IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LEBANON COUNTY EMPLOYEES’RETIREMENT FUND AND TEAMSTERS LOCAL 443 HEALTH SERVICES & INSURANCE PLAN,

Plaintiffs,

v.

AMERISOURCEBERGEN CORPORATION,

Defendant.

) ) ) ) ) ) ) ) ) ) ) ))

C.A. No. 2019-0527-JTL

DEFENDANT AMERISOURCEBERGEN CORPORATION’S

OPENING TRIAL BRIEF

OF COUNSEL:

MORGAN, LEWIS & BOCKIUS LLP

Michael D. Blanchard, Esq. One Federal Street Boston, MA 02110

Dated: September 13, 2019

POTTER ANDERSON & CORROON LLP

Stephen C. Norman (No. 2686) Jennifer C. Wasson (No. 4933) Tyler J. Leavengood (No. 5506) 1313 N. Market Street Hercules Plaza, 6th Floor Wilmington, DE 19801 (302) 984-6000

Attorneys for Defendant AmerisourceBergen Corporation

REDACTED PUBLIC VERSION

DATED: September 20, 2019

EFiled: Sep 20 2019 03:06PM EDT Transaction ID 64228176

Case No. 2019-0527-JTL

i

TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ............................................................................... 1

STATEMENT OF FACTS ........................................................................................ 6

I. ABC’S WHOLESALE DISTRIBUTION BUSINESS AND LIMITED

VISIBILITY INTO THE CONTROLLED SUBSTANCES SUPPLY

CHAIN ............................................................................................................. 6

II. THE REGULATORY REGIME FOR DISTRIBUTION OF

CONTROLLED SUBSTANCES .................................................................... 7

III. ABC’S EVOLVING ANTI-DIVERSION PROGRAM ................................. 9

IV. THE DEA’S ROLE IN THE COMPANY’S 2007 ANTI-DIVERSION

PROGRAM ..................................................................................................122

V. 2014 “COMPREHENSIVE REVIEW” AND ENHANCEMENTS

TO ABC’S DIVERSION CONTROL PROGRAM ......................................13

VI. 2017: ADDITIONAL OPERATING COMMITMENTS AND

INITIATIVES TO ADDRESS OPIOID DIVERSION AND ABUSE .........14

VII. AMERISOURCEBERGEN’S INTERNAL CONTROLS REGARDING

LEGAL AND REGULATORY RISK ..........................................................15

VIII. THE OPIOID EPIDEMIC AND INDUSTRY-WIDE DRAGNET OF

GOVERNMENT INVESTIGATIONS AND LITIGATIONS .....................17

IX. STOCKHOLDERS’ DEMAND AND PURPORTED CREDIBLE BASIS

TO SUSPECT WRONGDOING ...................................................................19

ARGUMENT ...........................................................................................................26

ii

I. STOCKHOLDERS FAIL TO MEET THEIR BURDEN OF SETTING

FORTH A CREDIBLE BASIS TO SUSPECT WRONGDOING BY THE

COMPANY’S OFFICERS AND DIRECTORS BY A

PREPONDERANCE OF THE EVIDENCE .................................................26

A. Stockholders Have Failed To Demonstrate A Credible Basis To

Investigate A Caremark Claim – The Only Purported Purpose Of

The Demand ........................................................................................27

1. Stockholders’ Only Potential Proper Purpose Is To

Investigate A Non-Exculpated (Bad Faith) Caremark Claim

With The Objective Of Bringing Derivative Litigation Or

Making A Litigation Demand ...................................................27

2. The Documents That Stockholders Rely Upon Affirmatively

Refute Any Suspicion That The Company Has Ignored Red

Flags ..........................................................................................29

3. Stockholders Cannot Prevail Merely By Demonstrating A

Credible Basis To Suspect That, Despite The Company’s

Efforts, Violations Of Law Have Been Alleged .......................34

II. STOCKHOLDERS LACK A PROPER PURPOSE BECAUSE ANY

SUCH CLAIMS WOULD BE TIME-BARRED ..........................................40

III. EVEN IF STOCKHOLDERS ARE ENTITLED TO AN INSPECTION,

THE BOOKS AND RECORDS THEY SEEK EXCEED ANY

APPROPRIATE SCOPE ...............................................................................42

A. Stockholders’ Timeframe Of 2010 To The Present Exceeds What Is

Necessary And Essential To Investigating A Caremark Claim ..........44

B. Several Of Stockholders’ Proposed Board Material Topics Exceed

What Is Necessary And Essential To Achieving Their Purported

Purpose ................................................................................................46

1. Board Materials Related To The 2007 DEA Settlement

And 2007 Bellco Acquisition....................................................48

iii

2. Board Materials Related To “The Company’s Involvement

And Participation In The Pain Care Forum And The HDA” ...48

3. The Creation Of The Governance And Nominating

Committee, The Decision To Task the Governance and

Nominating Committee With Preparing A Report Regarding

The Board’s Oversight Of Risks Associated With

Distributing Prescription Opioid Medications, And The

Materials Supplied To The Committee To Prepare The

Report ........................................................................................50

4. Any Documents Produced In Response To Any Other Section

220 Demand Concerning Any Of The Subjects Referenced

Above ........................................................................................51

5. The Company Reserves Assertions Of Privilege Until Such

Time As Privileged Documents Are Identified As

Responsive To A Production Order ..........................................52

IV. WHILE THE INSPECTION SHOULD BE DENIED IN ITS ENTIRETY,

IN THE EVENT INSPECTION IS PERMITTED, THE COURT

SHOULD IMPOSE CONDITIONS ON THE PRODUCTION ...................53

CONCLUSION ........................................................................................................54

iv

TABLE OF AUTHORITIES

CASES

Page(s)

Amalgamated Bank v. UICI,

2005 WL 1377432 (Del. Ch. June 2, 2005) ........................................................ 45

Amalgamated Bank v. Yahoo! Inc.,

132 A.3d 752 (Del. Ch. 2016) ................................................................ 45, 52, 54

Banela Corp. v. Velquest Corp.,

C.A. No. 7459-VCL (Del. Ch. Jan. 15, 2013) (TRANSCRIPT) ............................ 33

