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In re Abbvie Inc.

Court of Chancery of Delaware

July 21, 2015

In re AbbVie Inc. Stockholder Derivative Litigation,

Submitted: July 13, 2015

Blake A. Bennett, Esquire

William M. Lafferty, Esquire, Leslie A. Polizoti, Esquire, Lindsay M. Kwoka, Esquire, Morris, Nichols, Arsht & Tunnell LLP

Lisa A. Schmidt, Esquire, A. Jacob Werrett, Esquire, J. Scott Pritchard, Esquire, Richards, Layton & Finger P.A.

Dear Counsel:

Where a corporation creates and then spins off a subsidiary, there is obvious business value in a clean break between the new entity and the old, including through mutual general releases of liability between the entities, and their employees and directors, as part of the transaction. Of course, where the directors approve such a release, which includes release of their own liability for theoretical claims that formerly the company, and now the sub, may have against them, they convey some benefit to themselves as well. Whether such an approval, useful to the company on its face, invokes an equitable remedy nonetheless, on account of the directors' self-dealing, depends on the extent to which tangible, valuable choses in action against the directors are released, and on the directors' knowledge of such potential liability at the time they approved the transaction.

The matter before me involves the creation of a subsidiary, AbbVie Inc. ("AbbVie"), by Abbott Laboratories ("Abbott"), the transfer of assets and liabilities to AbbVie (including those relating to the drug TriCor, a former Abbott property), and, as part of that transfer, mutual releases that are problematic for the reasons described above. Subsequently, Abbott distributed all of its 100% interest in AbbVie as a dividend to its stockholders, who thereby became AbbVie stockholders as well. The Plaintiffs, AbbVie stockholders, seek to sue derivatively on behalf of AbbVie, alleging that at the time AbbVie was created, a former Abbott employee was pursuing damages in a qui tarn[1] action against Abbott for purported violations of the False Claims Act in connection with Abbott's marketing of TriCor (the "Qui Tarn Action"); that the Qui Tarn Action persists, resulting in defense costs payable by AbbVie, and might result in damages against AbbVie, which has assumed the TriCor liability; and that the facts of the Qui Tarn Action might disclose that a chose in action existed at the time AbbVie was created, in favor of Abbott against its directors, under a theory of failure of oversight under the Caremark rationale or under a theory of bad faith. The Plaintiffs further assert that, should damages result from the Qui Tarn Action, Abbott would not have an incentive to pursue a claim against its directors, because it had transferred TriCor-related liability to AbbVie and thus would suffer no damages, and AbbVie could not pursue the claim due to the mutual releases. In other words, the Plaintiffs point to that equitable anathema, a wrong without a remedy. They purport to sue the defendant directors derivatively on behalf of AbbVie, alleging that the releases represent a conflicted transaction, or constitute waste. The Plaintiffs seek to set aside the releases, freeing AbbVie-and the Plaintiffs derivatively-to pursue a Caremark or bad faith claim against Abbott's directors, should the Qui Tarn Action prove fruitful and should the facts warrant.

The Plaintiffs lack statutory standing to derivatively sue the defendant directors for breach of duty in connection with the releases on behalf of AbbVie because they were not AbbVie stockholders at the time of the alleged wrong. They contend correctly, however, that this Court in Shaev v. Wyly[2] has allowed such an action in similar procedural circumstances, despite the statute, in light of otherwise-irremediable self-dealing by directors of a parent. The remedy problem the Plaintiffs point to is real, and analogous to Shaev, but unlike that case, the equitable considerations here are too tenuous to support the equitable exception to the statute that Plaintiffs invoke.

I. BACKGROUND FACTS [3]

A. The Spin-Off and Separation Agreement

In April 2012, Abbott incorporated AbbVie as its wholly owned subsidiary to hold Abbott's research-based pharmaceutical business. On November 28, 2012, Abbott's board of directors approved the separation of Abbott and AbbVie. The two entities entered into the Separation and Distribution Agreement By and Between Abbott Laboratories and AbbVie Inc. (the "Separation Agreement"), and Abbott declared a special dividend distribution of all outstanding shares of AbbVie common stock. On January 1, 2013, Abbott made the pro rata distribution of 100% of AbbVie's outstanding common stock to the Abbott stockholders of record as of December 12, 2012. AbbVie then became a publicly traded company on the New York Stock Exchange.

The Separation Agreement set forth the transfer of assets and liabilities from Abbott to AbbVie. It also contained "mutual releases, " pursuant to which Abbott and AbbVie each released the other of all liability in connection with the assets transferred to AbbVie and the assets retained by Abbott, respectively.[4] Relevant here, AbbVie's release of Abbott provided that AbbVie "does hereby . . . remise, release and forever discharge: (1) Abbott, each Abbott Subsidiary, and their respective successors and assigns; [and] (2) all Persons who at any time are or have been shareholders, directors, officers, agents or employees of Abbott or an Abbott Subsidiary" from all liabilities transferred to AbbVie (the "Release").[5] The liabilities transferred to AbbVie included those associated with the drug TriCor, an asset that was transferred to AbbVie.

At the time of the Release, the Qui Tam Action was (and it remains) pending. The Qui Tam Action was brought by a former employee in 2009, alleging that, during the time of her employment (2000 to 2008), Abbott engaged in marketing TriCor for off-label uses, in violation of the False Claims Act. The United States declined to intervene, and the action is being prosecuted by the relator, the former employee, on behalf of the United States. In January 2014, over a year after the ...


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