Background3
Federal regulations require opioid distributors to maintain effective controls and reporting systems to ensure that drug shipments stay within “legitimate medical, scientific, and industrial channels.”4 In 2007, the federal Drug Enforcement
Administration (the “DEA“) suspended AmerisourceBergen’s license at its Orlando, Florida distribution center, concluding that AmerisourceBergen had not maintained effective controls there in part because it failed to flag rogue pharmacies that:
(i) ordered opioids from AmerisourceBergen in amounts that far exceeded what an average pharmacy orders, (ii) ordered small amounts of other drug products relative to the pharmacies’ [opioids] purchases, (iii) ordered [opioids] much more frequently than [AmerisourceBergen]’s other pharmacy customers, and (iv) were publicly known to fill[] prescriptions that were issued by physicians acting outside the usual course of professional practice . . . .5
AmerisourceBergen settled with the DEA and agreed to implement and maintain at all its facilities a “compliance program designed to detect and prevent diversion of controlled substances.”6 Following the settlement, AmerisourceBergen continued to work with the DEA to implement an anti-diversion program and to develop an industry standard for opioid-distribution compliance.
Despite these efforts, since 2012 AmerisourceBergen has been the subject of several governmental reports, investigations, and state and federal lawsuits. Federal prosecutors in ten states and the attorneys general of forty-one states have either subpoenaed the company’s documents or named it as a defendant in litigation. Two congressional investigations found that AmerisourceBergen failed to address suspicious order monitoring in violation of federal law. The first investigation,
initiated by the Energy and Commerce Committee of the United States
In 2018, the Office of the Ranking Member for the Homeland Security and Governmental Affairs Committee in the United States Senate released a report after conducting an investigation of the Company’s operations in Missouri (the “Missouri Report“). The Missouri Report concluded that AmerisourceBergen “had ‘consistently failed to meet [its] reporting obligations’ regarding suspicious orders”8 and that the Company reported significantly less suspicious orders than other opioid distributors that shipped a similar number of opioid doses.
In 2019, the New York Attorney General filed a complaint, naming AmerisourceBergen, among other opioid distributors and manufacturers, as a defendant (the “NYAG Complaint“). The NYAG Complaint alleged that the AmerisourceBergen’s policies failed to properly identify suspicious orders and that the Company “‘ha[d] consistently stood out as compared to its major competitors [because of] its unwillingness to identify suspicious orders, even among customers that regularly exceeded their thresholds and presented multiple red flags of diversion.’”9
AmerisourceBergen is also a defendant in multi-district litigation in the United States District Court for the Northern District of Ohio (the “Multidistrict Litigation“), which “centralizes 1,548 different lawsuits brought by state attorneys general, cities, counties, Native American tribes, union benefit funds, and other plaintiffs.”10 The plaintiffs in the Multidistrict Litigation, who also allege that AmerisourceBergen has failed to implement and maintain effective systems to flag suspicious orders, have successfully defended AmerisourceBergen’s motion to dismiss and motion for summary judgment. In an effort to settle the ongoing Multidistrict Litigation, the Company and two other opioid distributors, offered to pay $10 billion. The 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.”11 Analysts estimate that AmerisourceBergen could spend up to $100 billion to reach a global settlement.
B. Procedural History
In May 2019, amidst this “flood of government investigations and lawsuits relating to AmerisourceBergen’s opioid practices,”12 the Plaintiffs served a Section 220 demand on AmerisourceBergen, requesting inspection of thirteen categories of books and records (the “Demand“). The
The Demand listed four investigatory purposes:
(i) to investigate possible breaches of fiduciary duty, mismanagement, and other violations of law by members of the Company’s Board of Directors and management . . . in connection with [the Company]’s distribution of prescription opioid medications;
(ii) to consider any remedies to be sought in respect of the aforementioned conduct;
(iii) to evaluate the independence and disinterestedness of the members of the Board; and
(iv) to use information obtained through inspection of the Company’s books and records to evaluate possible litigation or other corrective measures with respect to some or all of these matters.14
AmerisourceBergen rejected the Demand in its entirety, claiming that the Demand did not state a proper purpose and that, even if the Plaintiffs’ purpose were proper, the scope of the inspection was overbroad. In July 2019, the Plaintiffs filed this action in the Court оf Chancery, seeking to compel production of the requested documents. The parties negotiated a schedule, during which they agreed that there would be no depositions and only limited discovery. During discovery, when the Plaintiffs served an interrogatory asking AmerisourceBergen to identify the individuals at the Company who had records responsive to the Demand, AmerisourceBergen objected to the interrogatory and declined to furnish the requested information.