Beatrice Corwin Living Irrevocable Tr. v. Pfizer, Inc.,

2016 WL 4548101 (Del. Ch. Aug. 31, 2016, revised Sept. 1, 2016) ..... 26-27, 36

Cardinal Health v. Holder,

2012 WL 1637016 (May 9, 2012) ...................................................................... 21

CM & M Grp., Inc. v. Carroll,

453 A.2d 788 (Del. 1982) ................................................................................... 53

In re Dean Witter Partnership Litig.,

1998 WL 442456 (Del. Ch. July 17, 1998) .................................................. 40-41

Disney v. Walt Disney Co.,

857 A.2d 444 (Del. Ch. 2004) ............................................................................ 53

Espinoza v. Hewlett-Packard Co.,

32 A.3d 365 (Del. 2011) ..................................................................................... 43

Fike v. Ruger,

754 A.2d 254 (Del. Ch. 1999) ............................................................................ 40

Fuchs Family Tr. v. Parker Drilling Co.,

2015 WL 1036106 (Del. Ch. Mar. 4, 2015) ....................................................... 20

v

Garner v. Wolfinbarger,

430 F.2d 1093 (5th Cir. 1970) ............................................................................ 52

Graulich v. Dell Inc.,

2011 WL 1843813 (Del. Ch. May 16, 2011) ...................................................... 40

Highland Select Equity Fund, L.P. v. Motient Corp.,

906 A.2d 156 (Del. Ch. 2006) ............................................................................ 43

Hoeller v. Tempur Sealy Int’l, Inc.,

2019 WL 551318 (Del. Ch. Feb. 12, 2019) ........................................................ 29

Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp.,

2019 WL 479082 (Del. Ch. Jan. 25, 2019) ......................................................... 52

Norfolk Cnty. Ret. Sys. v. Jos. A. Bank Clothiers, Inc.,

2009 WL 353746 (Del. Ch. Feb. 12, 2009) .................................................. 27, 43

Okla. Firefighters Pension & Ret. Sys. v. Citigroup Inc.,

2015 WL 1884453 (Del. Ch. Apr. 24, 2015) .......................................... 36-37, 39

Okla. Firefighters Pension & Ret. Sys. v. Corbat,

2017 WL 6452240 (Del. Ch. Dec. 18, 2017)...................................................... 35

Paul v. China MediaExpress Holdings, Inc.,

2012 WL 28818 (Del. Ch. Jan. 5, 2012) ............................................................. 51

Polygon Global Opportunities Master Fund v. W. Corp.,

2006 WL 2947486 (Del. Ch. Oct. 12, 2006) ................................................ 42, 46

Saito v. McKesson HBOC, Inc.,

806 A.2d 113 (Del. 2002) ................................................................................... 43

Schick Inc. v. Amalgamated Clothing & Textile Workers Union,

533 A.2d 1235 (Del. Ch. 1987) .......................................................................... 46

Se. Pa. Transp. Authority v. Abbvie Inc.,

2015 WL 1753033 (Del. Ch. Apr. 15, 2015) ...................................................... 29

Sec. First Corp. v. U.S. Die Casting & Dev. Co.,

687 A.2d 563 (Del. 1997) ................................................................................... 43

vi

Seinfeld v. Verizon Commc’ns, Inc.,

909 A.2d 117 (Del. 2006) ............................................................................. 26, 40

Stone ex rel. AmSouth Bancorporation v. Ritter,

911 A.2d 362 (Del. 2006) ................................................................................... 30

Sunrise Ventures, LLC v. Rehoboth Canal Ventures, LLC,

2010 WL 363845 (Del. Ch. Jan. 27, 2010) ......................................................... 41

Sutherland v. Sutherland,

2007 WL 1954444 (Del. Ch. July 2, 2007) .................................................. 52-53

United Techs. Corp. v. Treppel,

109 A.3d 553 (Del. 2014) ............................................................................. 53-54

Wilkinson v. A. Schulman, Inc.,

2017 WL 5289553 (Del. Ch. Nov. 13, 2017) ..................................................... 26

STATUTES

Page(s)

8 DEL. C. § 220 .............................................................................................. 1, 26, 43

21 U.S.C. § 821 .......................................................................................................... 8

21 U.S.C. § 823(b), (e) ............................................................................................... 7

21 U.S.C. §§ 841(a), 822(b) ....................................................................................... 7

vii

OTHER AUTHORITIES

Page(s)

21 C.F.R.

§ 1301.74(a) .......................................................................................................... 9

§ 1301.74(b) .......................................................................................................... 8

§ 1306.04 ............................................................................................................... 7

§ 1306.04(a) .......................................................................................................... 8

45 C.F.R.

§ 164.502 ............................................................................................................... 6

Ch. Ct. R. 26(b)(1) ................................................................................................... 33

Ch. Ct. R. 26(b)(3) ................................................................................................... 52

Defendant AmerisourceBergen, Corp. (“ABC,” “AmerisourceBergen,” or the

“Company”) by and through its undersigned counsel, respectfully submits the

following Opening Trial Brief opposing Plaintiffs’ request for books and records

under 8 Del. C. § 220 (“Section 220”). For the reasons set forth below, the Demand

should be denied in its entirety, and judgment should be entered in favor of the

Company.

PRELIMINARY STATEMENT

Plaintiffs Lebanon County Employees’ Retirement Fund (“Lebanon”) and

Teamsters Local 443 Health Services & Insurance Plan (“Teamsters”) (together with

Lebanon, “Stockholders”) served their books and records demand pursuant to

Section 220 (the “Demand”) seeking to investigate whether ABC’s officers and

directors breached their fiduciary duties in connection with a subsidiary’s

(AmerisourceBergen Drug Corporation, “ABDC”) distribution of prescription

opioid medications. As a wholesale pharmaceutical distributor, ABDC has legal

obligations under the Controlled Substances Act (“CSA”), including identifying and

reporting “suspicious orders” of certain controlled substances. Stockholders claim

that “the Company has suffered from pervasive failures in its anti-diversion and

compliance programs, leading to a myriad of lawsuits and governments

investigations” and that the “Board and management failed to address these

problems despite a litany of red flags indicating that the Company’s policies and

2

procedures were inadequate and that the Company was at risk of violating positive

law.” (Demand at 10 (Exhibit 1 hereto).)

Stockholders’ Demand is confined to investigating a Caremark claim about a

suspected failure of the Board to respond to red flags concerning diversion control,

with the sole objective of bringing derivative litigation. To be entitled to an

inspection of books and records, Stockholders must present evidence demonstrating

a credible basis to suspect actionable wrongdoing on the part of the Board. In light

of the Demand’s narrow objective and the Company’s Section 102(b)(7) exculpatory

provision and its compliance program, the issue before the Court is whether there is

a credible basis to suspect that the Company’s Board acted in bad faith by

consciously disregarding its oversight duties by ignoring red flags.

The Demand fails to demonstrate a credible basis to suspect actionable

wrongdoing, and for that reason, should be rejected. The Demand does not

challenge, but rather acknowledges, that the Company had reporting systems in

place to bring legal, regulatory, and compliance issues to the attention of the Board.

The Demand also acknowledges that the Company had a diversion control program

in place at all relevant times. As the documents cited in the Demand establish, that

diversion control program was developed in part in consultation with the U.S.

Department of Justice’s Drug Enforcement Administration (“DEA”), and passed

3

several DEA inspections. Nonetheless, Congressional reports and allegations in a

complaint brought by the New York Attorney General (the “NY AG Complaint”)

purport to identify shortcomings in the effectiveness of the Company’s diversion

control efforts. While Stockholders conclusorily assert that the Company’s Board

and management therefore must have been asleep at the switch, the sources cited in

the Demand actually establish the opposite. In particular, following the purported

red flags identified by Stockholders, on at least two occasions the Company

reviewed and revised its diversion control programs. As Stockholders’ purported

evidence actually negates—rather than supports—a credible basis for suspecting that

red flags were ignored, Stockholders have failed to meet their burden and the

Complaint should be dismissed on this ground alone.

