LEBANON COUNTY EMPLOYEES' RETIREMENT FUND and TEAMSTERS LOCAL 443 HEALTH SERVICES & INSURANCE PLAN, Plaintiffs,
AMERISOURCEBERGEN CORPORATION, Defendant.
Submitted: October 15, 2019
L. Closic, Eric J. Juray, PRICKETT, JONES & ELLIOTT,
P.A., Wilmington, Delaware; Gregory V. Varallo, BERNSTEIN
LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware;
Eric L. Zagar, Michael C. Wagner, Christopher M. Windover,
KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania;
Frank R. Schirripa, Daniel B. Rehns, Hillary Nappi, HACH ROSE
SCHIRRIPA & CHEVERIE LLP, New York, New York; Andrew
Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New
York, New York; Attorneys for Plaintiffs.
Stephen C. Norman, Jennifer C. Wasson, Tyler J. Leavengood,
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware;
Michael D. Blanchard, MORGAN, LEWIS & BOCKIUS LLP,
Boston, Massachusetts; Attorneys for Defendant.
AmerisourceBergen Corporation is one of the world's
largest wholesale distributors of opioid pain medication. Its
role in America's opioid epidemic has made it the target
of numerous subpoenas, government investigations, and
lawsuits. Two congressional investigations have concluded
that AmerisourceBergen failed to identify and address
suspicious orders of opioids, contrary to the requirements of
federal law. The federal Drug Enforcement Administration (the
"DEA") and federal prosecutors in nine states have
subpoenaed its documents. It is a defendant in multi-district
litigation brought by cities, counties, Indian tribes, union
pension funds, and the attorneys general of virtually every
state. AmerisourceBergen and the other opioid-distributor
defendants have offered to settle with the state attorneys
general for $10 billion. Analysts have estimated that
resolving all of the litigation would require $100 billion.
AmerisourceBergen already has spent more than $1 billion in
connection with the opioid-related lawsuits and
plaintiffs own stock in AmerisourceBergen. They are
investigating whether the firm engaged in wrongdoing in
connection with the distribution of opioids. As part of their
investigation, the plaintiffs sought to inspect
AmerisourceBergen's books and records pursuant to Section
220 of the Delaware General Corporation Law.
AmerisourceBergen rejected the plaintiffs' request in its
entirety, contending that the plaintiffs lacked a proper
purpose, and alternatively, the scope of the requested
inspection was overly broad. The plaintiffs filed this action
to enforce their statutory inspection rights.
plaintiffs have proven that they have proper purposes to
conduct an inspection, and they have established their right
to inspect what this decision refers to as Formal Board
Materials. The record is inadequate to determine whether the
plaintiffs can inspect any other materials because
AmerisourceBergen refused to provide any discovery into what
types of books and records exist, how they are maintained,
and who has them. The plaintiffs have leave to take a Rule
30(b)(6) deposition to explore these issues. If the
plaintiffs believe that they are entitled to additional books
and records after reviewing the Formal Board Materials and
taking the Rule 30(b)(6) deposition, then they may make an
case was tried on a paper record comprising sixty-five
exhibits. The following facts were proven by a preponderance
of the evidence.
AmerisourceBergen's Legal Obligations As An
is one of the world's largest distributors of
pharmaceutical products, including opioids. In the United
States, AmerisourceBergen is one of the three largest
distributors of opioids.
opioid distributor, AmerisourceBergen must comply with the
Comprehensive Drug Abuse Prevention and Control Act of 1970
and its implementing regulations (collectively, the
"Controlled Substances Act"). To obtain and
maintain a license to distribute opioids, a distributor must
maintain "effective controls against diversion of
[opioids] into other than legitimate medical, scientific,
research, or industrial channels." 21 U.S.C. §
823(e)(1); see id. § 823(b)(1). A distributor
must also "design and operate a system to disclose to
the registrant suspicious orders of [opioids]." 21
C.F.R. § 1301.74(b). "Suspicious orders include
orders of unusual size, orders deviating substantially from a
normal pattern, and orders of unusual frequency."
distributor must report suspicious orders to the DEA. Once a
distributor has reported a suspicious order, it must either
(i) decline to ship the order or (ii) ship the order only
after conducting due diligence and determining that the order
is not likely to be diverted into illegal channels. See
Masters Pharm., Inc. v. Drug Enf't Admin., 861 F.3d
206, 212-13 (D.C. Cir. 2017). The DEA can suspend or revoke
the license of any distributor that fails to maintain
controls or respond appropriately to suspicious orders.
See 21 U.S.C. § 824.