In its memorandum opinion following trial on a paper record, the Court of Chancery found that the Plaintiffs had demonstrated a proper purpose sufficient to warrant the inspection of Formal Board Materials.15 In reaching this conclusion, the Court of Chancery made several subsidiary findings. The court found that the
Plaintiffs had established a credible basis, through “strong circumstantial evidence,” to suspect that “AmerisourceBergen’s situation did not result from any ordinary business decision that, in hindsight, simply turned out poorly,”16 but instead may have been the product of the Company’s violation of positive law. The Plaintiffs had not, according to the court, “approached AmerisourceBergen as part of an indiscriminate fishing expedition or out of mere curiosity.”17
Next, because the Plaintiffs had satisfied their burden of proof under
relating to most of the events listed in the Demand.20 Finding that AmerisourceBergen had thwarted the Plaintiffs’ efforts to establish “what types of books and records exist[ed] and who ha[d] them,” the court then granted sua sponte the Plaintiffs leave to take a Rule 30(b)(6) deposition to seek answers to those questions and, if appropriate, seek additional documents.21
The Company moved for, and the Court of Chancery granted, certification of an interlocutory appeal on all three rulings. In our order accepting the interlocutory appeal, we noted that the issues the Company had raised werе “substantial issues of material importance relating to the scope of the statutory proper-purpose requirement when seeking books and records for the purpose of investigating management[] and the scope of the Court of Chancery’s remedial discretion in a Section 220 action.”22
On appeal, AmerisourceBergen challenges the Court of Chancery’s opinion on three grounds. First, AmerisourceBergen argues that the Court of Chancery erroneously found that the Plaintiffs had stated a proper purpose and need not “identify the objectives of the investigation.”23 Second, the Company asserts that the court erroneously determined that the Plaintiffs had established a credible basis
from which the court could suspect wrongdoing and that such wrongdoing need not be actionable. Finally, AmerisourceBergen contends that the Court of Chancery erred when it granted the Plaintiffs leave to conduct a post-trial Rule 30(b)(6) deposition.
II. STANDARD OF REVIEW
We review de novo whether a stockholder’s stated purpose for demanding inspection under
III. ANALYSIS
A stockholder’s right to inspect a corporation’s books and records was “recognized at common law because ‘[a]s a matter of self-protection, the stockholder was entitled to know how his agents were conducting the affairs of the corporation of which he or she was a part owner.’”27
stockholder is a stockholder; (2) [s]uch stockholder has complied with [
Myriad proper purposes have been accepted under Delaware law including: “the determination of the value of one’s equity holdings, evaluating an offer to purchase shares, inquiring into the independence of directors, investigation of a director’s suitability for office, testing the propriety of the company’s public disclosures, investigation of corporate waste, and investigation of possible mismanagement or self-dealing.”30 “[M]ere disagreement
decision”31 will fail to establish a proper purpose. Once a stockholder shows that its primary purpose is reasonably related to its interest as a stockholder, the fact that it may also have “a further or secondary purpose . . . is irrelevant.”32
For over a quarter-century, this Court has repeatedly encouraged stockholders suspicious of a corporation’s management or operations to exercise this right to obtain the information necessary to meet the particularization requirements that are applicable in derivative litigation.33
in section 220 actions[,] reflect[ing] judicial efforts to maintain a proper balance between the rights of shareholders to obtain information based upon credible allegations of corporation mismanagement and the rights of directors to manage the business of the corporation without undue interference from stockholders.”34
To avoid “indiscriminate fishing expedition[s],” a bare allegation of possible waste, mismanagement, or breach of fiduciary duty, without more, will not entitle a stockholder to a Section 220 inspection.35 Rather, a stockholder seeking to investigate wrongdoing must show, by a preponderance of the evidence, a credible basis from which the court can infer there is “possible mismanagement as would warrant further investigation.”36 Although not an insubstantial threshold, the credible basis standard is the “lowest possible burden of proof.”37 A stockholder need not show that corporate wrongdoing or mismanagement has occurred in fact, but rather the “threshold may be satisfied by a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing.”38
Once a
A. The Plaintiffs’ Proper Purpose
