In a 63-page decision issued on Jan. 13, 2020, in Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corporation, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery found that stockholders of AmerisourceBergen may inspect the company’s books and records, under Section 220 of the Delaware General Corporation Law, to investigate whether it engaged in wrongdoing in connection with the distribution of opioids.1 The company already faces a “flood of government investigations and lawsuits” relating to its opioid-distribution practices, and “[a]nalysts have estimated that resolving all of the litigation would require $100 billion.” The Court described this set of circumstances as a “significant corporate trauma.” The decision, which followed a one-day trial on a “paper record,” addressed two disputed issues: (i) whether the plaintiffs had a “proper purpose” for their demand, and (ii) the scope of the inspection.

On the “proper purpose” issue, AmerisourceBergen argued that plaintiffs sought the materials solely to pursue a Caremark claim against the company and its directors. Citing recent Court of Chancery cases, AmerisourceBergen claimed that plaintiffs therefore had to establish “a credible basis” to suspect not just “possible mismanagement” but “actionable wrongdoing” — according to the Vice Chancellor, the functional equivalent of a motion to dismiss standard — and that plaintiffs could not meet that standard because the claim would be barred by an exculpatory provision and by the statute of limitations. Vice Chancellor Laster rejected the company’s arguments. He first disagreed with the company’s interpretation of the demand, finding that plaintiffs are not “solely interested” in filing a derivative suit. He found that Section 220 does not impose an “actionable claim” requirement on stockholders, regardless of their intentions, and that recent Court of Chancery cases to the contrary are, in his view, at odds with Delaware Supreme Court authority. He also concluded that because plaintiffs’ inspection rights “do not depend on the existence of an actionable claim,” the exculpatory clause and the statute of limitations could not bar the inspection — and that, in any event, the investigation could uncover non-exculpated claims and exceptions to a timeliness defense.

On the scope issue, the Vice Chancellor concluded that plaintiffs were entitled at a minimum to the company’s “Formal Board Materials.” In addition, the Court held that plaintiffs can conduct a Rule 30(b)(6) deposition “to determine what other types of books and records exist and who has them,” because the company refused to provide that information during discovery. Barring agreement, the plaintiffs may then “make a follow-on application for Informal Board Materials or Officer-Level Documents.”

The decision sets up a potential split of authority within the Court of Chancery on the standard governing Section 220 demands. With respect to the scope of inspection, it is a reminder that through Section 220, stockholders can potentially obtain a broad range of documents and communications, extending well beyond a company’s Formal Board Materials. AmerisourceBergen has asked the Court of Chancery to certify an interlocutory appeal.2 If granted, the Delaware Supreme Court may soon have the opportunity to weigh in on one or both issues.


AmerisourceBergen is one of the largest distributors of opioids in the United States. To comply with the Comprehensive Drug Abuse Prevention and Control Act of 1970 (the Controlled Substances Act), it must — among other things — maintain “effective controls against diversion of [opioids] into other than legitimate medical, scientific, research, or industrial channels,” and “design and operate a system to disclose to the registrant suspicious orders of [opioids].” In 2007, the Drug Enforcement Administration (DEA) suspended AmerisourceBergen’s license in Florida because it was selling large amounts of opioids to so-called rogue pharmacies. As part of a settlement with the DEA, AmerisourceBergen committed to implement a compliance program to detect and prevent continued diversion and suspicious sales.

Even after the company adopted a compliance program, the distribution problems continued, eventually leading to a “flood” of investigations and litigation. Since 2012, AmerisourceBergen has been investigated by the DEA and federal prosecutors in nine states; it has been sued by the attorneys general of more than 40 states; and it is a defendant in multi-district litigation that encompasses 1,548 different lawsuits by state regulators and other public and private plaintiffs. The Company’s potential legal exposure is massive, and it “already has spent more than $1 billion in connection with the opioid-related lawsuits and investigations.”