The Demand fails for another reason as well. Even if the Company’s ongoing

attention to its diversion control obligations were not enough to nullify

Stockholders’ theory of the Board ignoring red flags, the Demand nonetheless fails

to provide a credible basis of suspecting any wrongdoing on behalf of any of the

Company’s officers or directors. Given the requirement that Stockholders provide

a credible basis to suspect actionable wrongdoing, this failure is dispositive. At

most, the Demand suggests the Company’s (along with virtually every other industry

participants’) diversion control programs have come under the scrutiny of the

4

government in connection with its response to a tragic opioid epidemic. But there is

nothing that credibly suggests that the alleged deficiencies in the Company’s

diversion control programs were the result of bad faith. Without evidence

suggesting a breach of fiduciary duty by any officer or director, the Demand

demonstrates nothing more than a backward-looking criticism of the Company’s

diversion control efforts. As a matter of law, any such showing is insufficient for

Stockholders to satisfy their burden. For this independent reason, the Demand

should be denied.

Finally, Stockholders lack a proper purpose, as any Caremark claim would be

barred by the statute of limitations and/or laches. This is readily apparent from the

face of the Complaint, which demonstrates that Stockholders were on notice of any

potential claims well before 2016.

Furthermore, even if the Demand satisfied the credible basis standard, the

scope of the books and records that Stockholders seek to inspect far exceeds that to

which they would be entitled. For example, the Demand seeks “Board Materials”

going back to 2010, far outside the statute of limitations. The Demand also seeks

Board Materials concerning topics that are entirely untethered from Stockholders’

purpose of bringing derivative litigation. Section 220 requires Stockholders to

narrowly tailor their inspection request to those documents which are necessary and

5

essential to achieving their purpose. Here, by contrast, the Demand seeks several

categories of books and records that have nothing to do with Stockholders’

investigation of a Caremark claim. For this reason too, the Demand should be

denied or, at minimum, constricted to a scope drawn with “rifled precision” as the

law requires.

6

STATEMENT OF FACTS

I. ABC’S WHOLESALE DISTRIBUTION BUSINESS AND

LIMITED VISIBILITY INTO THE CONTROLLED

SUBSTANCES SUPPLY CHAIN

AmerisourceBergen is one of the largest global pharmaceutical sourcing and

distribution services companies. The Company’s pharmaceutical distribution

subsidiary, ABDC, distributes pharmaceuticals, over-the-counter healthcare

products, home healthcare supplies and equipment, and related services to a wide

variety of healthcare providers, including acute care hospitals and health systems,

independent and chain retail pharmacies, mail order pharmacies, medical clinics,

long-term care and alternate site pharmacies, and other customers.

(AmerisourceBergen Corporation, Annual Report (Form 10-K), at 1 (Nov. 20, 2018)

(Exhibit 2 hereto).)

As a wholesale distributor, ABDC does not manufacture pharmaceuticals and

has no control over how any of the medications it delivers are prescribed, dispensed,

or ultimately used. Strict statutory privacy requirements (including HIPAA) prevent

distributors from obtaining information about the particular patients for whom

medicines are prescribed, the specific medical purpose for which medicines are

prescribed, or how they are used by the patients. See, e.g., 45 C.F.R. § 164.502.

ABDC has no role or visibility into the clinical prescribing decisions made between

7

doctor and patient. The volume of opioid medications distributed through the ABDC

distribution network was and has always been driven by orders from licensed

customers including pharmacies and others. (Combatting the Opioid Epidemic:

Examining Concerns About Distribution and Diversion Before the Subcommittee on

Oversite and Investigation and Committee on Energy and Commerce, 115th Cong.

4-5 (May 8, 2018) (Written Statement of Steven H. Collis, Chairman, President, and

CEO AmerisourceBergen Corporation) (Exhibit 3 hereto).)

The distribution of opioid medicines accounts for less than two percent of

AmerisourceBergen’s annual revenue. (AmerisourceBergen Corporation,

Definitive Proxy Statement, at 8 (Jan. 18, 2019) (Exhibit 4 hereto).)

II. THE REGULATORY REGIME FOR DISTRIBUTION OF

CONTROLLED SUBSTANCES

The Controlled Substances Act (“CSA”) became effective on May 1, 1971.

The CSA authorizes the commercial manufacture, distribution, and dispensation of

controlled substances. See 21 U.S.C. § 823(b), (e). Section 841(a)(1) of the CSA

provides for a closed system of distribution of controlled substances by requiring

anyone who manufactures, distributes, or dispenses a controlled substance to be

registered with the DEA. See 21 U.S.C. §§ 841(a), 822(b); 21 C.F.R. § 1306.04.

According to federal regulations, to be “effective,” a prescription must be “issued

8

for a legitimate medical purpose by an individual practitioner acting in the usual

course of his professional practice.” 21 C.F.R. § 1306.04(a).

The CSA authorizes the DEA “to promulgate rules and regulations . . . relating

to the registration and control of the manufacture, distribution, and dispensing of

controlled substances . . . .” 21 U.S.C. § 821. Pursuant to this authorization, federal

regulators require distributor registrants such as ABDC to implement controls

designed to detect and disclose “suspicious orders” of controlled substances:

The registrant shall design and operate a system to disclose to the

registrant suspicious orders of controlled substances. The registrant

shall inform the Field Division Office of the Administration in his area

of suspicious orders when discovered by the registrant. Suspicious

orders include orders of unusual size, orders deviating substantially

from a normal pattern, and orders of unusual frequency.

21 C.F.R. § 1301.74(b). The DEA’s regulations provide no guidance regarding what

qualifies as “orders of unusual size, orders deviating substantially from a normal

pattern, or orders of unusual frequency.” Other regulations require that distributors

of controlled substances “make a good faith inquiry” with the DEA or the

appropriate State agency to determine that the recipient of controlled substances is

registered. 21 C.F.R. § 1301.74(a).

Distributors, including ABDC, publicly called for greater transparency by the

DEA in providing access to data regarding controlled substance orders filled by other

distributors as a vital component of effective diversion control. A distributor knew

9

only what it shipped to a particular dispenser. A distributor did not know what

shipments that particular dispenser may have been receiving from other wholesalers

nor did it know the full scope, or total volume, of the medicine supply for a city,

county, or state. As explained by ABC’s CEO in an article written in 2017, making

that data available would have allowed “distributors to perform a ‘cross check’ to

determine the total volume of opioids the pharmacy is receiving from all

distributors” thus “enhanc[ing] the ability to determine whether a new order should

be considered suspicious” by learning the aggregate volume of orders from a given

pharmacy. (See Steven H. Collis, Sound Policy and More Transparency Can Help

Companies Fight the Opioid Crisis, InsideSources, Dec. 15, 2017 (Exhibit 5 hereto),

https://www.insidesources.com/sound-policy-transparency-can-help-companies-

fight-opioid-crisis.) Indeed, just such legislation became law in 2018. (Press

Release, AmerisourceBergen Applauds Signing of Bipartisan Legislation to Combat

Opioid Abuse, Oct. 24, 2018 (Exhibit 6 hereto),

https://www.amerisourcebergen.com/newsroom/press-releases/amerisourcebergen-

applauds-signing-of-bipartisan-legislation-to-combat-opioid-abuse.)

III. ABC’S EVOLVING ANTI-DIVERSION PROGRAM

According to the Congressional report relied upon by Stockholders, in the

relevant period from 2007 onward, ABC’s anti-diversion measures included new

10

customer due diligence, an order monitoring program (“OMP”), and policies and

procedures for reporting orders to the DEA identified as suspicious orders. (See Red

Flags and Warning Signs Ignored: Opioid Distribution and Enforcement Concerns

in West Virginia, 115th Cong. 113, 182, 249 (Dec. 19, 2018) (Report by the Energy

and Commerce Committee, Majority Staff) (“E&C”) (Exhibit 7 hereto).) As

discussed below, these measures were adopted in consultation with the DEA and

subjected to DEA inspection as a condition to resuming distribution. As the

Complaint acknowledges, ABC’s diversion control program was enhanced after a

comprehensive review of the program in 2014, with further commitments and

initiatives in 2017. See infra pp. 13-14.