In the Court of Chancery, AmerisourceBergen argued that the Plaintiffs failed to demonstrate a credible basis to investigate a Caremark claim, which, according to the Company, was “the only purported purpose of the Demand.”40 The court disаgreed with AmerisourceBergen’s characterization of the Demand, noting that the Demand “signaled that [the Plaintiffs] are not solely interested in filing a derivative lawsuit . . . [and] are open to considering other possible remedies, corrective measures, and methods of addressing the wrongdoing that they believe has occurred.”41 The court further understood AmerisourceBergen to “maintain[] that if a stockholder wants to investigate wrongdoing and use the resulting documents to achieve an end other than filing litigation, the stockholder must say so in the demand.”42
After a thoughtful analysis of
they plan[] to do with the fruits of the inspection,”43 the court concluded that, although “the Demand did not recite ends to which the [P]laintiff[s] might put the books and records[,] . . . they were not required to do so. Instead the [P]laintiffs reserved the ability to consider all possible courses of action that their investigation might warrant pursuing.”44 We, too, reject AmerisourceBergen’s characterization of the Plaintiffs’ Demand as solely limited to pursuing derivative litigation. And we agree with the Court of Chancery’s observation that a stockholder is not required to state the objeсtives of his investigation.45
AmerisourceBergen acknowledges that investigating corporate wrongdoing is a widely recognized proper purpose under
corporation [will be] impaired, if not entirely thwarted in its efforts to evaluate the propriety of the demand’s purpose”48 without resorting to litigation.
AmerisourceBergen concedes that this Court has not considered whether a stockholder must state in its demand the objectives of an investigation of corporate wrongdoing. Therefore, the Company relies heavily on Northwest Industries, Inc. v. B.F. Goodrich Co., 260 A.2d 428 (Del. 1969) (”Northwest Industries“), a case involving a stockholder’s request to inspect the company’s list of stockholders. The majority in Northwest Industries held that, in that context, a demand that contained “a mere statement” that the purpose of the inspection was “to communicate with other stockholders”50 was inadequate. In the majority’s view:
[Section] 220 required Goodrich to state in its demand the substance of its intended communication sufficiently to enable Northwest, and the courts if necessary, to determine whether there was a reasonable relationship between its purpose, i.e., the intended communication, and Goodrich’s interest as a stockholder of Northwest.51
But a request to inspect a list of stockholders is fundamentally different than a request to inspect books and records in furtherance of an investigation of corporate wrongdoing.52 A corporation cannot discern whether the inspection of its list of stockholders for the purpose of communicating with other stockholders is related to
the stockholder’s interest as a stockholder without a disclosure of the substance of the intended communication. By contrast, corporate wrongdoing is, as the Court of Chancery noted, in and of itself “a legitimate matter of concern that is reasonably related to [a stockholder’s] interest[] as [a] stockholder[].”53
We have recognized that, when a stockholder investigates meritorious allegations of possible mismanagement, waste, or wrongdoing, it serves the interests of all stockholders “and should increase stockholder return.”54 It follows that, under such circumstances, the stockholder’s purpose is proper. Of course, a mere statement of suspicion is inadequate. If the stockholder cannot present a credible basis from which the court can infer wrongdoing or mismanagement, it is likely that the stockholder’s demand is an “indiscriminate fishing expedition.”55 But where a stockholder meets this low burden of proof from which possible wrongdoing or mismanagement can be inferred, a stockholder’s purpose will be deemed proper under Delaware law.56
stockholder,”57 citing Saito v. McKesson HBOC, Inc., 806 A.2d 113 (Del. 2002) (”Saito“). AmerisourceBergen’s reliance on Saito is misplaced. In that case, we addressed the interplay of the standing requirement in
AmerisourceBergen omits, however, the following qualification of that observation:
But stockholders may use information about corporate mismanagement in other ways, as well. They may seek an audience with the board to discuss proposed reforms or, failing in that, they may prepare a stockholder resolution for the next annual meeting, or mount a proxy fight to elect new directors. None of those activities would be prohibited by § 327.61
None of these post-inspection uses of the company‘s books and records were included in the purpose stated in Saito‘s demand, yet we recognized that they remained available to him.62 Thus, our reading of Saito undermines AmerisourceBergen‘s contention that a stockholder who seeks an inspection for the purpose of investigating mismanagement or wrongdoing must state in the demand all of the ways it might use the documents uncovered in the investigation.
