Deborah Pettry and Gail Friedt v. Gilead Sciences, Inc. ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DEBORAH PETTRY and GAIL )
FRIEDT, )
)
Plaintiffs, )
)
v. ) C.A. No. 2020-0132-KSJM
)
GILEAD SCIENCES, INC., )
)
Defendant. )
)
)
RICHARD C. COLLINS, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0138-KSJM
)
GILEAD SCIENCES, INC., )
)
Defendant. )
)
)
HOLLYWOOD POLICE OFFICERS’ )
RETIREMENT SYSTEM, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0155-KSJM
)
GILEAD SCIENCES, INC., )
)
Defendant. )
)
)
ANTHONY RAMIREZ, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0173-KSJM
)
GILEAD SCIENCES, INC., )
)
Defendant. )
)
MEMORANDUM OPINION
Date Submitted: August 26, 2020
Date Decided: November 24, 2020
Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Brian J.
Robbins, Stephen J. Oddo, Eric M. Carrino, ROBBINS LLP, San Diego, California;
Counsel for Plaintiffs Deborah Pettry and Gail Friedt.
Kurt M. Heyman, Gillian L. Andrews, HEYMAN, ENERIO, GATTUSO & HIRZEL
LLP, Wilmington, Delaware; Gustavo F. Bruckner, Daryoush Behbood, POMERANTZ
LLP, New York, New York; Counsel for Plaintiff Richard C. Collins.
Gregory V. Varallo, BERNSTEIN, LITOWITZ, BERGER & GROSSMANN LLP,
Wilmington, Delaware; David Wales, Alla Zayenchik, BERNSTEIN, LITOWITZ,
BERGER & GROSSMANN LLP, New York, New York; Robert D. Klausner,
KLAUSNER, KAUFMAN, JENSEN, & LEVINSON; Counsel for Plaintiff Hollywood
Police Officers’ Retirement System.
Gregory V. Varallo, BERNSTEIN, LITOWITZ, BERGER & GROSSMANN LLP,
Wilmington, Delaware; Francis A. Bottini, Jr., Anne B. Beste, BOTTINI & BOTTINI,
INC., La Jolla, California; Mark C. Molumphy, Tyson C. Redenbarger, Noorjahan
Rahman, COTCHETT, PITRE & MCCARTHY, LLP; Counsel for Plaintiff Anthony
Ramirez.
Brian C. Ralston, Aaron R. Sims, David M. Hahn, POTTER, ANDERSON &
CORROON LLP, Wilmington, Delaware; John C. Dwyer, Shannon M. Eagan, Tijana
Brien, Christopher Vail, COOLEY LLP, Palo Alto, California; Counsel for Defendant
Gilead Sciences, Inc.
McCORMICK, V.C.
Each of the five stockholder plaintiffs seeks to inspect books and records of Gilead
Sciences, Inc. (“Gilead” or the “Company”). The stated purpose of their respective
inspections is to investigate possible wrongdoing in connection with the Company’s
development, marketing, and sale of HIV drugs. 1 When a stockholder seeks inspection
for the purpose of investigating wrongdoing, the stockholder must demonstrate a credible
basis to suspect possible wrongdoing.
To demonstrate a credible basis, the complaint tells a story as replete with inequity
as the biblical verse that the Company’s namesake brings to mind. 2 In 2001, Gilead
received FDA approval for tenofovir disoproxil fumarate (“TDF”), a life-saving
medication for persons living with HIV. TDF has generated billions in revenue for
Gilead year after year. These revenues incentivized Gilead to protect the market for TDF
by forestalling the market entry of generic TDF and delaying the development of
Gilead’s safer TDF-substitute drug called tenofovir alafenamide (“TAF”). The plaintiffs
say that there is a credible basis to suspect that Gilead violated antitrust laws, committed
mass torts, infringed on government patents, and defrauded government programs in its
efforts to protect the TDF market.
In stating their credible basis, the plaintiffs join in chorus with a host of other
accusers. Gilead’s activities have drawn lawsuits and investigations from persons living
1
There are two forms of HIV, HIV-1 and HIV-2, and both can develop into the most
severe phase of HIV infection, AIDS. While acknowledging that these are extremely
important distinctions, this decision describes Gilead’s products as “HIV” drugs or
treatments to avoid overcomplicating an already complex set of facts.
2
See, e.g., Hosea 6:8.
with HIV, activists, regulatory agencies, the Department of Justice, and Congress. As
just one example, in 2019, activists and union benefit funds filed a class action complaint
in federal court alleging that Gilead and its competitors violated federal and state antitrust
laws by engaging in anticompetitive conduct to prevent competition in the market for
TDF-based drugs. The plaintiffs in that case seek billions of dollars in damages. In
March 2020, the federal court partially denied a motion to dismiss, allowing portions of
the case to move forward.
The credible basis standard is widely described as the “lowest possible burden of
proof” under Delaware law, 3 and Gilead does not meaningfully attack the plaintiffs’
credible basis. Gilead half-heartedly argues that the plaintiffs’ credible basis is merely an
echo of unsubstantiated allegations made in other lawsuits and should be given no
credence. But Gilead does not explain why a credible basis analysis should ignore
allegations forming the basis of other lawsuits, and there is no principled ground for
categorically disregarding such information.
Gilead’s main strategy is to launch a number of peripheral attacks designed to chip
away at the plaintiffs’ proper purposes. Gilead asserts a defense based on Wilkinson v. A.
Schuman, Inc., in which this court denied inspection where the defendant proved that the
plaintiff was a passive conduit in a purely lawyer-driven inspection effort. 4 As multiple
subsequent decisions of this court have made clear, Wilkinson involved extreme facts,
3
See, e.g., Seinfeld v. Verizon Comm’ns, Inc., 909 A.2d 117, 123 (Del. 2006).
4
See 2017 WL 5289553, at *3–4 (Del. Ch. Nov. 13, 2017).
2
and Gilead’s argument that five separate plaintiffs represented by four separate sets of
counsel committed the same blunders found in Wilkinson borders on absurd. A
corporation is entitled to assert defenses in a Section 220 action and probe the bona fides
of a plaintiff’s stated purpose. In this case, however, Gilead’s pursuit of the Wilkinson
defense raises more questions about Gilead’s purposes than the plaintiffs’.
Gilead asserts myriad other defenses, arguing that the plaintiffs should be denied
inspection because any follow-on derivative claims they might pursue would not pass the
pleading stage. Gilead peddles these points as “standing” arguments, presumably
because this court recently rejected a series of nearly identical points when framed as
“proper purpose” deficiencies. 5 This semantic sleight of hand is unsuccessful, and
Gilead’s so-called “standing” arguments fare no better.
As a fallback, Gilead makes a series of arguments concerning the scope of
inspection, contending that inspection should be limited to formal board materials. This
decision rejects those arguments because multiple other categories of documents are
necessary and essential to the plaintiffs’ stated purposes.
Regrettably, Gilead’s overly aggressive defense strategy epitomizes a trend. As
described recently by a group of scholars, defendants are increasingly treating Section
220 actions as “surrogate proceeding[s] to litigate the possible merits of the suit” and
“place obstacles in the plaintiffs’ way to obstruct them from employing it as a quick and
5
See Lebanon Cnty. Emps. Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752,
at *6–24 (Del. Ch. Jan. 13, 2020).
3
easy pre-filing discovery tool.” 6 Defendants like Gilead adopt this strategy with the
apparent belief that there is no real downside to doing so, ignoring that this court has the
power to shift fees as a tool to deter abusive litigation tactics. Gilead’s approach might
call for fee shifting in this case, and the plaintiffs are granted leave to move for their
expenses, including attorneys’ fees, incurred in connection with their efforts to obtain
books and records.
I. FACTUAL BACKGROUND
The facts are drawn from the factual stipulations in the parties’ pre-trial order, the
testimony of each plaintiff (all by deposition and one also at trial), and the 262 joint trial
exhibits submitted by the parties. 7
A. Gilead’s HIV Treatments
For more than a decade, Gilead has been a leader in the discovery, development,
and commercialization of antiretroviral therapy for HIV. 8 Some estimate that Gilead
controls approximately 75% of the HIV drug market. 9 Millions of people depend on
6
James D. Cox et al., The Paradox of Delaware’s “Tools at Hand” Doctrine: An
Empirical Investigation, 75 Bus. Law. 2123, 2150 (2020).
7
Unless otherwise noted, pleadings are cited by reference to items docketed in C.A. No.
2020-0173-KSJM (“Dkt.”). Factual citations are to: the Amended Pre-Trial Stipulation
and Order, Dkt. 101 (“PTO”); Transcripts of Depositions of Richard C. Collins, Gail
Friedt, Deborah Pettry, Anthony E. Ramirez, and Hollywood’s Rule 30(b)(6)
Representative, David M. Williams, Dkt. 82 (cited using the deponent’s last name and
“Dep. Tr.”); the Trial Transcript, Dkt. 97 (“Trial Tr.”); and Joint Trial Exhibits (cited by
“JX” number).
8
JX-213.
9
See, e.g., JX-250 at 2.
4
Gilead’s HIV treatments for their survival. 10 The corollary is that Gilead depends on the
sale of HIV treatments for much of its financial survival. In 2019, for example, the sale
of HIV treatments produced more than $16.4 billion in revenue or 73% of its top-line. 11
A brief history of the development and commercialization of Gilead’s HIV
treatments lays the backdrop for this lawsuit. Gilead received Food and Drug
Administration (“FDA”) approval for its ground-breaking HIV treatment—TDF—in
2001. 12 Initially sold commercially as Viread, TDF was a significant improvement over
other drugs. 13 After TDF was approved, Gilead shifted its efforts toward reducing the
number of pills a persons infected with HIV would take daily. Gilead developed a
combined formulation of TDF and a drug called emtricitabine that could be administered
as a fixed-dose, once-daily tablet. 14 The result, Truvada, was approved as an HIV
treatment in 2004. 15 Truvada was later approved for use by high-risk, uninfected adults
as part of an HIV-preventative strategy called pre-exposure prophylaxis (“PrEP”). 16 In
addition to Viread and Truvada, the FDA approved three of Gilead’s other TDF-based
HIV treatments: Atripla in 2006, Complera in 2011, and Stribild in 2012. 17
10
See JX-213.
11
See JX-135 at 34.
12
JX-77 at 3.
13
See id.14
Id. at 4.
15
JX-3 at 1.
16
JX-26 at 1.
17
JX-27 at 1.
5
TDF poses safety risks for the patients’ kidneys and bones. 18 In 2007, Gilead
scientists published an article discussing TDF safety issues, which identified the most
common adverse events as including renal failure, Fanconi syndrome, and serum
creatinine increase. 19 In 2007, Gilead updated its labeling to recognize that TDF-
associated renal damage also causes bone softening in patients. 20 A high dose of TDF is
typically required to achieve the desired therapeutic effect. 21 The higher the dose of
TDF, the greater are its toxic effects. 22
Before the FDA approved Gilead’s first TDF-based drug in 2001, Gilead had
discovered another way of administering tenofovir—TAF. 23 TDF and TAF both deliver
tenofovir to the target blood cells, but TAF delivers tenofovir more efficiently, which
allows for a dose of less than one-tenth that of TDF. 24 The lower dosage in turn reduces
toxicity levels and makes TAF safer than TDF. 25 Gilead highlighted the benefits of TAF-
based drugs over its TDF-based drugs in a 2001 10-K, 26 and Gilead continued testing
18
JX-244 ¶ 215.
19
JX-68 ¶ 221.
20
Id. ¶ 224.
21
Id. ¶ 212.
22
Id.
23
Id. ¶ 194.
24
JX-68 ¶ 195; JX-41 at 1–2.
25
See id.
26
JX-68 ¶ 243 (citing Gilead Sciences, Inc., Form 10-K 13,
https://www.sec.gov/Archives/edgar/data/882095/000091205702011690/a2073842z10-
k.htm).
6
TAF through 2004, frequently touting positive results from clinical studies on the
market. 27
Despite its safety benefits, Gilead shelved the development of TAF-based drugs in
October 2004, attributing the decision to patients’ increasing use of TDF-based Viread
and the FDA approval of TDF-based Truvada, among other things. 28
Gilead did not renew development of TAF-based drugs until 2010, six years after
it shelved the project. 29 Gilead did not submit a new drug application for a TAF-based
drug until November 2014. 30 When rolling out its TAF products, Gilead repeatedly
marketed TAF as a safer replacement for TDF. 31
27
Id. ¶¶ 244–48.
28
Id. ¶ 249 (quoting Press Release, Gilead, Gilead Discontinues Development of GS 9005
and GS 7340; Company Continues Commitment to Research Efforts in HIV (Oct. 21, 2004),
https://www.gilead.com/news/press-releases/2004/10/gilead-discontinues-development-
of-gs-9005-and-gs-7340-company-continues-commitment-to-research-efforts-in-hiv).
29
Id. ¶ 255.
30
JX-35 at 1.
31
See, e.g., JX-40 (describing TAF as a product for patients who wanted to “replace their
current antiretroviral treatment regimen” and touting the “safety and efficacy” of TAF,
despite acknowledging that “TAF-based regimens are investigational products and have
not been determined to be safe or efficacious”); JX-42 at 2 (Gilead’s then-EVP of
Commercial Operations, Paul Carter, stating that “[Genvoya] has been launched in the
context of HIV patient around the world who are getting older and older. And the
average age in the US now is actually over 50 years, for an HIV patient. And HIV in
itself causes renal issues and can have impact on bone density. And so, I think everyone
is very happy to see that we now have a new generation of HIV single-tablet regimens
which have a much better safety profile and tolerability and can be used for many, many
years.”); id. (stating that Genvoya would replace Truvada as the “backbone” component
of the combination therapies); JX-58 at 2 (Gilead’s President and CEO, John Milligan,
stating that he hopes TAF will be the “safest gentlest, yet most powerful option”
available to HIV patients).
7
Gilead expanded its TAF franchise through 2015, submitting new drug
applications for a fixed-dose combination of emtricitabine and TAF and a single-tablet
TAF regimen in April and July 2015, respectively. 32 The FDA approved Gilead’s TAF-
based treatment, Genvoya, in November 2015. 33 Within two weeks of Genvoya’s
approval, TAF became listed as a preferred treatment option under the U.S. Department
of Health and Human Services guidelines. 34 Gilead later received approval for the TAF-
based drugs Odefsey, Descovy, and Biktarvy. 35
B. Criticisms of Gilead’s Development and Commercialization of HIV
Treatments
Gilead’s development and commercialization of its HIV treatments has drawn
extensive criticism from persons living with HIV, regulatory agencies, HIV activists, the
Department of Justice (the “DOJ”), and Congress. Gilead has faced antitrust lawsuits,
mass tort claims, patent infringement litigation, and False Claims Act investigations.
1. Anticompetitive Activities
Gilead is accused of delaying the launch of generic versions of its TDF-based HIV
treatments by entering into anticompetitive licensing agreements with several branded
32
See JX-39 (fixed-dose combination TAF); JX-40 (single-tablet TAF regimen).
33
JX-41 at 1.
34
See JX-42 at 2 (noting that becoming listed that quickly as a preferred treatment option
was “unprecedented”).
35
See JX-47 at 1 (Odefsey); JX-49 at 1 (Descovy); JX-64 at 1 (Biktarvy); see also JX-90
at 1 (press release announcing approval of Descovy for PrEP use). Gilead also received
approval for certain TAF-based drugs used to treat Hepatitis B. In January 2016, Gilead
submitted an application for TAF to treat chronic Hepatitis B. JX-45 at 1. In November
2016, the FDA approved Vemlidy, a TAF-based regimen, for the treatment of chronic
Hepatitis B. JX-55 at 1.