The Opioid Epidemic And Rogue Pharmacies
United States remains mired in an opioid epidemic that has
killed hundreds of thousands of Americans and affected the
lives of millions more. Starting in the late 1990s,
pharmaceutical companies reassured doctors that patients
would not become addicted to opioids. JX 43 at '001.
Doctors responded by writing more prescriptions for opioids,
often without appreciating or advising patients about the
risk of addiction. See JX 24. Between 1999 and 2014,
the number of opioid prescriptions quadrupled. JX 22 at
'003. As many as 29% of the patients who were prescribed
opioids for chronic pain misused them, and as many as 12%
developed an opioid-use disorder. JX 43 at '001.
vicious cycle, increasing levels of opioid abuse led to
greater demand for opioids. So-called "rogue
pharmacies" met the demand by filling large numbers of
prescriptions. Stopping rogue pharmacies became a DEA
AmerisourceBergen And Rogue Pharmacies
2005, DEA personnel met with the Director of Regulatory
Affairs at AmerisourceBergen to make sure that the company
understood the common characteristics of rogue pharmacies and
its obligation to prevent the diversion of controlled
substances. JX 3 at '002-03. In April 2007, the DEA
suspended AmerisourceBergen's license for its
distribution center in Orlando, Florida, because of its
involvement with rogue pharmacies. See id. at
'001. The DEA found that the Orlando center had
"sold over 5.2 million dosage units of [opioids] to
pharmacies" and that AmerisourceBergen "knew, or
should have known" that the pharmacies "were
diverting controlled substances into other than legitimate
medical, scientific and industrial channels."
Id. at '003. Among other things, the DEA found
that the pharmacies in question (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 . . . ." Id. at '002.
The DEA concluded that AmerisourceBergen had "failed to
maintain effective controls against diversion."
Id. at '003.
2007, AmerisourceBergen settled with the DEA and committed to
adopt and maintain "a compliance program designed to
detect and prevent diversion of controlled substances."
JX 5 art. II § 1(a) (the "2007 Settlement").
The program applied to all of AmerisourceBergen's
facilities and required "more rapid identification and
daily reporting of orders that may indicate diversion of
controlled substances." JX 6 at '001. It also
required "a more rigorous examination process" for
new customers. Id.
in 2007, AmerisourceBergen resolved similar problems at
Bellco Drug Company ("Bellco"), a distributor that
AmerisourceBergen acquired in March 2007. See JX 2.
Between signing and closing, Bellco entered into a consent
decree with the DEA "for failing to report suspicious
orders of controlled substances to . . . pharmacies." JX
8; see JX 7. Bellco paid an $800, 000 fine and
surrendered its DEA license. See JX 7; JX 8.
AmerisourceBergen's Monitoring And Compliance
these events, AmerisourceBergen implemented a new compliance
program that was developed in consultation with the DEA in an
effort to establish an industry standard. See Dkt.
20 at 12-13; JX 6; JX 9. After AmerisourceBergen implemented
the program, its Vice President of Corporate Security and
Regulatory Affairs gave a presentation at a conference hosted
by the DEA that addressed when companies should report
suspicious orders to authorities. Dkt. 20 at 13. In August
2015, AmerisourceBergen updated its compliance program again.
JX 41 at '185.
to AmerisourceBergen's public filings, the company's
senior officers and its board of directors (the
"Board") play a significant role in monitoring and
enforcing compliance. For example, AmerisourceBergen's
proxy statement for its annual meeting in 2011 stated,
"Our Chief Compliance Officer and/or Senior Vice
President, General Counsel and Secretary report to the Audit
Committee throughout the year on the status of our compliance
program . . . and any changes or developments." JX 16 at
'021. Eight years later, AmerisourceBergen continued to
make similar disclosures; its proxy statement for its annual
meeting in 2019 stated: "Our Board oversees risk
management and considers specific risk topics on an ongoing
basis, including risks associated with the Company's
distribution of opioid medications. . . . Our Board of
Directors actively oversees and reviews the effectiveness of
our compliance programs, including our diversion control
program." JX 44 at '014-15. The charter of the Audit
Committee corroborates these statements by requiring that the
committee review "at least quarterly reports received
from the Company's Chief Compliance Officer, counsel and
other members of management regarding the Company's
compliance with applicable legal requirements, including
requirements of the Drug Enforcement Administration." JX
49 at '005.
Government Investigations, Lawsuits, And
2012, AmerisourceBergen has received subpoenas relating to
its anti-diversion and order-monitoring programs from the DEA
and from U.S. Attorneys' Offices for the District of New
Jersey, the District of Kansas, the Northern District of
Ohio, the Eastern District of New York, the District of
Colorado, the Northern District of West Virginia, the Western
District of Michigan, the Middle District of Florida, the
Southern District of Florida, and the Eastern District of
California. JX 21 at '074-75; JX 46 at '014.
