Lebanon County Employees' Retirement Fund v. Collis ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LEBANON COUNTY EMPLOYEES’ )
RETIREMENT FUND and TEAMSTERS )
LOCAL 443 HEALTH SERVICES & )
INSURANCE PLAN, )
)
Plaintiffs, )
)
v. ) C.A. No. 2021-1118-JTL
)
STEVEN H. COLLIS, RICHARD W. )
GOCHNAUER, LON R. GREENBERG, JANE )
E. HENNEY, KATHLEEN W. HYLE, )
MICHAEL J. LONG, HENRY W. MCGEE, )
ORNELLA BARRA, D. MARK DURCAN, )
and CHRIS ZIMMERMAN, )
)
Defendants, )
)
and )
)
AMERISOURCEBERGEN CORPORATION, )
)
Nominal Defendant. )
MEMORANDUM OPINION DENYING
RULE 60(b) MOTION
Date Submitted: February 6, 2023
Date Decided: March 21, 2023
Samuel L. Closic, Eric J. Juray, Robert B. Lackey, PRICKETT, JONES & ELLIOTT, P.A.,
Wilmington, Delaware; Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, Wilmington, Delaware; Lee D. Rudy, Eric L. Zagar, KESSLER
TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeroen van Kwawegen, Eric
J. Riedel, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New
York; Frank R. Schirripa, Daniel B. Rehns, Kurt Hunciker, Hillary Nappi, HACH ROSE
SCHIRRIPA & CHEVERIE LLP, New York, New York; Gregory Mark Nespole, Daniel
Tepper, LEVI & KORSINSKY, LLP, New York, New York; Brian J. Robbins, Craig W.
Smith, ROBBINS LLP, San Diego, California; Counsel for Plaintiffs.
Stephen C. Norman, Jennifer C. Wasson, Tyler J. Leavengood, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; Michael S. Doluisio, Carla Graff, DECHERT
LLP, Philadelphia, Pennsylvania; Matthew L. Larrabee, Hayoung Park, DECHERT LLP,
New York, New York; Michael D. Blanchard, Amelia Pennington, MORGAN, LEWIS &
BOCKIUS LLP, Boston, Massachusetts; Counsel for Defendants.
LASTER, V.C.
The plaintiffs are stockholders of AmerisourceBergen Corporation (the
“Company”). They brought this action derivatively on its behalf to recover for the harm it
suffered as a result of its involvement in the opioid pandemic. The plaintiffs contended that
the defendants breached the fiduciary duties they owed as officers and directors by
knowingly causing the Company to suffer harm.
First, the plaintiffs contended that the officers and directors failed to protect the
Company despite witnessing a steady stream of red flags indicating that the Company was
violating its anti-diversion obligations under the Controlled Substances Act (the “Red-
Flags Theory” or “Red-Flags Claim”). Those red flags took the form of congressional
investigations, subpoenas from prosecutors, lawsuits by state attorneys general, and an
eventual torrent of civil lawsuits. Meanwhile, as the opioid epidemic raged, the Company
reported suspicious orders at incomprehensibly low rates. The plaintiffs contended that
based on those red flags, the defendants knew that the Company was violating its anti-
diversion obligations. Yet the Company’s officers and directors consciously ignored the
red flags and did not take any meaningful action to implement stronger systems of
oversight until 2021 as part of a settlement in which they personally received releases from
liability (the “2021 Settlement”).
Second, the plaintiffs asserted that the officers and directors took a series of acts
which, when viewed together, supported a pleading-stage inference that they knowingly
pursued a business plan that prioritized profits over compliance. In In re Massey Energy
Co., this court made clear that “a fiduciary of a Delaware corporation cannot be loyal to a
Delaware corporation by knowingly causing it to seek profit by violating the law.” 2011
WL 2176479, at *20 (Del. Ch. May 31, 2011). The plaintiffs asserted that between 2010
and 2015, the officers and directors aggressively expanded the Company’s distribution
networks while consciously ignoring the effect the expansion would have on the
Company’s anti-diversion efforts, resulting in the officers and directors knowingly causing
the Company to violate the law (the “Massey Theory” or “Massey Claim”). As the decisive
evidence of this illegal business strategy, the plaintiffs pointed to the 2015 implementation
of a revised order monitoring program, which the officers and directors knew was designed
to tank the rate of suspicious order reporting and evade the federal anti-diversion
framework. The Company’s officers and directors then maintained their illegal business
strategy until they could obtain releases for themselves as part of the 2021 Settlement.
The defendants moved to dismiss the complaint for failing to support a reasonable
inference of demand futility. The plaintiffs argued that the demand was futile because the
complaint alleged facts supporting a reasonable inference that at least half of the directors
in office when the lawsuit was filed faced a substantial threat of liability.
Standing alone, the avalanche of investigations and lawsuits without any apparent
response until the 2021 Settlement would have supported a well-pled Red-Flags Claim.