In May 2019, the plaintiffs served a Section 220 Demand upon AmerisourceBergen seeking books and records on ten topics, dating back to 2010. The main stated purpose of the Demand was “to investigate whether the Company’s Directors and Officers have committed mismanagement or breached their fiduciary duties in connection with the distribution of opioids.” AmerisourceBergen rejected the Demand in its entirety, arguing that (i) it did not “state a proper purpose or a credible basis to suspect wrongdoing,” and (ii) the scope of the requested inspection was “overly broad.” Plaintiffs filed suit in July 2019, the parties engaged in limited discovery and the matter proceeded to trial “on a paper record” in October 2019.

Summary and Analysis of Decision: The Stockholders Established a “Proper Purpose” for the Demand

Section 220(b) grants stockholders the right to inspect a company’s books and records “for any proper purpose.” A “proper purpose” means “a purpose reasonably related to such person’s interest as a stockholder.” In the Court’s view, the Demand in this case identified two broad purposes for inspection: (i) to investigate possible breaches of fiduciary duty, mismanagement and other violations of law by the company’s directors and management, and (ii) to evaluate the independence and disinterestedness of the company’s board. The decision focuses primarily on the first purpose, noting that the second purpose is “straightforward” and clearly “valid.” The Demand also stated that the stockholders would use the information they obtained “to consider any remedies to be sought,” and “to evaluate possible litigation or other corrective measures.” Vice Chancellor Laster found that by including this language, “the plaintiffs signaled that they are not solely interested in filing a derivative lawsuit to pursue a damages remedy.”

Based on Delaware Supreme Court precedent, “[i]t is well established that a stockholder’s desire to investigate wrongdoing or mismanagement is a proper purpose.”3 Further, under the standard set forth in Seinfeld, a stockholder need only “show, by a preponderance of the evidence, a credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation.” The Vice Chancellor noted that this is “the lowest possible burden of proof.”4 The Court held that the plaintiffs here “have shown by a preponderance of the evidence that there is a credible basis to infer that AmerisourceBergen possibly violated the Controlled Substances Act.” Specifically, “the flood of government investigations and lawsuits relating to AmerisourceBergen’s opioid-distribution practices is sufficient to establish a credible basis to suspect wrongdoing warranting further investigation.”

In opposition to the Demand, AmerisourceBergen raised three inter-related arguments: (i) plaintiffs’ real purpose was to file a Caremark suit against the company and its directors, which they said can and should be inferred from the absence of any other stated objectives; (ii) plaintiffs must therefore meet a higher standard, by introducing “evidence from which the court can infer the existence of an actionable claim” that could survive dismissal; and (iii) plaintiffs cannot meet that standard because the directors are exculpated and the claim is time-barred. The Court rejected all of these arguments, and took issue with the Court of Chancery authority on which AmerisourceBergen relied.

As to the first argument, the Court held that a “responsible stockholder” need not — and indeed cannot — “identify all of the potential uses for books and records before knowing what the books and records reveal.” The Court acknowledged that there is a line of cases in which the Court of Chancery “has required stockholders who wanted to investigate mismanagement to state up-front what they planned to do with the fruits of the inspection” — the so-called purpose-plus-an-end test. But he distinguished those cases. In one, he noted that the stockholder made a books and records request only after its derivative claim was dismissed for failing to plead demand futility. The Court in that matter held that the stockholder was estopped from “taking a second bite at the demand-futility apple” and had not identified any other use for the books and records.5 In the other case, the stockholder had filed a federal securities action but could not seek discovery because of the PSLRA automatic stay. It then served a books and records demand on the company. The Court held that on those facts, it was clear that “the stockholder had no other end in mind other than to bypass the automatic stay” and therefore lacked “a permissible reason for the inspection.”6

The Court also acknowledged that the Court of Chancery more recently “has framed the purpose-plus-an-end test as a general requirement under Section 220.” In Vice Chancellor Laster’s view, those cases go “beyond what Section 220 and Delaware Supreme Court precedent require.” As a practical matter, moreover, such a test would simply lead stockholders to “include magic words in their demands,” and to recite a broad list of possible non-litigation uses.