New Customer Due Diligence. The Company’s prospective customer due

diligence included “the completion of a Retail Customer Questionnaire; site visits;

verification of the pharmacy’s DEA registration and state licensure; review of the

pharmacy-provided information; and online investigation (including internet

licensing and disciplinary searches) for the identified pharmacy, owner, and

pharmacist-in-charge. The questions on the questionnaire are based on guidance

from the DEA.” (E&C 113 (footnote omitted).)

Order Monitoring Program. As summarized in the E&C Report, while the

Company had been using a daily order monitoring program since the 1980s, and

11

despite the fact that the DEA did not provide distributors with access to data

regarding controlled substance orders filled by other distributors:

Beginning in 2007, ABDC established a system to compare the

purchases by pharmacies and hospitals against their peers to identify

orders that were then held for additional review (“Orders of Interest”).

If, based on that review, ABDC determined the order was of unusual

size, deviated substantially from a normal pattern, or was of unusual

frequency, the order was reported to DEA and was not shipped.

(Id. 183-84.)

Suspicious Order Reporting. Since 2007, the Company has reported

suspicious orders to the DEA at the time the orders are deemed suspicious. E&C

250. As explained by the Company: “Since 2007, AmerisourceBergen Drug

Corporation has reported to the Drug Enforcement Administration (DEA) and

stopped shipment of tens of thousands of suspicious orders, and has provided daily

reports of all opioid-based medication orders to the DEA including the quantity, type

and receiving pharmacy of each order that has been shipped.” (Press Release,

AmerisourceBergen Announces Operating Commitments to Address Opioid

Diversion and Abuse (Dec. 7, 2017) (“Dec. 7, 2017 Press Release”), at 1 (Exhibit 8

hereto).)

12

IV. THE DEA’S ROLE IN THE COMPANY’S 2007 ANTI-DIVERSION

PROGRAM

Notably, the Company’s 2007 anti-diversion measures were developed in

consultation with the DEA. (E&C 230-34, 249-50.) In 2007, the DEA suspended

the license for one of ABDC’s distribution facilities in Orlando, Florida for alleged

deficiencies in the facility’s maintenance of effective controls against diversion. The

Company quickly reached a settlement with the DEA pursuant to which it agreed to

develop an “industry standard” enhanced order monitoring program that would have

to pass several DEA inspections before the facility’s reinstatement would become

effective in August 2007:

The agreement requires the Company to implement an enhanced and

more sophisticated order monitoring program in all

AmerisourceBergen Drug Corporation distribution centers by June 30,

2007, after which the Company must pass several DEA inspections of

the new program for the reinstatement to become effective on the

August date. The Company expects the new order monitoring

program to quickly become the industry standard.

(Press Release, AmerisourceBergen Signs Agreement with DEA Leading to

Reinstatement of Its Orlando Distribution Center's Suspended License to Distribute

Controlled Substances (June 22, 2007) (“June 22, 2007 Press Release”), at 1

(emphasis added) (Exhibit 9 hereto).)

As the Company’s CEO later testified before Congress, “in 2007, we had a lot

of discussion with [DEA] and we developed our current controlled substance order

13

monitoring program and with the understanding that this [is] where [DEA] wanted

the industry to go.” (E&C 250 (footnote omitted); accord E&C 113 (footnote

omitted) (regarding new customer intake questionnaire, “The questions on the

questionnaire are based on guidance from the DEA.”).) Indeed, one month after the

inception of AmerisourceBergen’s “industry standard” order monitoring program

and reinstatement of the Orlando facility’s license, the DEA hosted a pharmaceutical

industry-wide conference at which “Chris Zimmerman, Vice President, Corporate

Security and Regulatory Affairs, AmerisourceBergen updated the attendees on when

suspicious order reports should be submitted to authorities,” along with the key

components of AmerisourceBergen’s effective order monitoring program.1

V. 2014 “COMPREHENSIVE REVIEW” AND ENHANCEMENTS TO

ABC’S DIVERSION CONTROL PROGRAM

The core of the 2007 anti-diversion program, developed in consultation with

the DEA, remains in place today, with significant enhancements following the

Company’s comprehensive review of the program in 2014:

AmerisourceBergen undertook another comprehensive review of its

diversion control program in 2014. According to the company, “[t]his

resulted in the roll-out of an enhanced diversion control and order

monitoring program beginning in August 2015, which remains in place

1 U.S. Dept. of Justice, Drug Enforcement Administration, Diversion Control

Division, Pharmaceutical Industry Conference: September 11, 2007 – Houston,

Texas (Exhibit 10 hereto), https://www.deadiversion.usdoj.gov/mtgs/

pharm_industry/13th_pharm/index.html (cited at E&C 250).

14

today.” AmerisourceBergen’s current order monitoring program

evaluates customers’ drug orders by cumulative volume parameters and

order size parameters, and it also establishes a fail-safe parameter.

Orders that exceed either the cumulative volume parameter and the

order size parameter or the fail-safe parameter are automatically held

for review and investigation as “orders of interest.” According to the

current policies, orders of interest are reviewed either at the distribution

center or escalated to the Diversion Control Team for review. Orders

can be rejected as administrative errors and not reported as suspicious,

rejected and reported as suspicious to the DEA and state authorities, or

released and processed for shipment.

(E&C 183-84 (footnotes omitted).)

VI. 2017: ADDITIONAL OPERATING COMMITMENTS AND

INITIATIVES TO ADDRESS OPIOID DIVERSION AND ABUSE

In 2017, the Company announced further enhancements and operating

commitments to its diversion control program, including:

“Ongoing utilization of, and enhancements to a sophisticated set of

algorithms and data analytics tools that analyze the orders of individual

customers against a relevant comparison peer group to identify and stop

shipment on orders that are deemed to be suspicious”;

“Continued multimillion dollar investment in a best-in-class Diversion

Control Team, comprised of internal and external experts including former

law enforcement professionals, diversion investigators, pharmacists, and

pharmacy technicians that maintains an ongoing order monitoring

program, conducts customer site visits, participates in surveillance

15

activities, reviews customer policies and identifies and reports suspicious

orders”;

“Pledging continued commitment to the Company’s existing practices of

taking no action to market or create demand for opioid-based medicines”

meaning “AmerisourceBergen Drug Corporation has not, and will never,

provide incentive-based compensation or bonuses targeting the sale of

opioid products.”; and

“[I]nvesting in a new initiative to identify and activate partnerships with

customers across our business to offer innovative solutions to address

opioid abuse.”

(Dec. 7, 2017 Press Release, at 1-2.)

VII. AMERISOURCEBERGEN’S INTERNAL CONTROLS

REGARDING LEGAL AND REGULATORY RISK

Stockholders make no factual assertion that ABC lacks internal reporting to

the Board related to regulatory risk, nor could they in light of the Company’s long-

disclosed internal controls related to legal and regulatory risk. For example, since

at least 2011, the Company has disclosed a detailed summary addressing the

question of “How does the Board oversee our risk management process?”

