Lebanon Cnty. Emps.' Ret. Fund v. AmerisourceBergen Corp.
| Decision Date | 13 January 2020 |
| Docket Number | C.A. No. 2019-0527-JTL |
| Court | Court of Chancery of Delaware |
| Parties | LEBANON COUNTY EMPLOYEES' RETIREMENT FUND and TEAMSTERS LOCAL 443 HEALTH SERVICES & INSURANCE PLAN, Plaintiffs, v. AMERISOURCEBERGEN CORPORATION, Defendant. |
Samuel 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.
LASTER, V.C.
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 investigations.
The 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.
The 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 BoardMaterials. 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 additional application.
The case was tried on a paper record comprising sixty-five exhibits. The following facts were proven by a preponderance of the evidence.1
AmerisourceBergen is one of the world's largest distributors of pharmaceutical products, including opioids.2 In the United States, AmerisourceBergen is one of the three largest distributors of opioids.
As an 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 todistribute 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." Id.
A 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 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.
In a 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 priority.
In 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.
In June 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.
Later 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.
After 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.
According 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 in2011 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: ...
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