2012, the Attorney General for the State of West Virginia
sued AmerisourceBergen and other opioid distributors,
alleging that they had failed to implement effective controls
to identify suspicious orders and guard against the diversion
of opioids. JX 21 at '075. In 2017, AmerisourceBergen
paid $16 million to settle the litigation. JX 27 at '002.
Also during 2017, a consortium of attorneys general from
forty-one states requested documents and information from
AmerisourceBergen and other opioid distributors as part of an
investigation into their distribution practices. JX 29.
2018, the Energy and Commerce Committee of the United States
House of Representatives released a report titled "Red
Flags and Warning Signs Ignored: Opioid Distribution and
Enforcement Concerns in West Virginia." JX 41 (the
"West Virginia Report"). The report found that
AmerisourceBergen and the two other largest wholesale opioid
distributors in the United States "failed to address
suspicious order monitoring" in West Virginia.
Id. at '008. It concluded that after the 2007
Settlement with the DEA, AmerisourceBergen initially had
identified and halted suspicious orders from West Virginia.
But during the years following 2013, AmerisourceBergen's
reporting of suspicious orders declined significantly,
eventually reaching nominal levels. In 2013,
AmerisourceBergen shipped 20.2 million doses of opioids to
West Virginia and reported 792 suspicious orders.
Id. at '253. Two years later, in 2015,
AmerisourceBergen shipped 15.85 million doses to West
Virginia, yet reported only fifty-three suspicious orders.
Id. In 2016, AmerisourceBergen's reporting of
suspicious orders became virtually non-existent: it shipped
11.5 million doses to West Virginia, yet reported only three
suspicious orders. Id. And similarly in 2017,
AmerisourceBergen reported only five suspicious orders.
Id. at '252-53. The West Virginia Report
inferred that the trend for AmerisourceBergen's reporting
of suspicious orders in West Virginia reflected a broader
nationwide decline, because "in 2017, on a per-capita
basis, West Virginia had the second highest number of
suspicious orders reported to the DEA by AmerisourceBergen of
all states." Id. at '252.
West Virginia Report also documented changes in how
AmerisourceBergen responded to pharmacies that placed
suspicious orders. In 2009, after a pharmacy submitted
thirty-six suspicious orders in a single month,
AmerisourceBergen terminated its relationship with the
pharmacy. Id. at '253. But between 2013 and
2014, when a pharmacy submitted 109 suspicious orders over a
period of five months, AmerisourceBergen continued doing
business with the pharmacy. Id. at '254.
2018, the Office of the Ranking Member for the Homeland
Security and Governmental Affairs Committee in the United
States Senate released a report titled "Fueling an
Epidemic, Report Three: A Flood of 1.6 Billion Doses of
Opioids into Missouri and the Need for Stronger DEA
Enforcement." See JX 38 (the "Missouri
Report"). The Missouri Report similarly concluded that
AmerisourceBergen and the two other largest wholesale opioid
distributors had "consistently failed to meet their
reporting obligations" regarding suspicious orders.
Id. at '002. And AmerisourceBergen reported
suspicious orders far less frequently than its competitors,
even when shipping roughly the same quantities of opioids.
For example, between 2012 and 2017, AmerisourceBergen and
McKesson each shipped around 650 million doses to Missouri;
McKesson reported 16, 714 suspicious orders while
AmerisourceBergen reported only 224. Id. at
2019, the New York Attorney General filed an amended
complaint against AmerisourceBergen and other opioid
distributors and manufacturers. JX 48 (the "NYAG
Complaint"). In allegations specifically targeting
AmerisourceBergen, the NYAG Complaint contended that
AmerisourceBergen's policies facilitated the diversion of
opioids and that AmerisourceBergen failed to stop it from
happening. See id. ¶¶ 698-735. The NYAG
Complaint also contended that AmerisourceBergen "has
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."
Id. ¶ 727.
other things, the NYAG Complaint alleged that
AmerisourceBergen lacked "an internal rule or policy
that requires investigation of a customer based on a specific
number of suspicious order reports." Id. ¶
723. The NYAG Complaint also alleged that AmerisourceBergen
set arbitrary limits on the number of suspicious orders it
held for review, which resulted in other suspicious orders
being shipped. Id. ¶¶ 701, 705. The NYAG
Complaint similarly alleged that AmerisourceBergen only
reported some of its suspicious orders to the DEA.