8
drug manufacturers and collusive settlement agreements with generic drug
manufacturers. 36
Gilead is regulated by multiple agencies, including the FDA. 37 After a new drug
is approved, federal law provides certain exclusivity benefits to pharmaceutical
companies, such as a five-year new chemical exclusivity. 38 After four years of
exclusivity, a generic manufacturer can file an Abbreviated New Drug Application
(“ANDA”) showing, among other things, that the generic drug contains the same active
ingredients as the branded drug and does not infringe on the branded drug’s patent. 39 If
the branded drug manufacturer brings a claim against the generic drug manufacturer for
patent infringement within the first 45 days after the filing of the ANDA, then the FDA
stays the ANDA until the earlier of (a) the passage of 30 months running from date that
exclusivity ends, or (b) the issuance of a decision holding that the patent is invalid or
there was no infringement. 40 Thus, seven and a half years is usually the longest that a
new chemical exclusivity period will run.
36
See JX-244.
37
JX-135 at 20 (“Our operations depend on compliance with complex FDA and
comparable international regulations. Failure to obtain broad approvals on a timely basis
or to maintain compliance could delay or halt commercialization of our products.”).
38
JX-244 at ¶¶ 88–91 (citing 21 U.S.C. §§ 355(j)(5)(F)(ii), 355(c)(3)(E)(ii); 21 C.F.R.
§ 314.108(b)(2)). During this period, no other drug using that chemical as an active
ingredient can obtain FDA approval.
39
Id. ¶¶ 73–76 (citing 21 U.S.C. § 355(j)(8)(B)).
40
See id. ¶¶ 78, 88–91, 280 (citing 21 U.S.C. § 355; 21 C.F.R. § 314.108(b)(2)).
9
Generally, the introduction of a generic drug on the market causes price declines
and sales erosion of branded drugs. 41 Branded drug manufacturers therefore have
incentives to restrict and impede generics from entering the market.
Between 2004 and 2011, Gilead entered into a number of agreements with
branded drug manufacturers, including Bristol-Myers Squibb Company (“Bristol-
Myers”), Japan Tobacco, Inc. (“Japan Tobacco”), and Janssen R&D Ireland (“Janssen”),
to create combination therapies that have multiple active ingredients or to license certain
compounds for exclusive commercialization. 42 The agreements allegedly included “No-
41
A Federal Trade Commission study found that, on average, within one year of generic
entry into the market, generics capture 90% of sales and prices decrease 85%. Id. ¶ 93
(citing FTC, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions at 8
(January 2010), https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-how-
drug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff-
study/100112payfordelayrpt.pdf). Gilead has recognized the potential for sales erosion in its
public filings. See, e.g., JX-135 at 12 (“[A]s new branded or generic products are introduced
into major markets, our ability to maintain pricing and market share may be affected.”).
42
In December 2004, Gilead and Bristol-Myers formed a joint venture to develop and
commercialize a once-daily, fixed-dose combination HIV treatment regimen later named
Atripla. See JX-6 at 1; JX-74 ¶¶ 114–18. In March 2005, Gilead and Japan Tobacco
entered into a licensing agreement that gave Gilead the exclusive right to develop and
commercialize a novel HIV integrase inhibitor in all countries except Japan. JX-7 at 1.
In July 2009 and June 2011, Gilead entered into licensing agreements with Janssen to
develop and commercialize once-daily fixed-dose combination antiretroviral products.
See JX-12 at 1 (press release announcing 2009 licensing agreement); JX-21 at 1 (press
release announcing 2011 licensing agreement). (Janssen was formerly known as
“Tibotec Pharmaceuticals.” See, e.g., JX-12; JX-21.) In December 2014, Gilead
expanded its agreements with Janssen to allow for the development and
commercialization of a new once-daily, single tablet regiment containing Gilead’s TAF
and emtricitabine, and Janssen’s rilpivirine. JX-36 at 1. The agreement provided that the
new product would be distributed by Janssen in “approximately 17 markets” and by
Gilead in all other markets. Id. In October 2011, Gilead entered into a licensing
agreement with BMS to develop and commercialize a fixed-dose combination of BMS’s
REYATAZ and Gilead’s cobicistat—later named Evotaz. See JX-24 at 1; JX-242 at 23.
10
Generics Restraints” barring the creation of competing versions of the combination
therapies that use generic TDF. 43
In 2013, Gilead entered into a settlement agreement with the largest generic
manufacturer in the world, Teva Pharmaceutical Industries Ltd. (“Teva”). 44 Under the
terms of the settlement, Teva would be prevented from launching a generic version of
Truvada until December 2017. 45 The settlement also reduced the incentives for ANDA
second-filers to enter the market before December 2017 because the settlement allowed
Teva to enter the market should a second-filer gain market entry. 46
In 2017, a group of prominent HIV activists, including Peter Staley, implored the
New York attorney general to investigate the Teva settlement and other agreements with
generic drug manufacturers concerning the generic production of Truvada. 47 The
43
JX-74 ¶¶ 89–112.
44
See JX-29. In 2008, Teva submitted an ANDA requesting permission to manufacture
and commercialize a generic version of Truvada. JX-10. Teva alleged that two of the
patents associated with Truvada were invalid, unenforceable, or would not be infringed
by Teva’s manufacture of the product described in its ANDA. Id. If Gilead agreed, then
Teva could begin producing its generic product immediately. If Gilead sued for patent
infringement within 45 days, however, Teva would be unable to produce its generic
product until the earlier of 30 months or a district court decision that is adverse to Gilead.
Id. Gilead sued Teva for patent infringement less than 45 days after Teva submitted its
ANDA. See JX-11. In 2012, Lupin Limited (“Lupin”) and Cipla Ltd. (“Cipla”) both
submitted an ANDA to manufacture and commercialize generic versions of Truvada and
Viread, respectively. JX-32 at 23. Gilead filed patent infringement lawsuits in response
to those ANDA submissions as well. Id.45
See JX-29.
46
See JX-74 ¶¶ 321–55.
47
JX-59; JX-60.
11
activists accused Gilead of paying generic drug manufacturers to delay launching
generics. 48
In May 2019, Staley and others filed a thirteen count class action complaint
against Gilead and other companies in the United States District Court for the Northern
District of California (the “Staley Action”). 49 The complaint alleges that Gilead and
other branded drug manufacturers violated federal and state antitrust laws by engaging in
anticompetitive conduct in the market for Gilead’s TDF-based drugs. 50 Several
additional class action lawsuits followed, and they were subsequently consolidated into
the Staley Action. 51
The plaintiffs in the Staley Action seek billions of dollars in damages on behalf of
a class of persons who purchased or reimbursed purchasers of HIV treatments sold by
48
JX-59; JX-60.
49
JX-74. On the same day that the Staley Action was filed, the House Committee on
Oversight and Reform announced that it would hold a hearing to examine Gilead’s
pricing of Truvada. See JX-75. Gilead Chairman and CEO Daniel O’Day testified at the
hearing on May 16, 2019. See JX-77. After discussing Gilead’s contribution to the
development of Truvada and related patents for PrEP, O’Day testified: “We priced
Truvada, when it was originally approved, based on the price of its two component drugs,
without adding a premium. We have increased its list price over the years at a rate
consistent with average price increases in the industry.” JX-77, at 2, 7–8. An expert later
testified that “Gilead insisted on valuing drug shipments based on the commercial price
in the United States, rather than the cost of manufacturing, which was at least 300 times
less. . . . PrEP [treatments] can be manufactured and distributed, including a profit, for
about $6 per person per month. Gilead charges more than $2100 per person per month, a
35000% markup.” JX-76 at 3, 2–5. On June 26, 2019, the committee sent Gilead
requests for documents and information regarding its pricing of Truvada. JX-81.
50
JX-74.
51
See JX-255.
12
Gilead and the other defendants. 52 On March 3, 2020, the United States District Court
(the “District Court”) in the Staley Action granted in part and denied in part Gilead’s
motion to dismiss, and granted leave to amend certain of the claims that were
dismissed. 53
In relevant part, the District Court dismissed with leave to amend the claims that
there was an overarching conspiracy among Gilead, Bristol-Myers, Japan Tobacco, and
Janssen. 54 The court dismissed with prejudice the claims based on the Gilead/Japan
Tobacco licensing agreement because the plaintiffs did not plead any specific allegations
that “the exclusive license would be used in an anticompetitive way.” 55
The District Court denied the motion to dismiss as to claims based on: the No-
Generics Restraints in the Gilead/Bristol-Myers and Gilead/Janssen agreements; the Teva
settlement agreement; and Gilead’s commercialization of TAF. 56 As to the
Gilead/Bristol-Myers and Gilead/Janssen agreements, the court found that a question of
fact existed as to whether the No-Generics Restraints had sufficient anticompetitive effect
to constitute an antitrust violation. 57 As to the Teva settlement agreement, the court cited
52
See JX-74 ¶ 429; see also PTO ¶ 4 (“If plaintiffs are successful in their claims, [Gilead]
could be required to pay significant monetary damages or could be subject to permanent
injunctive relief.”).
53
JX-242 at 85–87.
54
Id. at 15–16.
55
Id. at 32, 31–33.
56
Id. at 85–86.
57
Id. at 26.
13
several “yellow flag[s]” that could give rise to a finding of anticompetitive conduct. 58 As
to Gilead’s delayed commercialization of TAF, the District Court found that the plaintiffs
have “a plausible argument that there is no procompetitive justification for” it. 59
In January 2020, a group of healthcare insurers filed a class action against Gilead
and other companies in a Florida federal court, asserting claims substantially similar to
those in the Staley Action. 60
2. Mass Torts
Gilead is accused of intentionally withholding from the market its safer and
potentially more effective TAF-based HIV treatments in order to extend the sales window
for its more dangerous and less effective TDF-based treatments. 61
As discussed above, multiple parties have alleged that Gilead shelved the
development of TAF after receiving approval for Truvada, even though Gilead knew that
TAF was a safer product. 62 Gilead then allegedly waited to resume development and
58
Id. at 41, 38–42.
59
Id. at 46. On April 21, 2020, the plaintiffs in the Staley Action filed an amended
complaint, and on May 4, Gilead filed a motion to dismiss the amended complaint. See
JX-175 (motion to dismiss amended complaint); JX-244 (amended complaint).
60
See JX-117; see also JX-118 at 3 (“The allegations are similar to those made in four
consolidated class actions against Gilead pending in the Northern District of
California.”).
61
See JX-252; see also PTO ¶ 4 (noting that “Gilead has been named as a defendant in
product liability lawsuits related to Gilead’s HIV medications”).
62
See, e.g., JX-244 ¶¶ 236–98; JX-252.
14
commercialization of TAF-based products until the introduction of generic TDF-based
treatments was imminent. 63
Gilead is the subject of at least 250 tort actions pending in state and federal courts
in California, Delaware, and Florida. The actions involve more than 15,000 plaintiffs
claiming that Gilead’s TDF-based HIV medications caused them to suffer personal injury
and economic loss. 64 If those claims are successful, Gilead “could be required to pay
significant monetary damages.” 65
3. Patent Infringement
Gilead is accused of infringing on government patents in the sales of its HIV PrEP
treatments.
The U.S. government claims that when administered as a PrEP treatment, Truvada
and Descovy rely on patents developed by the Centers for Disease Control and
Prevention (“CDC”) and owned by the U.S. government. 66
During a May 2019 hearing before the U.S. House Committee on Oversight and
Reform, an expert in HIV research and clinical care testified:
The US Government is by far the majority funder of PrEP
research. PrEP regimen selection was guided by research
conducted by scientists at the CDC who demonstrated that
adding emtricitabine to a tenofovir regimen increased
protection. . . . The critically important research done by
scientists at the CDC led to a US Government patent on the
63
See JX-244 ¶¶ 236–98; JX-252.
64
See JX-134 at 80; JX-255 at 2.
65
PTO ¶ 4; JX-134 at 80.
66
JX-73 at 1.
15
combined use of emtricitabine and tenofovir esters for
PrEP. . . . Gilead Sciences did not provide leadership,
innovation, or funding for these projects; Gilead’s role was
limited to donating study medication and placebos. Our
protocols were shared with Gilead, in accordance with an
agreement between the [National Institutes of Health] and
Gilead; I do not recall receiving any comments. 67
On November 6, 2019, the U.S. government filed suit against Gilead. 68 The
complaint alleges that Gilead has wrongfully denied the validity of the CDC’s patents
and refused to obtain a license from the CDC to use the patented regimens. 69
In February 2020, the Patent Trial and Appeals Board declined to institute
Gilead’s petitions for inter partes review of the four U.S. government-held patents,
finding that Gilead “has not demonstrated a reasonable likelihood of prevailing.” 70
In April 2020, Gilead filed a lawsuit against the U.S. government related to the use
of the same anti-HIV regimens. 71 Gilead’s complaint alleges that the CDC breached the
67
JX-76 at 2. The expert, Professor Robert M. Grant, is a credible source. As he
explained to the committee, he had decades of experience “with research and clinical care
related to HIV,” “pioneered research on PrEP that led to FDA approval in 2012 [and]
recommendations from the CDC in 2014,” and “devoted . . . 20 years of [his] career to
the development of PrEP.” Id.
68
JX-98; see also JX-99 (11/8/19 New York Times article discussing the lawsuit); JX-
102 (11/8/19 Science Magazine article discussing the lawsuit).
69
Id. ¶¶ 8–9.
70
JX-246 at 21; JX-247 at 12.
71
JX-170, Gilead Scis., Inc. v. United States, 1:20-cv-00499-CFL (Fed. Cl. Apr. 24,
2020).
16
agreements between the parties and the government’s patents are therefore invalid and
unenforceable. 72
4. False Claims Act Violations
Gilead is currently facing a federal investigation and civil litigation related to
alleged violations of the False Claims Act. 73
Under federal law, drug companies cannot provide direct copayment assistance to
patients covered by Medicare. 74 Drug companies are permitted to donate to charities that
help Medicare patients, so long as the companies’ donations do not exert sway over the
nonprofit’s operations. 75 If a drug company uses donations to encourage a nonprofit to
promote the company’s products, however, that conduct may violate anti-kickback
laws. 76
On May 27, 2016, Gilead received a subpoena from the U.S. Attorney for the
District of Massachusetts seeking documents related to the Company’s relationship with
nonprofits that provide financial assistance to patients. 77 Corporate disclosures “describe
an expanding investigation by the U.S. Attorney’s Office” into Gilead and other
72
Id. ¶¶ 1–21.
73
See JX-50; JX-88.
74
JX-51 at 1.
75
Id.
76
Id.
77
JX-50.
17
pharmaceutical companies’ potential kickback violations. 78 In December 2017, one of
the companies agreed to pay $210 million to resolve the Justice Department’s claims. 79
C. The Inspection Demands
The plaintiffs are Deborah Pettry, Gail Friedt, Richard C. Collins, Hollywood
Police Officers’ Retirement System (“Hollywood”), and Anthony Ramirez (collectively,
“Plaintiffs”). Each Plaintiff made a written demand on Gilead to inspect and copy certain
books and records of the Company pursuant to Section 220 (collectively, the
“Demands”). 80 The Demands sought to investigate possible wrongdoing in connection
with aspects of the development and commercialization of Gilead’s HIV treatments. 81
78
JX-51.
79
JX-61. Gilead is also facing a qui tam action alleging False Claims Act violations
related to the Company’s TDF- and TAF-based Hepatitis-B treatments. JX-88. On
September 19, 2019, a group of plaintiffs filed a second amended qui tam complaint
against Gilead in Pennsylvania federal court, alleging multiple violations of the anti-
kickback provisions of the False Claims Act. See id. ¶¶ 1, 12–13. The complaint alleges
that Gilead used its speaker program and other methods to encourage healthcare
providers to write prescriptions for Gilead’s name-brand drugs as opposed to generics.
