Boron v. Bracken, C. A. PC-2017-4398

CourtSuperior Court of Rhode Island
Writing for the CourtSTERN, J.
PartiesEDWARD BORON, Derivatively on Behalf of CVS HEALTH CORPORATION, Plaintiff, v. RICHARD M. BRACKEN, et al. Defendants, -and- CVS HEALTH CORPORATION, a Delaware Corporation, Nominal Defendant.
Docket NumberC. A. PC-2017-4398
Decision Date04 August 2022

EDWARD BORON, Derivatively on Behalf of CVS HEALTH CORPORATION, Plaintiff,
v.

RICHARD M. BRACKEN, et al.
Defendants,

-and- CVS HEALTH CORPORATION, a Delaware Corporation, Nominal Defendant.

C. A. No. PC-2017-4398

Superior Court of Rhode Island, Providence

August 4, 2022


For Plaintiff: Robert M. Duffy, Esq. Stephanie F. Friedel, Esq.

For Defendant: Robert Corrente, Esq. Matthew H. Parker, Esq.

DECISION

STERN, J.

Before the Court is Defendants'-the individual director defendants (Director Defendants) and CVS Health Corporation (CVS) (collectively, Defendants)-Motion to Dismiss Plaintiff Edward Boron's (Plaintiff) Amended Complaint pursuant to Rule 12(b)(6) and Rule 23.1 of the Superior Court Rules of Civil Procedure. Plaintiff filed a timely objection. Jurisdiction is pursuant to Rules 12(b)(6) and 23.1, as well as G.L. 1956 §§ 8-2-14 and 8-2-17.

I

Facts and Travel

This dispute arises out of allegations by Plaintiff that CVS was required, but failed, to report Health Savings Pass (HSP) program prices as CVS's usual and customary (U&C) prices for generic drugs included in the program. By way of background, on September 15, 2017, Plaintiff

1

filed an original Verified Complaint, asserting claims against CVS including breach of fiduciary duty, waste of corporate assets, unjust enrichment, and conspiracy. See Pl.'s Verified Compl. 7579 (Sept. 15, 2017). Defendants, however, filed a Motion to Dismiss Plaintiff's Verified Complaint, arguing that the Complaint failed to state a claim for relief because Plaintiff failed to satisfy the verification requirements of Rule 23.1 of the Superior Court Rules of Civil Procedure and failed to plead demand futility with particularity. See Defs.' Mot. to Dismiss Pl.'s Verified Compl. 1-2 (May 21, 2018).

Following a hearing on the Motion, this Court granted Defendants' Motion to Dismiss on April 29, 2019, on the grounds that Plaintiff's Verified Complaint failed to demonstrate, through particularized factual allegations, that demand was futile. See Decision (Apr. 29, 2019) (Stern, J.) 25. More specifically, the Court noted that Plaintiff failed to properly allege that Defendants faced a substantial likelihood of liability for: (1) approving CVS's "unlawful" business plan; (2) disseminating false and misleading information; (3) authorizing CVS's stock repurchase program; and (4) approving substantial executive compensation. Id. Consequently, this Court found that Plaintiff had not demonstrated a basis for demand futility that would entitle Plaintiff to bring the instant action on CVS's behalf. Id.

Thereafter, on May 30, 2019, the Court entered an Order granting Defendants' Motion to Dismiss, dismissing Plaintiff's Verified Complaint without prejudice, and providing Plaintiff leave to file an amended complaint. See Order (May 30, 2019) (Stern, J.) 1. The Court also deferred the filing deadline to provide Plaintiff with an opportunity to inspect CVS's books and records pursuant to 8 Delaware Code § 220 (hereinafter, § 220). Id. at 2. Following Plaintiff's § 220 demand, CVS produced approximately 5,000 documents but refused to produce: (1) documents unrelated to the HSP program or U&C pricing; (2) senior management materials

2

unconnected to a director; and (3) documents related to alleged compliance issues other than HSP. See Decision (Dec. 15, 2020) (Stern, J.) 3. Because of CVS's refusal to produce certain documents, Plaintiff filed a Motion to Compel production of these additional documents, which this Court granted on December 15, 2020. See id. at 4. CVS thereafter produced the requested additional documents to Plaintiff, resulting in approximately 9,000 documents produced in total by CVS. See Pl.'s Am. Compl. ¶ 155 (July 27, 2021).