Id. ¶¶ 705, 722, 728. The NYAG Complaint
further alleged that AmerisourceBergen's procedures
failed to ensure that accounts for blocked or terminated
customers were deactivated, which enabled pharmacies on the
"Do Not Ship List" to continue ordering and
receiving opioids. Id. ¶ 726. When the control
deficiency was discovered, AmerisourceBergen reinstated the
affected customers without conducting any additional due
diligence review. Id.
NYAG Complaint supported these allegations by analyzing
publicly available data on AmerisourceBergen's pharmacy
customers and by providing examples of rogue pharmacies that
AmerisourceBergen supplied. The examples included:
• A pharmacy in Orange County, New York, that
consistently ranked at or above the 99th percentile in the
state for both its number of opioid orders and its total
opioids ordered by weight. Between 2014 and 2016, more than
10% of its prescriptions were written by prescribers who were
later indicted or convicted of opioid-related charges. Over
the same period, the number of suspicious orders that
AmerisourceBergen reported from the pharmacy declined. In
2018, AmerisourceBergen was still the pharmacy's primary
opioid distributor. See id. at '208.
• A pharmacy in Bronx County, New York, that ranked
above the 95th percentile for five years straight (2012 to
2016) based on percentage of opioids volume shipped. On
average, 58% of its opioid prescriptions were paid in cash,
putting it in the 99th percentile for the state. From 2013 to
2015, approximately half of its opioid prescriptions were
written by prescribers who were later convicted. In 2018,
this pharmacy was still a customer of
AmerisourceBergen's. See id. at '210.
• A pharmacy in Queens County, New York, where, between
2013 and 2017, 77% of its prescriptions were written by
prescribers who were later indicted or convicted.
AmerisourceBergen did not stop shipping to that pharmacy
until 2017. See id. at '209.
is also a defendant in multidistrict litigation pending in
the United States District Court for the Northern District of
Ohio (the "Multidistrict Litigation"). That action
centralizes 1, 548 different lawsuits brought by state
attorneys general, cities, counties, Native American tribes,
union benefit funds, and other plaintiffs. See JX
the centralized lawsuits illustrates the types of cases that
are proceeding through the Multidistrict Litigation. In a
detailed complaint containing some 1, 165 paragraphs, the
State of Ohio and the County of Cuyahoga County alleged that
AmerisourceBergen and other distributors failed to report or
halt suspicious orders of opioids. See JX 37 (the
"Ohio Complaint") ¶¶ 9, 14. The Ohio
Complaint further alleged that AmerisourceBergen and other
manufacturers collaborated to increase DEA-imposed limits on
the volume of opioids that could be manufactured and
distributed. Id. ¶ 517. It also alleged that
opioid distributors collaborated to increase opioid sales by
working through organizations such as the Pain Care Forum and
the Healthcare Distribution Alliance. Id.
claims in the Multidistrict Litigation survived a motion to
dismiss (except for certain public nuisance claims).
See JX 42. The claims also survived a defense motion
for summary judgment. See JX 54 at '016. In
response to the defendants' motion for summary judgment,
the plaintiffs presented evidence indicating that despite
having a compliance program in place nominally,
"AmerisourceBergen continued the practice of shipping
some orders it identified as suspicious, with little or no
documentation as to whether a due diligence investigation was
conducted." JX 52 at '105. They also presented
evidence indicating that "other due diligence policies
put in place . . . suffered from numerous and critical
deficiencies" that "rendered
AmerisourceBergen's due diligence program ineffective and
toothless." Id. As an example, the plaintiffs
described a project that AmerisourceBergen had implemented in
2016 to ensure that it had the necessary documentation to
establish that all of its customers were authorized to
purchase controlled substances. The project identified a
significant number of customer files that lacked the
necessary documentation. One year later, AmerisourceBergen
had collected the necessary documentation for only about 10%
of the files. Id. at '106.
Multidistrict Litigation is heading toward a series of
bellwether trials. JX 47. In August 2019, AmerisourceBergen
and two other opioid distributors offered to pay $10 billion
to settle the claims asserted by state attorneys general. JX
55. The regulators countered at $45 billion. See id.
Analysts have estimated that a global settlement could cost
as much as $100 billion. Id.
AmerisourceBergen continues to incur costs. Since September
2017, AmerisourceBergen has spent more than $1 billion on
litigation and opioid-related costs, including settlements
and legal fees relating to opioid lawsuits and
investigations. See AmerisourceBergen Corp., Annual
Report (Form 10-K) 73 (Sept. 30, 2019).