Id. ¶¶ 1–6. In particular, the complaint alleges that Gilead used illegal kickbacks to
encourage healthcare providers to transition patients from Viread, a TDF-based drug that
was about to face generic competition, to Vemlidy, its new TAF-based drug. Id. ¶¶ 30–
35.
80
See JX-103 (Collins’s 12/2/19 inspection demand); JX-114 (Collins’s 1/13/20 reply to
Gilead’s initial response); JX-128 (Collins’s 2/18/20 supplemental demand); JX-108
(Pettry’s 12/30/19 inspection demand); JX-113 (Friedt’s 1/8/20 inspection demand); JX-
120 (Pettry and Friedt’s 1/29/20 consolidated reply to Gilead’s initial response); JX-123
(Ramirez’s 2/4/20 inspection demand); JX-136 (Ramirez’s 2/27/20 reply to Gilead’s
initial response); JX-124 (Hollywood’s 2/10/20 inspection demand).
81
See infra note 95 and accompanying text.
18
Gilead declined to provide even a single document in response to any of the
Demands, taking the position that each Demand was unfounded and deficient. 82
D. This Litigation
Each Plaintiff filed suit under Section 220 to enforce their inspection rights, with
Pettry and Friedt filing a joint complaint. 83 Gilead answered the complaints. 84
Gilead requested that the court enter and order requiring Plaintiffs to coordinate
their efforts,85 and the parties stipulated to a coordinated schedule and approach to
discovery. 86
Gilead served interrogatories on, sought documents from, and moved to compel
discovery from Plaintiffs. 87 Gilead also deposed each Plaintiff.88
82
See JX-106 (Gilead’s 12/10/19 response to Collins’s initial demand); JX-130 (Gilead’s
2/25/20 response to Collins’s supplemental demand); JX-115 (Gilead’s 1/15/20 response
to Pettry’s demand); JX-116 (Gilead’s 1/15/20 response to Friedt’s demand, containing
multiple mistaken references to “Ms. Pettry” as opposed to “Ms. Friedt”); JX-126
(Gilead’s 2/14/20 response to Pettry and Friedt’s 1/29/20 communication); JX-125
(Gilead’s 2/11/20 response to Ramirez’s 2/4/20 demand); JX-139 (Gilead’s 3/2/20
response to Ramirez’s 2/27/20 communication); JX-127 (Gilead’s 2/18/20 response to
Hollywood’s demand); JX-131 (Gilead’s 2/25/20 rejection of Hollywood’s invitation to
meet and confer).
83
See JX-132; JX-137; JX-140; JX-141; see also JX-129.
84
JX-142; JX-144; JX-261; JX-262.
85
Dkt. 5, Def.’s Resp. to Pls.’ Mots. for Expedited Proceedings at 5–6 (“Gilead
respectfully submits that the Court should enter an order coordinating the actions.”).
86
Dkt. 8, Stipulation and Appointment of Counsel and Case Scheduling Order.
87
See JX-147 (Def.’s First Set of Interrogs. Directed to Pls.); JX-148 (Def.’s First Set of
Reqs. for Produc. of Docs. Directed to Pls.); Dkt. 38, Def.’s Mot. to Compel Disc. from
Pls. Plaintiffs provided Defendants with responses and supplemental responses to these
requests. See JX-155; JX-156; JX-157; JX-158; JX-159; JX-160; JX-161; JX-162; JX-
163; JX-167; JX-169.
19
Gilead fought discovery directed to it and moved for a protective order, which the
court denied. 89
The court held trial on June 23, 2020, and the parties completing post-trial briefing
on August 26, 2020.
II. LEGAL ANALYSIS
To inspect books and records under Section 220, a plaintiff must establish by a
preponderance of the evidence that the plaintiff is a stockholder, has complied with the
statutory form and manner requirements for making a demand, and has a proper purpose
for conducting the inspection. 90 If a stockholder meets these requirements, the
stockholder must then establish “that each category of the books and records requested is
essential and sufficient to the stockholder’s stated purpose.” 91
Gilead disputes two of these requirements, arguing that Plaintiffs lack proper
purposes and have failed to justify the scope of their inspections. Gilead also raises what
it refers to as “standing” issues, arguing that Plaintiffs must overcome defenses to
anticipated derivative claims in order to have standing to enforce their rights in this
88
See Dkt. 82.
89
See Dkt. 17, Def.’s Mot. for Protective Order; Dkt. 65, May 8, 2020 Oral Arg. re Def.’s
Mot. for Protective Order and the Ct.’s Ruling; see also JX-164 (Def’s. Responses and
Objs. to Pls.’ Am. First Set of Interrogs. Directed to Def. Gilead Sciences, Inc.); JX-149
(Pls.’ Am. Notice of Rule 30(b)(6) Dep. of Def. Gilead Sciences, Inc.).
90
See 8 Del. C. § 220(c); Cent. Laborers Pension Fund v. News Corp., 45 A.3d 139, 144
(Del. 2012); Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016),
abrogated on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del. 2019).
91
Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996) (citing
Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 167 (Del. Ch.
1987)).
20
Section 220 action. Gilead’s so-called “standing” arguments in substance speak to
Plaintiffs’ proper purposes and this decision addresses the arguments in that context.
A. Each Plaintiff Has Demonstrated a Proper Purpose.
“The 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.” 92 A purpose is “proper” under Section 220 where it is
“reasonably related” to the stockholder’s interest as a stockholder. 93 “In a section
220 action, a stockholder has the burden of proof to demonstrate a proper purpose by a
preponderance of the evidence.” 94
The Demands state that they are for the purpose of investigating possible
mismanagement, wrongdoing, or waste in connection with aspects of the development
and commercialization of Gilead’s HIV treatments, although each Demand uses slightly
different verbiage to express this purpose. 95
92
CM & M Gp., Inc. v. Carroll, 453 A.2d 788, 792 (Del. 1982) (citing 8 Del. C. § 220(b);
Gen. Time Corp. v. Talley Indus., 240 A.2d 755 (Del. 1968); Skoglund v. Ormand Indus.,
372 A.2d 204, 207 (Del. Ch. 1976)).
93
8 Del. C. § 220(b).
94
Seinfeld, 909 A.2d at 121.
95
Collins seeks to “[i]nvestigat[e] whether any member of the Board or the Company’s
senior officers have mismanaged the Company and/or breached their fiduciary duties to
the Company and its stockholders.” JX-103 at 5; JX-128 at 15. Friedt and Petty seek to
“investigate potential corporate mismanagement, wrongdoing, and waste by fiduciaries of
the Company, including the [Board].” JX-108 at 1; JX-113 at 1. Hollywood seeks to
investigate “possible breaches of fiduciary duty,” “possible violations of positive law,”
“possible corporate misconduct by members of the [Board] and/or management in
connection with . . . core HIV products,” and “possible prolonged concealment of the
misconduct described herein.” JX-124 at 1. Ramirez seeks to “investigate whether the
21
Although a stockholder’s desire to investigate wrongdoing is a proper purpose
under Delaware law, 96 a mere statement of that purpose without more will not entitle a
stockholder to inspection. 97 To inspect documents for the purpose of investigating
mismanagement or wrongdoing, a stockholder “must present some evidence to suggest a
credible basis from which a court can infer that mismanagement . . . or wrongdoing may
have occurred.” 98
[Board] and certain senior Gilead executives may have breached their fiduciary duties to
the Company by engaging in massive and long-standing wrongdoing in connection with
the Company’s development, patenting, marketing of, and restraints related to, its
antiviral HIV/AIDS drugs.” JX-89 at 4. Some of the demands also state that they are for
the purpose of assessing the independence and disinterestedness of the members of the
Board with respect to the possible wrongdoing at issue, see JX-124 at 1; JX-103 at 5; JX-
128 at 15, but Plaintiffs did not treat this as an independent purpose in briefing. See Dkt.
100, Pls.’ Corrected Combined Post-Trial Br. (“Pls.’ Opening Br.”) at 3–45, 56; Dkt. 104,
Pls.’ Combined Post-Tr. Reply Br. at 3–24, 32. This decision treats Plaintiffs’ desire to
investigate the independence and disinterestedness of Gilead’s Board members as a
component of its investigation into possible wrongdoing. See infra Section II.C.2.e.
96
E.g., KT4 P’rs v. Palantir Techs. Inc., 203 A.3d 738, 758 (Del. 2019) (“One of the
most traditional proper purposes for a § 220 demand is the investigation of possible
wrongdoing by management. When a stockholder has made a colorable showing of
potential wrongdoing, inspecting the company’s books and records can help the
stockholder to ferret out whether that wrongdoing is real and then possibly file a lawsuit
if appropriate.” ); City of Westland Police & Fire Ret. Sys. v. Axcelis Techs., Inc., 1 A.3d
281, 287 (Del. 2010) (“Our law recognizes investigating possible wrongdoing or
mismanagement as a ‘proper purpose.’”); Seinfeld, 909 A.2d at 121 (“It is well
established that a stockholder’s desire to investigate wrongdoing or mismanagement is a
‘proper purpose.’ Such investigations are proper, because where the allegations of
mismanagement prove meritorious, investigation furthers the interests of all stockholders
and should increase stockholder return.”).
97
Seinfeld, 909 A.2d at 122 (quoting Helmsman, 525 A.2d at 166).
98
Id. at 118 (internal quotation marks omitted).
22
Gilead argues that no Plaintiff has demonstrated a credible basis to suspect
possible wrongdoing. 99 Gilead further argues that each Plaintiff is acting as a
Manchurian candidate for a law firm such that none of Plaintiffs’ stated purposes are their
own. 100 Gilead additionally argues that legal defenses to a follow-on lawsuit challenging
the wrongdoing foreclose Plaintiffs’ ability to investigate possible wrongdoing under
Section 220. 101
1. Plaintiffs Have Demonstrated a Credible Basis to Suspect
Wrongdoing.
The credible basis standard imposes “the lowest possible burden of proof.” 102 It
does not require a stockholder to prove that the wrongdoing “actually occurred.” 103 Nor
does it require a stockholder “to show by a preponderance of the evidence that
wrongdoing is probable.” 104 Any such requirement “would completely undermine the
purpose of Section 220 proceedings, which is to provide shareholders the access needed
to make that determination in the first instance.” 105 Rather, a stockholder need only
99
Dkt. 102, Def. Gilead Sciences, Inc.’s Post-Trial Answering Br. (“Def.’s Answering
Br.”) at 5–15.
100
Id. at 22–36.
101
See id. at 36–44.
102
Seinfeld, 909 A.2d at 123.
103
Marmon v. Arbinet-Thexchange, Inc., 2004 WL 936512, at *4 (Del. Ch. Apr. 28,
2004); accord. Thomas & Betts, 681 A.2d at 1031 (“While stockholders have the burden
of coming forward with specific and credible allegations sufficient to warrant a suspicion
of waste and mismanagement, they are not required to prove by a preponderance of the
evidence that waste and mismanagement are actually occurring.”).
104
AmerisourceBergen, 2020 WL 132752, at *8.
105
La. Mun. Police Emps.’ Ret. Sys. v. Countrywide Fin. Corp. (LAMPERS), 2007
23
establish by a preponderance of the evidence that there is a credible basis to suspect a
possibility of wrongdoing. 106
In determining whether a plaintiff has presented a credible basis for inspection, the
court looks at the allegations collectively. 107 The “threshold may be satisfied by a
credible showing, through documents, logic, testimony or otherwise, that there are
legitimate issues of wrongdoing.” 108 When evaluating whether a credible basis exists, the
court may consider on-going lawsuits, investigations, circumstantial evidence, and even
hearsay statements evincing possible wrongdoing. 109
WL 2896540, at *12 (Del. Ch. Oct. 2, 2007), order clarified, 2007 WL 4373116 (Del.
Ch. Dec. 6, 2007).
106
See AmerisourceBergen, 2020 WL 132752, at *8–9; see also Seinfeld, 909 A.2d at
118 (holding that a Section 220 plaintiff need only allege a “‘credible basis’ from which a
court can infer that mismanagement, waste or wrongdoing may have occurred” (emphasis
added)).
107
See, e.g., In re Lululemon Athletica Inc. 220 Litig., 2015 WL 1957196, at *11–14
(Del. Ch. Apr. 30, 2015) (collectively assessing founder’s inside knowledge based on
company emails, suspicious timing and magnitude of founder’s trades, and the speed at
which founder hit his monthly trading cap); Paul v. China MediaExpress Hldgs., Inc.,
2012 WL 28818, at *4 (Del. Ch. Jan. 5, 2012) (determining that plaintiff had identified a
credible basis for Section 220 demand based on evidence which included “numerous
third-party media reports,” “the noisy resignations of three board members” and a
publicly announced “internal investigation”).
108
Seinfeld, 909 A.2d at 123 (quoting Sec. First Corp. v. U.S. Die Casting & Dev. Co.,
687 A.2d 563, 568 (Del. 1997)).
109
See, e.g., AmerisourceBergen, 2020 WL 132752, at *9 (“Ongoing investigations and
lawsuits can provide the necessary evidentiary basis to suspect wrongdoing or
mismanagement warranting further investigation. This type of evidence is strong when
governmental agencies or arms of law enforcement have conducted the investigations or
pursued the lawsuits.”); LAMPERS, 2007 WL 2896540, at *10–12 (finding a news article
and independent statistical analysis of stock option grant dates sufficient to suspect
options backdating); Elow v. Express Scripts Hldgs. Co., 2017 WL 2352151, at *5, *5–6
24
The Demands seek to investigate four categories of possible wrongdoing:
1. Anticompetitive activity resulting in a multi-billion dollar lawsuit accusing
Gilead of violating federal and state antitrust laws by colluding with its
competitors to unlawfully extend patent protection and drive up the price of
its HIV drugs; 110
2. Mass torts resulting in more than 15,000 claims by plaintiffs who allege
that they were seriously harmed by Gilead’s decision to intentionally delay
the introduction of safer and more effective HIV treatments in order to
protect the profitability of existing branded medications; 111
3. Patent infringement resulting in a lawsuit by the DOJ against Gilead for its
“deliberate” and “wanton” infringement of patents held by the federal
government relating to PrEP treatment regimens; 112 and
4. Kick-back schemes resulting in DOJ investigations into False Claims Act
violations. 113
At trial, Plaintiffs presented evidence to establish a credible basis to suspect
possible wrongdoing in connection with each of these four categories.
To demonstrate a credible basis as to the anticompetitive activity, Plaintiffs rely
primarily on the allegations and information contained in the Staley complaint as well as
the federal court’s decision on the motion to dismiss the Staley Action. 114 The Staley
(Del. Ch. May 31, 2017) (finding “pleadings in the Anthem Action, the Securities Action
complaints, and public statements by Express Scripts” sufficient to establish a credible
basis), abrogated on other grounds by Tiger, 214 A.3d 933; Carapico v. Phila. Stock
Exch., Inc., 791 A.2d 787, 792 (Del. Ch. 2000) (finding an “SEC inquiry” and “SEC
Order” were “sufficiently concrete” to suspect mismanagement).
110
See JX-113 at 1; JX-123 at 1–2; JX-124 at 4; JX-128 at 1.
111
See JX-124 at 3–4; JX-128 at 1.
112
See JX-103 at 1; JX-113 at 1; JX-124 at 5–6; JX-128 at 1.
113
See JX-128 at 1.
114
See Pls.’ Opening Br. at 7–9.