(AmerisourceBergen Corporation, Definitive Proxy Statement, at 17 (Jan. 14, 2011)

(Exhibit 11 hereto).) The proxy explains the risk management functions of the Audit

16

and Corporate Responsibility Committee, the Chief Compliance Officer and

Compliance Committee and other committee functions regarding risk management,

ultimately disclosing that the “Board is informed about and regularly discusses our

risk profile, including legal, regulatory and operational risks to our business.” (Id.)

For at least a decade, the Company has disclosed as a risk the possibility of failing

to comply with the Controlled Substances Act, including with respect to diversion

control. (See, e.g., AmerisourceBergen Corporation, Annual Report (Form 10-K)

(Nov. 25, 2009) (Exhibit 12 hereto).) And the Audit and Corporate Responsibility

Committee’s charter relied upon by Stockholders expressly includes as one of the

committee’s responsibilities: “Provide review and oversight of the Company’s

compliance program through at least quarterly reports received from the Company’s

Chief Compliance Officer, counsel and other members of management regarding the

Company’s compliance with applicable legal requirements, including requirements

of the Drug Enforcement Administration . . . .” (See AmerisourceBergen

Corporation, Audit Committee Charter, at ¶ 28 (May 16, 2019) (Exhibit 13 hereto).)

There is simply no credible argument that the Company has failed to

implement controls directed at legal and regulatory risk arising under the CSA.

Likely for that reason, the Complaint confirms that the Company maintains such

controls, alleging that “[t]o ensure compliance, ‘[t]he Audit and Corporate

17

Responsibility Committee of the AmerisourceBergen Board of Directors has

approved “Reporting Guideline for Escalating Compliance Incidents to

Management, the Compliance Committee and the Board of Directors.”’” (Compl.

¶ 78 (footnote omitted).) “To assist with oversight, the Board has delegated routine

oversight responsibilities to the Company’s Audit and Corporate Responsibility

Committee.” (Id. ¶ 79.) As Stockholders allege, the Company has disclosed:

Our Board oversees risk management and considers specific risk

topics on an ongoing basis, including risks associated with the

Company’s distribution of opioid medications. . . . Our Board of

Directors actively oversees and reviews the effectiveness of our

compliance programs, including our diversion control program. The

Board and its Audit Committee receive regular updates from the

Company’s management on our compliance program’s guidelines,

training initiatives, monitoring activities and any enforcement or

corrective responses. The Audit Committee is regularly apprised of

legal matters relating to the Company . . . .

(Id. (emphasis added and footnote omitted).)

VIII. THE OPIOID EPIDEMIC AND INDUSTRY-WIDE DRAGNET OF

GOVERNMENT INVESTIGATIONS AND LITIGATIONS

It is common knowledge that the opioid epidemic has precipitated a tidal wave

of government investigations and litigations, directed at the entire pharmaceutical

industry. By January 2019, there were reportedly 1,548 litigations in federal court

alone, brought on behalf of cities, counties, and tribes across the United States. (Jan

Hoffman, Opioid Lawsuits Are Headed To Trial, N.Y. TIMES, Jan. 30, 2019,

18

https://www.nytimes.com/2019/01/30/health/opioid-lawsuits-settlement-trial.html

(Exhibit 14 hereto).) The litigations typically use group pleadings and take a “sue

them all” approach, naming virtually all significant companies involved in the

distribution, manufacture, and dispensation of opioids in the relevant jurisdiction.

(E.g., NY AG Complaint (Exhibit 15 hereto).) Federal subpoenas and investigations

into these same defendants’ roles in the crisis have multiplied exponentially, while

the states have banded together to investigate “whether the industry was complicit

in creating the epidemic . . . .” (Yuki Noguchi, 41 States to Investigate

Pharmaceutical Companies Over Opioids, NPR, Sept. 19, 2017 (emphasis added)

Exhibit 16 hereto), https://www.npr.org/sections/thetwo-way/2017/

09/19/552135830/41-states-to-investigate-pharmaceutical-companies-over-

opioids.)

Beginning in 2012, like virtually all prescription opioid market participants,

AmerisourceBergen has been subject to numerous subpoenas and lawsuits. (See

Demand at 6-8.) Notably, while the Company has been the subject of government

investigations and subpoenas concerning its diversion control program for nearly

seven years, Stockholders have not and cannot identify a single instance in which

the Company or its subsidiaries has been found to have violated the law. (See

generally Plaintiff Lebanon County Employees’ Retirement Fund’s Responses and

19

Objections to Defendant’s First Set of Interrogatories to Plaintiffs (Exhibit 17

hereto); Plaintiff Teamsters Local 443 Health Services & Insurance Plan Responses

and Objections to Defendant’s First Set of Interrogatories to Plaintiffs (Exhibit 18

hereto) (together, “Stockholders’ Interrogatory Responses”).)

IX. STOCKHOLDERS’ DEMAND AND PURPORTED CREDIBLE

BASIS TO SUSPECT WRONGDOING

Stockholders each retained their attorneys here for the purpose of

commencing derivative or class litigation in the pursuit of damages.

Four days later, the Demand

was sent on behalf of both Teamsters and Lebanon. (See Demand.)

20

Consistent with their engagement letters and their objective of pursuing

litigation, Stockholders’ Demand seeks to “investigate possible breaches of fiduciary

duty, mismanagement and other violations of law” by the Company’s officers and

directors, to “consider any remedies” to be sought, evaluate the independence and

disinterestedness of the Board, and evaluate possible litigation or “other corrective

measures.” (Demand at 12-13.) The Demand makes no effort to explain what

vaguely referenced “corrective measures” might be “evaluate[d],”2 apart from the

conclusory assertion that Stockholders might take “appropriate action,” including

bringing litigation or making a demand on the Board. (Demand at 13.)

The Demand asserts there is a credible basis to suspect wrongdoing based

upon:

ABC’s participation in the Healthcare Distribution Alliance (“HDA”),

a trade organization of wholesale distributors that has worked with the

DEA and its members to, among other things, improve anti-diversion

2 Demand at 13. Whether a stockholder “has vaguely referenced ‘in a conclusory

manner, [other] generally accepted proper purpose[s]’ is of no effect . . . . See, e.g.,

Fuchs Family Tr. v. Parker Drilling Co., 2015 WL 1036106, at *3 n.28 (Del. Ch.

