Melvin Gross v. Biogen Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
MELVIN GROSS, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0096-PAF
)
BIOGEN INC., )
a Delaware corporation, )
)
Defendant. )
)
MEMORANDUM OPINION
Date Submitted: January 11, 2021
Date Decided: April 14, 2021
Kurt M. Heyman, Gillian L. Andrews, HEYMAN ENERIO GATTUSO &
HIRZEL LLP, Wilmington, Delaware; Gustavo F. Bruckner, Daryoush Behbood,
POMERANTZ LLP, New York, New York; Attorneys for Plaintiff Melvin Gross.
Kevin G. Abrams, J. Peter Shindel, Jr., Eliezer Y. Feinstein, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; Attorneys for Defendant Biogen Inc.
FIORAVANTI, Vice Chancellor
I. INTRODUCTION
Plaintiff Melvin Gross seeks an order to compel inspection of books and
records of Biogen Inc. (“Biogen” or the “Company”) pursuant to Section 220 of the
Delaware General Corporation Law (“DGCL”). Plaintiff aims to investigate, among
other things, potential corporate wrongdoing and mismanagement arising from a
federal investigation and a former employee’s allegations in a wrongful termination
suit. In this post-trial Memorandum Opinion, I conclude that Plaintiff is entitled to
inspect some, but not all, of the categories of books and records sought in his demand
for inspection.
II. FACTUAL BACKGROUND
The following facts were either stipulated or proven at trial by a
preponderance of the evidence.
A. The Company
Biogen is a Delaware corporation with its headquarters in Cambridge,
Massachusetts.1 Biogen is a global pharmaceutical company that develops drug
therapies to treat neurological and neurodegenerative diseases.2 Among the
1
Pre-Trial Stipulation and Order (“PTO”) ¶ 1.
2
Id. ¶ 2.
2
Company’s drug therapies are Tysabri and Zinbryta, both of which are used to treat
multiple sclerosis (MS). 3
Biogen operates in a heavily regulated industry, and its governance documents
recognize that risk oversight is paramount. Under Biogen’s Governance Principles,
its board of directors (the “Board”) is responsible for, among other things,
“[r]eviewing, approving and monitoring . . . material government and other
investigations” and “[e]nsuring processes are in place for maintaining . . .
compliance with law . . . .” 4 The Board has a standing Audit Committee, which
oversees the Company’s compliance program with a focus on “[f]inancial,
accounting, disclosure, corporate compliance, distributors, insurance, capital, credit,
anti-bribery and anti-corruption matters and other risks reviewed in its oversight of
the internal audit and corporate compliance functions.” 5 The Board also oversees
Biogen’s compliance program, which is led by a Corporate Compliance Committee
of senior officers.6 The compliance program enumerates policies and practices that
“prohibit illegal remuneration in violation of federal and state anti-kickback statutes”
and that provide for “appropriate . . . making of grants and charitable contributions
so that such funds are not conditioned, express or implied, on any agreement to
3
JX 16; Pl.’s Pre-Trial Br. 8.
4
JX 24 at 1.
5
JX 42 at 41.
6
JX 58 at 9.
3
prescribe, purchase, recommend, influence or provide favorable formulary status for
any Biogen product.”7
Biogen acknowledges that sales of its products “depend, to a significant
extent, on the availability of and extent of adequate coverage, pricing and
reimbursement from government health administration authorities, private health
insurers and other organizations.” 8 For this reason, Biogen’s sales partly rely on
certain charities that provide financial assistance to Medicare patients. These
charities “operate[] funds that receive payments from pharmaceutical manufacturers
and others, and that then use those payments, less administrative fees that [the
charity] charges, to cover the drug co-pay obligations of patients, including
Medicare patients.”9 Those practices, however, are subject to state and federal laws
pertaining to health care fraud and abuse. Among those laws is the federal Anti-
Kickback Statute, which generally prohibits a prescription drug manufacturer from
directly or indirectly receiving or paying any remuneration to generate business,
including the purchase or prescription of a particular drug. 10 A violation of the Anti-
7
JX 57 at 2.
8
JX 13 at 49.
9
JX 22 at Recital B.
10
42 U.S.C. § 1320a-7b(b)(2) (“Whoever knowingly and willfully offers or pays any
remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or
covertly, in cash or in kind to any person to induce such person—(A) to refer an individual
to a person for the furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part under a Federal health care program, or
4
Kickback Statute constitutes a fraudulent claim for purposes of the federal False
Claims Act. 11
B. Biogen Is Subpoenaed in Federal and State Investigations
On April 21, 2016, Biogen disclosed that it had received subpoenas from state
and federal authorities that were investigating Biogen’s “sales and promotional
practices.”12 In the same disclosure, Biogen revealed that it had also received a
document subpoena on March 4, 2016 as part of a federal investigation (the
“Investigation”) into Biogen’s “relationship with non-profit organizations that
provide assistance to patients taking drugs sold by Biogen.” 13 Biogen’s disclosure
did not identify which agencies had issued the subpoenas. On May 27, 2016,
Bloomberg reported that Biogen was among three pharmaceutical companies that
had recently disclosed having received federal subpoenas for documents concerning
their relationships with charities that help patients to afford their products.14 The
(B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be made in whole or in part
under a Federal health care program, shall be guilty of a felony and upon conviction
thereof, shall be fined not more than $100,000 or imprisoned for not more than 10 years,
or both.”).
11
Id. § 1320a-7b(g) (“[A] claim that includes items or services resulting from a violation
of this section constitutes a false or fraudulent claim for purposes of subchapter III of
chapter 37 of title 31 [the False Claims Act].”).
12
JX 2 at 31.
13
Id.
14
See JX 23 (citing Ben Elgin & Robert Langreth, Gilead Subpoenaed as Feds Probe
Drugmaker-Charity Connections, Bloomberg (May 27, 2016, 5:00 AM EDT),
5
article reported that the other two companies—Gilead Sciences, Inc. (“Gilead”) and
Jazz Pharmaceuticals plc (“Jazz”)—disclosed that their subpoenas were issued by
the United States Attorney’s Office for the District of Massachusetts, which operates
a health-care fraud unit.15
Following its initial disclosure about the subpoenas in 2016, Biogen regularly
reported in filings with the U.S. Securities and Exchange Commission (the “SEC”)
that it had received those subpoenas.16 In its Form 10-Q for the second quarter of
2020, Biogen disclosed:
We have learned that state and U.S. governmental authorities are
investigating our sales and promotional practices and have received
related subpoenas. We are cooperating with the investigation.
We have received subpoenas and other requests from the U.S.
government for documents and information relating to our relationship
with non-profit organizations that assist patients taking drugs sold by
Biogen and the government has challenged some of our contributions
to these organizations. We have reached an agreement in principle with
the government to resolve this matter.17
https://www.bloomberg.com/news/articles/2016-05-27/gilead-subpoenaed-as-feds-probe-
drugmaker-charity-connections). The trial record reflects a May 31, 2016 version of the
article. JX 46.
15
Id.
16
See, e.g., JX 13 at 47 (Form 10-Q dated July 23, 2019); JX 14 at 47–48 (Form 10-Q
dated October 22, 2019); JX 43 at 40 (Form 10-Q dated April 23, 2020).
17
JX 56 at 44 (emphasis added).
6
That same Form 10-Q also disclosed that Biogen had “reached an agreement in
principle with the government to resolve the matter.” 18
C. The TAF Settlement
On November 20, 2019, the U.S. Attorney for the District of Massachusetts
announced a $4 million settlement with The Assistance Fund (“TAF”), a charity that
provided financial assistance to Medicare patients.19 The settlement resolved
government claims that TAF violated the False Claims Act by enabling certain
pharmaceutical companies, including Biogen, to pay kickbacks to Medicare patients
taking the companies’ drugs (the “TAF Settlement”).20 In the corresponding
Settlement Agreement, the federal government made the following accusations:
Biogen made payments to TAF’s MS fund on May 24 and July
17, 2012, as part of a coordinated effort—which in an email to a Biogen
vice president, TAF’s co-founder termed the TYS[abri] project”—by
TAF and Biogen to use Biogen’s money to cover Medicare co-pays for
Tysabri patients. TAF knew that, when the fund opened after each of
these two Biogen payments, [a vendor] immediately would send a
“batch file” of Medicare co-pay assistance applications for Tysabri
patients. As a result, when TAF’s MS fund opened after Biogen’s
payments on May 24 and July 17, 2012, Tysabri patients received a
disproportionate share of the grants that the fund provided.
Subsequently, TAF reported to Biogen, both directly and through [the
vendor], TAF’s success in directing Biogen’s funding to Tysabri
patients.21
18
Id.
19
PTO ¶ 6.
20
Id.
21
JX 22 at 3–4 (first alteration in original).
7
Reuters published a news article about the TAF Settlement on the same day.22
Reuters reported that TAF allegedly engaged in improper practices from 2011 to
2014 and that TAF did not admit wrongdoing as part of the settlement.