Likewise, the series of decisions that the officers and directors made would have supported
a well-pled Massey Claim. But there was a final factor that fatally undermined the
reasonableness of the inferences that the plaintiffs sought. In 2022, the United States
District Court for the Southern District of West Virginia (the “West Virginia Court”) issued
a post-trial decision in a case brought against the Company and other major opioid
distributors by the City of Huntington and the Cabell County Commission. City of
2
Huntington v. AmerisourceBergen Drug Corp. (West Virginia Decision), — F. Supp. 3d
—, 2022 WL 2399876 (S.D.W. Va. July 4, 2022). The plaintiffs in that action sought to
prove that the defendants had failed to comply with their anti-diversion obligations, thereby
fueling the opioid epidemic in those localities. After a two-month trial, during which
seventy witnesses testified either live or by deposition, the West Virginia Court rejected
the plaintiffs’ theory and found that the defendants had not violated their anti-diversion
obligations. The West Virginia Court expressly found that the Company had complied with
its anti-diversion obligations.
Both the Red-Flags Theory and the Massey Theory depended on the court being
able to draw reasonable inferences that the officers and directors knowingly failed to cause
the Company to comply with its anti-diversion obligations and therefore faced a substantial
risk of liability. In light of the West Virginia Court’s post-trial findings, it was not possible
to draw those inferences. The court therefore held that demand was not futile and dismissed
the plaintiffs’ complaint. Lebanon Cnty. Emps.’ Ret. Fund v. Collis, 2022 WL 17841215,
at *15 (Del. Ch. Dec. 22, 2022) (the “Opinion”).
One week later, on December 29, 2022, the United States Department of Justice (the
“DOJ”) filed a complaint against the Company in the United States District Court for the
Eastern District of Pennsylvania. Dkt. 44 Ex. A (the “DOJ Complaint”). The DOJ
Complaint alleges that the Company violated the Controlled Substances Act “by refusing
or negligently failing to report suspicious orders to [the] DEA on numerous occasions
during the relevant period.” Id. ¶ 272. The DOJ Complaint states:
3
Defendants’ violations fall into four broad and non-exclusive
categories: (1) failures to report orders that were suspicious
because of indications that the customers placing the orders
likely were facilitating diversion of controlled substances;
(2) failures to report suspicious orders that breached
Defendants’ thresholds and were flagged, and which
Defendants’ reviewers rejected because they recognized that
they could not dispel the suspicions raised by the orders;
(3) failures to report suspicious orders that breached
Defendants’ thresholds and were flagged for review, but which
Defendants cleared to be shipped and not reported without
dispelling all suspicions; and (4) failures to report other
suspicious orders that Defendants’ faulty algorithms did not
flag. Certain violations fall into more than one of these
categories.
Id. The DOJ Complaint contended that the violations were “at least negligent” in light of
the “pervasive problems” with the Company’s compliance program. Id. ¶ 273.
The plaintiffs assert that the DOJ Complaint constitutes new evidence. On January
9, 2023, they filed a Motion for Relief from Judgment and Order Pursuant to Rule 60(b)
(the “Motion”). This decision denies the Motion.
I. LEGAL ANALYSIS
Court of Chancery Rule 60(b) states in relevant part:
On motion and upon such terms as are just, the Court may relieve a party or
a party’s legal representative from a final judgment, order, or proceeding for
the following reasons: (1) Mistake, inadvertence, surprise, or excusable
neglect; (2) newly discovered evidence; (3) fraud (whether heretofore
denominated intrinsic or extrinsic), misrepresentation or other misconduct of
an adverse party; (4) the judgment is void; (5) the judgment has been
satisfied, released, or discharged, or a prior judgment upon which it is based
has been reversed or otherwise vacated, or it is no longer equitable that the
judgment should have prospective application; or (6) any other reason
justifying relief from the operation of the judgment.
4
A court applies those criteria with two important values in mind: “the integrity of the
judicial process and the finality of judgments.” Credit Lyonnais Bank Nederland, N.V. v.
Pathe Commc’ns Corp., 1996 WL 757274, at *1 (Del. Ch. Dec. 20, 1996) (Allen, C.). “A
Rule 60(b) motion is not an opportunity for a do-over or an appeal.” Carlyle Inv. Mgmt.
L.L.C. v. Nat’l Indus. Gp. (Hldg.), 2012 WL 4847089, at *5 (Del. Ch. Oct. 11, 2012), aff’d,
67 A.3d 373 (Del. 2013). A Rule 60(b) motion is also not “a substitute for a [Rule 59]
motion for a new trial.” 1 Donald J. Wolfe & Michael A. Pittenger, Corporate and
Commercial Practice in the Delaware Court of Chancery § 4.09[d][1] at 4-47 (2d ed.
2021).
“The determination whether to grant a motion for relief pursuant to Rule 60(b) rests
in the sound discretion of the trial court.” Joseph v. Shell Oil Co., 1985 WL 21146, at *1
(Del. Ch. June 6, 1985). “Because of the significant interest in preserving the finality of
judgments, Rule 60(b) motions are not to be taken lightly or easily granted.” Epstein v.
Matsushita Elec. Indus. Co., Ltd. (In re MCA, Inc. S’holder Litig.), 785 A.2d 625, 635 (Del.
2001). Although not specifically identified in the rule, “[e]quitable principles may be taken
into account by a court in the exercise of its discretion under Rule 60(b).” 11 Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 2857 (3d ed.) Westlaw
(database updated Apr. 2022) [hereinafter Wright & Miller]. The language of the rule
incorporates equitable principles of fairness by calling for the court to grant relief “upon
such terms as are just.” Ct. Ch. R. 60(b).
The plaintiffs invoke Rule 60(b)(2) and Rule 60(b)(6). Neither provides grounds for
relief.