25
complaint spans 134 pages and outlines a litany of allegedly anticompetitive conduct,
reflecting significant research by the plaintiffs in that action. 115 The parties to the Staley
Action collectively filed thirty-eight exhibits during briefing on a motion to dismiss,
including copies of the relevant agreements. 116
The Staley complaint discusses three broad categories of conduct that allegedly
delayed the entry of generic competition: (i) No-Generics Restraints in agreements
between Gilead and Japan Tobacco, Gilead and Bristol-Myers, and Gilead and Janssen;
(ii) the Teva settlement; and (iii) the commercialization of TAF. 117 These categories of
action are allegedly part of a broader scheme to restrain competition and increase the
prices of HIV drugs. 118 The complaint contends that the No-Generics Restraints barred
the creation of competing versions of combination therapies that use generic TDF. 119
The complaint further contends that the Teva settlement delayed Teva’s entry in the TDF
market and created disincentives for ANDA second-filers to launch their products. By
thwarting the market entry of generic TDF, these agreements allowed Gilead to continue
to charge high prices for TDF-based Stribild despite its toxicity, and later help Gilead
115
See JX-74.
116
See Decl. of Jayne A. Goldstein in Supp. of Pls.’ Omnibus Mem. in Opp’n to Defs.’
Mot. to Dismiss, Staley v. Gilead Scis., Inc., Case No. 3:19-cv-02573-EMC (N.D. Cal.
2019); Decl. of Heather M. Burke in Supp. Of Gilead’s Mot. to Dismiss, Staley, Case No.
3:19-cv-02573-EMC. The court can take judicial notice of these filings because they are
“not subject to reasonable dispute.” See, e.g., In re Gen. Motors (Hughes) S’holder
Litig., 897 A.2d 162, 169 (Del. 2006) (citing D.R.E. 201(b)).
117
See JX-74 ¶¶ 88–355.
118
Id. ¶¶ 1–15.
119
Id. ¶ 4.
26
shift prescriptions from Stribild to TAF-based Genvoya. 120 The agreements also allowed
Gilead to avoid being pressured to release a standalone TAF product, because prescribers
could not pair Gilead’s standalone TAF with drugs offered by Gilead’s competitors.121
The plaintiffs allege that Gilead’s actions, taken collectively, “unlawfully manipulated
the regulatory framework in order to impair and delay . . . competition.” 122
In response to Gilead’s motion to dismiss, the District Court held that the
plaintiffs’ allegations regarding the Gilead/Bristol-Myers, Gilead/Janssen, and
Gilead/Teva agreements and the commercialization of TAF stated a claim on which relief
could be granted. 123 The federal motion-to-dismiss standard is higher than Section 220’s
credible basis standard. 124 It follows that allegations which survive a motion to dismiss
under the federal standard are sufficient to meet the credible basis standard. Thus, the
court finds that the allegations that survived the motion to dismiss in the Staley Action
120
Id. ¶¶ 237–44.
121
Id. ¶ 245.
122
Id. ¶ 285.
123
See JX-242 at 85–86. The court dismissed the overarching conspiracy claims and the
claim related to the Gilead/Japan Tobacco agreement. JX-242 at 15, 33. Plaintiffs have
since filed an amended complaint. See JX-244.
124
Compare Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) (requiring a plaintiff
to plead facts sufficient to “nudge[] their claims across the line from conceivable to
plausible”) and Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (requiring a Section 220
plaintiff seeking to investigate wrongdoing to holding that the Twombly plausibility
standards applies to all civil cases in federal courts) with Seinfeld, 909 A.2d at 123(describing the credible basis standard as “the lowest possible burden of proof” (internal
quotation markets omitted)).
27
supply a credible basis to suspect possible wrongdoing as to the Gilead/Bristol-Myers,
Gilead/Janssen, and Gilead/Teva agreements and the commercialization of TAF.
To demonstrate a credible basis as to the mass torts, Plaintiffs rely on the
allegations and information in the pleadings in state and federal courts in California,
Delaware, and Florida. 125 The mass tort class action in California, as of June 12, 2020,
involved more than 15,000 plaintiffs. 126 The complaint in that action runs forty-four
pages, alleges injuries stemming from Gilead’s decision to intentionally delay its TAF-
based HIV drugs, and asserts claims for negligence, strict product liability, breach of
express warranty, breach of implied warranty, fraud, and concealment. 127 In particular,
the complaint alleges that Gilead developed and marketed its toxic TDF-based
medications and withheld the safer TAF-based medications from the market. 128 Rather
than releasing the TAF-based medication, Gilead allegedly continued to add ingredients
to its existing TDF-based medications “in order to extend its monopoly on tenofovir in
the treatment of HIV-1.” 129 The plaintiffs contend that Gilead did so knowing that
reasonable alternatives were not available to patients. 130 The complaint references and
125
Pls.’ Opening Br. at 9–11.
126
JX-255 at 2.
127
See JX-82. Further illustrating the scope of the litigation, Gilead produced nearly 2.6
million pages of documents in response to the plaintiffs’ first and second requests for
production—including FDA regulatory files, license agreements, a listing of clinical
trials, and other documents—and trial is set for January 2022. See id.; JX-255 at 10–11.
128
JX-82 ¶¶ 12–14, 33–48.
129
Id. ¶¶ 76, 51–86.
130
Id. ¶ 2.
28
quotes from papers that Gilead has published, submissions that Gilead made to U.S. and
European patent offices, public announcements by Gilead representatives, statistics that
have been corroborated by the CDC, studies conducted by third parties, and FDA
findings. 131 The plaintiffs’ complaint is cohesive and coherent, and the information and
allegations in the complaint as well as the myriad evidence supporting it, supply a
credible basis to suspect possible wrongdoing in the form of mass torts.
To demonstrate a credible basis as to patent infringement, Plaintiffs rely on
congressional testimony and subsequent litigation regarding Gilead’s alleged
infringement of U.S. government patents in the sales of Gilead’s HIV PrEP treatments. 132
After an expert provided the U.S. House Committee on Oversight with a detailed
description of his work with the CDC and Gilead, 133 the U.S. government filed a patent
infringement lawsuit against Gilead. 134 The complaint totaled 1,739 pages including the
ninety-two attached exhibits, and its filing was reported by multiple news outlets. 135 The
131
See, e.g., id. ¶ 40 (quoting Gilead paper comparing the relative effectiveness and
safety of TAF as compared to TDF); id. ¶ 41 (citing Gilead patent submission showing
that TAF was more effective than TDF); id. ¶ 60 (citing an October 2004 company
announcement regarding the future of TAF development); id. ¶ 67 (citing HIV-treatment
statistics that have been corroborated by the CDC); id. ¶ 78 (citing an April 2012 HIV
study conducted by researchers at San Francisco’s Veterans’ Administration Medical
Center and the University of California, San Francisco); id. ¶ 79 (quoting FDA
characterization of TDF’s safety profile); id. ¶ 91 (quoting Gilead’s Chief Scientific
Officer during an October 2010 earnings call).
132
Pls.’ Opening Br. at 11–14.
133
See supra note 67 and accompanying text.
134
See JX-98.
135
See id. (complaint); JX-99 (11/8/19 New York Times article covering the litigation);
29
exhibits included the relevant patents, various news articles, and relevant scholarship
from the scientific community. 136 When Gilead sought review of the U.S. government’s
patents, the Patent Trial and Appeals Board held that Gilead “has not demonstrated a
reasonable likelihood of prevailing.” 137 The thoroughness of the U.S. government’s
complaint and the Patent Trial and Appeals Board’s ruling easily clear the hurdle to
establish a credible basis to suspect possible wrongdoing as to patent infringement.
To demonstrate a credible basis as to False Claims Act violations, Plaintiffs rely
on the existence of four subpoenas issued by the DOJ. 138 By 2016, Gilead was the
subject of an “expanding investigation” by the U.S. Attorney for the District of
Massachusetts related to possible violations of the False Claims Act. 139 As disclosed in
its public filings, Gilead received subpoenas in 2016 and 2017 requesting documents
related to Gilead’s relationship with certain charitable organizations, Gilead’s copay
coupon program, and Gilead’s Medicaid price reporting methodology. 140
Further, Gilead is facing a qui tam action in Pennsylvania federal court that alleges
multiple violations of the anti-kickback provisions of the False Claims Act. 141 Although
that action focuses on Hepatitis B-providers, one of the drugs at issue (Viread) is also
JX-102 (11/8/19 Science Magazine article covering the litigation).
136
See JX-98 at 77–1739.
137
JX-246 at 21; JX-247 at 12.
138
See Pls.’ Opening Br. at 14–15.
139
See JX-51 at 1.
140
JX-134 at 79.
141
See JX-88 at ¶¶ 1, 13.
30
used to treat HIV. 142 The complaint alleges that Gilead provided healthcare providers
with illegal kickbacks in exchange for prescribing Gilead products. 143 It contains public
payment information from relevant healthcare providers to Gilead, detailed information
regarding the composition of Gilead’s advisory boards, public pricing information
regarding the drugs at issue, and quotes from internal emails referencing the speaker
programs. 144 The combination of multiple government investigations relating to possible
False Claims Act violations plus the ongoing qui tam litigation alleging the exact same
conduct with respect to Gilead’s Hepatitis B business, establishes a credible basis to
suspect possible wrongdoing as to False Claims Act violations.
Gilead takes issue with Plaintiffs’ reliance on the complaints in the other lawsuits,
contending that unsubstantiated allegations cannot supply a credible basis to suspect
possible wrongdoing. 145 As discussed above, however, the credible basis requirement
does not require that allegations of wrongdoing be substantiated or even probable; 146 they
only need be credible. One of the reasons why Delaware courts urge stockholders to
conduct pre-suit investigations is to investigate allegations before filing plenary litigation
142
See id.; see also JX-55 (noting that Vemlidy is a TAF-based drug and an alternative to
Viread).
143
JX-88 ¶¶ 58–99.
144
Id. ¶ 64 & n.2 (citing “Open Payment” information, which is defined as “payments
that are not associated with a research study such as compensation, food and beverage
and lodging”); id. ¶ 69 (listing 2017 advisory boards and each of their composition); id. ¶
76 (listing prices of drugs at issue in the litigation); id. ¶ 134 (quoting an internal email
that allegedly read: “Let them hear the Message for $3,000”).
145
See Def.’s Answering Br. at 5–22.
146
See supra notes 102–09 and accompanying text.
31
to determine whether they are substantiated. In furtherance of that objective, this court
attempts to avoid “placing an unduly difficult obstacle in the path of stockholders seeking
to investigate . . . mismanagement.” 147 The allegations, information, and evidence in the
complaints on which Plaintiffs rely meet this standard for the reasons discussed above.
Requiring that Plaintiffs demonstrate more would place “an unduly difficult obstacle” in
the path of stockholders.
The parties also dispute whether Plaintiffs have presented evidence demonstrating
that Gilead’s board of directors and senior officers were aware of the categories of
alleged wrongdoing. 148 Such a showing is not required to support a credible basis where,
as here, Plaintiffs have not limited their purposes to pursuing derivative claims. 149 If
Plaintiffs must demonstrate a credible basis to suspect wrongdoing at the level of the
board or senior management, then they have done so. Gilead’s HIV drugs generate 73%
of Gilead’s revenue and were thus “intrinsically critical to the company’s business
operation.” 150 There is thus a credible basis to suspect that the board and senior
management knew about the possible wrongdoing. If they did not, there is a credible
147
See Thomas & Betts, 681 A.2d at 1032.
148
See Pls.’ Opening Br. at 15–17; Def.’s Answering Br. at 14–15.
149
See AmerisourceBergen, 2020 WL 132752, at *15, *19.
150
See Marchand v. Barnhill, 212 A.3d 805, 822 (Del. 2019); accord. In re Caremark
Int’l Inc. Deriv. Litig., 698 A.2d 959, 967–70 (Del. Ch. 1996).
32
basis to suspect that they failed to monitor a business segment that was “mission critical,”
as well as vitally important to the lives of millions of people. 151
2. Plaintiffs’ Purposes Are Their Own.
Only one Plaintiff must demonstrate a proper purpose for the court to grant some
level of inspection. Thus, for Gilead to avoid inspection entirely, Gilead must
accomplish the difficult task of undermining all five Plaintiffs’ purposes. Gilead’s
primary argument toward this end is that each Plaintiff was a passive conduit in a purely
lawyer-driven endeavor and thus lacks a proper purpose under Wilkinson v. A. Schulman,
Inc. 152 Gilead bears the burden of proving this defense. 153
In Wilkinson, the plaintiff’s deposition testimony revealed a discrepancy between
the plaintiff’s actual purpose and the stated purpose in the demand. 154 The plaintiff
wanted to investigate the company’s negative financial results, but the demand sought to
investigate a board decision to accelerate equity awards. 155 Wilkinson’s counsel had
ignored his client’s purpose and chose to send a demand concerning the counsel’s
151
See Marchand, 212 A.3d at 824.
152
See Def.’s Answering Br. at 22–36 (citing 2017 WL 5289553 (Del. Ch. Nov. 13,
2017)).
153
See Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp., 2019 WL 479082,
at *9 (Del. Ch. Jan. 25, 2019) (“A corporate defendant may resist demand where it shows
that the stockholder’s stated proper purpose is not the actual purpose for the demand.
However, in order to succeed, the defendant must prove that the plaintiff pursued its
claim under false pretenses. Such a showing is fact intensive and difficult to establish.”
(internal quotation marks omitted)), aff’d 237 A.3d 818 (Del. 2020).
154
See Wilkinson, 2017 WL 5289553, at *2–3.
155
Id.33
purpose. 156 The disconnect between the client and counsel persisted through the Section
220 enforcement action. 157 Wilkinson verified the complaint, but he did nothing to
confirm the accuracy of its allegations and knew nothing about the inspection process or
litigation. 158 He failed to play any meaningful role in the litigation and testified that he
was unaware of any facts concerning the wrongdoing that his counsel sought to
investigate. 159 This confluence of unusual facts led the court to find that the plaintiff
lacked a proper purpose. 160
Gilead fails to prove that the facts of this case rise to the level seen in Wilkinson.
In this case, Plaintiffs testified that they actually sought to investigate wrongdoing. 161
They reviewed their respective Demands and complaints prior to authorizing their service
and filing. 162 For the most part, they were knowledgeable about the basis for their
Demands. 163 They remained in contact with their respective counsel throughout the
156
Id.157
See id.158
Id. at *3.
159
Id. at *2–3.
160
See id. at *2–4; see also Calgon Carbon, 2019 WL 479082, at *9 (noting that the
“misalignment of goals between the stockholder and his counsel was a key factor in the
[Wilkinson] Court’s determination that there was no proper purpose for the demand.”).
161
See Collins Dep. Tr. at 86:22–87:11; Friedt Dep. Tr. at 65:24–66:8; Pettry Dep. Tr. at
77:5–78:11; Trial Tr. at 12:23–13:15 (Ramirez); Ramirez Dep. Tr. at 87:15–19, 98:6–7,
119:9–22; Williams Dep. Tr. at 57:22–58:10.
162
See Collins Dep. Tr. at 67:21–24; Friedt Dep. Tr. at 74:18–22, 111:18–112:12,
124:42–125:2; Pettry Dep. Tr. at 59:15–61:21, 101:9–18; Trial Tr. at 12:20–22
(Ramirez); Ramirez Dep. Tr. at 58:22–24; Williams Dep. Tr. at 54:21–24, 77:5–18.
163
See Collins Dep. Tr. at 95:17–113:22; Pettry Dep. Tr. at 79:16–82:17; Trial Tr. at
34
demand process and litigation. 164 This testimony is sufficient to establish that Plaintiffs’
purposes are their own.
To be sure, Gilead proved that lawyers were heavily involved in the process, but
that is to be expected considering the significant role lawyers play in representative
litigation generally.
On that point, In re Fuqua Industries, Inc. Shareholder Litigation 165 is instructive.
There, former Chancellor Chandler denied a motion to disqualify a derivative plaintiff
who was unfamiliar with the basic facts of the case and largely deferred control of the
litigation to counsel. 166 After canvasing state and federal case law concerning the
adequacy standard imposed on derivative plaintiffs, the court held that the plaintiffs’ bare
knowledge of the “basic facts” was sufficient to meet the adequacy requirement, and that
12:23–13:15, 32:5–34:4 (Ramirez); Ramirez Dep. Tr. at 50:22–53:4, 87:15–93:18;
Williams Dep. Tr. at 58:21–62:13. Although Friedt demonstrated a general
understanding the subject matter of her demand (see Friedt Dep. Tr. at 65:24–66:8), her
knowledge of the basis for her demand was exceptionally weak; this fact standing alone
does not compare to the confluence of unusual facts present in Wilkinson.