D. The DOJ Settlement
In supplemental post-trial briefing, Biogen informed the court that it had
executed a settlement agreement with the federal government on December 17,
2020, “to resolve the DOJ’s investigation.” 23 Biogen’s supplemental brief contains
a hyperlink to a settlement agreement between Biogen, the DOJ on behalf of the
Inspector General of the U.S. Department of Health and Human Services, and Paul
Nee, the relator in a federal qui tam action (the “DOJ Settlement”). The DOJ
Settlement agreement arose from a federal qui tam action filed in the United States
District Court for the District of Massachusetts.24 That action alleged that Biogen’s
payment of co-pays through two charitable assistance programs were kickbacks, and
“as a result, Biogen caused the submission of false or fraudulent claims to Medicare
for [two of its drugs] associated with these payments.” 25 The recitals in the DOJ
22
JX 20.
23
Def.’s Supp. Post-Trial Br. 8 n.22.
24
Settlement Agreement, available at http://www.justice.gov/usao-ma/press-
release/file/1346601/download. The settlement agreement relates to conduct from the
period January 1, 2011 through December 31, 2013. Id. ¶ E.
25
Id.
8
Settlement agreement include some of the same government accusations reflected in
the TAF Settlement agreement.26
In its supplemental post-trial brief, Biogen touts that the DOJ Settlement
“does not require Biogen to implement any changes to its compliance programs or
internal controls.” 27 Biogen conveniently avoids mention of the fact that the DOJ
Settlement agreement required Biogen to pay $22 million in exchange for releases
from certain civil and administrative claims, and does not release claims for, inter
alia, criminal liability or claims arising under the Internal Revenue Code. 28 Among
the signatories to the DOJ Settlement agreement is an Assistant United States
Attorney from the District of Massachusetts.
As of the time of trial, the Company was still cooperating with the other state
and federal investigations into Biogen’s “sales and promotional practices.”29
Biogen’s post-trial submissions provided no further update as to those matters.
26
See id. (“At Biogen’s direction [a vendor] then sent TAF ‘batch files’ of applications for
Medicare-eligible Tysabri patients, and TAF (after receiving Biogen’s payment)
subsequently approved most or all of those applications and covered those patients’
Medicare co-pays for Tysabri. Medicare subsequently paid these patients’ claims for
Tysabri.”).
27
Def.’s Supp. Post-Trial Br. 8 n.22.
28
Settlement Agreement ¶¶ 1, 3, 6.
29
JX 56 at 44.
9
E. The Employment Verdict
On July 13, 2018, a former Biogen employee sued the Company, claiming
that she had been terminated in retaliation for raising concerns about discrimination
and about improper off-label marketing of a Biogen drug.30 The former employee
claimed that “she was pressured to ensure a multiple sclerosis drug, Zinbryta, was
prescribed by a hematologist to a patient with aplastic anemia, which was not an
FDA-approved use,” and that Biogen retaliated against her after she filed a related
ethics complaint.31 A federal jury in Washington found in favor of the plaintiff on
her federal Title VII sex discrimination claim, her federal Title VII retaliation claim,
her federal False Claims Act retaliation claim, and various state law claims (the
“Federal Jury Verdict”). 32 The jury awarded the former employee almost $6 million,
which was subsequently reduced by about $1.7 million. 33
30
PTO ¶ 5. Off-label marketing is an unlawful act that is distinct from paying kickbacks
or engaging in Medicare fraud. “In the United States, a physician may prescribe an
approved pharmaceutical product for any use, including uses not approved by the FDA.
Prescribing a pharmaceutical product for an FDA-approved use is referred to as ‘on-label’
use; prescribing the same product for an unapproved use is referred to as ‘off-label’ use. .
. . It is illegal, however, for a manufacturer to market a drug for off-label use. Under [federal
statutes and regulations], drug manufacturers cannot market or promote drugs for uses that
the FDA has not approved.” Louisiana Mun. Police Emps.’ Ret. Sys. v. Pyott, 46 A.3d 313,
318 (Del. Ch. 2012) (citing 21 U.S.C. § 331(a), (d); 42 U.S.C. § 262(a)(1), (b); 21 C.F.R.
§ 601.12), rev’d on other grounds, 74 A.3d 612 (Del. 2013).
31
JX 16.
32
PTO ¶ 5.
33
Id.10
F. Plaintiff’s Demands
Plaintiff is a current stockholder of Biogen and was a stockholder when he
made the operative demand.34 He first acquired Biogen stock in February 2011.35
Sometime prior to October 2016, Plaintiff came across a news article that mentioned,
as Plaintiff described at his deposition, “some Medicare something about Biogen.”36
Plaintiff mentioned this article to a lawyer with whom he was acquainted, who
referred Plaintiff to Pomerantz LLP, Plaintiff’s current counsel.37
On October 11, 2016, Plaintiff served a demand on Biogen pursuant to Section
220 of the DGCL. The demand stated that Plaintiff desired to investigate potential
wrongdoing by the Board, and it referenced the May 27, 2016 Bloomberg article and
the Company’s April 21, 2016 disclosure that it had received a subpoena on March
4, 2016.38 Biogen rejected Plaintiff’s demand on November 1, 2016, contending
that it did not meet Section 220’s form and manner requirements and that Plaintiff
had no proper purpose. 39 Plaintiff delivered additional demands on November 4,
34
Id. ¶¶ 7, 15.
35
JX 27. The parties dispute whether Plaintiff has owned Biogen stock continuously since
February 2011. For reasons explained below, because Plaintiff was a stockholder at the
time of the Demand, the issue of continuity is not necessary for this decision.
36
Deposition of Melvin Gross (“Gross Dep.”) 15–16.
37
Id. 9–10.
38
JX 4. Plaintiff testified that he has a subscription to Bloomberg. Gross Dep. 56.
39
JX 5.
11
2016 and June 21, 2018, again referencing the Bloomberg article and the subpoenas
relating to Biogen’s relationships with charities, but Biogen rejected both of these
demands for largely the same reasons as the first.40
On December 3, 2019, Plaintiff served on Biogen what has become the
operative demand (the “Demand”).41 The stated purposes of the Demand were
ostensibly to (1) “investigate possible corporate wrongdoing and/or breaches of
fiduciary duty owed to the Company and its shareholders by its officers and
directors” and (2) “determine the independence of the Board members.” 42 As before,
the Demand identified the subpoenas mentioned in the Bloomberg article and the
March 4, 2016 subpoena disclosed in the Company’s April 21, 2016 Form 10-Q.
The Demand specifically referred to the federal investigation “of Biogen and other
companies address[ing] concerns that the companies may be violating the kick-back
rules by making charitable contributions,” which the Demand defined as the
“Investigation.” The Demand also cited the TAF Settlement and the Federal Jury
Verdict in further support of Plaintiff’s purposes. The Demand listed eight
categories of documents that Plaintiff sought to inspect. 43
40
JX 6, 7, 8, and 9.
41
JX 23.
42
Id. at 4-5. The Demand also sought to determine whether Biogen’s officers and directors
“acted in good faith” (id. at 4), but Plaintiff did not pursue that as a separate purpose at
trial.
43
Id. at 3.
12
Biogen rejected Plaintiff’s Demand. 44 Biogen contended that the Demand
was defective because it failed to comply with Section 220’s form and manner
requirements by not attaching documentary evidence of contemporaneous and
continuous ownership of Biogen stock; it failed to state a proper purpose; and it
requested inspection of documents that were not necessary and essential to
Plaintiff’s stated purpose.45 On January 3, 2020, Plaintiff supplemented the Demand
with additional evidence purporting to show continuous ownership of Biogen stock
and addressing Biogen’s other objections.46 Biogen responded on January 24, 2020,
reiterating its denial of the Demand.47
Plaintiff filed the Verified Complaint on February 14, 2020 (the
“Complaint”), seeking to compel Biogen to produce the books and records set forth
in the Demand. As of trial, Biogen still had not produced any documents in response
to the Demand.48
The court conducted a half-day video trial on August 12, 2020. After post-
trial briefing, the parties submitted, at the court’s request, supplemental submissions
44
PTO ¶ 17.
45
Id.
46
Id. ¶ 18.
47
Id. ¶ 19.
48
Id. ¶ 22. There has been no indication that Biogen produced any documents after the
trial.
13
addressing the Delaware Supreme Court’s intervening decision in
AmerisourceBergen Corp. v. Lebanon County Employees’ Retirement Fund, 243
A.3d 417 (Del. 2020) (“AmerisourceBergen II”), aff’g 2020 WL 132752 (Del. Ch.
Jan. 13, 2020).
III. ANALYSIS
“Section 220(c) provides that stockholders who seek to inspect a corporation’s
books and records must establish that ‘(1) [s]uch stockholder is a stockholder; (2)
[s]uch stockholder has complied with [Section 220] respecting the form and manner
of making demand for inspection of such documents; and (3) [t]he inspection such
stockholder seeks is for a proper purpose.’” 49 “After meeting these requirements,
the plaintiff must demonstrate by a preponderance of the evidence that ‘each
category of books and records is essential to accomplishment of the stockholder’s
articulated purpose for the inspection.’”50
Biogen has followed the recent trend in adopting what has been referred to as
an “overly aggressive defense strategy” in opposing inspection. 51 As explained
49
AmerisourceBergen II, 243 A.3d at 425 (alterations in original) (quoting 8 Del. C. § 220).
50
Woods Tr. of Avery L. Woods Tr. v. Sahara Enters., Inc., 238 A.3d 879, 889 (Del. Ch.
2020) (quoting Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del.
1996)).
51
Pettry v. Gilead Sciences, Inc., 2020 WL 6870461, at *2 (Del. Ch. Nov. 24, 2020).
14
below, Biogen’s defenses do not warrant complete denial of Plaintiff’s inspection
rights.
A. Verification of Complaint
As a threshold matter, Biogen asserts that this action should be dismissed
because Plaintiff failed to verify his Complaint.52 Under Court of Chancery Rule
3(aa), “the matter set forth in any pleading must be verified by someone attesting to
its correctness and truthfulness.” 53 If a plaintiff fails to comply with Rule 3(aa), Rule
41(b) permits the defendant to move for dismissal of the action. 54 Dismissal under
Rule 41(b) is a “harsh sanction” that is proper “when a party knowingly misleads a
court of equity in order to secure an unfair tactical advantage.”55
Plaintiff signed a Verification to his Complaint, wherein he attested that he
was “familiar with the allegations of the Complaint” and that he “reviewed the
Complaint.”56 The signature on the Verification was notarized. In his deposition,
Plaintiff admitted that he did not read every word or even every page before signing
52
Def.’s Pre-Trial Br. 20–21.
53
Bessenyei v. Vermillion, Inc., 2012 WL 5830214, at *3 (Del. Ch. Nov. 16,
2012), aff’d, 67 A.3d 1022 (Del. 2013).
54
Id. at *2; see Ct. Ch. R. 41(b).
55
Bessenyei, 2012 WL 5830214, at *3 (quoting Parfi Hldgs. AB v. Mirror Image Internet,
Inc., 954 A.2d 911, 932–33 (Del. Ch. 2008)).
56
Dkt. 2.
15
the Verification.57 He did, however, state that he glanced through the Complaint,
read the headings, and had a general idea of the Complaint’s contents. 58
Under similar circumstances, this court has declined to find that a potential
Rule 3(aa) violation justified shifting fees, much less dismissing the action. For
example, in Dias v. Purches, 2012 WL 4503174 (Del. Ch. Oct. 1, 2012), although
there was a question about whether the plaintiff reviewed the company’s Form S-4
before filing a complaint based thereon, the court concluded that the plaintiff’s
decision to consult with his counsel to help him review the Form S-4 and evaluate
the merits of the case “was a prudent way to proceed.” Id. at *3–4. Similarly, in
Wayman Fire Protection, Inc. v. Premium Fire & Security, LLC, 2014 WL 897223(Del. Ch. Mar. 5, 2014), the plaintiff’s representative was “careless in his efforts to
verify the allegations in [the] complaint [and] only barely met its obligations under
the Rule,” but the court still found that the plaintiff did not “act[] in bad faith . . . or
fail[] to provide the requisite verification.” Id. at *32.
The “harsh sanction” of dismissal is not appropriate here. Plaintiff, who has
no legal experience, credibly testified that he had a general idea about his
Complaint’s contents and that he relied on his attorneys to supply the technical
57
Gross Dep. 59–62.
58
Id.16
details. Plaintiff was entitled to rely on his counsel’s expertise.59 Although Plaintiff
could have done more to obtain better familiarity with all of the allegations in his
Complaint, no evidence suggests that Plaintiff acted in bad faith or knowingly misled
this court in search of an unfair advantage. Accordingly, I am not persuaded that
Plaintiff’s Verification was ineffective.
B. Proper Purpose
Plaintiff’s Demand states two purposes. First, Plaintiff seeks to investigate
“the possibility of breaches of fiduciary duty by Biogen’s Board related to the
investigation by the United States Attorney offices (the ‘Investigation’) relating to
Biogen’s alleged kickback violations.”60 Second, Plaintiff seeks to investigate “the
independence and disinterest of the Board relating to the Company’s alleged
kickback violations.”61 Biogen argues that Plaintiff has no proper purpose because
(1) Plaintiff lacks a purpose of his own, (2) Plaintiff failed to demonstrate a credible
basis to suspect wrongdoing, and (3) Plaintiff failed to establish that any wrongdoing
under investigation would be actionable.
59
See infra Section III.B.1.
60
Pl.’s Pre-Trial Br. 13.
61
Id.17
1. Plaintiff’s Own Purpose
Biogen argues that Plaintiff is not entitled to inspect books and records
because Plaintiff has no purpose at all. Specifically, Biogen argues that the purposes
articulated in the Demand belong entirely to Plaintiff’s counsel rather than Plaintiff
himself. In doing so, Biogen analogizes this case to Wilkinson v. A. Schulman, Inc.,
2017 WL 5289553 (Del. Ch. Nov. 13, 2017).
In Wilkinson, the stockholder’s deposition testimony revealed that his reasons
for wanting to investigate the company differed substantially from the reasons listed
in the demand. The stockholder testified that he was unaware of any facts related to
the wrongdoing that the demand sought to investigate. After signing the demand,
the stockholder was entirely uninvolved in his lawyers’ follow-up efforts. He relied
solely on counsel when he signed the subsequent complaint without verifying the
allegations, and he did not review the company’s answer or participate in responding
to the company’s interrogatories. The court found that the stockholder had “simply
lent his name to a lawyer-driven effort by entrepreneurial plaintiffs’ counsel.” Id. at
*2. Under those circumstances, the court concluded that the stockholder’s purported
purposes were not his actual purposes, and it held that the stockholder was not
entitled to inspect any books and records.
18
“As multiple subsequent decisions of this court have made clear, Wilkinson
involved extreme facts.” 62 In Inter-Local Pension Fund GCC/IBT v. Calgon Carbon
Corp., 2019 WL 479082 (Del. Ch. Jan. 25, 2019), aff’d, 237 A.3d 818 (Del. 2020),
Vice Chancellor Zurn observed that a “key factor” leading to the denial of inspection
in Wilkinson was the misalignment of goals between the stockholder and his counsel.
Id. at *9. In rejecting a Wilkinson defense, Vice Chancellor Zurn found that the
alignment of goals between the stockholder and counsel in Calgon Carbon was
sufficient to establish an actual purpose, even though the stockholder “did not
originally conceive of the purposes for the Demand and could not independently
articulate the legal nuances of the Demand and its Requests at deposition.” Id. at
*10. Notably, the plaintiff’s testimony regarding its purposes “align[ed] with those
professed in the Demand and [did] not mirror the situation in [Wilkinson] where
counsel usurped the process for a different purpose.” Id.Even more recently, in Gilead, Vice Chancellor McCormick reiterated that
Wilkinson resulted from “extreme facts . . . where the attorneys disregarded their
62
Gilead, 2020 WL 6870461, at *1. To date, every written decision from this court that
has discussed Wilkinson has distinguished Wilkinson on its extreme facts. See id.; Inter-
Local Pension Fund GCC/IBT v. Calgon Carbon Corp., 2019 WL 479082, at *9–10 (Del.
Ch. Jan. 25, 2019), aff’d, 237 A.3d 818 (Del. 2020); Kosinski v. GGP Inc., 214 A.3d 944,
950–52 (Del. Ch. 2019); Donnelly v. Keryx Biopharmaceuticals, Inc., 2019 WL 5446015,
at *3–4 (Del. Ch. Oct. 24, 2019); Schnatter v. Papa John’s Int’l, Inc., 2019 WL 194634, at
*13–14 (Del. Ch. Jan. 15, 2019), abrogated on other grounds by Tiger v. Boast Apparel,
Inc., 214 A.3d 933 (Del. 2019).
19
client’s objectives entirely and pursued their own.” Gilead, 2020 WL 6870461, at
*17. Recognizing the heavy role of lawyer involvement in the process, the court
rejected Gilead’s Wilkinson argument even as to a plaintiff whose “knowledge of the
basis for her demand was exceptionally weak,” because that fact alone did not
compare to “the confluence of unusual facts present in Wilkinson.” Id. at *15 n.163.
Biogen points to similarities between the role of counsel here and that of
counsel in Wilkinson. Plaintiff’s counsel, Pomerantz LLP, prepared the Demand,
which articulated the purposes and identified the categories of books and records
sought. Plaintiff did not review Biogen’s response or any subsequent exchanges
between the parties, and Plaintiff was not involved in responding to Biogen’s
interrogatories. Plaintiff, instead, relied on his counsel’s expertise.
That Plaintiff heavily relied on his lawyers’ efforts does not undermine his
legitimate concern regarding the Company and his right to use counsel to investigate
that concern. Like the defendant in Gilead, Biogen “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.” 63 Counsel may play a
“dominant role” in Section 220 actions, just as they may in the follow-on derivative
litigation. 64 Even in Wilkinson, the court explained that “[a] stockholder obviously
63
Gilead, 2020 WL 6870461, at *16.
64
Id. at *16–17 (“It would also be inconsistent with this policy [of encouraging
stockholders to pursue Section 220 actions in advance of derivative suits] to prohibit
20
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.” 65 The use of counsel
becomes a problem when “an entrepreneurial law firm initiate[s] the process, draft[s]
a demand to investigate different issues than what motivated the stockholder to
respond to the law firm’s solicitation, and then pursue[s] the inspection and
litigate[s] with only minor and non-substantive involvement from the ostensible
stockholder principal.” 66
The crucial difference between this case and Wilkinson, however, is that
Plaintiff initiated this case on his own accord. Plaintiff became concerned after
reading a news article suggesting that Biogen was involved in wrongdoing relating
to Medicare. The article prompted him to discuss his concern with a lawyer he knew,
who then referred Plaintiff to his current counsel. Since then, every iteration of
lawyers from playing a ‘dominant role’ in Section 220 actions while permitting them to do
so in derivative litigation.”) (citing In re Fuqua Indus., Inc. S’holder Litig., 752 A.2d 126(Del. Ch. 1999)).
65
Wilkinson, 2017 WL 5289553, at *3; see also Calgon Carbon, 2019 WL 479082, at *10
(“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 rely on that counsel to raise concerns, to
advise them on how to remedy those concerns, and to pursue appropriate remedies.”).
66
Wilkinson, 2017 WL 5289553, at *3.
21
Plaintiff’s demand has embodied Plaintiff’s original concern and has sought to
investigate Biogen’s relationships with non-profits that provide financial assistance
to Medicare patients. 67
Perhaps unconvinced, Biogen’s counsel repeatedly pressed the Plaintiff at his
deposition about the origin of the Demand and what prompted him to engage
counsel—an apparent attempt to test his memory with the hope of unearthing
nuggets of inconsistency to undermine the bona fides of his purpose. Plaintiff was
forthright and unwavering. When asked what prompted him years earlier to discuss
Biogen with his lawyer friend, Plaintiff responded: “I read Bloomberg. I read Wall
Street Journal. I read various financial papers. And there was some mention over
there about some Medicare something with Biogen. And I don’t remember.” Gross
Dep. 16; see also id. 19–20 (“There was something about some sort of Medicare
something or other. I don’t recall. Again, I did not delve too deeply into it. That
happened to stick in my mind.”); id. 20 (“The truth is, I’m glad to remember what I
said two weeks ago. I don’t remember what I said two years ago. When you’ll be
almost 92 years old, if your memory will be as good as mine, you won’t complain,
but it’s not that good. But it was a while ago.”); id. 24 (“I would like to know exactly
67
Biogen argues that the Demand exceeded the scope of Plaintiff’s concern, which
involved a Medicare probe, when it cited the Federal Jury Verdict, which involved
Biogen’s off-label marketing practices. As discussed in footnote 76 below, I agree.
However, the reference to the Federal Jury Verdict did not change the Demand’s stated
purpose, which did not depart from Plaintiff’s original concern relating to Medicare.
22
what they did over here with this Medicare thing. Again, I only know exactly what
I had read, and the questions evolved. And I gave the—mentioned it to the attorneys
to see what happens.”); id. 32 (“Q: What reason do you have to suspect that there
was mismanagement by Biogen’s board of directors? A: Again, off of this article I
read at some point. Again, I can’t give a specific date or magazine or paper that I
read about it, but just the question came up after I read that article. Q: What question
came up? A: Just about some mismanagement or some Medicare. Just sort of an
up-in-the-air-type thing. I know there was Medicare something involved. I don’t
recall exactly what. Again, I did not understand exactly what it’s all about, but from
reading that article it was something that I thought that it was worth mentioning.”).
Plaintiff testified that he relied on his counsel to pursue his purpose: “I think
I used attorneys just a few times in my life, and I’ve always relied on their ability.
That’s why I pay an attorney.” Gross Dep. 21. Plaintiff testified that he signed the
Verification to the Complaint, and he understood that by doing so his counsel “more
or less . . . would . . . be allowed to look at books of the company. Again, I don’t
know exactly what it said. I glanced through it. My attorneys tells [sic] me to sign
it; I sign it. Again, he’s representing me. I don’t read every word. But I have a
general idea, and that’s about it.” Id. 61. Plaintiff testified that he saw the operative
demand letter before signing the special power of attorney and verification attached
to it. Id. 27; see JX 23.
23
Section 220 does not require a stockholder to have the sophistication of a
corporate lawyer, investment banker, or law professor. The statute does not require
a stockholder-plaintiff to pass a memory test administered by a savvy litigator, and
it is not an invitation to harass. Section 220 requires that the plaintiff be a
stockholder with a proper purpose. To comply with the statute and exercise their
rights, stockholders are allowed to engage and rely on the guidance of counsel. “The
fact that Plaintiff sought and accepted the advice of counsel is to his credit, not his
detriment.”68 Plaintiff satisfies the statutory requirements established by our law as
a stockholder seeking to inspect books and records of a corporation in which he owns
shares.
To reiterate, this case is not Wilkinson. There is no misalignment of purpose
between client and counsel, nor are there the extreme circumstances that led to the
harsh result in Wilkinson. Plaintiff’s stated purpose is his own, actual purpose. 69
68
Kosinski, 214 A.3d at 951–52.
69
As a variation on the Wilkinson theme, Biogen argues that Plaintiff has no purpose
because he let his counsel determine the intended use(s) of the demanded books and
records. Def.’s Supp. Post-Trial Br. 9–11. Biogen points to statements from Plaintiff’s
deposition in which Plaintiff testified that he had “no idea” what he would do after
inspecting the books and records, but that he had hired counsel to make that decision for
him. Id. Biogen’s attempt to characterize Plaintiff as purposeless is unavailing. In
AmerisourceBergen II, the Delaware Supreme Court affirmed that “a stockholder is not
required to state the objectives of his investigation.” 243 A.3d at 427. Thus, Plaintiff was
not required to personally identify whether the books and records would be used for a
derivative suit, for serving a demand on the Board, or for any other end use. As Biogen
correctly points out, however, the Supreme Court acknowledged that such objectives may
be relevant to evaluating whether “the stockholder’s stated purpose is not its actual
24
2. Credible Basis to Suspect Wrongdoing
Biogen argues that Plaintiff is not entitled to inspection because he has not
made the required showing to investigate mismanagement and wrongdoing.70 As
the Delaware Supreme Court recently reiterated in AmerisourceBergen II:
[A] stockholder seeking to investigate wrongdoing must show, by a
preponderance of the evidence, a credible basis from which the court
can infer there is possible mismanagement as would warrant further
investigation. Although not an insubstantial threshold, the credible
basis standard is the lowest possible burden of proof. A stockholder
need not show that corporate wrongdoing or mismanagement has
occurred in fact, but rather the threshold may be satisfied by a credible
showing, through documents, logic, testimony or otherwise, that there
are legitimate issues of wrongdoing. 71
The stockholder must make more than “a bare allegation of possible waste,
mismanagement, or breach of fiduciary duty.” 72
purpose.” Id. But Biogen has not sufficiently shown that Plaintiff had any other purpose.
“[I]n order to succeed [on a defense that the stockholder’s stated purpose is not its actual
purpose], the defendant must prove that the plaintiff pursued its claim under false
pretenses, and its primary purpose is indeed improper. Such a showing is fact intensive
and difficult to establish.” Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 817
(Del. Ch. 2007) (footnotes omitted). Biogen asserts that Plaintiff’s actual, improper
purpose was either to satisfy his curiosity or to conduct a fishing expedition. Def.’s Supp.
Post-Trial Br. 11. Biogen’s only support for this assertion is that Plaintiff relied heavily
on counsel to carry out Plaintiff’s desire to investigate the Medicare-related allegations he
had read about. As discussed, Plaintiff was entitled and encouraged to rely on counsel.
Plaintiff has an actual purpose, and Biogen has not proven otherwise.
70
See Def. Supp. Post-Trial Br. 5–8.
71
243 A.3d at 426 (footnotes and quotation marks omitted).
72
Id.
25
In applying the standard to a plaintiff’s demand, “the court may consider on-
going lawsuits, investigations, circumstantial evidence, and even hearsay statements
evincing possible wrongdoing.”73 Most apt for this case, “[o]ngoing investigations
and lawsuits can provide the necessary evidentiary basis to suspect wrongdoing or
mismanagement warranting further investigation. This type of evidence is stronger
when governmental agencies or arms of law enforcement have conducted the
investigations or pursued the lawsuits.”74
Again, Gilead is instructive. As noted earlier, Gilead, along with Biogen and
Jazz, had announced in early 2016 that it had received federal subpoenas seeking
documents concerning its relationships with non-profits. Gilead was also facing a
federal qui tam action reflecting detailed allegations that the company had violated
federal anti-kickback laws. Gilead’s stockholders sought to investigate, among other
things, “[k]ickback schemes resulting in DOJ investigations into False Claims Act
violations.” Id. at *12. In its opinion granting the stockholders’ demand for
inspection, the court found that “[t]he combination of multiple government
investigations relating to possible False Claims Act violations plus the ongoing qui
73
Gilead, 2020 WL 6870461, at *11.
74
Lebanon Cty. Emps.’ Ret. Fund v. AmerisourceBergen Corp. (“AmerisourceBergen I”),
2020 WL 132752, at *9 (Del. Ch. Jan. 13, 2020), aff’d, 243 A.3d 417 (Del. 2020).
26
tam litigation alleging the exact same conduct . . . establishes a credible basis to
suspect possible wrongdoing as to False Claims Act violations.” Id. at *14.
Plaintiff here offers three sources of evidence to support a finding of a credible
basis to infer mismanagement: the Investigation and related subpoenas, the TAF
Settlement, and the Federal Jury Verdict. That evidence reveals that the federal
authorities, and perhaps state authorities as well, are (or were) investigating Biogen’s
relationships with non-profits that provide financial assistance to patients taking
Biogen’s drugs. As this court’s prior decisions have found, ongoing governmental
investigations can be strong evidence of a credible basis to suspect wrongdoing.75
The subpoenas’ evidentiary weight is bolstered by the TAF Settlement, which
further implicates Biogen for the exact same reasons as the subpoenas and provides
detailed allegations about Biogen’s participation in the illegal kickback scheme. Just
as the government investigation plus the qui tam litigation established a credible
basis in Gilead, the government investigation plus the TAF Settlement demonstrate
75
See, e.g., AmerisourceBergen I, 2020 WL 132752, at *9 (finding credible basis
sufficiently demonstrated by government investigations, reports, and lawsuits); In re Plains
All Am. Pipeline, L.P., 2017 WL 6016570, at *4 (Del. Ch. Aug. 8, 2017) (newspaper
articles and a grand jury indictment); Cohen v. El Paso Corp., 2004 WL 2340046, at *2
(Del. Ch. Oct. 18, 2004) (a formal SEC investigation and write-down of financials); Freund
v. Lucent Techs., Inc., 2003 WL 139766, at *3 (Del. Ch. Jan. 9, 2003) (a formal SEC
investigation, revision of financial statements, and related lawsuits); Saito v. McKesson
HBOC, Inc., 2001 WL 818173, at *4 (Del. Ch. July 10, 2001) (restatement of financials
due to accounting irregularities, admission of irregularities, termination of high-ranking
executives, and institution of criminal proceedings by federal authorities), aff’d in part,
rev’d in part, 806 A.2d 113 (Del. 2002).
27
a credible basis to suspect possible mismanagement here. 76 The additional
revelations detailed in the December 2020 DOJ Settlement agreement, though not
necessary to establish Plaintiff’s burden, are powerful evidence supporting the right
to inspection. “[T]he low credible basis threshold is met where wrongdoing is
merely possible—it need not be proven.”77 Plaintiff has met his minimal burden and
has established a proper purpose to investigate wrongdoing.
Biogen contends that Plaintiff’s evidence is insufficient because it does not
show that Biogen’s directors or officers were complicit in or had knowledge of the
alleged misconduct. 78 Biogen’s argument fails for two reasons. First, that exact
argument has been considered and rejected by this court. In Gilead, “[t]he parties
also dispute[d] whether Plaintiffs [] presented evidence demonstrating that Gilead’s
board of directors and senior officers were aware of the categories of alleged
76
Plaintiff presents the Federal Jury Verdict as additional evidence of possible wrongdoing,
but the Federal Jury Verdict does not support the purposes of Plaintiff’s Demand. The
Federal Jury Verdict found that Biogen had illegally retaliated against the plaintiff after
she alleged that Biogen had violated restrictions on off-label marketing. That allegation
does not relate to violations of the prohibition on kickbacks or Biogen’s relationship with
non-profits, which are the bases of the TAF Settlement and the Investigation. Plaintiff
concedes that his Demand is confined to the “Investigation” (which Plaintiff defines as
“the investigation by U.S. Attorney offices . . . relating to Biogen’s alleged kickback
violations”) and associated issues of director disinterestedness. Pl.’s Pre-Trial Br. 15–16.
The Federal Jury Verdict falls outside these confines. Nevertheless, even without
considering the Federal Jury Verdict, Plaintiff has established a credible basis to suspect
possible wrongdoing.
77
Jacob v. Bloom Energy Corp., 2021 WL 733438, at *7 (Del. Ch. Feb. 25, 2021)
(emphasis in original).
78
Def.’s Pre-Trial Br. 34–38.
28
wrongdoing. Such a showing is not required to support a credible basis where []
Plaintiffs have not limited their purposes to pursuing derivative claims.”79 As
explained later in this Opinion, Plaintiff has not limited his purpose to pursuing
derivative litigation. To establish a right to inspection, plaintiff “need not attempt
to connect [Biogen’s] possible wrongdoing directly to individual members of the
Board or Company officers.”80
Second, even if Plaintiff must demonstrate a credible basis to infer possible
mismanagement at the level of the board or senior officers, Plaintiff has done so
here. In its public disclosures, Biogen’s management acknowledged that sales of
Biogen’s products depend “to a significant extent” on coverage, pricing, and
reimbursement from government health administration authorities, as well as private
insurers and other organizations. 81 The Board established a Corporate Compliance
Committee consisting of senior officers. 82 These senior officers oversee a
compliance program, which outlines policies that “prohibit illegal remuneration in
violation of federal and state anti-kickback statutes.”83 Additionally, the TAF
79
Gilead, 2020 WL 6870461, at *15; see AmerisourceBergen I, 2020 WL 132752, at *15,
*19.
80
Bloom Energy, 2021 WL 733438, at *8.
81
JX 13 at 49.
82
JX 58 at 9.
83
JX 57 at 2.
29
Settlement provides evidence that a Biogen vice president actively participated in
the alleged kickback scheme, which shows knowledge at the management level.84
Collectively, the importance of government reimbursements to Biogen’s revenue,
the existence of an officer-level committee to ensure compliance with the laws
governing receipt of those reimbursements, and the alleged involvement of a vice
president in an alleged violation of those laws are sufficient to establish a credible
basis to suspect that Biogen’s directors or officers knew or should have known about
the possible wrongdoing. 85
3. Actionable Claim Objections
The Company argues that Plaintiff has failed to state a proper purpose because
he has not established an ability to bring a lawsuit based on the wrongdoing he seeks
to investigate. In AmerisourceBergen II, the Delaware Supreme Court “dispel[led]
the notion that a stockholder who demonstrates a credible basis from which the court
can infer wrongdoing or mismanagement must demonstrate that the wrongdoing or
84
JX 22 at 4 (“Biogen made payments . . . as part of a coordinated effort — which, in an
e-mail to a Biogen vice president, TAF’s co-founder termed the TYS[abri] project — by
TAF and Biogen.”). Biogen contends that the vice president implicated in the TAF
Settlement was not a senior officer. Def.’s Opening Post-Trial Br. 11 n.37. Regardless of
the vice president’s exact status, the accusation suggests that knowledge of the scheme was
not limited to line employees far below the officers’ and directors’ ranks.
85
See Gilead, 2020 WL 6870461, at *15 (“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 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.”).
30
mismanagement is actionable.”86 In reconciling its holding with past decisions from
this court, the Supreme Court left open the slight possibility that the actionability
requirement may apply when “[1] the stockholder’s sole reason for investigating
mismanagement or wrongdoing is to pursue litigation and [2] a purely procedural
obstacle, such as standing or the statute of limitations, stands in the stockholder’s
way such that the court can determine, without adjudicating merits-based defenses,
that the anticipated litigation will be dead on arrival.” 87 The Supreme Court
acknowledged that this exception will only apply “[i]n the rare case.” 88
The Supreme Court based this rare exception on three cases where the
plaintiff’s sole purpose of investigation was to facilitate litigation. In Polygon
Global Opportunities Master Fund v. West Corp., 2006 WL 2947486 (Del. Ch. Oct.
12, 2006), the plaintiff purchased the company’s stock just after the company
announced a take-private recapitalization, via a transaction that the plaintiff could
do nothing to stop. Still, the plaintiff sought books and records to investigate
wrongdoing in the approval of the transaction. Because the plaintiff could not vote
down the transaction and would shortly cease to be a stockholder, there was no
86
AmerisourceBergen II, 243 A.3d at 431; see also id. at 437 (“The stockholder need not
demonstrate that the alleged mismanagement or wrongdoing is actionable.”).
87
Id. at 437. The court may find the procedural obstacle to be sufficient when it is “the
product of a determinate procedural history and based on undisputed facts.” Id. at 423.
88
Id.
31
possibility for the plaintiff to seek an audience with the board, prepare a shareholder
resolution, or mount a proxy fight. 89 Thus, the court concluded that the “sole
purpose” for investigating wrongdoing was to bring a claim for breach of fiduciary
duties. Id. at *5. In Graulich v. Dell Inc., 2011 WL 1843813 (Del. Ch. May 16,
2011), the plaintiff sought to investigate whether the company’s directors took
appropriate actions to monitor and prevent improper activities. The plaintiff’s
demand, which devoted only two short, unclear paragraphs to explaining his
purpose, stated that, “[i]f it is found that the directors and their agents failed in their
duties, then an appropriate suit will be commenced.” Id. at *5 n.49. The court
emphasized that this was “the only stated purpose” in the demand. Id. at *1. Finally,
in West Coast Management & Capital, LLC v. Carrier Access Corp., 914 A.2d 636(Del. Ch. 2006), the plaintiff demanded inspection of books and records after its
previous lawsuit for breach of fiduciary duty was dismissed for failure to plead
demand futility. In that context, the court concluded that “[i]t 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.”
Id. at 645–46. In each of these three cases, the court went on to find that a procedural
89
See Saito v. McKesson HBOC, Inc., 806 A.2d 113, 117 (Del. 2002) (“[S]tockholders may
use information about corporate mismanagement in other ways, as well [as derivative
litigation]. They may seek an audience with the board to discuss proposed reforms or,
failing in that, they may prepare a stockholder resolution for the next annual meeting, or
mount a proxy fight to elect new directors.”).
32
obstacle to litigation effectively thwarted the plaintiff’s sole purpose. The Supreme
Court found each decision to be “within the discretion that rests in the Court of
Chancery’s hands when it assesses the bona fides of a stockholder’s stated purpose
under Section 220.”90
Plaintiff has not limited the purpose of his Demand solely to litigation. The
Demand states that it was made “for purposes including, but not limited [to],
pursuing a potential stockholder derivative action and/or serving a demand on the
Company’s Board.”91 It also states that the requested books and records would
“serve to inform the stockholder’s future actions, including the viability of
litigation.” 92 To be sure, the Demand can be fairly read to suggest that evaluating
whether to institute litigation is a likely use of the demanded books and records. But
by using the phrase “including, but not limited to,” Plaintiff has expressly not limited
himself to instituting litigation.93 Furthermore, the Demand recognizes the
90
AmerisourceBergen II, 243 A.3d at 432.
91
JX 23 at 5.
92
Id. at 2.
93
See Khan v. Delaware State Univ., 2017 WL 815257, at *4 (Del. Super. Ct. Feb. 28,
2017) (“The use of ‘including but not limited to’ language is a tool commonly employed
by contract drafters to avoid the application of the expressio unius est exclusio alterius rule
[i.e., the expression of one thing is the exclusion of another].”). I am also disinclined to
read the “including” language as inherently limiting these documents’ use to litigation in
light of the Supreme Court’s holding that a stockholder need not articulate an objective of
the investigation. AmerisourceBergen II, 243 A.3d at 427 (“[W]e agree with the Court of
Chancery’s observation that a stockholder is not required to state the objectives of his
investigation.”).
33
Plaintiff’s ability to use the results of his investigation for other purposes, such as to
“compel the Company’s Board to take action to treat and correct the underlying
wrong.”94 At his deposition, Plaintiff, admitting his reliance on counsel, stated:
“You go on a trail, you don’t know where it leads to.” 95 Unlike the unique
circumstances found in the cases cited by AmerisourceBergen II, Plaintiff has not
already pursued litigation, and Plaintiff has not made his Demand under
circumstances that would preclude his ability to address wrongdoing through other
means. In light of the Demand’s language and context, I do not find that the Demand
was made for the sole purpose of litigation. Thus, this case does not invoke the rare
exception to the Supreme Court’s holding in AmerisourceBergen II that a plaintiff
need not demonstrate actionable wrongdoing.
As here, when the stockholder’s reason for investigating wrongdoing is not
solely to pursue litigation, the court should “defer the consideration of defenses that
do not directly bear on the stockholder’s inspection rights, but only on the likelihood
that the stockholder might prevail in another action.” 96 Thus, this action is not the
proper proceeding to consider Biogen’s defenses that any underlying wrongdoing
94
JX 23 at 2.
95
Gross Dep. 25. In Gilead, the court concluded that the plaintiffs did not have the sole
purpose of instituting litigation, and it pointed to a plaintiff’s testimony that “‘[t]his is
simply an investigation. If it turns out there’s no [wrongdoing], then it will be the end of
it.’” Gilead, 2020 WL 6870461, at *20 (alteration in original).
96
AmerisourceBergen II, 243 A.3d at 437.
34
would be exculpated or time-barred, 97 or that Plaintiff needed to demonstrate at the
time of the Demand that he owned stock that would afford him standing to bring a
derivative suit.98 These issues do not bear on Plaintiff’s right to inspect the
Company’s books and records.
4. Director Independence and Disinterestedness
As its second purpose, the Demand seeks to investigate the independence and
disinterest of the Board. “Another purpose for using Section 220 is to investigate
questions of director disinterestedness and independence.”99 Biogen does not
97
Def.’s Pre-Trial Br. 38–40; Def.’s Supp. Post-Trial Br. 3–5.
98
Biogen argues that Plaintiff must establish that he has owned Biogen stock continuously
since the time of the alleged wrongdoing, and that this continuous-ownership requirement
is a form and manner requirement that Plaintiff must have proved when he made the
Demand. Def.’s Pre-Trial Br. 21–26; Def.’s Opening Post-Trial Br. 2–6. Biogen’s
argument fails for at least two reasons. First, Section 220 only requires a plaintiff to
demonstrate ownership of the company’s stock at the time of the inspection demand. 8
Del. C. § 220(b); see also Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 776 (Del. Ch.
2016) (Section 220 requires “documentation sufficiently proximate in time to the date of
the demand as to be consistent with and corroborate the averment of stock ownership made
in the demand itself.”). Biogen concedes that Plaintiff established stock ownership
concurrently with the Demand. PTO ¶ 15. Second, because derivative litigation is not the
sole purpose of Plaintiff’s complaint, it is not necessary for Plaintiff to establish that he
would have standing to bring any subsequent derivative litigation. See AmerisourceBergen
I, 2020 WL 132752, at *14 (“AmerisourceBergen’s argument [that the suspected
wrongdoing must be actionable] fails for a threshold reason. The plaintiffs are not seeking
books and records for the sole purpose of investigating a potential Caremark claim.”);
Gilead, 2020 WL 6870461, at *19–20 (“[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.” (emphasis in original)). Therefore, I need not
consider whether Plaintiff established such continuous ownership at the time he made his
Demand.
99
Yahoo!, 132 A.3d at 784.
35
contend that this purpose is improper in itself. Instead, Biogen merely argues that
inspection to investigate board independence should be denied because Plaintiff has
not established a proper purpose to investigate possible mismanagement or
wrongdoing.100 Because the Plaintiff has established a proper purpose to investigate
wrongdoing, Biogen’s argument fails. “It is well settled that the desire to investigate
director independence is a proper purpose, particularly in instances where the
stockholder seeks to investigate whether demand upon the board to pursue claims
on behalf of the company would be futile.”101 Thus, Plaintiff has also stated a proper
purpose to investigate the independence and disinterestedness of the Board.
C. Scope of Inspection
Having established a proper purpose for inspection, Plaintiff must also show,
by a preponderance of the evidence, that the books and records he has demanded are
essential to his purpose.102 Section 220 is not a license to obtain the equivalent of
comprehensive discovery under Court of Chancery Rule 34. 103 Instead, “the court
100
Def.’s Pre-Trial Br. 40–41 (citing Se. Pennsylvania Transp. Auth. v. Facebook, Inc.,
2019 WL 5579488, at *10 (Del. Ch. Oct. 29, 2019)).
101
In re Facebook, Inc. Section 220 Litig., 2019 WL 2320842, at *16 (Del. Ch. May 30,
2019).
102
Sahara Enters., 238 A.3d at 889.
103
See Kaufman v. CA, Inc., 905 A.2d 749, 754 (Del. Ch. 2006) (“Section 220 is not meant
as a replacement for discovery under Rule 34”); Sec. First Corp. v. U.S. Die Casting &
Dev. Co., 687 A.2d 563, 570 (Del. 1997) (“A Section 220 proceeding should result in an
order circumscribed with rifled precision. Rule 34 production orders may often be broader
in keeping with the scope of discovery under Court of Chancery Rule 26(b).”); Palantir,
36
must give the [stockholder] everything that is ‘essential,’ but stop at what is
‘sufficient.’” 104 “Where a § 220 claim is based on alleged corporate wrongdoing,
. . . the stockholder should be given enough information to effectively address the
problem, either through derivative litigation or through direct contact with the
corporation’s directors and/or stockholders.” 105
“The starting point (and often the ending point) for an adequate inspection
will be board-level documents that formally evidence the directors’ deliberations
and decisions and comprise the materials that the directors formally received and
considered (the ‘Formal Board Materials’).” 106 “If the plaintiff makes a proper
showing, an inspection may extend to informal materials that evidence the directors’
203 A.3d at 755 (“The point of a summary § 220 action is to give the stockholder access
to a discrete set of books and records that are necessary for its purpose—a set that is much
less extensive than would likely be produced in discovery under the standards of Rule 26
in a plenary suit.”); Saito, 806 A.2d at 114 (“[Section 220] does not open the door to the
wide ranging discovery that would be available in support of litigation.”).
104
Palantir, 203 A.3d 738, 751–52 (Del. 2019) (quoting Thomas & Betts, 681 A.2d at
1035, and citing Yahoo!, 132 A.3d at 775).
105
Saito, 806 A.2d at 115.
106
AmerisourceBergen I, 2020 WL 132752, at *24; see also Palantir, 203 A.3d at 752–53
(“[T]he 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.”).
37
deliberations, the information that they received, and the decisions they reached
(‘Informal Board Materials’).” 107
Plaintiff seeks to inspect eight categories of Biogen’s books and records.108
1. Categories 1–2
Category 1 seeks “[a]ll documents produced and/or being produced in
response to the Investigation.” Category 2 seeks “[a]ll communications between the
Company and any state, federal, or international government agency or entity
regarding the Investigation.”
Biogen objects to these categories as overbroad. Plaintiff’s stated purpose is
not to conduct a criminal inquiry into whether any Biogen employees violated anti-
kickback statutes; instead, Plaintiff’s purpose is to investigate, as a stockholder,109
whether Board members violated their fiduciary duties relating to the alleged
violations that are the subject of the Investigation. A more limited purpose entails a
more limited scope of inspection.110
107
AmerisourceBergen I, 2020 WL 132752, at *25; see also id. (“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 (‘Officer-Level Materials’).”).
108
See JX 23.
109
See 8 Del. C. § 220(b) (“A proper purpose shall mean a purpose reasonably related to
such person’s interest as a stockholder.”).
110
Cf. AmerisourceBergen I, 2020 WL 132752, at *24 (“When ‘a plaintiff has shown
evidence of wide-ranging mismanagement or waste, a more wide-ranging inspection may
be justified.’” (quoting Lucent, 2003 WL 139766, at *5)).
38
Plaintiff relies on two decisions in support of his demand to inspect all
documents provided to government investigators. In my view, neither decision
supports the broad inspection sought here. In In re Facebook, Inc. Section 220
Litigation, 2019 WL 2320842 (Del. Ch. May 30, 2019), the plaintiff at one point
demanded all documents produced to the government in connection with certain
investigations. The demand was repeatedly refined and narrowed, until eventually
the court granted inspection of “[h]ard-copy documents provided to, or generated
by, the Board relating to [the] investigations.” Id. at *18. The court also granted
inspection of “electronic communications, if coming from, directed to or copied to
a member of the Board, concerning . . . government investigations,” after the court
was satisfied that the board had conducted relevant business outside the boardroom
and that the redacted board minutes would not be sufficient to accomplish the
plaintiff’s purpose. Id. at *18, n.185. Thus, the court in Facebook did not require
production of all documents produced in response to an investigation, but it instead
narrowed the production to certain board-level documents and communications
relating to the investigation. This court has taken a similar approach in other cases,
limiting an investigation-related production to board-level conduct.111
111
See, e.g., Bloom Energy, 2021 WL 733438, at *10 (granting inspection of “formal Board
documents . . . and documents submitted to or reviewed by the Board or senior management
summarizing what the investigation entailed, any conclusions or investigations, and
internal reports and follow-up reports relating to the investigation(s)”); Carapico v.
Philadelphia Stock Exch., Inc., 791 A.2d 787, 793 (Del. Ch. 2000) (granting inspection of
39
The limited scope of production in Facebook is consistent with this court’s
holding in Louisiana Municipal Police Employees’ Retirement System v.
Countrywide Financial Corp., 2007 WL 2896540 (Del. Ch. Oct. 2, 2007). In
Countrywide, the plaintiff sought to investigate possible backdating or springloading
of stock options granted to corporate executives. Id. at *1. The plaintiff demanded
“[a]ny documents made available or produced by Countrywide or its board of
directors to any governmental, investigative or regulatory body . . . in connection
with any formal or informal investigation into Countrywide’s stock option grants.”
Id. at *13. The defendant did not challenge the scope of that category of documents,
and the court granted the inspection. Id. at *13–14. It is not clear from the opinion
that any other government investigation into the company’s granting of stock options
existed at that time. In any event, it was “Countrywide’s Board of Directors [which]
had wide discretion to issue stock options to corporate executives,” so any
investigation was necessarily focused on the board’s exercise of that discretion. Id.
at *1. Thus, the production in Countrywide was inherently narrowed to largely
board-level documents.
With regard to investigation-related communications, “[t]his court regularly
orders companies to produce communications related to government investigations
“reports presented to or minutes of meetings of the Exchange Board of Governors . . .
relating to [] the SEC inquiry”).
40
and litigation in Section 220 cases where those investigations supply or support a
credible basis for [suspecting] wrongdoing.”112 As with investigation-related
documents, however, investigation-related communications are also usually limited
to board-level materials.113
Consistent with the recent precedents of this court, the Plaintiff’s right to
inspect investigation-related books and records will be confined to board-level
materials.114 These documents and communications will enable Plaintiff to assess
the extent to which Board members were made aware of the alleged wrongdoing and
to evaluate how the Board members responded to the Investigation. “[T]hese
documents [and communications] are necessary and essential to reveal the degree of
112
Gilead, 2020 WL 6870461, at *26; accord Bloom Energy, 2021 WL 733438, at *10.
113
See, e.g., Gilead, 2020 WL 6870461, at *26 (granting inspection of “high-level
communications between Gilead and government investigators”). This court has granted
inspection of “Orders and other communications with the SEC concerning its
investigation.” Lucent, 2003 WL 139766, at *5. The court in Lucent did not purport to
grant inspection of all communications. The fact that the plaintiff in Lucent sought
communications in connection with orders suggests a level of formality and
authoritativeness that may be present in board-level communications but not in all
communications. See id. (“Documents relating to the SEC formal order of investigation
are reasonably required to satisfy Freund’s stated purpose.” (emphasis added)). In any
event, Plaintiff has not persuaded me that all communications between Biogen and the
government are necessary for Plaintiff’s purpose.
114
Plaintiff impliedly conceded that his Demand is overbroad when, in post-trial briefing,
he argued that Biogen’s production of the Investigation documents should be “limited only
to the extent the Court limited such production in Facebook.” Pl.’s Opening Post-Trial Br.
13.
41
[the company’s] compliance with positive law and government regulations.”115
Biogen must produce these board-level documents. Plaintiff has not persuaded the
court that any other documents or communications that were provided to the
government are necessary to investigate potential wrongdoing by members of the
Biogen Board.
2. Categories 3–4
Category 3 seeks “[a]ll minutes, agendas, presentations, and participant notes
provided to or reviewed by the Board (the ‘Meeting Minutes’) regarding the
Investigation.” Category 4 seeks “[a]ll Meeting Minutes concerning Biogen’s
policies and procedures relating to the Investigation.”
The Demand’s request to inspect board materials includes “notes” of the
Board members.116 In addition, the Demand seems to seek inspection of electronic
documents, specifically emails and text messages between Board members, “to the
extent the Board maintains its records in electronic form.” 117 Biogen resists
inspection of Categories 3–4 to the extent that they exceed the scope of what is
commonly considered to be formal board materials.
115
Gilead, 2020 WL 6870461, at *27; see also Bloom Energy, 2021 WL 733438, at *10.
116
JX 23 at 3.
117
Id.42
With regard to electronic communications, “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.”118
“If a corporation has traditional, non-electronic documents sufficient to satisfy the
petitioner’s needs, the corporation should not have to produce electronic
documents.” 119 “[B]ut if non-email books and records are insufficient, then the court
should order emails to be produced.”120 Similarly, the Board members’ notes are
informal board materials and may be unnecessary if the formal board materials prove
to be sufficient for Plaintiff’s purpose.121
As the Supreme Court explained in Palantir, a stockholder seeking inspection
of informal materials must prove that the materials are necessary and essential.
A petitioner meets her burden to prove necessity by identifying the
categories of books and records she needs and presenting some
evidence that those documents are indeed necessary. . . . When [the
petitioner] reasonably identifies the documents it needs and provides a
basis for the court to infer that those documents likely exist in the form
of electronic mail, the respondent corporation cannot insist on a
118
Palantir, 203 A.3d at 752–53.
119
Id. at 756.
120
Id. at 752–53.
121
Yahoo! Inc., 132 A.3d at 791 (including “memos and notes” in the category of
“Additional Board Documents” rather than the more formal “Board-Level Materials”); In
re UnitedHealth Grp., Inc. Section 220 Litig., 2018 WL 1110849, at *8 (Del. Ch. Feb. 28,
2018) (granting inspection of “meeting preparation materials,” such as memos, outlines,
notes, and talking points, separately and additionally to “written materials,” such as
minutes, agendas, reports, and presentations, because plaintiffs had shown that meeting
preparation materials were necessary for their purpose), aff’d, 196 A.3d 885 (Del. 2018).
43
production order that excludes emails even if they are in fact the only
responsive corporate documents that exist and are therefore by
definition necessary. 122
Plaintiff has not met his burden to establish a right to inspect electronic
communications and directors’ notes. Plaintiff presented no evidence or argument
that the requested informal board materials are necessary or, conversely, that the
formal board materials would be insufficient for him to investigate the alleged
wrongdoing. Although Plaintiff included informal board materials in his Demand,
he has not addressed that specific request in his pre-trial brief, at trial, or in his post-
trial briefs. Accordingly, Plaintiff has effectively abandoned his request for informal
board materials.123 For this reason, Biogen will not be compelled to produce emails,
text messages, or participant notes in Category 3.