5
A. Rule 60(b)(2)
“Rule 60(b)(2) affords a disappointed litigant an opportunity to obtain judicial
reconsideration of the merits of his claim on account of ‘newly discovered evidence.’”
Norberg v. Sec. Storage Co., 2002 WL 31821025, at *2 (Del. Ch. Dec. 9, 2002). Because
of the interest in the finality of judgments, the newly discovered evidence must indicate
“that an injustice is clearly threatened.” Credit Lyonnais, 1996 WL 757274, at *4. Plaintiffs
argue that the DOJ Complaint constitutes “new, material evidence supporting the inference
that [the Company’s] directors face a substantial likelihood of liability under either a Red-
Flag[s] Claim or Massey Theory.” See Dkt. 44 at ¶ 20. That is not so.
1. Clarifying The Standard For A Motion Under Rule 60(b)(2)
Two lines of Delaware authority have interpreted Rule 60(b)(2). The first addresses
a scenario in which a final judgment has been entered, then a party moves for relief based
on evidence discovered after the entry of the final judgment.1 In that setting, the movant
must show:
(1) the newly discovered evidence has come to his knowledge since the
judgment; (2) that it could not, in the exercise of reasonable diligence, have
been discovered for use before the judgment; (3) that it is so material and
relevant that it will probably change the result; (4) that it is not merely
cumulative or impeaching in character; and (5) that it is reasonably possible
that the evidence will be produced at the trial.
1
See, e.g., Wimbledon Fund LP v. Special Situations LP, 2011 WL 378827, at *5
(Del. Ch. Feb. 4, 2011); 99-Year Lease Tenants v. Key Box “5” Operatives, Inc., 2005 WL
1924193, at *3 (Del. Ch. Aug. 10, 2005); Norberg, 2002 WL 31821025, at *2; In re U.S.
Robotics Corp. S’holder Litig., 1999 WL 160154, at *10 (Del. Ch. Mar. 15, 1999).
6
Levine v. Smith, 591 A.2d 194, 202 (Del. 1991) (cleaned up).2
The second line of authority addresses a scenario in which a party seeks leave to
supplement the record with newly discovered evidence after the close of the evidence at
trial but before a judgment has been entered.3 Rule 60(b)(2) does not strictly apply in that
2
In Brehm v. Eisner, 746 A.2d 244, 253–54 (Del. 2000), the Delaware Supreme
Court overruled seven precedents, including Levine, to the extent that they reviewed a Rule
23.1 decision by the Court of Chancery under an abuse of discretion standard or otherwise
suggested deferential appellate review. Id. at 253 n.13 (overruling in part on this issue
Scattered Corp. v. Chi. Stock Exch., 701 A.2d 70, 72–73 (Del. 1997); Grimes v. Donald,
673 A.2d 1207, 1217 n.15 (Del. 1996); Heineman v. Datapoint Corp., 611 A.2d 950, 952
(Del. 1992); Levine, 591 A.2d at 207; Grobow v. Perot, 539 A.2d 180, 186 (Del. 1988);
Pogostin v. Rice, 480 A.2d 619, 624–25 (Del. 1984); and Aronson v. Lewis, 473 A.2d 805,
811 (Del. 1984)). The Brehm Court held that going forward, appellate review of a Rule
23.1 determination would be de novo and plenary. Brehm, 746 A.2d at 254. The seven
partially overruled precedents otherwise remain good law. This decision does not rely on
any of them for the standard of appellate review. Having described Brehm’s relationship
to these cases, this decision omits their cumbersome subsequent history.
More recently, the Delaware Supreme Court overruled Aronson and Rales v.
Blasband, 634 A.2d 927 (Del. 1993), to the extent that they set out alternative tests for
demand futility. United Food & Com. Workers Union & Participating Food Indus. Empls.
Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021). The high court
adopted a single, unified test for demand futility. Although the Zuckerberg test displaced
the prior tests, the Court stated that cases properly applying Aronson and Rales remain
good law. Id. This decision therefore does not identify any precedents as having been
overruled by Zuckerberg.
3
E.g., Vianix Del. LLC v. Nuance Commc’ns, Inc., 2011 WL 487588, at *3 (Del.
Ch. Feb. 9, 2011). This type of motion is often called a “motion to reopen the record.” See
Fitzgerald v. Cantor, 2000 WL 128851, at *1 (Del. Ch. Jan. 10, 2000) (citing El Paso Nat.
Gas Co. v. Amoco Prod. Co., 1992 WL 43925, at *10 (Del. Ch. Mar. 4, 1992)).
7
setting, because no judgment has been entered.4 By its terms, the more appropriate
procedural vehicle is Rule 59(a), which provides that
[a] new trial may be granted to all or any of the parties, and on all or part of
the issues for any of the reasons for which rehearings have heretofore been
granted in suits in equity. The Court may open the judgment if one has been
entered, take additional testimony, amend or make new factual findings and
legal conclusions, and direct the entry of a new judgment. A new trial will
not be granted after the filing of an appeal.
Ct. Ch. R. 59(a). That rule expressly contemplates that the court may “take additional
testimony,” “amend or make new factual findings and legal conclusions,” and grant a new
4
“Judgment” in this context is a technical term referring to an order giving rise to a
right of appeal. Ct. Ch. R. 54(a) (“‘Judgment’ as used in these Rules includes any order
from which an appeal lies.”). That generally means the order constituting the trial court’s
last act in the case. See, e.g., Tyson Foods, Inc. v. Aetos Corp., 809 A.2d 575, 579 (Del.
2002) (“In short, a final judgment is one that determines all the claims as to all the parties.”
(internal citation omitted)); Emerald P’rs v. Berlin, 811 A.2d 788, 790 (Del. 2001) (“An
aggrieved party can appeal to this Court, as a matter of right, only after a final judgment is
entered by the trial court. ‘A “final decision” is generally defined as one that ends the
litigation on the merits and leaves nothing for the trial court to do but execute the
judgment.’”); Bush v. Reyes, 2001 WL 760827, at *1 (Del. May 25, 2001) (TABLE) (“An
order is deemed final and appealable if the trial court has clearly declared its intention that
the order be the court’s ‘final act’ in disposing of all justiciable matters within its
jurisdiction.”). The term does not refer to an interlocutory ruling nor to a post-trial decision
that has not been implemented through a judgment. See 10 Wright & Miller, supra, § 2651
(“The terms ‘decision’ and ‘judgment’ are not synonymous under the federal rules. The
decision consists of the court’s findings of fact and conclusions of law; the rendition of
judgment is the pronouncement of that decision and the act that gives it legal effect.”).
Compare, e.g., Ct. Ch. R. 59(f) (contemplating a motion for reargument after the issuance
of an “opinion” or “decision”), with Ct. Ch. R. 59(e) (contemplating a motion to alter or
amend “the judgment”), and Ct. Ch. R. 60(a) (contemplating relief from a “judgment” or
“order”). Under the Federal Rules of Civil Procedure, Rule 58 governs the entry of
judgments and provides detailed instructions regarding when and how judgment is entered.
Court of Chancery Rule 58 is not comparable. It states only that “[t]he order of the Court
shall constitute the judgment of the Court.” Ct. Ch. R. 58. That laconic framing
understandably breeds confusion.
8
trial “on all or part of the issues.” Id. Those options encompass all that is necessary to
supplement the record.
The time to move for a new trial under Rule 59(a) logically begins when trial begins
and continues until “10 days after the entry of judgment,” when the period for seeking relief
under Rule 59(a) expires. Ct. Ch. R. 59(b). Rule 59(a) is thus the proper vehicle for
supplementing or reopening the record before judgment is entered (or within the first ten
days after its entry). Yet our decisions have not relied on Rule 59(a), seemingly interpreting
that rule as being available only for a ten-day window beginning after the entry of
judgment, rather than for the longer period that begins with the end of trial and ends ten
days after the entry of judgment. See Vianix, 2011 WL 487588, at *2 (asserting that Rule
59(a) was not “directly on point” where “the motion [to supplement the record] does not
seek a new trial and [the court had] not yet entered a final judgment”). To read the rule as
only creating a momentary aperture that opens upon entry of judgment and closes ten days
later is erroneous. See Wright & Miller, supra, § 2812 (“Rule 59(b) sets a maximum time
for filing new-trial motions; there is nothing to prevent making a motion for a new trial
before judgment has been entered, however.”). The period in which to move for a new trial
starts when trial starts. The period ends ten days after the entry of judgment. During that
period, a party can rely on Rule 59(a) to seek a new trial. During the time before judgment
is entered, a party can invoke Rule 59(a) as a procedural vehicle to supplement the record.
Believing Rule 59(a) to be unavailable until after judgment is entered, this court
sought to fill the resulting gap by invoking its inherent authority and looking to Rule
60(b)(2) as “both analogous and instructive.” Vianix, 2011 WL 487588, at *3. And when
9
doing so, this court went beyond the Levine factors by introducing two additional
considerations: (i) whether undue prejudice will inure to the nonmoving party and
(ii) considerations of judicial economy. Carlson v. Hallinan, 925 A.2d 506, 520 (Del. Ch.
2006), opinion clarified, 2006 WL 1510759 (Del. Ch. May 22, 2006). As assembled in
Carlson, the full list reads:
Among the factors the Delaware courts have considered in deciding [a
motion to reopen the record] are (1) whether the evidence has come to the
moving party’s knowledge since the trial, (2) whether the exercise of
reasonable diligence would have caused the moving party to discover the
evidence for use at trial, (3) whether the evidence is so material and relevant
that it will likely change the outcome, (4) whether the evidence is material
and not merely cumulative, (5) whether the moving party has made a timely
motion, (6) whether undue prejudice will inure to the nonmoving party and
(7) considerations of judicial economy.
Id. at 520. Oddly, the Carlson decision did not draw the first five factors from Levine, but
rather concatenated them from other Court of Chancery decisions. See id.
When appending the last two factors, the Carlson court drew on Fitzgerald v.
Cantor, 2000 WL 128851 (Del. Ch. Jan. 10, 2000), and Kahn v. Tremont Corp., 1997 WL
689488, at *5 (Del. Ch. Oct. 28, 1997). In Fitzgerald, the defendants sought to reopen the
record so the court could take judicial notice of a filing with the United States Securities
and Exchange Commission. The court denied the motion “[a]fter balancing the relative
impact of this proposed new evidence against considerations of further delay in disposition
of this case, the unfair prejudice caused to plaintiff by its concomitant need for further
development of the record in order to meet defendants’ interpretation of the evidence and
the necessary additional commitment of judicial resources.” 2000 WL 128851, at *1. That
was the only time that the concepts of “unfair prejudice” and “judicial resources” appeared
10
in the decision, and the court did not provide reasoning or authority for adding them as
considerations. The motion already merited denial, because the court separately concluded
that the SEC filing did not constitute newly discovered evidence. In Tremont, the court
considered whether to admit new evidence on remand following a reversal by the Delaware
Supreme Court. 1997 WL 689488, at *5. Relying on federal precedent that spoke to that
setting, the court stated that it ”must weigh several factors, including: (i) the burden placed
on the parties and their witnesses; (ii) whether undue prejudice will result by not taking
new testimony; and (iii) what considerations should be given to judicial economy.” Id. That
is a wholly different, three-factor test that substitutes grander and more flexible concepts
for the five specific factors identified in Levine. Neither Fitzgerald nor Tremont support
appending two additional considerations to Levine’s five-factor test.
Because both the Levine list and the Carlson list are associated with Rule 60(b)(2),
they are easy to confuse. A party opposing relief under Rule 60(b)(2) generally will find it
advantageous to embrace the seven factors from Carlson because the issues of undue
prejudice and judicial economy provide additional bases for opposing the motion. But if
factors (1) through (5) are satisfied, is there a setting when the risk of undue prejudice and
judicial economy could carry the day? At that point, the court will have determined that
newly discovered evidence exists that the moving party could not have found earlier, which
the moving party has raised in timely fashion, and which is noncumulative and likely to
change the result. When those factors are present, they would seem to outweigh the risk of
undue prejudice and the desire for judicial economy, creating a context where concern for
the integrity of the judicial process outweighs the otherwise significant interest in the
11
finality of judgments. See Credit Lyonnais, 1996 WL 757274, at *1. Such a case is one
where “injustice is clearly threatened,” warranting relief under Rule 60(b)(2). Id. at *4.
The factors that the Delaware Supreme Court identified in Levine accurately state
the requirements that a movant must meet to prevail on a motion under Rule 60(b)(2). The
two additional factors from Carlson should not be part of the test. To the extent that unique
circumstances require additional consideration, then a court can take those matters into
account when determining whether to grant relief “upon such terms as are just.” Ct. Ct. R.
60(b); see Wright & Miller, supra, § 2857 (explaining that a court can take into account
“equitable considerations” when granting relief under Rule 60(b)).
2. Applying The Standard For A Motion Under Rule 60(b)(2)
Under Levine, the plaintiffs must show that (1) the DOJ Complaint constitutes newly
discovered evidence that has come to the plaintiffs’ knowledge since the entry of judgment;
(2) the DOJ Complaint could not have been discovered before the judgment through the
exercise of reasonable diligence; (3) the DOJ Complaint is sufficiently material and
relevant that it would probably change the outcome; (4) the DOJ Complaint is not merely
cumulative or impeaching in character; and (5) it is reasonably possible that the evidence
will be produced at the trial.
No one disputes that the DOJ Complaint did not exist when the court entered the
judgment, meaning that the plaintiffs could not have discovered it before the judgment
through the exercise of reasonable diligence. Whether the DOJ Compliant will be
admissible at trial depends on the purpose for which it is introduced, and legitimate
purposes plainly exist. The pivotal issues are elements one, three, and four.
12
a. Element One: Is The DOJ Complaint Newly Discovered
Evidence?
The plaintiffs argue that the DOJ Complaint is newly discovered evidence. The DOJ
Complaint is plainly “evidence,” although whether it is admissible at trial depends on how
the plaintiffs seek to use it. The real question for purposes of the first element is whether
the evidence was “newly discovered.” The answer to that question would seem obvious—
the DOJ Complaint was not filed until after judgment was entered, but the law draws a
distinction between “new” evidence and “newly discovered” evidence. The latter can
support a Rule 60(b)(2) motion. The former cannot.
The leading Delaware decision on this issue is Bachtle v. Bachtle, 494 A.2d 1253(Del. 1985), where the Delaware Supreme Court considered whether the Family Court
abused its discretion in refusing to reopen a judgment dividing real property after a divorce.
During the proceeding, the husband and wife each presented expert testimony regarding
the valuation of the marital residence. Id. at 1255. The wife’s expert appraised the residence
at between $172,000 and $195,000, and the husband’s expert appraised the residence at
$150,000. The Family Court valued the residence at $150,000 and awarded it to the
husband. Approximately nine months later, the husband sold the residence for $218,000.
Approximately ten months after that, the wife petitioned the Family Court to reopen the
judgment so that the sale price of the house could be included in a modified distribution of
marital property. The Family Court denied the motion.
On appeal, the Delaware Supreme Court started its analysis with a statute providing
that a property disposition may be modified or terminated “only upon a showing of
13
circumstances that would justify the opening or vacation of a judgment under the Rules of
the Superior Court of this State . . . .” 13 Del. C. § 1519(a)(3). The high court therefore
turned to Superior Court Civil Rule 60(b)(2), which permits relief from a judgment for
“newly discovered evidence which by due diligence could not have been discovered in
time to move for a new trial under Rule 59(b).” Super. Ct. R. 60(b)(2). Because the sales
price for the property “was not in existence at the time of judgment,” the valuation
constituted “‘new evidence,’ not ‘newly discovered evidence.’” Bachtle, 494 A.2d at 1255.