164
See Collins Dep. Tr. at 40:3–122:9; Friedt Dep. Tr. at 61:9–125:2; Pettry Dep. Tr. at
53:6–81:18; Trial Tr. at 10:10–23, 14:8–15:8, 23:20–24:6, 41:20–42:20 (Ramirez);
Ramirez Dep. Tr. at 56:5–213:9; Williams Dep. Tr. at 23:4–85:24. Gilead accuses
Collins of lying about who initiated the process and his level of involvement based
mostly on Collins’ poor recall of demands he served on Gilead in 2016 and 2018 and his
lack of direct contact with litigation counsel. See Def.’s Post-Trial Answering Br. at 28–
31. But those demands are largely irrelevant, and Collins’ sworn testimony established
that he had reviewed the demand letters sent on his behalf and maintained contact with
his referring counsel. See Collins Dep. Tr. at 40:3–122:9. This is sufficient to support
the finding that Collins’ stated purposes were his own.
165
752 A.2d 126 (Del. Ch. 1999).
166
Id. at 134–37.
35
knowledge of “the particulars” was not required. 167 In reaching this conclusion, the court
observed that Delaware law provides incentives for private attorneys to bring derivative
suits as a solution to the collective action problem, that those attorneys naturally play a
“dominant role in prosecuting litigation on behalf of clients,” and that lawyer
involvement is particularly appropriate “in cases involving fairly abstruse issues of
corporate governance and fiduciary duties.” 168
Of course, the adequacy requirement of Court of Chancery Rule 23.1 at issue in
Fuqua and the proper purpose requirement of Section 220 at issue in this case are not the
same. This decision does not suggest otherwise. The point is that Delaware courts have
encouraged stockholders to pursue Section 220 actions in advance of derivative suits for
decades. 169 It would be inconsistent with this policy to require that Section 220 plaintiffs
167
Id. at 136 (“[The plaintiff] was at times quite lucid and able to independently
communicate the basic facts and claims underlying her lawsuit. She did not know the
particulars.”).
168
Id. at 135; id. at 133 (“Our legal system has privatized in part the enforcement
mechanism . . . by allowing private attorneys to bring suits on behalf of nominal
shareholder plaintiffs.”); see also In re Del Monte Foods Co. S’holders Litig., 2011
WL 2535256, at *14 (Del. Ch. June 27, 2011) (“Delaware courts recognize the value of
representative litigation.”); In re Revlon, Inc. S’holders Litig., 990 A.2d 940, 959 (Del.
Ch. 2010) (“[R]epresentative litigation serves as a valuable check on managerial conflicts
of interest. Stockholder plaintiffs can and do achieve meaningful results.” (citation
omitted)); Bird v. Lida, Inc., 681 A.2d 399, 402–03 (Del. Ch. 1996) (explaining that
entrepreneurial plaintiff attorneys can “pursue monitoring activities that are wealth
increasing for the collectivity (the corporation or the body of its shareholders)”).
169
See, e.g., Cal. State Tchrs.’ Ret. Sys. v. Alvarez, 179 A.3d 824, 839 (Del. 2018)
(“[T]his Court has repeatedly admonished plaintiffs to use the ‘tools at hand’ and to
request company books and records under Section 220 to attempt to substantiate their
allegations before filing derivative complaints.”); Sec. First Corp., 687 A.2d at 571 (Del.
1997) (“[A] Section 220 proceeding may serve a salutary mission as a prelude to a
36
know more than what is required of derivative plaintiffs. It would also be inconsistent
with this policy to prohibit lawyers from playing a “dominant role” in Section 220 actions
while permitting them to do so in derivative litigation. This is particularly so given the
increasing complexities plaguing Section 220 actions. 170
The incentives in representative litigation are imperfect, and judicial oversight is
required in Section 220 actions as elsewhere. In Fuqua, the court went on to admonish
the plaintiffs’ counsel for effectively “supplanting” his client in a deposition, explaining
that “extreme facts call for the court to exercise its discretion and to curb the agency costs
inherent in private regulatory and enforcement mechanisms.” 171 It was similarly extreme
derivative suit.”); Ash v. McCall, 2000 WL 1370341, at *15 n.56 (Del. Ch. Sept. 15,
2000) (“As the Delaware Supreme Court has repeatedly exhorted, shareholders plaintiffs
should use the ‘tools at hand,’ most prominently § 220 books and records actions, to
obtain information necessary to sue derivatively.”).
170
See, e.g., Wilkinson, 2017 WL 5289553, at *3 (“A stockholder obviously can use
counsel to seek books and records. Section 220 expressly contemplates that a
stockholder can make a demand ‘in person or by attorney or other agent.’ Indeed, given
the complexity of Delaware’s sprawling Section 220 jurisprudence, a stockholder is well-
advised to secure counsel’s assistance.” (quoting 8 Del. C. § 220(b)); Calgon Carbon,
2019 WL 479082, at *10 (holding that stockholders are entitled to rely on counsel “to
raise concerns, to advise them on how to remedy those concerns, and to pursue
appropriate remedies”); Kosinski v. GGP Inc., 214 A.3d 944, 951–52 (Del. Ch. 2019)
(“The fact that Plaintiff sought and accepted the advice of counsel is to his credit, not his
detriment.”); see also Cox et al., supra note 6, at 2150 (attributing the increased
complexity in Section 220 actions to the fact that “defendants have turned books and
records litigation into a surrogate proceeding to litigate the possible merits of the suit
where they place obstacles in the plaintiffs’ way to obstruct them from employing it as a
quick and easy pre-filing too”).
171
Fuqua, 752 A.2d at 133–34.
37
facts that drove the outcome in Wilkinson, where the attorneys disregarded their client’s
objectives entirely and pursued their own. 172
In this case, the degree of lawyer involvement does not come close to the line-
crossing conduct at issue in Fuqua or Wilkinson. This case reflects benign manifestations
of the role that plaintiffs’ law firms play generally in representative litigation.
Gilead singles out Pettry and Friedt because they were enrolled in a portfolio
monitoring program and had no knowledge of alleged wrongdoing at Gilead before
counsel contacted them. 173 But there is nothing inappropriate about such programs.
They are voluntary and serve the purpose of keeping stockholders abreast of corporate
developments that may affect the value of their stock holdings. They do not obligate
participants to send Section 220 demands or file suits. 174
Gilead also complains about Hollywood’s involvement in portfolio monitoring
programs, 175 but those arguments are similarly misguided. Hollywood is a police
officers’ retirement fund that is run by a seven-member Board of Trustees, all of whom
172
See Wilkinson, 2017 WL 5289553, at *2–3.
173
See Def.’s Answering Br. at 24–28; Trial Tr. at 147:9–16; id. at 149:22–150:4; Friedt
Dep. Tr. at 61:24–64:9; Pettry Dep. Tr. at 38:12–22, 40:19–41:22, 75:10–19.
174
See Calgon Carbon, 2019 WL 479082, at *10 (“Advice from counsel comes in many
forms. Individual stockholders and smaller institutions cannot be expected to have an
independent, in-house team to cultivate purely homegrown legal analyses of their
investments. Stockholders are entitled to hire counsel to review and monitor their
portfolios for potential mismanagement or wrongdoing. They are also entitled to rely on
that counsel to raise concerns, to advise them on how to remedy those concerns, and to
pursue appropriate remedies.”).
175
See Def.’s Answering Br. at 31–33; Trial Tr. at 156:15–158:22.
38
are volunteers. 176 Hollywood works with portfolio monitoring counsel, who raise
potential issues with Hollywood, first by bringing them the attention of Hollywood’s
outside general counsel. 177 If the general counsel determines that the matter is worthy of
consideration, he elevates the discussion first to the Chairman of the Board and then to
the Board to make the determination of whether to take action. 178 Hollywood followed
its process in this case, 179 and that process is sound. Like boards of Delaware
corporations, 180 boards of pension funds are encouraged to rely on professional advisors
when fulfilling their duties to act in the best interests of the retirees. Hollywood’s
reliance on professional advisors, including portfolio monitoring counsel, strengthens the
integrity of Hollywood’s purpose, not the opposite.
Demonstrating how far Gilead was willing to go in attacking Plaintiffs, Gilead
tries to impugn Ramirez’s testimony based on a cut-and-paste error in Ramirez’s retainer
agreement with counsel. 181 The error (failing to replace the word “opioid”) was made by
counsel—not Ramirez. 182 Ramirez explained that he was caught by surprise when asked
about the error at his deposition; the “curveball,” as he called it, confused him because
176
See Williams Dep. Tr. at 22:23–23:3, 42:1–11; see also id. at 25:7–9 (“Q. Who at
Hollywood has decision-making authority with respect to litigation decisions? A. That
would be the board of trustees.”).
177
Id. at 41:13–21.
178
Id. at 55:11–56:7.
179
See JX-129 at 1; Williams Dep. Tr. 56:8–57:3.
180
See, e.g., 8 Del. C. § 141(e).
181
See Trial Tr. at 39:21–40:8 (Ramirez).
182
See id. at 10:19–11:11, 40:16–21 (Ramirez).
39
this case has nothing to with opioids. 183 Ramirez confirmed throughout his deposition
and trial testimony that his aim in seeking records was true, even stating that he was
inspired by an article he read related to wrongdoing related to Gilead’s HIV drugs. 184
In the end, Gilead failed to establish that any Plaintiff’s lawyers’ involvement
undermined any Plaintiff’s purpose (much less all of them). The record reflects that each
Plaintiff genuinely holds its stated purpose of investigating possible wrongdoing in the
development and commercialization of Gilead’s HIV treatments.
B. Gilead’s So-Called “Standing” Arguments
In its second attack on Plaintiffs’ purposes, Gilead argues that “Plaintiffs’
Demands are defective because Plaintiffs lack standing to investigate the claimed
wrongdoing.” 185 This is so, according to Gilead, because any derivative claims
challenging the wrongdoing at issue would be dismissed for the following reasons:
(i) Plaintiffs did not own shares at the time of the alleged wrongdoing; 186 (ii) the
183
Id. at 13:13–15, 32:5–34:4 (Ramirez).
184
See id. at 12:23–13:15 (Ramirez); Ramirez Dep. Tr. at 87:15–19, 98:6–7, 119:9–22.
185
Def.’s Answering Br. at 36.
186
See id. at 36 (citing Graulich v. Dell Inc., 2011 WL 1843813, at *5 (Del. Ch. May 16,
2011) (“If plaintiff would not have standing to bring suit, plaintiff does not have a proper
purpose to investigate wrongdoing because its stated purpose is not reasonably related to
its role as a stockholder.”); W. Coast Mgmt. & Cap., LLC v. Carrier Access Corp., 914
A.2d 636, 641 (Del. Ch. 2006) (“If a books and records demand is to investigate
wrongdoing and the plaintiff’s sole purpose is to pursue a derivative suit, the plaintiff
must have standing to pursue the underlying suit[.]”)); id. at 37–38.
40
derivative claims they seek to pursue are time-barred; 187 and (iii) any derivative claims
they seek to pursue would be barred by an exculpatory charter provision. 188
Gilead devoted extensive resources to this argument. To support it, Gilead served
discovery, brought a motion to compel, and took five depositions. Gilead explored these
issues at trial and devoted eight pages of post-trial briefing to them. 189
There are a number of vexing aspects of this argument. For starters, although
certain of these points may speak to a plaintiff’s standing to pursue a derivative suit, they
do not speak to a plaintiff’s standing to pursue a Section 220 action. Under Delaware
law, “[t]he issue of standing is concerned ‘only with the question of who is entitled to
mount a legal challenge and not with the merits of the subject matter in controversy.’” 190
Where the right at issue is statutory, “the real determinant” of standing “is the statutory
language itself.” 191 Section 220(c) answers the question of who has standing to pursue an
187
See id. at 36 (citing Graulich, 2011 WL 1843813, at *6 (denying Section 220 demand
where “plaintiff ha[d] articulated no stated purpose other than to investigate wrongdoing
in order to bring an appropriate suit against defendant, and plaintiff [was] time-barred
from bringing that suit”)); id. at 39–43.
188
See id. at 43 n.26 (citing Se. Pa. Transp. Auth. v. Abbvie Inc., 2015 WL 1753033, at
*13 (Del. Ch. Apr. 15, 2015) (investigating corporate wrongdoing and waste were not
proper purposes when the facts alleged amounted to only a possible breach of the duty of
care, damages for which would be barred by the corporation’s exculpation clause)).
189
See Trial Tr. at 185:4–190:15; Def.’s Answering Br. at 36–43.
190
Dover Hist. Soc’y v. City of Dover Plan. Comm’n, 838 A.2d 1103, 1110 (Del. 2003)
(quoting Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378, 1382 (Del. 1991)).
191
Oceanport Indus., Inc. v. Wilm. Stevedores, Inc., 636 A.2d 892, 900 (Del. 1994);
Newark Landlord Assoc. v. City of Newark, 2003 WL 21448560, at *5 (Del. Ch. June 13,
2003).
41
enforcement action under Section 220(c)—a stockholder. 192 In this case, it is undisputed
that each Plaintiff held stock when filing their complaints (and also for significant periods
prior to filing the complaints). 193
Gilead’s arguments speak not to Plaintiffs’ standing to pursue a Section 220 action
but, rather, to the viability of derivative claims that Plaintiffs might pursue in the future.
“This Court has repeatedly stated that a Section 220 proceeding does not warrant a trial
on the merits of underlying claims.” 194 Yet Gilead pushes the court do just that—
192
See 8 Del. C. § 220(c) (providing that “[i]f the corporation . . . refuses to permit an
inspection sought by a stockholder . . . the stockholder may apply to the Court of
Chancery for an order to compel such inspection” (emphasis added)); see also
Weingarten v. Monster Worldwide, Inc., 2017 WL 752179, at *5 (Del. Ch. Feb. 27, 2017)
(“[T]he legislature has made clear that only those who are stockholders at the time of
filing have standing to invoke this Court’s assistance under Section 220.”).
193
Collins has held Gilead stock since 1999, except for a five-month period in 2008. JX-
52. Friedt has held Gilead stock since 2013. See JX-157 at 9; Friedt Dep. Tr. at 31:15–
19, 38:13–22. Pettry has held Gilead stock since 2016. See JX-155 at 9; Pettry Dep. Tr.
at 43:7–16. Ramirez has held Gilead stock since 2016. See JX-46; Ramirez Dep. Tr. at
27:3–15. Hollywood has held Gilead stock since 2010. JX-161 at 9.
194
In re UnitedHealth Gp., Inc. Section 220 Litig., 2018 WL 1110849, at *7 & n.95 (Del.
Ch. Feb. 28, 2018) (Montgomery-Reeves, V.C.) (collecting cases); see also Lavin, 2017
WL 6728702, at *9 (Slights, V.C.) (holding that a Corwin defense will not impede an
otherwise properly supported demand for inspection and observing that “when a
stockholder demands inspection as a means to investigate wrongdoing in contemplation
of a class or derivative action, Delaware courts generally do not evaluate the viability of
the demand based on the likelihood that the stockholder will succeed in a plenary
action”); Amalgamated Bank v. UICI, 2005 WL 1377432, *2 (Del. Ch. June 2, 2005)
(Noble, V.C.) (“The potential availability of affirmative defenses to withstand fiduciary
duty claims cannot solely act to bar a plaintiff under Section 220. First, these are
summary proceedings; the factual development necessary to assess fairly the merits of a
time-bar affirmative defense, for example, as to each potential claim, is not consistent
with the statutory purpose. Second, courts should not be called upon to evaluate the
viability of affirmative defenses to causes of actions that have not been, and more
importantly may not ever be, asserted. Third, that a claim arising out of a particular
42
evaluate, in the context of a summary proceeding, defenses to causes of action that have
not yet been asserted and might have never been asserted.