Biogen must permit inspection of the formal board materials relating to the
Investigation or to any implicated policies and procedures. “Formal board materials”
refers to minutes, agendas, reports, and presentations provided to, created by, or
122
Palantir, 203 A.3d at 755–56.
123
Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”); In re Asbestos Litig., 2007 WL 2410879, at *4 (Del. Super. Ct. Aug.
27, 2007) (“It is well-settled in Delaware that the failure to raise a legal issue in the text of
the opening brief generally constitutes a waiver of that claim . . . . Moving parties must
provide adequate factual and legal support for their positions in their moving papers in
order to put the opposing parties and the court on notice of the issues to be decided.”).
44
reviewed by the Board or by any committee thereof.124 The “Investigation,” as
defined in the Demand, refers to the investigation by the U.S. Attorney’s offices
relating to Biogen’s alleged violations of the federal Anti-Kickback Statute. 125
As explained above, Plaintiff has not established a right to inspect books and
records relating to the allegations raised in the Federal Jury Verdict, which are not
within the definition of the “Investigation” in the Demand. Therefore, they are not
sufficiently related to Plaintiff’s proper purpose. Although Biogen is not required
to search for or permit inspection of books and records relating to the Federal Jury
Verdict, to the extent that the Federal Jury Verdict is discussed in the same formal
board materials being produced in connection with the Investigation, those
discussions should not be redacted.
3. Categories 5-6
Category 5 seeks “Documents sufficient to demonstrate the Company’s
policies, controls, and procedures for ensuring Biogen’s compliance with applicable
statutes and regulations, including without limitation those designed to ensure
compliance.” Category 6 seeks “[a]ll documents evidencing what committee and/or
124
Of course, if text messages, emails, or notes were included with these formal board
materials, then they must be produced for inspection.
125
JX 23 at 1.
45
subcommittee of the Board is responsible for the active oversight and monitoring of
the Investigation.”
Biogen argues that these categories improperly exceed the scope of formal
board materials, are unrelated to the transactions alleged in the Demand, and are
“hopelessly overbroad.” 126 Biogen acknowledges, however, that its compliance
department “maintains policies designed to ensure compliance with statutes and
regulations” and that the policies “are reviewed on a regular basis and updated as
needed.” 127 Similarly, Biogen possesses documents that evidence which committee
or subcommittee of the Board is responsible for the active oversight and monitoring
of the Investigation. 128 “These requests seek discrete categories of information,
which are easy to produce, and where inspection is routinely granted.” 129
Given that responsive documents exist and are readily available, Biogen shall
permit inspection of its compliance policies that pertain to the Anti-Kickback Statute
and the making of grants and contributions to nonprofit organizations that assist
patients taking drugs sold by Biogen. Biogen is to make available for inspection all
of the foregoing compliance policies, including updates, that are or were in existence
126
Def.’s Pre-Trial Br. 55.
127
JX 59 at 3.
128
Id.129
Gilead, 2020 WL 6870461, at *25.
46
during the relevant time period specified in the Demand.130 Similarly, Biogen is to
produce or make available for inspection documents sufficient to identify the Board
committees or subcommittees responsible for oversight and monitoring of the
Investigation as defined in the Demand.
4. Category 7
Category 7 seeks “[a]ll documents evidencing other stockholders’ demands
for the inspection of Books and Records sent to Biogen relating to the subject matter
of this Demand.” Plaintiff has not demonstrated that some other stockholder’s books
and records demand relating to the subject matter of Plaintiff’s Demand is necessary
and essential to satisfying his stated purposes. He did not argue this point in his pre-
trial or post-trial briefs. In any event, Biogen maintains that it has not received any
other demands for inspection of books and records. 131
5. Category 8
Category 8 seeks “[a]ll director questionnaires for members of the current
Board either submitted to NASDAQ or prepared internally for any purpose, relating
to director independence.” Biogen has confirmed that “[d]irector and officer
130
Biogen has not contested the relevant time period.
131
JX 59 at 3.
47
questionnaires exist for the relevant time period and are maintained electronically
by Biogen’s legal department.” 132
“This court regularly orders companies to produce
director questionnaires where a plaintiff has demonstrated a credible basis to suspect
possible wrongdoing.” 133 Biogen does not disagree. Instead, Biogen argues that
Plaintiff should be limited to inspecting only “the most recent director disclosures
and questionnaires.”134
In Facebook, the court limited the company’s production to the most recent
director questionnaires. Facebook, 2019 WL 2320842 (Del. Ch. May 30, 2019).
Facebook, however, is distinguishable both factually and legally from this case.
First, the court had already concluded that the temporal scope of the production
needed to be limited because it was overbroad. The stockholder demanded
documents from as early as 2011, even though the events giving rise to the
stockholders’ investigation occurred in 2014 and 2015. Id. at *19. In the present
case, the relevant time period of the documents that Plaintiff seeks to inspect is
January 1, 2016 to the present.135 Biogen first disclosed the Investigation in April
2016. Thus, Plaintiff’s Demand as to director questionnaires is not temporally
132
JX 59 at 4.
133
Gilead, 2020 WL 6870461, at *27 (collecting cases).
134
Def.’s Pre-Trial Br. 57 (citing Facebook, 2019 WL 2320842, at *19).
135
JX 23.
48
overbroad, particularly because it is expressly limited to questionnaires “for
members of the current Board.”136
Second, Facebook was decided before AmerisourceBergen II, and the
Facebook decision tailored the scope of inspection partly based on a notion that the
stockholders’ objective was to bring a derivative claim and that such a claim would
not be actionable. Facebook, 2019 WL 2320842, at *19 (“Claims relating to conduct
in 2011, or conduct giving rise to the [2011] Consent Decree, likely would be time-
barred.”). The court specifically tied the production of director questionnaires to the
objective of derivative litigation when it justified its temporal limitation on the fact
that “the Board’s independence for demand futility purposes will be measured as of
the time the complaint alleging demand futility is filed.” Id. Because, under
AmerisourceBergen II, Plaintiff was not required to limit himself to derivative
litigation, and because I find that Plaintiff has not done so here, there is no basis to
limit production of director questionnaires to only the most recent questionnaires.
“Because [] the Demand[] investigate[s] alleged violations of positive law and
government regulations, understanding the directors’ motives and potential conflicts
is paramount.”137 Additionally, the burden on Biogen in producing these past
136
Id.137
Gilead, 2020 WL 6870461, at *27.
49
questionnaires of current directors should be minimal.138 Biogen shall permit
inspection of director questionnaires maintained internally for the entire relevant
time period.
D. Conditions to Inspection
In the Pretrial Order, Biogen sought to condition inspection as follows:
(A) requiring the Company to produce only such documents as are
identified with reasonable particularity in the Demand and are
necessary, essential, and sufficient to Plaintiff’s proper purpose and (B)
conditioning the production of any books and records upon the prior
entry of Plaintiff and Biogen into a reasonable confidentiality
agreement that permits Biogen to redact privileged and non-responsive
material in any produced books and records, (i) incorporates all of the
produced books and records into any subsequent complaint that relies
on any of the produced books and records, in accordance with Delaware
law, and (ii) includes a forum selection provision requiring any
subsequent derivative lawsuit based on any of the produced books and
records to be filed in the Delaware Court of Chancery.139
The Demand expressly reflects Plaintiff’s willingness to enter into a
confidentiality agreement as to documents that “legitimately warrant confidential
treatment.”140 Although conditioning inspection on entry into a confidentiality
agreement is not required in all instances, 141 Plaintiff agreed at the outset to condition
138
JX 59 at 4.
139
PTO ¶ 27.
140
JX 23 at 5.
141
See Tiger v. Boast Apparel, Inc., 214 A.3d 933, 939 (Del. 2019) (holding that there is
no presumption of confidentiality in Section 220 productions, and that the Court of
Chancery has the power to impose reasonable confidentiality restrictions only after
assessing and comparing the benefits and harms of confidentiality).
50
inspection on a confidentiality agreement and did not take a contrary position at trial
or in any of his briefing. Accordingly, inspection will be subject to entry into a
mutually agreeable confidentiality stipulation that is typical in Section 220 cases.
The other conditions that Biogen seeks are denied. Biogen did not argue in
its briefs or at trial in favor of an incorporation-by-reference provision or a forum-
selection provision for any derivative litigation to be brought in this court.
Accordingly, these arguments are waived.142
IV. CONCLUSION
For the foregoing reasons, judgment is entered in favor of the Plaintiff. The
parties shall confer on the final order of inspection. Biogen shall produce or make
available for inspection the books and records specified herein within ten business
days of entry of the final order. The documents shall be produced on an attorneys’
eyes only basis until such time as the parties have finalized a confidentiality
stipulation governing inspection.
IT IS SO ORDERED.
142
Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”).
51