In reaching this conclusion, the Bachtle decision relied on federal precedent
interpreting the concept of “newly discovered evidence” to mean evidence “‘in existence
and hidden at the time of judgment.’”5 Federal courts continue to apply that rule. E.g.,
ChromaDex, Inc. v. Elysium Health, Inc., 2021 WL 1648596, at *1 (D. Del. Apr. 27, 2021);
11 Wright & Miller, supra, § 2808 (“As is true under Rule 60(b)(2), in order to comply
5
Id. (quoting Ryan v. United States, 303 F.2d. 430, 434 (2d Cir. 1962); citing Brown
v. Pennsylvania R.R. Co., 282 F.2d 522, 526–527 (3rd Cir. 1960) (defining “newly
discovered evidence” to mean “evidence of facts in existence at the time of trial of which
the aggrieved party was excusably ignorant”) (internal citation omitted), cert. den., 365
U.S. 818 (1961)); accord United States v. Rutkin, 208 F.2d 647, 649–650 (3rd Cir. 1953)
(“The United States and Rutkin have agreed that to warrant the granting of a new trial on
the ground of newly discovered evidence, ‘There must ordinarily be present and concur
five verities, to wit: (a) The evidence must be in fact, newly discovered, i.e., discovered
since the trial; (b) facts must be alleged from which the court may infer diligence on the
part of the movant; (c) the evidence relied on, must not be merely cumulative or
impeaching; (d) it must be material to the issues involved; and (e) it must be such, and of
such nature, as that, on a new trial, the newly discovered evidence would probably produce
an acquittal.’” (quoting Johnson v. United States, 32 F.2d 127, 130 (8th Cir. 1929)).
14
with Rule 59, the court must find that the newly discovered evidence itself, as well as the
facts that it supports, were in existence at the time of trial.”).
Under the Bachtle decision, Rule 60(b)(2) does not apply to “new” as opposed to
“newly discovered” evidence.6 The valuation in Bachtle met that definition because the
sale had not taken place at the time of judgment. The transaction occurred afterward,
making the sale price a new fact. At a superficial level, the DOJ Complaint seems to fit
that mold, because when the court entered the judgment in this case, the DOJ had not filed
suit yet.
On another level, however, the DOJ Complaint differs from the sale of the residence
in Bachtle, because the DOJ Complaint refers to historical events predating the judgment.
While serving as a member of this court, Justice Jacobs dealt with a similar situation in
Grobow v. Perot (Grobow III), 1988 WL 127094 (Del. Ch. Nov. 25, 1988). After then-
6
Although Bachtle considered Superior Court Civil Rule 60(b)(2), its holding
applies equally to Chancery Court Rule 60(b)(2), which is substantively identical. See
Sullivan v. Maughan, 608 A.2d 730 (Del. 1991) (treating Family Court Civil Rule 60(b),
Superior Court Rule 60(b), and Court of Chancery Rule 60(b) as substantively identical
“counterparts”); see also Cheswold v. Cent. Del. Bus. Park, 2017 WL 2463689, at *4 (Del.
Super. Ct. June 6, 2017) (“The language found in Rule 60(b) is identical in both the Court
of Chancery and the Superior Court Civil Rules.”), rev’d on other grounds, 188 A.3d 810(Del. 2018); In re U.S. Robotics Corp. S’holder Litig., 1999 WL 160154, at *8 (Del. Ch.
Mar. 15, 1999) (same)); cf. Daniel L. Herrmann, The New Rules of Procedure in Delaware,
18 F.R.D. 327, 327–28 (1956) (discussing Rule 60(b) without distinguishing between the
Superior Court and the Chancery Court versions). The two versions are not precisely
identical, because Superior Court Civil Rule 60(b)(2) authorizes relief from judgment for
“newly discovered evidence which by due diligence could not have been discovered in
time to move for a new trial under Rule 59(b),” while the Court of Chancery Rule refers
more parsimoniously to “newly discovered evidence.” The meaning of the two versions is
undoubtedly the same.
15
Vice Chancellor Jacobs dismissed the complaint, the plaintiffs sought relief from judgment
under Rule 60(b)(2) based on a tell-all book published after the dismissal of the complaint,
as well as post-dismissal depositions taken in related litigation. Id. at *1. No one suggested
that the post-judgment book and depositions were new evidence, as opposed to newly
discovered evidence about events that preceded the judgment. Then-Vice Chancellor
Jacobs granted the motion. Id. at *4. The Grobow III decision indicates that when a plaintiff
seeks to rely on evidence about pre-judgment events, it constitutes newly discovered
evidence for purposes of Rule 60(b)(2), even if the evidence takes form after the judgment.
These precedents point to a distinction between the filing of the DOJ Complaint and
the contents of the DOJ Complaint. To the extent the plaintiffs seek to rely on the filing of
the DOJ Complaint as evidence of the DOJ’s belief in the strength of its allegations, the
DOJ Complaint is “new evidence” that cannot support relief under Rule 60(b)(2). That is
because the filing itself took place after the judgment. To the extent the plaintiffs rely on
the contents of the DOJ Complaint, the DOJ Complaint constitutes newly discovered
evidence about past events that can be considered for purposes of Rule 60(b)(2). That is
because although the form of the evidence manifested itself after the judgment, it relates to
events that predated the judgment.
b. Element Three: Is The DOJ Complaint Sufficiently Material To
Change The Result?
To the extent the DOJ Complaint constitutes newly discovered evidence, the third
element requires a showing that the DOJ Complaint is so material as to change the result.