Following Plaintiff's § 220 demand, Plaintiff filed an Amended Verified Stockholder Derivative Complaint on July 27, 2021. See id. In response, Defendants filed the present Motion to Dismiss Plaintiff's Amended Complaint for failure to state a claim upon which relief can be granted because, according to Defendants, the Amended Complaint still fails to allege with particularity facts excusing Plaintiff's failure to make a demand on the CVS Board. (Defs.' Mem. in Supp. of Mot. to Dismiss (Defs.' Mem.) 1.) More specifically, Defendants contend, among other things, that while Plaintiff's Amended Complaint is approximately twenty pages longer than the original Complaint, Plaintiff has failed to plead any particularized facts demonstrating futility in making a demand on CVS's Board of Directors, and that, if anything, Plaintiff's futility argument is now weaker in light of the fact that CVS's Board now includes a total of thirteen directors, five of whom joined the Board years after the HSP program terminated. (Defs.' Mem. 2.) Plaintiff, however, argues that the Amended Complaint contains fact-specific allegations that are "bolstered" by the information obtained through Plaintiff's § 220 inspection. (Pl.'s Mem. in Opp'n to Defs.' Mot. to Dismiss (Pl.'s Opp'n) 1.) Consequently, Plaintiff urges this Court to deny Defendants' Motion to Dismiss. Id. This Court's decision follows.

3

II.

Standard of Review

A motion to dismiss pursuant to Rule 12(b)(6) "has a narrow and specific purpose." Mokwenyei v. Rhode Island Hospital, 198 A.3d 17, 21 (R.I. 2018). "[T]he sole function of a motion to dismiss is to test the sufficiency of the complaint." Multi-State Restoration, Inc. v. DWS Properties, LLC, 61 A.3d 414, 416 (R.I. 2013) (internal quotation omitted). When considering a Rule 12(b)(6) motion to dismiss, this Court "need not look further than the complaint in conducting our review." Palazzo v. Alves, 944 A.2d 144, 149 (R.I. 2008) (citing Rhode Island Affiliate, ACLU, Inc. v. Bernasconi, 557 A.2d 1232, 1232 (R.I. 1989)).

A motion to dismiss should only be granted '"when it is clear beyond a reasonable doubt that the plaintiff would not be entitled to relief from the defendant under any set of facts that could be proven in support of the plaintiff's claim.'" Palazzo, 944 A.2d at 149-50 (quoting Ellis v. Rhode Island Public Transit Authority, 586 A.2d 1055, 1057 (R.I. 1991); see also Builders Specialty Co. v. Goulet, 639 A.2d 59, 60 (R.I. 1994)). When examining the allegations contained in a complaint, the Court "assumes them to be true, and views them in the light most favorable to the plaintiff." Palazzo, 944 A.2d at 149.

III

Analysis

As this Court has previously discussed in its earlier decision, Rule 23.1 of the Superior Court Rules of Civil Procedure requires that a shareholder plaintiff allege that he or she previously demanded the board of directors to take a corporate action or the reasons why the demand for action would have been futile. Specifically, Rule 23.1 provides that "[t]he complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff

4

desires from the directors . . . and . . . the reasons for the plaintiff's failure to obtain the action or for not making the effort." Super. R. Civ. P. 23.1. A shareholder must plead demand futility with "particularity." See Mehrvar ex rel. KVH Industries Inc. v. Van Heyningen, No, N.C. /04-0375, 2005 WL 2385939, at *3 (R.I. Super. Sept. 27, 2005). Although Rhode Island courts have not had great occasion to consider demand futility analysis, Delaware law applies here because CVS is a Delaware corporation. G.L. 1956 § 7-1.2-711(h).

Delaware courts have developed two similar tests to determine whether demand is futile; the test that applies depends on whether a shareholder is challenging board action or a board's failure to act. The first test applies to the assessment of demand futility if a derivative suit challenges an affirmative board decision. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984). Under the Aronson test, demand is considered futile if a complaint's particularized facts create a reason to doubt that: "(1) the directors are disinterested and independent"; or "(2) the challenged transaction was otherwise the product of a valid exercise of business judgment." Id. at 814. The second test to determine whether demand is futile applies in cases of director inaction: where it is alleged that a board's inaction excuses demand, a court should consider "whether or not the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand." Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993). To balance the interests of directors and shareholders, Delaware courts have concluded "except in egregious circumstances, 'the mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors.'" H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 149 (Del. Ch. 2003) (further citations omitted). Instead, only a

5

"substantial likelihood of personal liability" will prevent a director from considering a demand with impartiality or otherwise exercising business judgment deciding whether to sue on a corporation's behalf. In re Chemed Corp., Shareholder Derivative Litigation, No. 13-1854-LPS-CJB, 2015 WL 9460118, at *9 (D. Del. Dec. 23, 2015); see also In re Intel Corp. Derivative Litigation, 621 F.Supp.2d 165, 170-71 (D. Del. 2009).

As mentioned above, this Court previously found that Plaintiff's original Complaint failed to plead, through particularized factual allegations, demand futility as required by Rule 23.1 of the Superior Court Rules of Civil Procedure because the Director Defendants did not face a substantial likelihood of liability for: (1) approving CVS's alleged unlawful business plan; (2) disseminating false and misleading information; (3) authorizing CVS's...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT