IN RE UNITEDHEALTH GROUP INC. SECTION 220 LITIGATION
ORDER GRANTING CONDITIONAL STAY PENDING
Montgomery-Reeves Vice Chancellor.
on February 28, 2018, this Court issued a memorandum opinion
granting Plaintiffs' Amalgamated Bank, Coral Springs
Police Officers' Retirement Plan, and Central Laborers
Pension Fund (collectively, "Plaintiffs") request
to inspect certain books and records (the "Memorandum
on March 23, 2018, Defendant UnitedHealth Group, Inc.
("UnitedHealth") filed a Motion to Stay Pending
Appeal of the Memorandum Opinion (the "Motion");
on April 3, 2018, Plaintiffs filed an opposition to
on April 9, 2018, Defendant filed a reply in further support
of its Motion;
stockholders filed a derivative action in Minnesota against
UnitedHealth's senior management and board of directors;
THEREFORE, THE COURT HEREBY FINDS AND ORDERS AS FOLLOWS:
UnitedHealth's Motion is GRANTED conditioned on
UnitedHealth moving for a stay from the Delaware Supreme
Court within ten days.
"Stays pending appeal . . . shall be governed by . . .
the Rules of the Supreme Court." Ct. Ch. R. 62(d).
Supreme Court Rule 32(a) provides that "[a] stay . . .
pending appeal may be granted or denied in the discretion of
the trial court." Supr. Ct. R. 32(a). In determining
whether a stay should be granted, the Court balances four
factors: (1) "a preliminary injunction assessment of
likelihood of success on the merits of the appeal, " (2)
"whether the [party seeking a stay] will suffer
irreparable injury if the stay is not granted, " (3)
"whether any other interested party will suffer
irreparable injury if the stay is granted, " and (4)
"whether the public interest will be harmed if the stay
is granted." Kirpat, Inc. v. Del. Alcoholic Beverage
Control Comm'n, 741 A.2d 356, 357 (Del. 1998). The
factors are not to be considered in isolation but as part of
a balancing of "all of the equities involved in the case
together." Id. at 358.
first factor, the "likelihood of success on appeal,
" is not to be interpreted "literally or in a
vacuum when analyzing a motion for stay pending appeal."
Kirpat, 741 A.2d at 358. In Kirpat, the
Delaware Supreme Court reversed the denial of a stay pending
appeal because the Court of Chancery focused too narrowly on
this factor. Id. at 357. Specifically, the Supreme
Court reasoned, "[a] motion for stay . . . requires the
trial court to analyze the likelihood of success on appeal
after the trial court already has considered and
issued its final determination on the merits of the
case." Id. at 358. Therefore, "[r]equiring
a literal reading of the 'likelihood of success on
appeal' [factor] would lead most probably to consistent
denials of stay motions . . . because the trial court would
be required first to confess error in its ruling before it
could issue a stay." Id. Instead, "[i]f
the other three factors strongly favor interim
relief, then a court may . . . [grant] a stay if the
petitioner has presented a serious question that raises a
fair ground for litigation and thus for more deliberative
investigation." Id. (emphasis added).
UnitedHealth contends that it has presented a serious legal
question that raises fair ground for litigation:
"whether the existence of two underlying lawsuits can
establish a credible basis to infer that wrongdoing occurred
when, as of the Section 220 trial, one of the lawsuits had
been dismissed, and the other was facing a motion to
dismiss." Reply in Supp. of Def.'s Mot. for Stay 8.
Stated differently, UnitedHealth argues that a books and
records inspection should not be granted until the motion to
dismiss is decided on the underlying merits of the claims.
First, UnitedHealth's argument ignores the Memorandum
Opinion's ruling that: (a) "[t]he documents
uncovered by the DOJ's lengthy investigation, coupled
with the sworn testimony and statements of Defendant's
own management are enough to meet the 'lowest possible
burden of proof' in Delaware law, " In re
UnitedHealth Gp., Inc. Section 220 Litig., 2018 WL
1110849, at *7 (Del. Ch. Feb. 28, 2018); and (b) "even
if a complaint alone is insufficient, Defendant cannot escape
the testimony and documents that demonstrate a credible basis
for this Court to infer possible wrongdoing or mismanagement
simply because they are referenced in a complaint."
Id. Second, the Federal District Court ruled on the
motion to dismiss before this Court issued its ruling,
denying the motion to dismiss as to counts one, five, and
six. In re UnitedHealth, 2018 WL 1110849, at *2
n.24. In fact, Defendant submitted two letters to the Court
informing it of the Federal District Court's ruling on
the motion to dismiss before the Court issued the Memorandum
Opinion. Def.'s Letter (Feb. 2, 2018); Def.'s Letter
(Feb. 16, 2018). Third and finally, as it did in its
briefings and at trial, UnitedHealth raises a merits-based
argument. It is well-settled Delaware law that Section 220
actions do not warrant a trial on the merits of underlying
claims. E.g., Lavin v. W. Corp., 2017 WL
6728702, at *1 (Del. Ch. Dec. 29, 2017) ("Any contrary
finding would invite defendants improperly to draw the court
into adjudicating merits defenses to potential underlying
claims in order to defeat otherwise properly supported
Section 220 demands."); Okla. Firefighters Pension
& Ret. Sys. v. Citigroup Inc., 2014 WL 5351345, at
*6 (Del. Ch. Sept. 30, 2014) ("Although Citigroup
disclaims any effort to turn this proceeding into a trial on
the merits of Plaintiffs possible derivative claims,
Citigroup essentially seeks that result by implying that
Plaintiff must have specific, tangible evidence that
Citigroup's Board or senior management was complicit in
the fraud at Banamex. That argument ignores the inferences
that this Court can-and must-draw under the credible basis
standard, and would discourage the very behavior this Court
has sought to encourage among would-be derivative or class
plaintiffs."); LAMPERS, 2007 WL 2896540, at *12
(rejecting, in a Section 220 proceeding, that no
springloading ever occurred because "by raising such a
defense, Countrywide seeks to litigate the ultimate issue in
a possible future derivative suit that might eventually be
filed by LAMPERS. This is neither the time nor the procedural
setting to address that issue."). Thus, UnitedHealth has
failed to raise a new or substantial question of law and has
not shown a likelihood of success on appeal. Cf.
