Lebanon County Employees’ Retirement Fund and Teamsters Local 443 Health Services & Insurance Plan v. AmerisourceBergen Corp., C.A. No 2019-0527-JTL (Del. Ch. Jan. 13, 2020) (Laster, V.C.)
In this memorandum opinion, the Delaware Court of Chancery granted plaintiffs’ demand to inspect certain books and records of AmerisourceBergen Corporation (the “Company”) relating to the Company’s compliance with the Comprehensive Drug Abuse Prevention and Control Act of 1970 and other opioid regulations. In doing so, the Court held that plaintiffs had demonstrated a proper purpose for inspection by showing a “credible basis” of potential corporate wrongdoing due to the existence of government investigations and lawsuits regarding the Company’s opioid-distribution practices and adherence to certain opioid regulations.
Plaintiffs’ demand under Section 220 of the General Corporation Law of the State of Delaware (“Section 220”) arose in the context of certain opioid litigation and government investigations across the country. The Company rejected plaintiffs’ demand, arguing that plaintiffs failed to state a proper purpose, and, even if they had stated a proper purpose, the demand was overly broad. Plaintiffs then filed this litigation to enforce their rights.
The Court first examined whether plaintiffs stated a proper purpose for investigating corporate wrongdoing under Section 220. Referencing the existence of several governmental investigations and lawsuits, the Court held that plaintiffs had demonstrated a “credible basis” to suspect possible corporate wrongdoing.
The Court also held that plaintiffs were not required to state what they intended to do with the information received from the demand. The Court explained that a “purpose-plus-an-end” test went beyond what Section 220 required and was contrary to Delaware Supreme Court precedent.
The Court further noted that plaintiffs were not required to present evidence of “actionable wrongdoing” to access the Company’s books and records. The Court distinguished the “actionable claim” requirement to survive a dismissal under Chancery Court Rule 23.1 from the “credible basis” standard for Section 220, noting that equating the Rule 23.1 standard with the credible basis standard would run contrary to the Delaware Supreme Court’s policy of encouraging stockholders to make Section 220 demands in order to evaluate potential claims before filing a suit against a corporation.
The Court added that neither the Company’s exculpatory charter provision, a possible laches defense nor that certain claims may fall within the statute of limitations period barred plaintiffs’ demand because the demand was not made solely to institute unequivocally time-barred claims and the information derived from the demand could lead to non-exculpated and/or non-time-barred claims.