Beyond the obvious practical concerns raised by such an approach, the theoretical
problems with Gilead’s argument are rife, as Vice Chancellor Laster persuasively
explained in AmerisourceBergen. 195 As the court held in AmerisourceBergen, a defense
to a future derivative claim affects a stockholder’s ability to invoke Section 220 only
where the stockholder identifies pursuing a derivative claim as its sole purpose, as was
the case in Graulich and West Coast Management. 196 In this case, Plaintiffs did not limit
transaction may be barred does not mandate the conclusion that documents relating to
that transaction are not ‘necessary, essential, and sufficient’ for a shareholder's proper
purpose with respect to more recent transactions.”); LAMPERS, 2007 WL 2896540, at
*12 (Noble, V.C.) (rejecting, in a Section 220 proceeding, that no springloading ever
occurred because “by raising such a defense, Countrywide seeks to litigate the ultimate
issue in a possible future derivative suit that might eventually be filed by LAMPERS”
and holding that “[t]his is neither the time nor the procedural setting to address that
issue”).
195
See AmerisourceBergen, 2020 WL 132752, at *14–24; see also Okla. Firefighters
Pension & Ret. Sys. v. Citigroup Inc., 2014 WL 5351345, at *6 (Del. Ch. Sept. 30, 2014)
(“Although Citigroup disclaims any effort to turn this proceeding into a trial on the merits
of Plaintiffs possible derivative claims, Citigroup essentially seeks that result by implying
that Plaintiff must have specific, tangible evidence that Citigroup’s Board or senior
management was complicit in the fraud at Banamex. That argument ignores the
inferences that this Court can—and must—draw under the credible basis standard, and
would discourage the very behavior this Court has sought to encourage among would-be
derivative or class plaintiffs.”).
196
See Graulich, 2011 WL 1843813, at *5 (“[P]laintiff’s only purpose is to pursue
potential derivative claims.” (emphasis added)); W. Coast Mgmt., 914 A.2d at 641 (“It is
clear that West Coast’s sole purpose for investigating claims of wrongdoing is to obtain
additional information to replead demand futility in order to pursue a second derivative
suit.” (emphasis added)). To be clear, a Section 220 plaintiff is not required to limit the
end-uses of the information they seek at the outset of their investigation.
AmerisourceBergen 2020 WL 132752, at *12 (holding that the proper purpose
43
themselves to the sole purpose of pursuing derivative claims. 197 Rather, Plaintiffs
expressly identified multiple potential end-uses for the information obtained through their
investigations. 198
Gilead acknowledges that Plaintiffs have stated multiple potential end-uses for the
information obtained through their investigations, 199 but Gilead pivots to argue that “it is
obvious based on Plaintiffs’ [i] deposition testimony, coupled with their [ii] retention
agreements, that their only true purpose is to pursue such a lawsuit.” 200
A review of Plaintiffs’ testimony and a close examination of Gilead’s citations
reveal that Gilead’s position is unsupported and its citations are misleading. As an initial
requirement does not require a stockholder to pick one of these end-uses at the outset, or
“commit in advance to what it will do with an investigation before seeing the results of
the investigation”).
197
See Def.’s Answering Br. at 37 (acknowledging that “Plaintiffs claim that their
purposes ‘are not limited to bringing a derivative lawsuit’” (citing Pls.’ Opening Br. at
46)); JX-123 at 2 (Ramirez’s demand stating that if the investigation supports doing so,
he “may use the documents to pursue a shareholder derivative action” (emphasis added));
JX-128 at 15 (Collins’s demand stating that the information sought will enable him “to
determine whether wrongdoing or mismanagement has taken place such that it would be
appropriate to initiate litigation”); JX-108 at 1 (Pettry’s demand listing “presenting a
litigation demand to the Board” or “suggesting corporate governance reforms” as other
potential end uses of the fruits of their investigation); JX-113 at 1 (Friedt’s demand
listing “presenting a litigation demand to the Board” or “suggesting corporate governance
reforms” as other potential end uses of the fruits of their investigation); JX-124 at 1
(Hollywood’s demand expressly stating that Hollywood reserves the right to “take other
action to seek appropriate relief”).
198
See Pls.’ Opening Br. at 25–45.
199
See Def.’s Answering Br. at 37 (acknowledging that “Plaintiffs claim that their
purposes ‘are not limited to bringing a derivative lawsuit’” (citing Pls.’ Opening Br. at
46)).
200
Id. (emphasis added).
44
matter, although Gilead makes this point as to “Plaintiffs” as a whole, Gilead does not
cite to any deposition testimony from one of the five Plaintiffs—Hollywood. 201 Nor
could they. Hollywood’s 30(b)(6) representative Williams testified that he had not
predetermined what would happen after the investigation. 202 Williams, a retired police
officer, expressly likened a Section 220 inspection to a police investigation, and stated
that “[t]his is simply an investigation. If it turns out that there is no [wrongdoing], then it
will be the end of it.” 203 Gilead can only avoid inspection if it defeats all five Plaintiffs’
proper purposes. By failing to show that Hollywood had predetermined what to do with
the fruits of its investigation, Gilead’s argument falls short from the get-go.
Gilead’s other citations amount to misrepresentations of the record. For the
position that it is “obvious” from “Plaintiffs’ deposition testimony” that Plaintiffs’ “only
true purpose” was to pursue derivative claims, Gilead offers the following:
• Gilead cites to the portion of Collins’s testimony where Collins directly
denies any plans to file a derivative claim. 204 The examining attorney
asked: “Do you intend to file a derivative action against Gilead?” Collins
201
See id. at 36–43.
202
See Williams Dep. Tr. at 58:1–10 (“Well, as I understand it, it’s similar to a police
investigation, if you will. If there is some wrongdoing that's being alleged, there’s an
investigation that follows. That investigation may turn out to be completely prudent.
Any and all the action taken was in the best interests of the company. And as I stated
before, if there’s nothing there, then we move on. If it turns out that there’s wrongdoing,
then the matter would be brought back to the board for any other consideration.”).
203
Id. 52:1–3; see also id. at 51:10–17 (“Q. And when you say ‘the action,’ what do you
mean by that? A. The books and records investigation involving Gilead. Q. Has
Hollywood considered bringing a derivative lawsuit related to the allegations in the
Section 220 demand letter? A. No.”).
204
Def.’s Answering Br. at 37 (citing Collins Dep. Tr. at 103–05).
45
responded: “I don’t have any plans to do that at the moment.” 205 The
attorney continued: “Are you aware of any other Gilead stockholders who
are contemplating bringing a derivative action against Gilead?” He
responded: “No, I’m not.” 206
• Gilead cites to the portion of Pettry’s testimony where she directly denies
that her purpose is limited to pursuing a derivative claim. 207 The examining
attorney asked: “Now, at the time you entered into this engagement
agreement [with counsel], did you intend to file derivative litigation
relating to Gilead?” Pettry answered: “It was a matter of first finding out.
I mean, obviously, although it’s potentially a shareholder derivative matter,
clearly there was first to do inspection demand to get information in order
to determine whether it’s appropriate to file derivative, shareholder
litigation.” 208
• Gilead cites to the portion of Ramirez’s deposition transcript where
Ramirez uses equivocal language when referring to a future derivative
lawsuit. 209 Counsel for the defendants identified each category of
documents requested in Ramirez’s demand and asked: “[F]or what purpose
do you need this information?” 210 In response to the first few such
questions, Ramirez vaguely indicated that he believed that the information
would strengthen his “case.” 211 In response to the last such question,
Ramirez went further to say that he believed the information would
strengthen the allegations for the purpose of a potential lawsuit, but he used
conditional language, stating: “if there is a case to be brought.” 212 The
205
Collins Dep. Tr. at 104:19–23.
206
Id. at 105:1–4.
207
Def.’s Answering Br. at 37 (citing Pettry Dep. Tr. at 64–65).
208
Pettry Dep. Tr. at 64:23–65:8 (emphasis added).
209
Def.’s Answering Br. at 37 (citing Ramirez Dep. Tr. at 102–12).
210
Ramirez Dep. Tr. at 107:21–22, 108:19–20, 110:1–2.
211
See id. at 108:3–5 (“I think they could help strengthen our case against the
allegations.”); id. at 109:15–17 (“As I had previously stated, I believe they could shed
some light and strengthen our case.”); id. at 110:15–17 (“I would again say adding merit
and strength to the allegations that were present . . . for all the points as like a
collective.”).
212
Id. at 111:18–21 (emphasis added) (“[A]s previously stated, these conversations could
add merit and strength to our allegations, if there is to be a case brought.”).
46
reference to a “case to be brought” called for a follow-up question, which
counsel eventually asked: “What specific case are you talking about.”213
Ramirez responded by claiming privilege, but again using conditional
language: “I think any of the discussions about any potential case, if there
is to be one, were between my counsel and I. So I don’t know if I can
properly answer that for you.” 214 The examining attorney let the
questioning end there. 215
• Gilead cites to the portions of Friedt’s testimony where Friedt suggests that
she will rely on her counsel in determining the end-uses of her
investigation. 216 The lead-off question in this series, which the examiner
insisted required a “yes or no” response, was: “[H]ave you informed
Gilead that you may file a derivative action against it?” 217 To this question,
Friedt responded “[t]hrough counsel, yes,” and then said “I left it up to my
counsel to inform Gilead.” 218 The examiner had not previously asked
whether Friedt had considered filing a derivative claim, and thus the
question assumed aspects of the very fact that Gilead seeks to prove—
Friedt’s intent to pursue derivative claims. Moreover, on its face, this
examiner’s question only asks whether Friedt “may” file a derivative
action, and not that she has predetermined that a derivative claim is the only
end-use she intended to pursue. Friedt later clarified, in other pages
specifically relied on by Gilead, that she intended to leave it to her counsel
to determine whether to pursue derivative claims, implicitly denying any
then-present intention of pursuing derivative claims. 219
This deposition testimony does not support, and portions directly contradict,
Gilead’s contention that Plaintiffs’ “only true purpose” is to pursue a derivative lawsuit.
213
Id. at 112:14–15.
214
Id. at 112:16–20 (emphasis added).
215
See id.216
Def.’s Answering Br. at 37 (citing Friedt Dep. Tr. at 54–56).
217
Friedt Dep. Tr. at 54:1–5.
218
Id. at 54:9–15.
219
Id. at 81:4–9 (“Q. At the time you entered into this engagement agreement, did you
intend to file a derivative action relating to Gilead . . . ? A. . . . I would leave that up to
my counsel.”).
47
Plaintiffs’ retention agreements with counsel similarly fail to demonstrate that
Plaintiffs’ sole purpose was to pursue a derivative suit. Gilead argues that “the retention
agreements make clear that counsel will not be paid until Plaintiffs achieve a financial
settlement or judgment—an implausible scenario absent the prosecution of derivative
claims.” 220 Once again, Gilead fails to make this point as to all Plaintiffs—only four of
the five Plaintiffs executed retention agreements with counsel. 221 Collins represented that
he did not have a retention agreement with counsel. 222
It is true that plaintiffs’ attorneys commonly take matters on contingency and
receive compensation only as a consequence of the prosecution and settlement of
derivative claims. This common arrangement is, again, a benign aspect of Delaware’s
solution to the collective action problem that stockholders face. Moreover, the fact that
retention agreements with counsel provide that counsel only gets paid in the event of
plenary litigation does not prevent Plaintiffs from using “the fruits of their investigation
for other ends.” 223 It is logical that the agreements would address litigation because
“[t]he plaintiffs would need their counsel to conduct litigation,” but not to pursue
220
Def.’s Opening Br. at 37 (citing JX-79 at 2 (Friedt Retention Agreement); JX-80 at 2
(Pettry Retention Agreement); JX-87 at 1–2 (Ramirez Retention Agreement); JX-122 at 2
(Hollywood Retention Agreement)).
221
See JX-79 (Friedt Retention Agreement); JX-80 (Pettry Retention Agreement); JX-87
(Ramirez Retention Agreement); JX-122 (Hollywood Retention Agreement).
222
Collins Dep. Tr. at 45:19–24.
223
See AmerisourceBergen, 2020 WL 132752 at *14.
48
alternative courses of action. 224 The retention agreements standing alone, therefore, do
not undermine Plaintiffs’ proper purposes.
To sum up the defects in Gilead’s so-called “standing” arguments as a whole:
They are not actually about standing to bring a Section 220 action. They speak to the
viability of a derivative claim, which is largely beyond the scope of Section 220
proceedings. Even the authorities on which Gilead relies limit the application of Gilead’s
arguments to situations where pursuing a derivative claim is the plaintiff’s sole purpose.
Section 220 plaintiffs generally need not specify the end-uses of their investigation at the
outset of their investigation, and Plaintiffs here have stated multiple potential end-uses.
Gilead’s arguments to the contrary based on Plaintiffs’ deposition testimony fail to
address all Plaintiffs and are misleading. Plaintiffs’ retention agreements with their
counsel do not support Gilead’s point.
Gilead’s arguments fail for other reasons as well. Gilead argues that Plaintiffs
lack standing to seek inspection because Plaintiffs did not own shares at the time of the
possible wrongdoing. 225 Yet, in Saito, the Delaware Supreme Court found that “the date
on which a stockholder first acquired the corporation’s stock does not control the scope
224
Id.225
See Def.’s Answering Br. at 36 (citing Graulich, 2011 WL 1843813, at *5 (“If
plaintiff would not have standing to bring suit, plaintiff does not have a proper purpose to
investigate wrongdoing because its stated purpose is not reasonably related to its role as a
stockholder.”)); W. Coast Mgmt., 914 A.2d at 641 (“If a books and records demand is to
investigate wrongdoing and the plaintiff’s sole purpose is to pursue a derivative suit, the
plaintiff must have standing to pursue the underlying suit[.]”)).
49
of records available under § 220.” 226 As the court explained, a stockholder can seek
inspection of records pre-dating their stock ownership “[i]f activities that occurred before
the purchase date are ‘reasonably related’ to the stockholder’s interest as a
stockholder.” 227 A document can reasonably relate to a stockholder’s current interests if
it provides background and context to the current or ongoing wrong the stockholder seeks
to investigate. 228 In this case, any records sought that arguably pre-date Plaintiffs’
ownership of Gilead stock are “reasonably related” to Plaintiffs’ current interest as
stockholders, and concern post-purchase date wrongs that have their roots in earlier
events.
In any event, Gilead’s timing-of-ownership argument does not apply to the on-
going False Claim Acts investigations, and the antitrust abuses, mass torts, and patent
violations are all alleged to be continuing. 229
There is also a non-frivolous argument that Gilead waived its statute of limitations
and Section 102(b)(7) defenses by failing to identify them in its interrogatory responses,
despite this court ordering discovery into Gilead’s defenses. 230 Gilead responds that it
226
Saito v. McKesson HBOC, Inc., 806 A.2d 113, 117 (Del. 2002).
227
Id.228
UICI, 2005 WL 1377432, at *2 (“A document that contributes to the investigation of a
continuing wrong or provides background and context to a current, actionable wrong may
be relevant and, indeed, necessary to a shareholder’s proper purpose regardless of
whether the events revealed in the documents are themselves actionable.”).
229
See JX-82 at ¶ 2; JX-98 at 3, 69–75; JX-244 at ¶¶ 155, 163.