This is not to say that the stockholder‘s intended uses are irrelevant or that it is not advisable, in the interest of enhancing litigation efficiencies—to state the intended uses in the stockholder‘s demand. And we agree with the Court of Chancery that a corporation may challenge the bona fides of a stockholder‘s stated purpose and present evidence from which the court can infer that the stockholder‘s stated purpose is not its actual purpose. Or the court, when assessing the propriety of a stockholder‘s purpose, can imply—as it did in West Coast Management & Capital, LLC v. Carrier Access Corp.63 (”
B. The Relevance of Actionability
The previous argument—that the Plaintiffs’ sole purpose in seeking to inspect AmerisourceBergen‘s books and records is to pursue a Caremark claim and the court should not consider other potential uses of the documents—would not, standing alone, suffice to defeat the Plaintiffs’ inspection rights. After all, AmerisourceBergen concedes that the evaluation of litigation options is an appropriate objective of an investigative
The Court of Chancery rejected AmerisourceBergen‘s argument on three grounds. First, the court found that the argument failed for the “threshold reason ... [that] [t]he [P]laintiffs are not seeking the books and records for the sole purpose of investigating a potential Caremark claim . . . [and thus] can use the fruits of their investigation for other purposes.”66 Second, the court held that “to obtain books and records, a stockholder does not have to introduce evidence from which a court could infer the existence of an actionable claim.”67 Third, the court found that, in any event, AmerisourceBergen‘s
As mentioned, the sine qua non of AmerisourceBergen‘s contention that the Plaintiffs must establish a credible basis
AmerisourceBergen‘s assertions go too far. A stockholder may state more than one purpose for inspection and use the information obtained for more than one purpose.72 As already mentioned, a stockholder may use the information supporting a claim of mismanagement obtained through an inspection for purposes other than bringing litigation.73 Although AmerisourceBergen correctly identifies several references to potential litigation in the Demand, the Demand also states that the information sought will be used “to evaluate . . . other corrective measures with respect to all or some of these matters.”74 The Demand also contemplates a “[p]ossible course[] of conduct [to] include making a demand on the Company‘s Board of Directors to take action.”75 In our view, the Court of Chancery‘s determination that the Plaintiffs contemplated purposes other than litigation is supported by a fair reading of the Demand. We need go no further than that to dispose of AmerisourceBergen‘s “actionability” argument. We nevertheless take this opportunity to dispel the notion that a stockholder who demonstrates a credible basis from which the court can infer wrongdoing or mismanagement must demonstrate that the wrongdoing or mismanagement is actionable.