Credit Lyonnais, 1996 WL 757274, at *1. The DOJ Complaint does not meet this standard.
16
When determining whether to dismiss a complaint under Rule 23.1, a court
evaluates whether the complaint’s allegations identify “with particularity the efforts, if any,
made by the plaintiff to obtain the action the plaintiff desires from the directors or
comparable authority and the reasons for the plaintiff’s failure to obtain the action or for
not making the effort.” Ct. Ch. R. 23.1(a). The requirement of particularized facts means a
“[p]laintiffs’ pleading burden [in the demand excused context] is . . . more onerous than
that required to withstand a Rule 12(b)(6) motion.” Levine, 591 A.2d at 207. Under the
heightened pleading requirements of Rule 23.1, “conclusionary [sic] allegations of fact or
law not supported by allegations of specific fact may not be taken as true.” Grobow, 539
A.2d at 187. But the requirement of factual particularity does not entitle a court to discredit
or weigh the persuasiveness of well-pled allegations. “Plaintiffs are entitled to all
reasonable factual inferences that logically flow from the particularized facts alleged, but
conclusory allegations are not considered as expressly pleaded facts or factual inferences.”
Brehm, 746 A.2d at 255. Rule 23.1 requires that a plaintiff allege specific facts, but “he
need not plead evidence.” Aronson, 473 A.2d at 816; accord Brehm, 746 A.2d at 254(“[T]he pleader is not required to plead evidence.”).
The Opinion applied that standard. The Opinion acknowledged and accepted as true
the plaintiffs’ allegation that the Company had been “named as a defendant in more than
1,800 lawsuits” by governmental entities and other plaintiffs. Compl. ¶ 6. The Opinion also
credited that the Company had been the subject of numerous governmental investigations,
including “a long running and expanding U.S. Department of Justice (‘DOJ’) civil and
criminal investigation.” Id. The Opinion acknowledged that the complaint’s allegations,
17
standing alone, were sufficient to support an inference that the directors knew that the
Company’s existing anti-diversion systems were inadequate and consciously decided not
to take any action in response to the red flags.
The challenge was whether the inferences were reasonable. In the West Virginia
Decision, the West Virginia Court found on the merits after a lengthy trial that the
Company had established and maintained an adequate anti-diversion program. West
Virginia Decision, 2022 WL 2399876, at *61. The West Virginia Court found no evidence
that the Company distributed opioids to pill mills. Id. at *53. Based on its findings, the
West Virginia Court ruled that “[n]o culpable act by defendants caused an oversupply of
opioids in Cabell/Huntington.” Id. at *61.
Given the findings in the West Virginia Decision, the court could not draw a
reasonable pleading-stage inference that the defendants had acted in bad faith in failing to
cause the Company to comply with its anti-diversion obligations. The pled facts supported
that inference, but the West Virginia Court’s post-trial findings rendered that inference
unreasonable.
The plaintiffs do not assert that the DOJ Complaint contains materially new
information, and they acknowledge that the existence of another lawsuit is unlikely to
change the outcome of the Opinion. Dkt. 53 ¶ 6. They argue that “the U.S. Government’s
decision to pursue an enforcement action, based on the conclusion of multi-year
investigations, flips the inferences supporting the Opinion.” Id. (formatting in original)
(footnote omitted). In other words, they contend that because the DOJ decided to file the
DOJ Complaint, after the issuance of the West Virginia Decision, it remains reasonable to
18
infer that the defendants knowingly failed to cause the Company to comply with its anti-
diversion obligations. But as previously discussed, the act of filing the DOJ Complaint is
new evidence, not newly discovered evidence. It therefore cannot be considered for
purpose of the plaintiffs’ application for relief under Rule 60(b)(2).
To the extent the plaintiffs rely on the contents of the DOJ Complaint, rather than
the act of filing, those allegations would not change the outcome. The plaintiffs recognize
that the contents of the DOJ Complaint largely parallel their complaint. And the allegations
remain allegations, so they cannot support reasonable inferences in the face of the factual
findings made by the West Virginia Court.
Finally, the DOJ Complaint’s allegations do not otherwise address the issues
pertinent to demand futility. The DOJ Complaint does not mention the individual
defendants, and it contains no allegations supporting an inference that the Company’s
directors knowingly took action that would support a Red-Flags Claim or a Massey Claim.
The DOJ Complaint rests on theories that require no greater level of culpability than
negligence.
The West Virginia Court made findings of fact. The allegations in the DOJ
Complaint, even recognizing that it was filed by the DOJ, do not support reasonable
inferences of noncompliance under the particularized pleading standard required by Rule
23.1. Considering the contents of the DOJ Complaint would not change the result.
c. Element Four: Is The DOJ Complaint Cumulative?
Element four of the Rule 60(b)(2) test requires that the plaintiff show that the DOJ
Complaint is not cumulative. They cannot make that showing.
19
As this decision has discussed, a reference to the DOJ Complaint bundles two
events: the filing of the complaint and the contents of the complaint. The filing of the DOJ
Complaint is not cumulative. It is a new event, so it is new evidence, not newly discovered
evidence. It therefore cannot be considered for purposes of Rule 60(b)(2).
