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AmerisourceBergen : Delaware Supreme Court Accepts Interlocutory Appeal Of Court Of Chancery Decision Granting Stockholders' Request To Inspect Books And Records, And To Conduct A Rule 30(b)(6) Deposition In A Section 220 Action

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03/16/2020 | 07:11am EDT

In a prior alert, we discussed Delaware Vice Chancellor J. Travis Laster'sJan. 13, 2020, decision in Lebanon County Employees' Retirement Fund v. AmerisourceBergen Corporation, a Section 220 books and records action brought by stockholders of opioid distributor AmerisourceBergen. In that decision, Vice Chancellor Laster held that (i) stockholders are not required to identify an end, in addition to a purpose, for a Section 220 inspection request; (ii) to satisfy Section 220, stockholders need not establish a basis for "actionable wrongdoing"; and (iii) in a Section 220 dispute, the trial court can order parties to develop a record -— which in this case included a Rule 30(b)(6) deposition — to enable the court to determine the appropriate scope of the inspection. The Vice Chancellor acknowledged that his rulings on the first and second issues conflict with other recent Delaware Court of Chancery authority. As noted in our prior alert, his decision therefore set up a potential split of authority within the Court of Chancery on the standard governing Section 220 demands, and AmerisourceBergen promptly asked him to certify an interlocutory appeal.

On Feb. 12, 2010, Vice Chancellor Laster issued a 12-page order certifying his decision for interlocutory review. He held that as to all three points, the company's request for interlocutory review raises "substantial issues of material importance for purposes of actions to obtain books and records pursuant to Section 220." As to the "purpose plus end" issue, he explained that "[a] ruling by the Delaware Supreme Court that a plaintiff must identify both a proper purpose for an inspection and a viable end to which the materials could be put would have widespread implications for how stockholders frame demands and how companies respond." As to the second issue, "[w]hether the plaintiffs had to meet an actionable-wrongdoing requirement is potentially an outcome-determinative issue," because "[w]ere it necessary to analyze the plaintiffs' showing under an actionable-wrongdoing standard, it is possible that the plaintiffs would not be entitled to an inspection." On the scope of discovery issue, he held that "[w]hether a trial court can order the parties to develop a record so that the trial court can carry out its obligations presents a material issue," the answer to which "will affect how this case proceeds and how other Section 220 actions are handled." In addition, because the parties in this case had stipulated that there would be no depositions during the discovery phase, the discovery ruling "raises the related issue" of whether such a stipulation "binds the trial court during the remedial phase" of a Section 220 litigation.

Applying the relevant eight-factor test reflected in Supreme Court Rule 42(b), Vice Chancellor Laster also held that his ruling merited appellate review before a final judgment. He noted that four of the factors did not apply, but the four that did all favored immediate appellate review. First, "decisions of the trial court appear to conflict on each of the three issues in question," including the discovery issue. Second, the decision "addressed the construction and application" of a state statute, and "[a]n immediate appeal will enable the Delaware Supreme Court to address the issues that the Company has raised before any books and record are produced or a Rule 30(b)(6) deposition takes place." Third, "[i]f the Delaware Supreme Court concludes that the plaintiffs have not stated a proper purpose, then the litigation will terminate." And fourth, interlocutory review "may serve considerations of justice" because if AmerisourceBergen could not appeal until the end of the case, then the company "already would have produced the Formal Board Materials and the witness for deposition." The court noted that "the burden on the company is likely small" but "could be viewed as an injustice," while on the other hand, "an appeal at this stage is unlikely to impose injustice on the plaintiffs," in large part because they inevitably "will have to litigate these issues before the Delaware Supreme at some point" in the case. 

On March 5, 2020, the Delaware Supreme Court held that "the application for interlocutory review meets the strict standards for certification under Supreme Court Rule 42(b) and should be accepted." The panel agreed that "[t]he Court of Chancery decided substantial issues of material importance" on all three scores: "[T]he scope of the statutory proper-purpose requirement under Section 220, stockholders' burden to demonstrate wrongdoing when seeking books and records for the purpose of investigating mismanagement, and the scope of the Court of Chancery's remedial discretion in a Section 220 action." The panel agreed that interlocutory review "could terminate the litigation" if the court finds "either (i) that the Stockholders had not established their right to inspect the company's books and records or (ii) that the inspection of the Formal Board Materials was sufficient for the Stockholders' purposes." The panel also agreed that interlocutory review may "serve considerations of justice" because "the company's opportunity to obtain meaningful review of the deposition ruling and the determination that the Stockholders are entitled to the Formal Board Materials will be lost in the absence of interlocutory review."  

As noted in our prior alert, interlocutory appeals in Delaware are "exceptional, not routine." In ruling on the company's certification request, Vice Chancellor Laster observed that a ruling by the Delaware Supreme Court on any or all of the three issues on appeal could have major consequences for the litigants in this case, as well as "widespread implications" for Section 220 books and records actions more generally. How consequential those implications are will now depend on the outcome of the interlocutory appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Alan Friedman
Kramer Levin Naftalis & Frankel LLP
1177 Avenue Of The Americas
New York
New York 10036
Tel: 2127159100
Fax: 2127158000
E-mail: Pmanuele@kramerlevin.com
URL: www.kramerlevin.com

© Mondaq Ltd, 2020 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

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Financials (USD)
Sales 2020 189 B - -
Net income 2020 1 680 M - -
Net Debt 2020 104 M - -
P/E ratio 2020 11,3x
Yield 2020 1,74%
Capitalization 19 763 M 19 763 M -
EV / Sales 2020 0,11x
EV / Sales 2021 0,09x
Nbr of Employees 21 500
Free-Float 51,1%
Duration : Period :
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Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 110,88 $
Last Close Price 96,81 $
Spread / Highest target 31,2%
Spread / Average Target 14,5%
Spread / Lowest Target -7,03%
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Steven H. Collis Chairman, President & Chief Executive Officer
James Francis Cleary Chief Financial Officer & Executive Vice President
Dale B. Danilewitz Chief Information Officer & Executive VP
Henry Wadsworth McGee Independent Director
Jane Ellen Henney Lead Independent Director
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