As noted above, under
It is true that the Court of Chancery has disallowed inspections for the purpose of investigating mismanagement and wrongdoing when the stockholder‘s sole objective is to pursue litigation that faces an insurmountable procedural obstacle. For example, in Polygon Global Opportunities Master Fund v. West Corp. (”Polygon“), where the stockholder lacked standing to bring the anticipated claim, the Court of Chancery denied inspection even in the face of a credible showing of wrongdoing.80 Likewise, the court has denied inspection by stockholders whose sole purpose is to evaluate litigation options when the claims under consideration are time barred, as was the case in Graulich v. Dell, Inc.81 (”Graulich“), or otherwise precluded, as in West Coast Management.82 It should be stressed that, in each of these instances, the sole reason for the stockholder‘s demand was to pursue litigation and the obstacle that blocked the stockholder‘s path was the product of a determinate procedural history and based on undisputed facts. We find all of these decisions to be within the discretion that rests in the Court of Chancery‘s hands when it assesses the bona fides of a stockholder‘s stated purpose under
Yet AmerisourceBergen points us to two more recent Court of Chancery opinions, one of which we summarily affirmed, that considered merits-based defenses, not to the
Although the Court of Chancery expressed dismay at the stockholders’ failure to specify the “end” to which their investigation would lead, the court inferred that the stockholders sought “an investigation to aid in future derivative litigation.”86 AbbVie challenged the propriety of this purpose on the grounds that AbbVie‘s certifiсate of incorporation exculpated its directors from liability for a breach of duty of care in accordance with
In addressing AbbVie‘s defense, the Court of Chancery acknowledged that it had “not squarely addressed the issue of whether, when a stockholder seeks to investigate corporate wrongdoing solely for the purpose of evaluating whether to bring a derivative action, the ‘proper purpose’ requirement under
After surveying the “analogous decisions”89 mentioned above denying inspection because of procedural bars to the litigation of claims derived from an investigative inspection, the court concluded that:
[those] holdings, and the necessity of proper balance of the benefits and burdens of production under
Section 220 , illustrate that the proper purpose requirement under that statute requires that, if a stockholder seeks inspection solely to evaluate whether to bring derivative litigation, thе corporate wrongdoing which he seeks to investigate must necessarily be justiciable.90 Because aSection 102(b)(7) exculpatory provision serves as a bar to stockholders recovering for certain director liability in litigation, a stockholder seeking to useSection 220 to investigate corporate wrongdoing solely to evaluate whether to bring derivative litigation has stated a proper purpose only insofar as the investigation targets non-exculpated corporatewrongdoing. Here, that means that [the stockholders‘] stated purpose to investigate whether wrongdoing is proper only to investigate whether AbbVie‘s directors breached their fiduciary duty of loyalty.91
To skirt the exculpatory provision, the stockholders alleged that the AbbVie directors breached the duty of loyalty by acting in bad faith or by committing waste. The court found that the stockholders could not clear either of these hurdles and therefore denied the stockholders’ demand for inspection, and the stockholders appealed to this Court.
In a one-paragraph order, a majority of this Court affirmed the Court of Chancery‘s judgment “on the basis of” its decision as summarized above.92 Two Justices, however, thought that:
it was unnecessary for the Court of Chancery to reach and rely upon
Section 102(b)(7) in its analysis, and given their broader substantive concerns regarding reliance onSection 102(b)(7) inSection 220 proceedings, would affirm solely on the basis that the petitioner did not show a preponderance of the evidence that there existed a credible basis to conclude that even a breach of the duty of care had been committed.93
The footnote registering the concurring Justices’ concerns clarified that the entire panel agreed that the petitioner had failed to show a credible basis from which a duty-of-care breach, i.e., wrongdoing or mismanagement, could be inferred, “but the other three members of the panel believe[d] that it was proper for the Court of Chancery to address the matter in the precise manner that it did, because that was the primary ground on which the defendant corporation below defended the case and the parties framed the issue.”94
Soon after we affirmed AbbVie, the Court of Chancery decided Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc.95 (”Pfizer“). Here, in the Court of Chancery, AmerisourceBergen relied on Pfizer in support of its argument that, “[w]here a stockholder seeks to investigate mismanagement or wrongdoing solely for potential litigation, the evidence the stockholder presents to establish a credible basis must be evidence of ‘actionable corporate wrongdoing.‘”96
In Pfizer, the stockholdеrs alleged that the company had violated accounting and disclosure laws when it failed to disclose a deferred tax liability in an annual report on the basis that calculation of liability was “not practicable.”97 The stockholder sent a books-and-records demand to Pfizer, identifying the following purposes of the inspection: “(i) evaluating potential derivative or shareholder litigation, including investigating possible breaches of fiduciary duties by Pfizer‘s board of directors (the ‘Board‘) for failing to assure compliance