The contents of the DOJ Complaint qualify as newly discovered evidence, but the
evidence is cumulative. The DOJ Complaint covers the same general timeline as the
plaintiffs’ complaint and describes many of the same events discussed in the Opinion.
d. The Conclusion Regarding The Rule 60(b)(2) Test
The Levine test governs, and the Motion fails to satisfy it. The act of filing the DOJ
Complaint is new evidence, not newly discovered evidence, and cannot be considered. The
contents of the DOJ Complaint qualify as newly discovered evidence, but the information
would not change the outcome because it is cumulative. The request for relief under Rule
60(b)(2) is therefore denied.
B. Rule 60(b)(6)
Plaintiffs argue in the alternative that the court should grant the Rule 60(b) motion
under the catchall provision of Rule 60(b)(6), which permits the court to grant relief from
judgment “for any other reason.” Ct. Ch. R. 60(b)(6). A party moving under Rule 60(b)(6)
must carry a heavier burden than under other subdivisions of Rule 60(b). See, e.g., MCA,
785 A.2d at 635 n.9. For purposes of Rule (b)(6), a plaintiff must identify “extraordinary
circumstances.” Dixon v. Delaware Olds, Inc., 405 A.2d 117, 119 (Del. 1979); accord 11
Wright & Miller, supra, § 2857.
20
Plaintiffs argue that “compelling policy considerations further support withdrawal
of the Opinion under Rule 60(b)(6)” because the Opinion is “out of step with established
jurisprudence.” Dkt. 44 ¶ 32. The gist of the plaintiffs’ objection is that the court considered
the West Virginia Decision after the defendants raised it in their reply brief and after the
parties discussed it at oral argument. According to the plaintiffs, such an approach departs
from the rule that the demand futility analysis considers the directors in office at the time
the complaint is filed. It also allegedly “improperly shifts the point in time that the futility
determination must be made from the date of filing of the [plaintiffs] Complaint to a later
point in time, or alternatively, allows a ‘floating’ assessment time, subject to reevaluation
depending on changing circumstances.’” Id. ¶ 33.
The Opinion did not deviate from the principle that demand futility is evaluated
using the directors in office when the complaint was filed. That is exactly what the Opinion
did. By considering the West Virginia Decision, the court did not look to a different set of
directors. The court considered whether it was reasonable to draw an inference that the
directors in office when the complaint was filed faced a substantial risk of liability.
The plaintiffs fare no better with their argument that by considering the West
Virginia Decision, the court moved the date at which demand futility is considered. That
is not the case. Like the plaintiffs’ complaint and the DOJ Complaint, the West Virginia
Decision looked backward. The West Virginia Court made findings about what the
Company historically had done. The West Virginia Court found that no wrongdoing had
occurred. Based on that finding, the court could not reasonably infer that the demand board
faced a substantial risk of liability for the same conduct.
21
The court acted properly by considering the West Virginia Decision. Other
Delaware decisions have considered post-complaint developments.7 Under Delaware Rule
of Evidence 202, “[e]very court in this State may take judicial notice of . . . case law of the
United States and every state, territory and jurisdiction of the United States.” D.R.E.
202(a)(1). The comments to the rule state:
It is the intention of this rule to encourage the admissibility of evidence of
law rather than to discourage it. The only limitation imposed is that notice of
the law of other jurisdictions sought to be relied upon should be given to all
parties at a reasonable time.
D.R.E. 202 cmt. “The court may take judicial notice at any stage of the proceeding.” D.R.E.
201(d). Both sides were on notice of the West Virginia Decision. The defendants raised it
in their reply, and both sides addressed it at oral argument. Dkt. 33 at 6, 7, 10; Dkt. 40 at
28–29, 40, 86–87.
Although considering the West Virginia Decision worked against the plaintiffs in
this case, there is no reason to think that taking judicial notice of a post-filing development
will systematically favor one side or the other. Suppose the West Virginia Court had ruled
against the Company. One can be confident that the plaintiffs would have eagerly called
the case to the court’s attention and argued that the court should consider it for purposes of
7
See, e.g., Fisher v. Sanborn, 2021 WL 1197577, at *12 (Del. Ch. Mar. 30, 2021)
(considering regulatory investigations that post-dating the filing of the complaint as part of
demand futility analysis); Rojas v. Ellison, 2019 WL 3408812, at *6 (Del. Ch. July 29,
2019) (considering a ruling by California appellate court that post-dated the filing of the
complaint as part of demand futility analysis).
22
the Rule 23.1 analysis. This time, the plaintiffs’ ox was gored. Next time, the beast could
belong to the defendants.
The plaintiffs’ real gripe is that their complaint was dismissed. There is nothing
extraordinary or exceptional about that result. It also does not mean the Company cannot
potentially recover from the individual defendants. The named plaintiffs in this case have
taken their shot, but as contemplated by Rule 15(aaa), the court’s judgment only binds the
named plaintiffs. If the West Virginia Decision is reversed on appeal, or if the DOJ prevails
at trial, or if other potential events come to pass, then a future plaintiff may be able to assert
viable derivative claims notwithstanding the Opinion. That ruling is not a panacea for the
individual defendants, and it did not exonerate them or the Company.
There is no basis to think that the consideration of the West Virginia Decision
constituted an extraordinary circumstance supporting relief under Rule 60(b)(6). The
request for relief under Rule 60(b)(6) falls well short of the mark.
II. CONCLUSION
The DOJ Complaint does not provide grounds for granting relief from the judgment.
The Motion is denied.
23