Although the Vice Chancellor concluded that “Section 220 does not require a stockholder to say how it will use the fruits of the inspection,” he noted that the absence of such a requirement “does not render the stockholder’s intentions irrelevant.” Corporations may challenge “whether the stockholder’s proper purpose is bona fide.” In response, “a stockholder can point to how it plans to use the materials as evidence that its claimed purpose is its actual purpose.” And “[i]f a stockholder cannot identify a credible potential end use, then the court may infer that the stockholder’s stated purpose is not its actual purpose.”

The Vice Chancellor rejected the company’s second argument — that stockholders must establish a credible basis for “actionable wrongdoing” when seeking books and records to pursue litigation — for the “threshold reason” that litigation was not the sole purpose for the Demand. But he also held that, even “examined in its own right,” this argument fails because in his view, the “actionable-wrongdoing requirement imposes an onerous burden on stockholders that goes beyond the standard established in Seinfeld.” Here, he also relied on the Delaware Supreme Court’s first opinion in the In re Walt Disney Co. derivative litigation, where the Court affirmed the dismissal of a derivative complaint under Rule 23.1, but held that plaintiffs could still use Section 220 to obtain books and records from the company.7

AmerisourceBergen also relied on recent Delaware Court of Chancery cases — most notably Pfizer 220, in which the Court held that “where a stockholder seeks to investigate mismanagement or wrongdoing solely for potential litigation, the evidence the stockholder presents to establish a credible basis must be evidence of actionable corporate wrongdoing.”8 Vice Chancellor Laster held that to the extent Pfizer 220 requires stockholders to satisfy the functional equivalent of a motion to dismiss standard to obtain books and records under Section 220, he believed that it creates an unfair and impractical burden and is at odds with the standard set forth by the Delaware Supreme Court in Seinfeld.

As a third and related argument, the Company argued that the plaintiffs cannot meet the “actionable wrongdoing” standard because their potential Caremark claim would be barred by an exculpatory provision and by the statute of limitations. The Vice Chancellor rejected this argument “for the threshold reason that the plaintiffs are not seeking books and records for the sole purpose of investigating a potential Caremark claim.” Although the Court could have stopped there, it went on to discuss both purported defenses. The Vice Chancellor held that the exculpatory clause would not bar the Demand because “it is apparent, even at this early stage, that the fruits of a books and records investigation could potentially lead to non-exculpated claims,” including “non-exculpated claims for breach of the duty of loyalty” and “potential claims against AmerisourceBergen’s senior officers” to whom the exculpatory provision does not apply. The Court similarly held that the statute of limitations would not necessarily bar the Demand because plaintiffs might be able to show fraudulent concealment, equitable tolling or a continuing wrong, and the requested information might also support non-time-barred claims.

Summary and Analysis of Decision: The Scope of the Inspection May Extend Beyond the Company’s “Formal Board Materials”

The Decision is notable for its holdings concerning the scope of the inspection, and for its multistep approach to the inspection process. The Court began by making two basic observations: (i) the scope of production in response to a Section 220 Demand is not equivalent to the scope of discovery in a litigation; and (ii) the starting — and often ending — point for a Section 220 inspection consists of “board-level documents that formally evidence the directors’ deliberations and decisions and comprise the materials that the directors formally received and considered,” which the Court defines as “Formal Board Materials.” Upon a “proper showing,” however, he found that inspection can extend to “Informal Board Materials,” which include communications between or among directors and officers “outside of formal channels” or “in between formal meetings,” and even emails from non-corporate accounts. And “in an appropriate case,” it can extend even further to encompass “Officer-Level Materials” — that is, “communications and materials that were only shared among or reviewed by officers and employees.” The Court did not discuss what a “proper showing” or an “appropriate case” might be.