Pfizer refused to permit the inspection, and the stockholder filed a
This finding does not concern us here. Rather, we discuss Pfizer8 Del. C. § 141(e), directors are ‘fully protected’ in relying in good faith on the expert‘s opinions as to matters the director reasonably believes are within the expert‘s competence, provided the expert was selected with reasonable care.”99 And because the stockholder failed to present any evidence to overcome
What interests us here is the Pfizer court‘s reliance on AbbVie:
The reasoning in Abbvie applies equally here. That is, where a stockholder seeks to investigate mismanagement or wrongdoing solely for potential litigation, the evidence the stockholder presents to establish a credible basis must be evidence of “actionable corporate wrongdoing.” As the Abbvie Court pointed out, other decisions of this Court have concluded that a stockholder does not have a credible basis to investigate mismanagement or wrongdoing if the litigation the stockholder is evaluating would be barred by claim or issue preclusion, lack of standing, or the statute of limitations. So too, where a stockholder‘s sole basis is litigation-driven and the claim he seeks to investigate is not justiciable due to a statutory defense, there is no valid purpose for the inspection.101
Thus, it seems that the practical principles applied in Polygon, West Coast Management, and Graulich to deny inspections whose ultimate and sole purpose was to facilitate litigation that would be dead on arrival because of an insurmountable procedural obstacle have been extended in AbbVie and Pfizer to welcome the invocation in
This trend, if it can be called that, has met with resistance in other Court of Chancery decisions, as evidenced by the case under consideration here. For instance, in Amalgamated Bank v. Yahoo! Inc.102 (”Yahoo!“) a case that bears a resemblance to the one before us now, the
In a similar manner, in Lavin v. West Corp.104 (”Lavin“), the Court of Chancery steered away from the consideration of a merits-based defense to the claims a stockholder sought to investigate. In that case, following West Corporation‘s merger with Appollo Global Management, Lavin served a books-and-records demand on West for the purpose of “determin[ing] whether wrоngdoing and mismanagement had taken place”105 in connection with the merger. West rejected the demand, and Lavin sued. West contended that, under the Corwin doctrine,106 the stockholder vote approving the merger “cleansed” any breaches of fiduciary duty, leaving the merger subject to challenge only on the grounds of waste, which Lavin had not stated as a basis for inspection. The court declined West‘s invitation to “engage with Corwin” in the
...the notion that the court would engage with Corwin, and all that it entails, in a summary
Section 220 proceeding has little to commend it as a matter of procedure, at least in the view of this trial judge. Simply stated, Corwin does not fit within the limited scope and purpose of a books and records action in this court. Our law is settled that stockholders seeking books and records underSection 220 for the purpose of investigating mismanagement need not prove that wrongdoing or mismanagement actually occurred. Thus, when a stockholder demands inspection as a means to investigate wrongdoing in contemplation of a class or derivative action, Delaware courts generally do not evaluate the viability of the demand based on the likelihood that the stockholder will succeed in a plenary action. In the rare circumstances where inspection rights have been denied based on an assessment of thе merits of the claim the stockholder seeks to investigate, the courts have emphasized either that the claim was simply not “justiciable,” or that the claim on its face was not viable as a matter of law. In either event, it was clear to the court that no amount of additional information would aid the stockholder in pleading or prosecuting the contemplated plenary action, so the inspection demand was denied.107
And as recently as last month in Pettry v. Gilead Sciences, Inc.108 (”Gilead“), the Court of Chancery granted a stockholder‘s inspection request over the corporation‘s objections that the stockholder lacked standing to pursue follow-on derivative claims, which, in any event, would be time-barred and barred by the corporation‘s exculpatory charter provision.
It could be said that the Court of Chancery opinions on both sides of this apparent
We think, however, that the apparent tension that has developed between these two approaches should be relieved in a manner that better serves the purpose and nature of
In the rare case in which the stockholder‘s sole reason for investigating mismanagement or wrongdoing is to pursue litigation and a purely procedural obstacle, such as standing or the stаtute of limitations, stands in the stockholder‘s way such that the court can determine, without adjudicating merits-based defenses, that the anticipated litigation will be dead on arrival, the court may be justified in denying inspection. But in all other cases, the court should—as the Court of Chancery did here—defer the consideration of defenses that do not directly bear on the stockholder‘s inspection rights, but only on the likelihood that the stockholder might prevail in another action.