Amalgamated Bank v. Yahoo! Inc., C.A. No. 10774, 7 (Del.
Apr. 14, 2016) (ORDER) (quoting Kirpat, 741 A.2d at
358) (granting a stay in part because Yahoo "contend[ed]
that the Final Order is the first ruling in a Section 220
proceeding holding that the personal emails of outside
directors constitute corporate books and records subject to
inspection, " and it was "fair to say that
Yahoo's appeal present[ed] substantial questions that are
a fair ground for litigation and . . . more deliberative
investigation."); Orloff v. Weinstein Enters.,
Inc., 2004 WL 1488678, at *2 (Del. Ch. June 22, 2004)
("In this case, a stay is particularly appropriate
because the statutory provisions involved are new and raise
fair ground for litigation over their scope and
second factor is whether UnitedHealth will suffer irreparable
injury. UnitedHealth argues that failure to grant a stay will
cause it irreparable harm for two reasons. First,
UnitedHealth argues that it will suffer irreparable harm
because the production of the documents would moot its appeal
in a books and records action. Def.'s Mot. for Stay 4.
Second, UnitedHealth argues that it will suffer irreparable
harm because Plaintiffs will not be able to "unsee"
the production once it is made. Id. Both the
Delaware Supreme Court and this Court have accepted these
arguments as irreparable harm. Yahoo! Inc., C.A. No.
10774, at 5 (recognizing in a books and records action that
"failure to grant a stay of judgment pending appeal
would preclude effective appellate review.");
id. at 3 (finding Yahoo may suffer irreparable
injury "because the production cannot be
reversed."); Orloff, 2004 WL 1488678, at *2
("Unless a stay is entered, it is likely that the full
production required by the Final Order could be accomplished
before the appeal is heard and, thus, moot the
appeal."). I agree that UnitedHealth has identified
potential irreparable injury. But I also recognize that by
this logic, courts would have to grant stays pending appeal
in every case involving the production of books and records.
This, however, is not the law in Delaware. See Yahoo!
Inc., C.A. No. 10774, at 7 ("[A] stay pending
appeal in a Section 220 proceeding is not necessarily
appropriate in every such case."). Therefore, this
factor weighs in favor of granting the stay, but I am not
convinced that it alone weighs "strongly" enough to
warrant a stay.
third factor is whether any other party, in this case,
Plaintiffs, will suffer irreparable injury. Plaintiffs argue
that a stay would cause them irreparable harm in two ways.
First, Plaintiffs aver that further delay of this summary
action will cause irreparable harm. Pls.' Opp'n to
Def. Mot. to Stay 7. But this reasoning would require denial
of a stay in any summary or expedited proceeding. This is not
the law in Delaware. See Yahoo! Inc., C.A. No.
10774, at 7 (granting stay). Further, Plaintiffs could remedy
their concerns regarding delay by seeking an expedited
schedule with the Delaware Supreme Court. See Supr.
Ct. R. 25(e). Second, Plaintiffs argue that the Delaware
Supreme Court's recent ruling in California State
Teachers' Retirement Systems v. Alvarez, 179 A.3d
824, 855 (Del. 2018), counsels against a stay in a books and
records case if there is a pending derivative action that
relates to the same underlying claims but does not rely on
books and records. Pls.' Opp'n to Def. Mot. to Stay
7. UnitedHealth responds that any such harm is purely
speculative here because no motion to dismiss has been filed,
that action may survive a motion to dismiss, and that action
may not have preclusive effect on Plaintiffs' claim.
Reply in Supp. of Def.'s Mot. for Stay 6-7. Although not
directly addressing this particular issue, the Delaware
Supreme Court has rejected allegations of harm based on a
speculative development. Yahoo! Inc., C.A. No.
10774, at 6 (finding the argument that Amalagmated faces a
risk that the Company will engage in transformative
transaction speculative and uncertain). Furthermore,
Plaintiffs admit that the proposed confidentiality agreement
in this action would prohibit use of the books and records in
the Minnesota action pending appeal of this action.
Plaintiffs do not explain how immediate production of the
documents in this litigation would affect the Minnesota
litigation. Again, it seems as though an expedited scheduled
would address Plaintiffs' concern. At best, this factor
weighs slightly in favor of denying the stay.
fourth factor is "whether the public interest will be
harmed if the stay is granted." Kirpat, 741
A.2d at 357. Neither litigant provides convincing arguments
that the public interest will be harmed if the ...