The Court held that AmerisourceBergen must at minimum produce Formal Board Materials, but might have to produce more than that. As the Court explained, the stockholders lack “information about what types of records AmerisourceBergen maintains and who has them” because the company refused to provide that information during discovery. He therefore held that after the initial production of Formal Board Materials, the stockholders may conduct a Rule 30(b)(6) deposition “to determine what other types of books and records exist and who has them.” If the parties cannot then agree on a final production order, “the plaintiffs may make a follow-on application for Informal Board Materials or Officer-Level Documents.”


To state the obvious, the outcome and analysis of this decision are favorable to stockholders seeking books and records under Section 220. That said, it seems equally clear that the result in this case is, at least to some extent, a product of the circumstances that gave rise to it. Vice Chancellor Laster repeatedly points out that Delaware follows a “case-by-case approach to Section 220 proceedings,” and that “the trial court must make a judgment grounded in the facts of a particular case.” And this is an unusual case. AmerisourceBergen faces a “flood” of government investigations and lawsuits, and perhaps $100 billion in exposure, stemming from its role in perpetuating the opioid crisis. The company is thus experiencing what the Court calls “a significant corporate trauma.” It seems fair to say that most books and records disputes, even those that arise in follow-on civil litigation, will not fit this mold.

Nonetheless, the case is another reminder that Section 220 has become a standard tool in the shareholder toolkit and is being invoked with increasing frequency. Given that reality, one important takeaway is that a Section 220 inspection can extend beyond Formal Board Materials to include emails and other communications — and even Rule 30(b)(6) depositions.

In addition, there is now a potential split within the Court of Chancery on the standard that applies when a stockholder makes a books and records demand solely to support possible litigation against the company. As the decision acknowledges, some cases have held that in that scenario, the stockholder must establish “a credible basis to suspect actionable wrongdoing” — the functional equivalent of the motion to dismiss standard. The Vice Chancellor disagreed, finding that stockholders need only establish “a credible basis from which the court can infer a possibility of wrongdoing.”

AmerisourceBergen has asked the Court of Chancery to certify an interlocutory appeal to the Delaware Supreme Court, arguing that the Vice Chancellor’s holding conflicts with prior Court of Chancery decisions. Under the governing rule, interlocutory appeals are “exceptional, not routine” and cannot be granted unless the trial court order decided “a substantial issue of material importance.”9 Among the factors to be considered are whether “[t]he decisions of the trial courts are conflicting upon the question of law” and whether the decision concerns the “construction or application of” a Delaware statute “which has not been, but should be, settled by” the Delaware Supreme Court “in advance of an appeal from a final order.”10 The Delaware Supreme Court has “discretion whether to accept or refuse the interlocutory appeal.”11 In the meantime, the filing of the application does not automatically stay the Court of Chancery’s order.


1 No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020). https://courts.delaware.gov/Opinions/Download.aspx?id=300360

2 Doc. ID 64650065 (Jan. 23, 2020).

3 Citing Seinfeld v. Verizon Comms, Inc., 909 A.2d 117, 121 (Del. 2006).

4 No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020), at 16-17, citing Seinfeld, 909 A.2d at 123.

5 Id. at 26, citing W. Coast Mgmt. & Capital, LLC v. Carrier Access Corp., 914 A.2d 636 (Del. Ch. 2006).

6 Id. at 26, citing Beiser v. PMC-Sierra, Inc., 2009 WL 483321, at *3 (Del. Ch. Feb. 6, 2009).

7 Id. at 33, citing In re Walt Disney Co. Deriv. Litig., 731 A.2d 342 (Del. Ch. 1998), aff’d in pertinent part sub nom. Brehm, 746 A.2d 244 (Del. 2000).

8 Pfizer 220, 2016 WL 4548101 (Del. Ch. Ct. Sept. 1, 2016), at *6.

9 Del. Sup. Ct. Rule 42(b)(i) and (ii).

10 Id. § 42(b)(iii).

11 Id. § 42(d)(v).

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