C. The Plaintiffs’ Rule 30(b)(6) Deposition
After finding that the Plaintiffs were entitled to inspection, the Court of Chancery turned to its determination of the scope of the inspection. The court started its discussion by categorizing the types of documents falling within the definition of Board Materials set forth in the Demand that might be necessary and essential to satisfy the Plaintiffs’ investigative purpose. The court interpreted the definition of the term “Board Materials” to encompass three categories: Formal Board Materials,
The court then found that the Plaintiffs’ Demand encompassed books and records falling within each of those categories, noting, however, that determining whether a stockholder is entitled to a particular category is a fact-specific inquiry that depends “on the context in which the shareholder‘s inspection demand arises.”113 Recognizing that this is a difficult task—one that “generally needs to proceed on a category-by-category basis,”114—the court concluded that AmerisourceBergen had created an additional obstacle to conducting the inquiry when it refused to disclose in discovery the types and custodians of the records it maintains. Consequently, in addition to ordering the production of Formal Board Materials, the court granted sua sponte the Plaintiffs leave to conduct a
AmerisourceBergen challenges the Court of Chancery‘s grant of leave to conduct a
1. The Burden of Proof
AmerisourceBergen‘s claim that the Court of Chancery‘s allowance of a post-trial deposition impermissibly shifted the burden of proof is, in our view, based on a mischaracterization of the court‘s opinion. In particular, the argument assumes that the court ruled that, at trial, the Plaintiffs only satisfied their burden of proof as to the Formal Board Materials. We do not read the court‘s opinion so narrowly. We understand the court to have found that the Plaintiffs were entitled to the Formal Board Materials and to have reserved judgment, subject to additional discovery, as to the Informal Board Materials and the Officer-Level Documents. Seen in that light, the court‘s ruling is a discovery ruling in an ongoing proceeding and thus within the court‘s discretion.118 But even if the ruling were to be viewed as the court‘s post-trial remedial order, the ruling is still within the court‘s discretion.119 In either case, we find that allowing
2. Palantir
AmerisourceBergen next contends that the Court of Chancery‘s discovery directive conflicts with Palantir, seizing on, among other things, our statement in that case that “books and records actions are not supposed to be sprawling, oxymoronic lawsuits with extensive discovery.”120 We agree here with the Plaintiffs that AmerisourceBergen has exaggerated the impact of the Court of Chancery‘s ruling when it laments that the ruling “will send the parties on a sprawling inquiry.”121 We also agree with the Plaintiffs that Palantir did not establish any bright-line rules regarding discovery to be applied in all
3. Scope of the Plaintiffs’ Demand
Finally, AmerisourceBergen claims that the Court of Chancery expanded the scope of the Plaintiffs’ Demand by “facilitat[ing] Plaintiffs’ request[] [of] ‘Informal Board Materials’ and ‘Officer-Level Documents,’ categories that by definition would include documents beyond the ‘Board Level Materials’ requested in the Demand.”122 Once again we disagree with AmerisourceBergen‘s characterization of the Court of Chancery‘s opinion.
The court explained its classification of the Board Materials as defined in the Demand in clear terms, upon which we cannot improve:
For each demanded category, thе Demand seeks “Board Materials,” which it defines as documents “that were provided at, considered at, discussed at, or prepared or disseminated, in draft or final form, in connection with, in anticipation of, or as a result of any meeting of the Company‘s Board or any regular or specially created committee thereof.
Through this definition, the Demand requests Formal Board Materials, Informal Board Materials, and Officer-Level Materials. The Demand seeks Formal Board Materials by requesting documents “provided at, considered at, discussed at, or ... disseminated ... in connection with, in anticipation of, or as a result of any meeting of the Company‘s Board or any regular or specially created committee thereof.” The Demand seeks Informal Board Materials by requesting “documents prepared or disseminated, in draft or final form” and because the phrases “in connection with,” “in anticipation of,” and “as a result of” are broad enough to extend beyond documents formally reviewed during an official meeting. The Demand requests Officer-Level Materials because officers and other employees could have prepared documents in connection with, in anticipation of, or as a result of a board meeting.123
IV. CONCLUSION
We affirm the Court of Chancery‘s interlocutory judgment as set forth in its January 13, 2020 Memorandum Opinion and remand for further proceedings consistent with this opinion. Jurisdiction is not retained.