Mar. 4, 2015) (quoting W. Coast Mgmt. & Capital, LLC v. Carrier Access Corp.,

914 A.2d 636, 646 (Del. Ch. 2006)).

21

programs. Indeed, in materials relied upon by Stockholders, the DEA

Chief Counsel is quoted as saying “The Drug Enforcement

Administration (DEA) commends the efforts of the Health Distribution

Management Association (HDMA)3 to assist its membership to fulfill

their obligations under the Controlled Substances Act and

implementing regulations.” (Amicus Curiae Brief of HDMA, Cardinal

Health v. Holder, C.A. No. 12-5061 (C.A.D.C.), 2012 WL 1637016, at

*7 (May 9, 2012));

The DEA’s suspension of the Company’s Orlando, Florida facility in

2007 which, as described above, resulted in the Company’s “industry

standard” diversion control program that was required to pass muster

under DEA inspections before reinstatement of the Company’s

distribution license;

The Company’s 2007 acquisition of Bellco Drug Corporation

(“Bellco”), which, at the time of the acquisition, was in the process of

settling a DEA enforcement action. As is evident on the face of the

settlement itself, Bellco made no admission of liability. (See Bellco

3 HDMA is the prior name of HDA.

22

Settlement (Exhibit 19 hereto).) As with AmerisourceBergen’s 2007

DEA settlement, Bellco’s settlement predicated reinstatement upon

presenting the DEA with a satisfactory compliance program “designed

to detect and prevent the diversion of controlled substances that Bellco

proposes to manufacture, distribute, import and/or export” (which

occurred) (id. at 3-4);

The Company’s receipt of subpoenas from various U.S. Attorneys in

2012-2017, none of which has resulted in an indictment or civil

enforcement matter to date;

A 2017 settlement with West Virginia for $16 million resolving

litigation filed in 2012, with no admissions of liability;

The industry-wide litigation in state courts and a multi-district

litigation (“MDL”) in the Northern District of Ohio, none of which has

resulted in any finding or admission of liability by ABC;

Alleged “inconsistencies” in ABDC’s suspicious order reporting in

West Virginia, as summarized in an Energy and Commerce Committee

(E&C) report. That same report, however, recounts ABC’s

development of its anti-diversion efforts with the DEA’s consultation

in 2007 and further enhancements to its program following a

23

“comprehensive review” in 2014. The E&C Report contains no

assertions regarding any failures by the Company’s officers or

directors;

Alleged suspicious order reporting shortcomings in Missouri as

detailed in another government report, the McCaskill Report, published

in 2018. The McCaskill Report contains no assertions regarding the

Company’s officers or directors. Unlike Stockholders, the McCaskill

Report acknowledges that “[t]hese divergent reporting results alone do

not in any way indicate violations of the CSA by the companies

involved.” (McCaskill Report at 2 (Exhibit 20 hereto));

The NY AG Complaint, which alleges a series of criticisms of the

effectiveness of ABC’s diversion control program. The lawsuit names

the Company, but not any of its officers or directors. In fact, there are

no allegations concerning the Company’s officers or directors

whatsoever; and

The Company’s announcement in November 2018 that the Governance

and Nominating Committee of the Board would be publishing in

September 2019 a report providing transparency into the Company’s

response to the opioid epidemic.

24

Importantly, in their response to Interrogatory No. 3, Stockholders abandoned

the Company’s plan to prepare a report as purported basis for suspicion. In that

Interrogatory, the Company asked that Stockholders “[i]dentify and describe every

occurrence and all other facts and circumstances known to you . . . that give rise to

your purported suspicion that ABC’s management and/or directors engaged in

wrongdoing, mismanagement, or breach of fiduciary duties . . . .” (Stockholders’

Interrogatory Responses to Interrogatory No. 3.) Nowhere in their response do

Stockholders even mention the establishment of the committee or its task of

preparing a report.

Notably, within the thousands of pages of documents that Stockholders rely

upon, there is not a single reference to the Company being adjudicated to have

violated the law in connection with its diversion control obligations under the CSA.

More importantly, there is not a single fact presented suggesting that any of the

Company’s officers or directors acted in bad faith, including by ignoring oversight

responsibilities. Stockholders effectively admit the same in their responses to

ABC’s interrogatories, which are larded with baseless objections, by failing to

identify any instance where the Company, its subsidiaries, or any of their officers or

directors have been found to have violated the law or failed to respond to an alleged

red flag. (See Stockholders’ Interrogatory Responses.)

25

In order to achieve Stockholders’ stated purpose, the Demand seeks “Board

Materials”—i.e., any documents provided to the Board—concerning 13 separate

topics and including, for example, the Company’s 2007 settlement with the DEA,

the Company’s acquisition of Bellco in 2007, the Company’s participation in HDA

and the Company’s purported establishment of the Governance and Nominating

Committee,4 which Stockholders, in response to Interrogatory No. 3, have conceded

does not suggest a basis for suspicion for alleged wrongdoing.

4 The Company’s Governance and Nominating Committee Charter explains that it

was adopted in 2003, and last amended in 2017. See

http://investor.amerisourcebergen.com/static-files/9c8e0b58-eb94-4442-bee0-

1c3fa3230970 (Exhibit 21 hereto).

26

ARGUMENT

I. STOCKHOLDERS FAIL TO MEET THEIR BURDEN OF SETTING

FORTH A CREDIBLE BASIS TO SUSPECT WRONGDOING BY

THE COMPANY’S OFFICERS AND DIRECTORS BY A

PREPONDERANCE OF THE EVIDENCE

“The paramount factor in determining whether a stockholder is entitled to

inspection of corporate books and records is the propriety of the stockholder's

purpose in seeking such inspection. In a section 220 action, a stockholder has the

burden of proof to demonstrate a proper purpose by a preponderance of the

evidence.” Wilkinson v. A. Schulman, Inc., 2017 WL 5289553, at *2 (Del. Ch. Nov.

13, 2017) (internal quotation marks and citations omitted). However, a “mere

statement of a purpose to investigate possible general mismanagement, without

more, will not entitle a shareholder to broad § 220 inspection relief. There must be

some evidence of possible mismanagement as would warrant further investigation

of the matter.” Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 122 (Del. 2006)

(internal quotations marks, citation and emphasis omitted). That evidence, in turn,

must establish by a “preponderance of the evidence” a “credible basis” to suspect

corporate wrongdoing. Id. at 122-23. Further, “[w]here 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.’” Beatrice Corwin Living Irrevocable Tr. v.

27

Pfizer, Inc., 2016 WL 4548101, at *6 (Del. Ch. Aug. 31, 2016, revised Sept. 1, 2016)

(citation omitted).

A. Stockholders Have Failed To Demonstrate A Credible Basis To

Investigate A Caremark Claim – The Only Purported Purpose Of

The Demand

1. Stockholders’ Only Potential Proper Purpose Is To

Investigate A Non-Exculpated (Bad Faith) Caremark Claim

With The Objective Of Bringing Derivative Litigation Or

Making A Litigation Demand

Apart from a vague and conclusory (and thus insufficient)5 comment that

Stockholders may take “appropriate action” following their inspection, the

Demand’s only concretely stated purpose is to investigate breaches of fiduciary duty

in preparation for derivative litigation.

It is also

consistent with Stockholders’ exclusive focus on obtaining “Board Materials.” (See

Demand at 11-12); see also Beatrice Corwin, 2016 WL 4548101, at *5 (“The

5 “[A] demand for books and records must be sufficiently specific to permit the court

(and the corporation) to evaluate its propriety.” Norfolk Cnty. Ret. Sys. v. Jos. A.

Bank Clothiers, Inc., 2009 WL 353746, at *11 (Del. Ch. Feb. 12, 2009), aff’d, 977

A.2d 899 (Del. 2009).

28

plaintiffs’ focus on board-level decisions further was confirmed by the scope of the

inspection demanded, which sought board-level books and records.”).

Respecting the nature of fiduciary breaches Stockholders seek to investigate,

there is nothing in the Demand claiming that any director was self-interested or

lacked independence in connection with the Company’s anti-diversion programs in

any way. Rather, the Demand is focused on an alleged failure of oversight. (See

Demand at 10 (“[f]or more than ten years, the Company has suffered from pervasive

failures in its anti-diversion and compliance programs . . . . The Board and

management failed to address these problems despite a litany of red flags indicating

that the Company’s policies and procedures were inadequate and that the Company

was at risk of violating positive law.”).)