230
See JX-164; JX-191; JX-206; JX-210; see also IQ Hldgs., Inc. v. Am. Com. Lines Inc.,
2012 WL 3877790, *1 (Del. Ch. Aug. 30, 2012) (“The underlying purpose of discovery
50
was not required to raise these defenses in its answer or otherwise because they are not
defenses to a books and records action but, rather, to the plenary lawsuit. 231 This
decision need not reach this argument given the multiple other defects in Gilead’s
position. But it bears noting that Gilead’s position only underscores that Gilead’s
“standing” arguments speak to the viability of a potential derivative claim and not
Plaintiffs’ entitlement to inspection under Section 220.
C. Scope of Production
Once a Section 220 plaintiff establishes a proper purpose, the court must
determine the scope of inspection. A stockholder with a proper purpose “bears the
burden of proving that each category of books and records is essential to accomplishment
of the stockholder's articulated purpose for the inspection.” 232
The Delaware Supreme Court recently articulated this burden as follows:
Books and records satisfy this standard “if they address the
‘crux of the shareholder’s purpose’ and if that information ‘is
unavailable from another source.’” That determination is
“fact specific and will necessarily depend on the context in
which the shareholder’s inspection demand arises.” Keeping
in mind that § 220 inspections are not tantamount to
“comprehensive discovery,” the Court of Chancery must
tailor its order for inspection to cover only those books and
records that are “essential and sufficient to the stockholder's
stated purpose.” In other words, the court must give the
in general is to reduce the element of surprise at trial . . . .”).
231
See Def.’s Answering Br. at 40 n.23 (“The statute of limitations is not an affirmative
defense in a books and records action.”).
232
Palantir, 203 A.3d at 751 (quoting Thomas & Betts, 681 A.2d at 1035).
51
petitioner everything that is “essential,” but stop at what is
“sufficient.” 233
In this case, Plaintiffs seek inspection of formal board materials, including board
minutes, presentations, reports, agendas, and preparation materials, dating back to 2004
and concerning the topics of the Demands. Plaintiffs additionally seek five specific
categories of documents.
Gilead’s response is three-fold. Gilead first argues that inspection should be
limited to formal board materials. Gilead next makes arguments as to each category of
additional documents. Gilead finally argues that each Plaintiff should be limited to
inspecting only the documents specifically sought in their respective Demands.
1. Formal Board Materials
Gilead agrees that, upon a finding that Plaintiffs have stated proper purposes, the
production of the formal board materials is appropriate. 234 Gilead has collected and
reviewed approximately 1,600 centrally-stored formal board materials from December 1,
2004 to February 25, 2020, and identified over 400 of them as potentially related to the
topics sought in the Demands. 235 Because Plaintiffs have stated proper purposes,
Plaintiffs are entitled to inspect this category of documents. These documents should
have been produced in response to the Demands without resort to litigation.
233
Id. at 751–52.
234
Def.’s Answering Br. at 47–50.
235
JX-210 at 21–23.
52
2. Categories of Additional Documents
Gilead argues that the court should limit inspection to the formal board materials
based on what Gilead describes as the “default rule that only formal board materials are
necessary and essential in a Section 220 proceeding.” 236 There is no such default rule.
Gilead relies primarily on Vice Chancellor Laster’s decision in
AmerisourceBergen. 237 There, the Vice Chancellor classified corporate books and
records into three categories: “Formal Board Materials,” 238 “Informal Board
Materials,” 239 and “Officer-Level Materials.” 240 The Vice Chancellor explained that
“[t]he starting point (and often the ending point) for an adequate inspection will be board-
level documents.” 241 The premise for that observation is that companies can and should
provide these documents voluntarily without forcing stockholders to litigate over them.
236
Def.’s Answering Br. at 54.
237
See id.238
AmerisourceBergen, 2020 WL 132752 at *24 (defining “Formal Board Materials” as
“board-level documents that formally evidence the directors’ deliberations and decisions
and comprise the materials that the directors formally received and considered”)
(collecting cases limiting the scope of production to Formal Board Material); see also
Woods v. Sahara Enters., 2020 WL 4200131, at *11 (Del. Ch. July 22, 2020) (same).
239
AmerisourceBergen, 2020 WL 132752 at *25 (defining “Informal Board Materials” as
“generally include[ing] communications between directors and the corporation’s officers
and senior employees, such as information distributed to the directors outside of formal
channels, in between formal meetings, or in connection with other types of board
gatherings” and sometimes including “emails and other types of communication sent
among the directors themselves, even if the directors used non-corporate accounts”).
240
Id. (defining “Officer Level Materials” as “communications and materials that were
only shared among or reviewed by officers and employees”).
241
Id. at *24.
53
Gilead misses this point and invokes the AmerisourceBergen taxonomy for a contrary
purpose—to broaden the already extensive disputes among the parties.
Formal board materials need not be an end point, particularly where the
wrongdoing appears vast. As the Vice Chancellor further explained in
AmerisourceBergen, “[i]f the plaintiff makes a proper showing, an inspection may extend
to informal materials,” 242 and “wide-ranging mismanagement or waste” might require a
“more wide-ranging inspection.” 243 In this case, Gilead’s efforts to draw the line at
formal board materials fall short because Plaintiffs have shown a need for additional
categories of documents by demonstrating a credible basis to suspect wide-ranging
misconduct and wrongdoing.
In addition to formal board materials, Plaintiffs seek the following categories of
documents: (a) the agreements with other companies at issue in the antitrust litigation;
(b) policies and procedures concerning the topics covered in the Demands; (c) senior
management materials; (d) communications between Gilead and the government; and (e)
director questionnaires.
242
Id. at *25.
243
Id. at *24 (first quoting Freund v. Lucent Techs., Inc., 2003 WL 139766, at *5 (Del.
Ch. Jan. 9, 2003); then citing Skoglund v. Ormand Indus., 372 A.2d 204, 211 (Del. Ch.
1976)).
54
a. Anticompetitive Agreements
Plaintiffs seek to inspect the agreements between Gilead and its competitors at
issue in the antitrust litigation. 244 Plaintiffs suspect that these agreements violated
antitrust laws or otherwise perpetuate unlawful anticompetitive activity. 245 They are core
to the wrongdoing Plaintiffs seek to investigate. 246 They are therefore necessary and
essential to Plaintiffs’ proper purposes. They are unlikely to be available from another
source. Accordingly, Plaintiffs are entitled to inspect this category of documents. 247
Because of the centrality of these agreements to Plaintiffs’ purposes, Gilead should have
produced them without resorting to litigation.
244
Pls.’ Opening Br. at 56–57.
245
Id.246
See, e.g., AmerisourceBergen, 2020 WL 132752, at *28 (ordering inspection of
settlement agreements with the DEA to identify the scope of the company’s compliance
obligations and determine whether the Board willfully disregarded them).
247
The parties dispute the significance of AmerisourceBergen on this category of
documents. In that case, the court ordered inspection of documents related to the
defendant’s participation in trade associations where the plaintiffs suspected that the
defendant violated the law by collaborating with trade associations. See id. Plaintiffs
argue that this outcome weighs in favor of production of the antitrust agreements in this
action. Pls.’ Opening Br. at 57 n.191. Gilead responds that the Court limited production
in AmerisourceBergen to formal board materials, and argues that this court should
“follow AmerisourceBergen and not order the production of the underlying antitrust
agreements.” Def.’s Answering Br. at 53. Defendant misconstrues AmerisourceBergen,
where the Court found that “[t]he 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.” See 2020 WL 132752, at *1. The court expressly granted the plaintiffs the
ability to seek further discovery to determine what books and records exist. See id. at
*29. Here, Plaintiffs obtained that discovery, so there is no need for bifurcation.
55
In holding that Plaintiffs are entitled to inspect the allegedly anticompetitive
agreements, the court does not distinguish between the Gilead/Japan Tobacco agreement
and those still at issue in the Staley Action. The complete set of agreements is necessary
to understanding the pattern of behavior that the Demands seek to investigate.
b. Policies and Procedures
Plaintiffs seek to inspect Gilead’s policies and procedures concerning Gilead’s
compliance with antitrust regulations and patent law. 248 These requests seek discrete
categories of information, which are easy to produce, and where inspection is routinely
granted. 249 Gilead argues that the formal board materials from the relevant time period
are sufficient to understand whether Board and management decisions were made in
compliance with Gilead’s policies and procedures. 250 But the formal board materials may
not reflect what, if any, policies and procedures were in place during that time period.
These documents are therefore necessary and essential to Plaintiffs’ proper purposes.
They are unlikely to be available from another source. Accordingly, Plaintiffs are
248
Pls.’ Opening Br. at 57.
249
See, e.g., AmerisourceBergen, 2020 WL 132752, at *27 (ordering production of the
Amerisourcebergen’s written policies regarding its anti-diversion and compliance
program); In re Facebook, Inc. Section 220 Litig. (Facebook 220), 2019 WL 2320842, at
*18 (Del. Ch. May 30, 2019) (ordering the production of Facebook’s formally adopted
policies and procedures regarding data privacy and access to user data, including those
promulgated following the entry of the Consent Decree); UnitedHealth, 2018
WL 1110849, at *10 (ordering the production of UnitedHealth’s policies and procedures
regarding Medicare billing); Lucent, 2003 WL 139766, at *6 (ordering production of
policies and procedures concerning accounting compliance, including policies for (i)
preparing revenue “targets” or preparing and disclosing “financial guidance” or
projections; and (ii) recognizing revenue, on sales to its distributors).
250
Def.’s Answering Br. at 53–54.
56
entitled to inspect this category of documents. This is another category of documents that
Gilead should have produced without resorting to litigation.
c. Senior Management Materials
Plaintiffs seek to inspect two categories of officer-level documents that they refer
to as “Senior Management Materials” to determine “whether and to what extent
mismanagement occurred and what information was transmitted to Gilead’s directors and
officers.” 251
This court will permit inspection of officer-level documents under certain
circumstances. As the Delaware Supreme Court described in Saito when affirming
inspection of officer-level documents, “generally, the source of the documents in a
corporation’s possession should not control a stockholder's right to inspection under
§ 220.” 252 Although inspection of officer-level documents can be appropriate, in general,
“the Court of Chancery should not order emails to be produced when other materials
(e.g., traditional board-level materials, such as minutes) would accomplish the
petitioner’s proper purpose, but if non-email books and records are insufficient, then the
court should order emails to be produced.” 253 The burden lies on Plaintiffs to establish a
reasonable basis to suspect that other materials are likely to be insufficient to accomplish
the stockholder’s proper purpose.
251
Pls.’ Opening Br. at 60–62.
252
Saito, 806 A.2d at 118; accord. Wal-Mart Stores, Inc., 95 A.3d at 1273; see also
Woods, 2020 WL 4200131, at *11; Mudrick Cap. Mgmt., L.P. v. Globalstar, Inc., 2018
WL 3625680, at *9 (Del. Ch. July 30, 2018).
253
Palantir, 203 A.3d at 752–53.
57
First, Plaintiffs seek approximately thirty sets of materials emailed to senior
management members prior to their bi-monthly “Leadership Team Meetings” and ad hoc
meetings. 254 Plaintiffs observe that Gilead stores the materials circulated in connection
with the bi-monthly meetings in a centralized location. 255 Plaintiffs contend that these
materials are likely to include information about the government investigations, the
antitrust lawsuits, and Gilead’s decision to sue the U.S. government. 256 These thirty sets
are necessary and essential to Plaintiffs’ ability to investigate whether and to what extent
wrongdoing occurred and what information was transmitted to Gilead’s directors and
officers. 257 They are also unlikely to be available from another source. Accordingly,
Plaintiffs are entitled to inspect this category of documents.
Second, Plaintiffs request electronically stored information—previously gathered
and produced in connection with the congressional investigation, the Staley Action, and a
2016 subpoena—from the files of two former inside directors John Milligan and John
Martin. 258 Plaintiffs say that Milligan and Martin were highly influential Board members
254
Trial Tr. at 87:7–21; JX-210 at 26, 39.
255
See Pls.’ Opening Br. at 62 & n.204; see also JX-210 at 40 (“From June 2019 to
present, documents may be accessed via OneDrive and projected for shared viewing.”).
256
Pls.’ Opening Br. at 60–62.
257
Cf. Facebook 220, 2019 WL 2320842, at *18 (ordering the production of “electronic
communications, if coming from, directed to or copied to a member of the Board,
concerning” the plaintiffs’ allegations in that case, “to be collected from the following
[senior management] custodians: Erskine B. Bowles, Sheryl Sandberg, Alex Stamos, and
Mark Zuckerberg”).
258
Pls.’ Opening Br. at 61–62; see also JX-210 at 27 n.4 (alleging that Milligan and
Martin, as former executives, were “custodians in certain Matters by virtue of their roles
58
and thus their documents are critical because any wrongdoing will likely involve what
these Board members knew. 259 As to this one category, Plaintiffs’ efforts fall short. A
director’s status as a management member or highly influential Board member can
sometimes provide a basis for inspecting that director’s emails, typically where the
director played a key role in the suspected wrongdoing. 260 The mere fact that a director
holds a management position or is influential seldom makes their documents necessary
and essential to investigating wrongdoing. 261 In this case, Plaintiffs offer no additional
justification for seeking to inspect these documents. Plaintiffs have therefore failed to
demonstrate that these emails are necessary and essential to their stated purposes and are
not entitled to inspect this category of documents.
d. Gilead’s Communications with the Government
Plaintiffs seek to inspect high-level communications between Gilead and
government investigators that state the basis for the ongoing government
investigations. 262 This court regularly orders companies to produce communications
as Senior Officers).
259
Pls.’ Post-Trial Opening Br. at 61–62.
260
See, e.g., Yahoo!, 132 A.3d at 791–793 (permitting inspection of CEO’s “email and
other electronic documents” because she “was the principal corporate actor in the hiring
process”).
261
Cf. Kaufman v. CA, Inc. (Kaufman II), 905 A.2d 749, 755 (Del. Ch. 2006) (holding
that the plaintiff “conflate[d] the usefulness or responsiveness of further discovery . . .
with the proper standard of necessity under Section 220” and “[t]hat a document would
be potentially discoverable under Rule 34 does not make it necessary and essential under
Section 220”).
262
Pls.’ Opening Br. at 58–60.
59
related to government investigations and litigation in Section 220 cases where those
investigations supply or support a credible basis for wrongdoing. 263
Just as Gilead’s policies and procedures are necessary and essential to reveal the
degree of Gilead’s compliance with internal rules, these documents are necessary and
essential to reveal the degree of Gilead’s compliance with positive law and government
regulations. Considering that the ongoing government investigations supported
Plaintiffs’ credible basis for inspection, these documents are necessary and essential to
assess whether wrongdoing occurred. These communications might also inform whether
the Company has taken any steps to address the possible wrongdoing. Ongoing
government investigations might threaten Gilead’s ability to secure future government
funding, which would present a serious problem for Gilead’s business.
These documents are therefore necessary and essential to Plaintiffs’ proper
purposes. They are also unlikely to be available from another source. Accordingly,
Plaintiffs are entitled to inspect this category of documents.
263
See, e.g., Facebook 220, 2019 WL 2320842, at *18 (ordering production of documents
and communications related to “investigations conducted by the FTC, DOJ, SEC, FBI
and ICO regarding Facebook’s data privacy practices”); China MediaExpress, 2012
WL 28818, at *6 (ordering production of any materials provided to the United States
Patent Office or any patent office in any other country, including the People's Republic of
China); Lucent, 2003 WL 139766, at *5 (ordering production of “[o]rders and other
communications with the SEC concerning its investigation”); Carapico, 791 A.2d at 792(ordering production of “reports presented to or minutes of meetings of the Exchange
Board of Governors (or any committees or subgroups thereof) relating to (a) the SEC
inquiry, (b) the decision to authorize the settlement of the SEC inquiry, or (c) the impact
of the terms of the SEC Order on the business of the Exchange or any of its
subsidiaries”); see also AmerisourceBergen, 2020 WL 132752, at *25 (“In an appropriate
case, an inspection may extend further to encompass communications and materials that
were only shared among or reviewed by officers and employees . . . .”).