The Section 220 Demand
21, 2019, the plaintiffs served a demand for books and
records on AmerisourceBergen. See JX 50 (the
"Demand"). The Demand stated that the plaintiffs
sought to "investigate whether the Company's
Directors and Officers have committed mismanagement or
breached their fiduciary duties" in connection with the
distribution of opioids. See id. at '013. The
Demand described the opioid crisis and
AmerisourceBergen's anti-diversion and compliance
practices. See id. at '002-10. The Demand asked
for "Board Materials" relating to ten categories of
information. Id. at '011-12. The specific
requests appear and are addressed in the Legal Analysis.
See infra Part II.B.
7, 2019, AmerisourceBergen rejected the Demand in its
entirety, contending that the Demand did not "state a
proper purpose or a credible basis to suspect
wrongdoing" and that the scope of the inspection was
"overly broad." See JX 51 at '006. To
date, AmerisourceBergen has not produced any documents in
response to the Demand.
8, 2019, the plaintiffs filed this action. The parties
negotiated a schedule and conducted limited discovery. A
trial on a paper record took place on October 15, 2019.
220(b) of the Delaware General Corporation Law grants
"[a]ny stockholder" the right "to inspect for
any proper purpose . . . [t]he corporation's stock
ledger, a list of its stockholders, and its other books and
records . . . ." 8 Del. C. § 220(b).
"Section 220 is now recognized as 'an important part
of the corporate governance landscape.'"
Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d
117, 120 (Del. 2006) (quoting Sec. First Corp. v. U.S.
Die Casting & Dev. Co., 687 A.2d 563, 571 (Del.
obtain books and records under Section 220(b), the plaintiff
must establish by a preponderance of the evidence (i) its
status as a stockholder, (ii) compliance with the statutory
requirements for making a demand, and (iii) a proper purpose
for conducting the inspection. Cent. Laborers Pension
Fund v. News Corp., 45 A.3d 139, 144 (Del. 2012). After
meeting these requirements, the plaintiff must demonstrate by
a preponderance of the evidence that "each category of
books and records is essential to accomplishment of the
stockholder's articulated purpose for the
inspection." Thomas & Betts Corp. v. Leviton
Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996). The only
disputed issues in this case are whether the plaintiffs have
a proper purpose and the scope of the inspection.
The Plaintiffs' Purposes
paramount factor in determining whether a stockholder is
entitled to inspection of corporate books and records is the
propriety of the stockholder's purpose in seeking such
inspection." CM & M Gp., Inc. v. Carroll,
453 A.2d 788, 792 (Del. 1982). In the language of the
statute, "[a] proper purpose shall mean a purpose
reasonably related to such person's interest as a
stockholder." 8 Del. C. § 220(b).
is no shortage of proper purposes under Delaware law . . .
." Melzer v. CNET Networks, Inc., 934 A.2d 912,
917 (Del. Ch. 2007). Prior cases have recognized that a
stockholder can state a proper purpose by seeking
• to investigate allegedly improper transactions or
• to clarify an unexplained discrepancy in the
corporation's financial statements regarding assets;
• to investigate the possibility of an improper transfer
of assets out of the corporation;
• to ascertain the value of his stock;
• to aid litigation he has instituted and to contact
other stockholders regarding litigation and invite their
association with him in the case;
• "[t]o inform fellow shareholders of one's
view concerning the wisdom or fairness, from the point of
view of the shareholders, of a proposed recapitalization and
to encourage fellow shareholders to seek appraisal";
• "to discuss corporate finances and
management's inadequacies, and then, depending on the
responses, determine stockholder sentiment for either a
change in management or a sale pursuant to a tender
• to inquire into the independence, good faith, and due
care of a special committee formed to consider a demand to
institute derivative litigation;
• to communicate with other stockholders regarding a
• to communicate with other stockholders in order to
effectuate changes in management policies;
• to investigate the stockholder's possible
entitlement to oversubscription privileges in connection with
a rights offering;
• to determine an individual's suitability to serve
as a director;
• to obtain names and addresses of stockholders for a
contemplated proxy solicitation; or
• to obtain particularized facts needed to adequately
allege demand futility after the corporation has admitted
engaging in backdating stock options.
City of Westland Police & Fire Ret. Sys. v. Axcelis
Techs., Inc., 1 A.3d 281, 289 n.30 (Del. 2010) (emphasis
omitted, formatting altered to add bullets, and internal
footnotes omitted) (quoting Edward P. Welch et al., Folk
on the Delaware General Corporation Law,
Fundamentals § 220.6.3, at GCL-VII-202 to -206
Demand identifies the following purposes for inspection:
(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, including
the Company's senior officers . . . in connection with
[AmerisourceBergen]'s distribution of prescription opioid
(ii) to consider any remedies to be sought in respect of the
(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 ...