Stockholders do not now contend, however, that these alleged failures

constitute breaches of the duty of care, likely because the Company’s Section

102(b)(7) provision would bar any such claim. (See AmerisourceBergen

Corporation, Amended and Restated Certification of Incorporation at Section 7.01

(May 4, 2017) (Exhibit 22 hereto).) As a matter of law, in light of the Company’s

exculpatory clause and Stockholders’ sole objective of commencing litigation, to

state a proper purpose for their inspection, Stockholders must provide evidence

demonstrating bad faith by the directors, which translates here into “an ‘intentional

29

dereliction of duty’ or a ‘conscious disregard’ for their responsibilities.” Se. Pa.

Transp. Authority v. Abbvie Inc., 2015 WL 1753033, at *14 (Del. Ch. Apr. 15, 2015)

(citation omitted), aff’d, 132 A.3d 1 (Del. 2016) (TABLE).

“When a stockholder’s purpose is premised on the board’s possible breach of

its duty of oversight (i.e., a Caremark claim), the stockholder ‘must provide some

evidence from which the Court may infer that the board utterly failed to implement

a reporting system or ignored red flags.’” Hoeller v. Tempur Sealy Int’l, Inc., 2019

WL 551318, at *8 (Del. Ch. Feb. 12, 2019) (denying inspection) (quoting Beatrice

Corwin, 2016 WL 4548101, at *5 (denying inspection)). Here, Stockholders do not

claim to suspect that the “board utterly failed to implement a reporting system,” and

in fact affirmatively allege that the Company has implemented such a system. (See

Compl. ¶¶ 78-79.) Rather, this Section 220 Demand turns entirely on whether

Stockholders have adduced a credible basis to suspect that the Board intentionally

“ignored red flags.”

2. The Documents That Stockholders Rely Upon Affirmatively

Refute Any Suspicion That The Company Has Ignored Red

Flags

Stockholders’ attempt to investigate a Caremark claim based solely upon

purported red flags that were allegedly ignored should fail, in the first instance,

because the record created by Stockholders demonstrates just the opposite. See

30

Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 372–73 (Del. 2006)

(dismissing Caremark claim because plaintiffs’ own allegations “refute[] the

assertion that the directors ‘never took the necessary steps . . . to ensure that a

reasonable [] compliance and reporting system existed.’”).

Stockholders begin by claiming that ABDC’s settlement with the DEA and

the Company’s acquisition of Bellco after its settlement with the DEA (each in 2007)

put the Company “on notice of issues with the Company’s anti-diversion and

compliance policies and procedures. Nonetheless, the Company did not appear to

take meaningful action to correct these deficiencies nor otherwise prevent these or

similar issues from arising in the future.” (Demand at 6.) The assertion is puzzling,

given the documents they rely upon and the circumstances surrounding those

matters. The very press release Stockholders cite explains that ABDC’s settlement

“requires the Company to implement an enhanced and more sophisticated order

monitoring program in all AmerisourceBergen Drug Corporation distribution

centers by June 30, 2007, after which the Company must pass several DEA

inspections of the new program for the reinstatement to become effective . . . .”

(June 22, 2007 Press Release, at 1 (emphases added).) Far from “ignoring” the “red

flag” of the DEA’s suspension, the Company developed an industry-standard order

monitoring program, the guiding principles of which were showcased by the DEA

31

and the Company’s Chief Compliance Officer at a DEA-hosted conference the

month after passing the DEA’s inspections. Supra at p. 13. It is also notable that

the Demand points to no issues being raised, by anyone, regarding ABDC’s order

monitoring program until five years later when the Company received a subpoena

from the U.S. Attorney for the District of New Jersey in 2012 in connection with

grand jury proceedings which has, to date, never resulted in an indictment or

enforcement matter. (Demand at 6.)

Stockholders then rely on a lawsuit filed by West Virginia in 2012 and itemize

several subpoenas the Company received in 2013 and 2014 from various federal

authorities. (Id. at 6-7.) Apart from the West Virginia litigation that ultimately

resulted in a settlement with no admissions of liability, none of the subpoenas

identified resulted in any indictments or enforcement actions. But even if they had,

to the extent these events can truly be considered red flags at all, the notion that they

were “ignored” lacks any factual basis. As Stockholders’ evidentiary proffer itself

explains, the Company conducted a “comprehensive review of its diversion control

program in 2014” resulting “in the roll-out of an enhanced diversion control and

order monitoring program beginning in August 2015.” (E&C 183-84 (footnote

omitted).) Then again in 2017, the Company announced a set of ongoing operational

commitments and a new initiative regarding its diversion control program including

32

enhancements to its algorithmic order monitoring systems, a continued multi-million

dollar investment in its diversion control team, among others. (Dec. 7, 2017 Press

Release.) Simply put, Stockholders’ own evidence refutes the notion of “ignoring

red flags.”

Stockholders’ responses to the Company’s interrogatories further

demonstrates the lack of any evidence supporting a Caremark claim. In particular,

Stockholders responded to Interrogatory No. 21 as follows:

INTERROGATORY NO. 21:

Identify each event or circumstance that you believe constituted a red

flag relating to any of the Company’s anti-diversion, order

management, or compliance programs, the persons who communicated

the red flag, the date of the communication, to whom the red flag was

presented, and the steps you believe should have been, but were not,

taken by the recipient in response to the red flag.

RESPONSE TO INTERROGATORY NO. 21:

Plaintiff objects to this Interrogatory to the extent it seeks information

in the possession, custody or control of another party, including

Defendant and its subsidiaries. Plaintiff further objects to this

Interrogatory as neither relevant to the subject matter of this action nor

reasonably calculated to lead to the discovery of admissible evidence.

Plaintiff further objects to this Interrogatory as overbroad, unduly

burdensome and harassing, as it seeks information about topics that do

not relate to Plaintiff’s claims or any defenses in this action, including

information about undefined subsidiaries of Defendant. Subject to and

without waiver of these objections, Plaintiff incorporates by reference

its response to Interrogatory No. 3.

(Stockholders’ Interrogatory Responses to Interrogatory No. 21.)

33

Stockholders’ responses began with boilerplate objections that this Court has

found to be objectionable. Banela Corp. v. Velquest Corp., C.A. No. 7459-VCL, at

24-25 (Del. Ch. Jan. 15, 2013) (TRANSCRIPT) (rejecting boilerplate objections like

“overly broad” as “non-substantive responses that don’t give the receiving party any

information about what you’re actually doing”). It is hard to fathom how this

interrogatory is overbroad, unduly burdensome, or harassing. It goes to the crux of

Stockholders’ claims. Similarly, it is difficult to understand how the interrogatory

is seeking information about topics that do not relate to Stockholders’ claims, given

their Caremark claims. It is also difficult to understand how it seeks information in

the possession of others, given it focuses on the allegations made by Stockholders in

the Demand and the Complaint. Finally, Stockholders’ objection that the

interrogatory is not “reasonably calculated to lead to the discovery of admissible

evidence” is no longer valid under Delaware law, given the recent amendment to

Court of Chancery Rule 26(b)(1) that struck the phrase.

Whether measured by the articulation of the Company’s ongoing attention to

its diversion control program in the midst of purported red flags, or by Stockholders’

apparent abandonment of their Caremark theory altogether in their interrogatory

responses, Stockholders themselves have established that there is no basis, let alone

a credible basis to suspect that the Company’s officers or directors ignored red flags.