60
e. Director Questionnaires
Plaintiffs seek to inspect the directors’ and officers’ questionnaires for each Board
member. 264 This court regularly orders companies to produce director questionnaires
where a plaintiff has demonstrated a credible basis to suspect possible wrongdoing. 265
Because that the Demands investigate alleged violations of positive law and
government regulations, understanding the directors’ motives and potential conflicts is
paramount. Further, the burden on Gilead in producing these documents is minimal.
Gilead stores these documents in a central location, 266 so they are easy to locate and
produce. They are unlikely to be available from another source. Accordingly, Plaintiffs
are entitled to inspect this category of documents.
3. Plaintiff-Specific Restrictions on Inspection
Gilead seeks to limit the scope of each Plaintiffs’ inspections to the documents
requested in their respective Demands. 267 Gilead argues that if a Plaintiff elected not to
request a certain category of documents in its Demand, then it conceded that such
264
Pls.’ Opening Br. at 56.
265
See, e.g., Facebook 220, 2019 WL 2320842, at *18 (ordering defendant to produce
director questionnaires); UnitedHealth, 2018 WL 1110849, at *9 (same); Lavin, 2017
WL 6728702, at *14 (same). Often, a stockholder will assert the desire to investigate
director independence as a separate purpose for seeking books and records. See, e.g.,
Facebook 220, 2019 WL 2320842, at *1 (one of the plaintiffs’ stated purposes was to
investigate the independence and disinterest of the board); UnitedHealth, 2018
WL 1110849, at *1 (Del. Ch. Feb. 28, 2018) (same); Lavin, 2017 WL 6728702, at *1
(Del. Ch. Dec. 29, 2017) (same). In this case, Plaintiffs desire to investigating director
independence is a component of investigating the corporate wrongdoing at issue.
266
JX-210 at 24 n.2.
267
See Def.’s Answering Br. at 45–46.
61
category of information is nonessential to its stated purpose. Gilead contends that
Plaintiffs may not by piggyback on other stockholders’ separate Demands. 268
As a general rule, a stockholder’s inspection rights are limited by the scope of the
demand letter, and a Section 220 plaintiff will be foreclosed from recasting the scope of
its demand at the eleventh hour. 269 The conventional wisdom underlying this rule is that
it is difficult and inefficient for companies to consider the merits of an evolving request.
Preventing Section 220 plaintiffs from revising the scope of their demands during
litigation promotes the policy of protecting corporations from the burden and additional
costs created by these inefficiencies. 270
268
Id. at 46 (first citing Paraflon Invs., Ltd. v. Linkable Networks, Inc., 2020 WL
1655947, at *6 (Del. Ch. Apr. 3, 2020) (refusing to order production of documents not
requested in demand); then citing Fuchs Fam. Tr. v. Parker Drilling Co., 2015 WL
1036106, at *4, *7 (Del. Ch. Mar. 4, 2015) (rejecting a Section 220 plaintiff’s late-stage
attempts to expands its inspection)).
269
See, e.g., Fuchs, 2015 WL 1036106, at *4 (rejecting a Section 220 plaintiff’s efforts to
expand the scope of requested documents through a supplemental demand sent on the eve
of trial); Quantum Tech. P’rs IV, L.P. v. Ploom, Inc., 2014 WL 2156622, at *14 n.118
(Del. Ch. May 14, 2014) (“I note, however, that if Quantum later seeks to inspect
information that is not within the categories of information sought in this action,
Quantum would need to make a new demand and, if necessary, file a new action.”);
Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d 156, 167 (Del. Ch. 2006),
and aff’d sub nom. Highland Equity Fund, L.P. v. Motient Corp., 922 A.2d 415 (Del.
2007) (“None of these revisions adequately address the court’s concern as to the breadth
of the original demand sued upon or the scope of relief Highland Select continues to
seek.”).
270
Paraflon, 2020 WL 1655947, at *6 (“Striking the proper balance between a
stockholders’ inspection rights and the right of a company’s board to manage the
corporation without undue interference from stockholders is a core principle in our
Section 220 jurisprudence. Limiting inspection to what is specified in a demand letter is
a key way of maintaining that balance. A corporate board is entitled to be informed of
exactly what the stockholder is demanding to inspect so it can make the call, before
62
This general rule serves to promote litigant and judicial efficiency and is not
strictly applied when those purposes are not furthered. For example, Section 220
plaintiffs often lack information about what type of corporate records exist when making
their demands. This informational asymmetry can force Section 220 plaintiffs to make
broad requests. Tailored discovery in a Section 220 action can allow Section 220
plaintiffs to refine their requests with greater precision and drop requests for non-existent
information. The iterative process that occurs through Section 220 discovery thus helps
to eliminate pointless hypothetical disputes and promote judicial and litigant efficiencies,
all good things this court strives to encourage. 271
To that end, sometimes this court will ask Section 220 plaintiffs to revise their
requests to streamline disputes. In Facebook, for example, the court required the
defendant to respond to a demand as “refined by the parties’ several and meet and confer
sessions.” 272 The “refined” demand was “the version of the Demand that [the
defendants] addressed in their pre-trial brief and at trial.” 273 The court held: “The scope
litigation, whether to allow inspection or litigate the demand. Holding that inspection
will not be ordered unless a request is presented in the stockholder’s inspection demand
preserves this balance and prevents a demand letter from turning into an iterative,
ongoing request for production.”).
271
See, e.g., ATR-Kim Eng Fin. Corp. v. Araneta, 2006 WL 3783520, at *2 (Del. Ch.
Dec. 21, 2006); Loppert v. WindsorTech, Inc., 865 A.2d, 1282, 1290–91 (Del. Ch. 2004);
see also Dkt. 65, Oral Arg. Re Def.’s Mot. for Protective Order and the Ct.’s Ruling at 9–
10, 57–58.
272
In re Facebook 220, 2019 WL 2320842, at *18.
273
Id.63
of documents requested in that version, therefore, has been properly joined for
decision.” 274
The general rule does not promote efficiency when applied to coordinated Section
220 actions like this case. Often, corporate actions will draw demands for inspection
from multiple plaintiffs. In such cases, Section 220 plaintiffs may agree to coordinate
their efforts, or sometimes the court or the defendants will ask the Section 220 plaintiffs
to do so. A coordinated approach is almost always desirable because it allows the court
to resolve, and the defendant to litigate, and a single Section 220 action rather than
multiple actions. A coordinated approach also reduces the likelihood of inconsistent
determinations on similar issues.
In this case, it was Gilead that asked Plaintiffs to coordinate their litigation efforts,
and Plaintiffs agreed. 275 As part of their coordinated process, Plaintiffs worked together
to narrow their over sixty overlapping documents requests to a streamlined list.
In this context, limiting Plaintiffs to the documents they demanded before
coordination would make no sense. There is no prejudice to Gilead in producing all
categories of information deemed necessary and essential to all Plaintiffs. In fact, it
would be easier for Gilead to create and track one production set rather than five.
Gilead’s approach would force the court to conduct four separate scope analyses,
defeating some of the judicial efficiencies gained by coordination. It would also risk
274
Id.275
See supra note 85 and accompanying text.
64
inconsistent rulings on whether categories of documents were necessary and essential as
to certain stockholder plaintiffs but not to others who seek to investigate the same
wrongdoing. In sum, strict application of the general rule in this case would defeat the
rule’s purpose of promote litigant and judicial efficiency.
For this reason, Gilead’s final argument seems yet another indication that Gilead’s
real goal in this litigation is not to protect its interests but, rather, to make the process of
investigating wrongdoing as difficult as possible for its stockholders.
D. Conditions on Inspection
This decision does not address whether it is appropriate to enter conditions on
inspection. In its pretrial brief, Gilead asked that inspection be subject to four specific
conditions. 276 In its post-trial brief, Gilead suggests that the parties should meet and
confer regarding the conditions. 277 Plaintiffs appear to agree that a meet and confer is
warranted. 278 The parties shall confer on whether conditions are appropriate and report to
the court within twenty days of issuance of this decision.
276
Dkt. 85, Def. Gilead Sciences, Inc.’s Pre-Trial Br. at 56–57 (requesting that inspection
be subject to a mutually-agreeable form of confidentiality order, a Delaware forum
selection provision applicable to any future litigated that uses the fruits of Plaintiffs’
inspection, an incorporation condition like that entered in Yahoo!, and Gilead’s ability to
assert that certain documents are privileged or nonresponsive).
277
Def.’s Answering Br. at 60.
278
See Pls.’ Opening Br. at 62–63.
65
E. Plaintiffs Are Granted Leave to Move for Their Fees and Expenses.
Delaware courts follow the American Rule that “each party is generally expected
to pay its own attorneys’ fees regardless of the outcome of the litigation.” 279 Even under
the American Rule, however, this court retains the ability to shift fees for bad faith
conduct “to deter abusive litigation and protect the integrity of the judicial process.” 280 In
assessing “bad faith,” this court can consider both litigation-related conduct and the
party’s pre-litigation conduct. 281 Although there is “no single, comprehensive definition
of ‘bad faith’ that will justify a fee-shifting award,” 282 this court commonly employs the
“glaring egregiousness” standard. 283 “The bad faith exception is applied in
279
Shawe v. Elting, 157 A.3d 142, 149 (Del. 2017) (citing Montgomery Cellular Hldg.
Co. v. Dobler, 880 A.2d 206, 227 (Del. 2005)).
280
Montgomery Cellular, 880 A.2d at 227 (internal quotation marks omitted); see also
Martin v. Harbor Diversified, Inc., 2020 WL 568971, at *1 (Del. Ch. Feb. 5, 2020)
(“Shifting fees for bad faith is not, properly speaking, an exception to the American Rule
on fees; it is a method for reducing and appropriately allocating the costs of vexatious
behavior sufficiently serious that justice requires such mitigation.”).
281
Compare In re SS & C Tech., Inc. S’holders Litig., 948 A.2d 1140, 1149–52 (Del. Ch.
2008) (applying the bad faith exception to the American Rule and shifting fees because
plaintiffs’ counsel brought a motion to withdraw on notice in bad faith and made a series
of misstatements in filings “that tended to misrepresent or downplay the facts”), with
Hardy v. Hardy, 2014 WL 3736331, at *17 (Del. Ch. July 29, 2014) (applying the bad
faith exception to the American Rule to pre-litigation conduct and holding that the
exception can apply “where the pre-litigation conduct of the losing party was so
egregious as to justify an award of attorneys’ fees” (quoting Est. of E. Murton DuPont
Carpenter v. Dinneen, 2008 WL 2950764 (Del. Ch. Mar. 26, 2008))).
282
Montgomery Cellular, 880 A.2d at 227.
283
See, e.g., RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 879 (Del. 2015) (affirming
this court’s determination under the “glaring egregiousness” standard to shift fees); Isr.
Disc. Bank of N.Y. v. First State Depository Co., 2013 WL 2326875, at *28–29 (Del. Ch.
May 29, 2013) (applying the “glaring egregiousness” standard in assessing potential fee
shifting); eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 47–48 (Del. Ch. 2010)
66
‘extraordinary circumstances,’” 284 and it “is not lightly invoked,” 285 but this court has
shifted fees in Section 220 actions where a party’s conduct rose to the level of bad
faith. 286
Delaware courts have urged stockholders to use the “tools at hand” and pursue
Section 220 inspections before filing derivative lawsuits for decades, 287 and this court has
seen a rise in Section 220 enforcement actions in recent years. 288 The regrettable reaction
by defendant corporations has been massive resistance. As one academic article
commented, “defendants have turned books and records litigation into a surrogate
proceeding to litigate the possible merits of the suit where they place obstacles in the
plaintiffs’ way to obstruct them from employing it as a quick and easy pre-filing
(same); In re Charles Wm. Smith Tr., 1999 WL 596274, at *2–4 (Del. Ch. July 23, 1999)
(same).
284
E.g., Shawe, 157 A.3d at 150–51; Montgomery Cellular, 880 A.2d at 227; accord.
Dover Hist. Soc., 902 A.2d at 1092; Henry v. Phixios Hldgs., Inc., 2017 WL 2928034, at
*14 (Del. Ch. July 10, 2017) (Montgomery-Reeves, V.C.).
285
Ravenswood Inv. Co. v. Winmill & Co., 2014 WL 2445776, at *4 (Del. Ch. May 30,
2014) (quoting Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005)).
286
See, e.g., Carlson v. Hallinan, 925 A.2d 506, 545–46 (Del. Ch. 2006); McGowan v.
Empress Ent., Inc., 791 A.2d 1, 3–8 (Del. Ch. 2000); Technicorp Int’l II, Inc. v. Johnston,
2000 WL 713750, at *44 (Del. Ch. May 31, 2000).
287
See supra note 169.
288
See Edward B. Micheletti, et al., Recent Trends in Books-and-Records Litigation, 38
Del. Law. 18, 18 (2020) (“[T]he frequency of stockholder demands to inspect corporate
books and records has increased . . . .”); Cox et al., supra note 6 at 2123, 2146–47
(comparing the number of Section 220 actions filed from 1981 to 1994 with those filed
from 2004 to 2018 and finding a thirteen-fold increase).
67
discovery tool.” 289 These obstacles increase the investment required from stockholder
plaintiffs and their counsel when pursuing Section 220 inspections.
It seems that defendants like Gilead think that there are no real downsides to
overly aggressive defense campaigns at the Section 220 phase. Although aggressively
defending a Section 220 action will result in higher defense costs during that phase, the
approach can undermine follow-on derivative claims if successful, thereby lowering net
costs for defendants. Even if the approach is unsuccessful in thwarting inspection, the
work product created in building legal defenses to follow-on derivative claims can be
repurposed in the context of the derivative suit. And the risk of reputational harm to
defendants resulting from a decision detailing possible corporate wrongdoing rendered
under a plaintiff-friendly Section 220 appears to lack the deterrent effect one might
expect it to have.
Scholars have recommended fee shifting as one means of recalibrating the risks of
Section 220 litigation. 290 This proposition finds support in prior decisions of this court
and the Model Business Corporation Act. 291
289
Cox et al., supra note 6 at 2150.
290
See id. at 2151 (“Delaware should give serious consideration to awarding plaintiffs
their attorneys’ fees in cases where the defendants make untoward efforts to delay the
resolution of these summary cases.”); Randall Thomas, Improving Shareholder
Monitoring of Corporate Management by Expanding Statutory Access to Information, 38
Ariz. L. Rev. 331, 335 (1996) (arguing that for Section 220 to facilitate effective
stockholder monitoring, it must be significantly streamlined, including shifting attorneys’
fees to deter frivolous refusals to produce information).
291
See supra note 286; Model Business Corporation Act § 16.04(c) (“If the court orders
inspection and copying of the records demanded, it shall also order the corporation to pay
68
Fee shifting may be appropriate here. Gilead exemplified the trend of overly
aggressive litigation strategies by blocking legitimate discovery, misrepresenting the
record, and taking positions for no apparent purpose other than obstructing the exercise of
Plaintiffs’ statutory rights. Gilead’s pre-litigation failure to provide any Plaintiff with
even a single document despite the ample evidence of a credible basis and the obvious
responsiveness of certain categories of documents amplifies the court’s concerns.
For these reasons, Plaintiffs are granted leave to move for fee-shifting.
III. CONCLUSION
For the foregoing reasons, judgment is entered in favor of Plaintiffs. The parties
shall confer regarding conditions on inspection and concerning a form of order
memorializing the scope of Gilead’s production. Plaintiffs may seek leave to move for
fee-shifting.
the shareholder’s costs (including reasonable counsel fees) incurred to obtain the order
unless the corporation proves that it refused inspection in good faith because it had a
reasonable basis for doubt about the right of the shareholder to inspect the records
demanded.”).
69