34

3. Stockholders Cannot Prevail Merely By Demonstrating A

Credible Basis To Suspect That, Despite The Company’s

Efforts, Violations Of Law Have Been Alleged

As demonstrated above, there is simply no basis to suspect that the Company’s

officers or directors ignored purported red flags concerning the effectiveness of its

diversion control program when Stockholders’ purported evidence demonstrates that

the Company took steps to continuously enhance and strengthen the program. And

given the absence of a single instance in which the Company has been found liable

for violating the law in connection with its diversion control program, at most,

Stockholders have demonstrated that various constituencies have alleged violations

of the law by the Company—without attributing such alleged violations to the

Company’s officers and directors. In short, Stockholders’ Caremark theory is

predicated only upon the notion that the Company’s diversion control program was

allegedly unsuccessful, which could result in to-be-adjudicated violations of the law

in the future. In the context of a Demand such as this one which is targeted solely

at commencing litigation, such a showing is far from sufficient.

Delaware law unequivocally rejects the notion of Caremark liability based

upon a mere alleged lack of effectiveness of a Company’s controls or compliance

programs. Corbat, a plenary litigation where Citigroup’s efforts to address

compliance failures as required by consent orders ultimately failed, is illustrative:

35

Again, these measures did not secure the compliance sought by the

regulators, and Citigroup ended up paying a hefty fine as a result. And

it may be the case that, as the plaintiffs put it, “Citigroup's Board failed

. . . to adopt effective internal controls addressing the gaps in its

compliance systems.” But the question is not whether Citigroup's

board adopted effective AML controls. As our Supreme Court has

recognized, “directors' good faith exercise of oversight responsibility

may not invariably prevent employees from violating criminal laws, or

from causing the corporation to incur significant financial liability, or

both.” . . . . At issue is the duty of loyalty; a board's efforts can be

ineffective, its actions obtuse, its results harmful to the corporate weal,

without implicating bad faith. Bad faith may be inferred where the

directors knew or should have known that illegal conduct was taking

place, yet “took no steps in a good faith effort to prevent or remedy that

situation.” Here, the facts the plaintiffs have alleged imply that the

Citigroup board could have done a better job addressing the issues

highlighted by, among other sources, the consent orders. That is not

enough to state a Caremark claim.

Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *17 (Del.

Ch. Dec. 18, 2017) (emphases altered and added; citations omitted).

Of course, in a Section 220 action investigating a Caremark claim, the

plaintiff need not prove a prima facie case. All that is required is a credible basis to

suspect that such a claim is possible. Nonetheless, a mere showing that wrongdoing

occurred, without a credible basis to suspect either the absence of a reporting system

or that the board consciously ignored red flags, is insufficient:

[W]here a stockholder’s sole purpose for investigating

mismanagement is to determine whether the board breached its duty of

oversight, it is not enough to provide a credible basis from which the

Court may infer that management or lower-level employees engaged

in wrongdoing. The stockholder also must provide some evidence

36

from which the Court may infer that the board utterly failed to

implement a reporting system or ignored red flags.”

Beatrice Corwin, 2016 WL 4548101, at *5 (emphasis added).

Indeed, in the Section 220 case that preceded the plenary litigation in Corbat

cited above, the Court observed that if the plaintiffs’ basis to suspect a Caremark

claim was limited to the fact that wrongdoing had occurred, such a proffer would

have been insufficient as a matter of law:

It would be inappropriate to infer possible mismanagement by

Citigroup’s Board or senior management merely because wrongdoing

occurred at Banamex and the Board has oversight responsibility. If

Plaintiff's showing ended there, the record would merely indicate that

improper behavior may have occurred despite Citigroup's internal

controls. An inference that those controls were deficient, in a sense

capable of establishing a credible basis for a Caremark claim, would be

overreaching.

Okla. Firefighters Pension & Ret. Sys. v. Citigroup Inc., 2015 WL 1884453, at *5

(Del. Ch. Apr. 24, 2015) (emphasis added). While the Court ultimately went on to

hold that the plaintiff had met its burden, there were no facts (unlike in this case)

establishing that the company heeded warnings and took actions to address the risks.

In short, Stockholders’ case is premised on the very assertion that the Court reasoned

would have been rejected in Citigroup—that a potential Caremark claim may be

inferred simply because wrongdoing may have occurred.

37

In fact, the reasons this Court found a credible basis to suspect wrongdoing in

Citigroup only serves to highlight what is missing here. Citigroup was subject to

certain Consent Orders regarding anti-money laundering (“AML”) detection and

reporting, and shortly after entry of the Consent Orders, the Company received

subpoenas. The Court explained that the “Consent Orders, standing alone, would

not satisfy the credible basis threshold. Further, that Citigroup and Banamex USA

subsequently received subpoenas relating to BSA/AML issues does not, in the

abstract, allow the inference that Citigroup failed to implement the Consent Orders

properly.” Id. at *6. But that was not the end of the story. As the Court observed,

“[t]he subpoenas were issued shortly after Citigroup entered the Consent Orders,

which arose from findings by the OCC, the FDIC, and the Federal Reserve that

Citigroup and certain of its subsidiaries, including Banamex USA, did not maintain

adequate controls for compliance with BSA/AML requirements.” Id. (emphasis

added). As the Court noted, “[t]he government investigation is thus targeted at . . .

events at Banamex USA that one might expect not to occur if the Consent Orders

had been properly implemented.” Id. In other words, shortly after Citigroup became

obligated by the Consent Orders to develop and implement AML controls, the

company was under investigation for failing to do exactly what the Consent Orders

commanded.

38

Similar evidence does not exist in this case. Here, in 2007, ABDC entered

into a settlement with the DEA requiring the development and implementation of an

updated diversion control program, with the reinstatement of the Orlando

distribution center license dependent upon the DEA’s inspections of the plan. (See

June 22, 2007 Press Release.) The only conclusion one may infer is that ABC’s

diversion control plan passed those inspections given that the distribution license

was subsequently reinstated. That conclusion is bolstered by the fact that the DEA

then hosted the Company’s Chief Compliance Officer to speak at an industry

conference on the important features of an effective plan. (Id.) It was not until five

years later, in the midst of a nationwide regulatory response to the opioid epidemic

driving governmental scrutiny of the pharmaceutical industry as a whole that ABC

began receiving subpoenas. (E.g., Lenny Bernstein & Scott Highman, Investigation:

The DEA slowed enforcement while the opioid epidemic grew out of control, WASH.

POST, Oct. 22, 2016 (Exhibit 23 hereto), https://www.washingtonpost.com/

investigations/the-dea-slowed-enforcement-while-the-opioid-epidemic-grew-out-

of-control/2016/10/22/aea2bf8e-7f71-11e6-8d13-d7c704ef9fd9_story.html; John

Schwartz, Chicago and 2 California Counties Sue Over Marketing of Painkillers,

N.Y. TIMES, Aug. 24, 2014 (Exhibit 24 hereto), https://www.nytimes.com

39

/2014/08/25/us/chicago-and-2-california-counties-sue-drug-companies-over-

painkiller-marketing.html.)

As this Court has held, “the fact that a corporation is ‘one of many companies

in many industries caught up in the dragnet of a federal investigation . . . does not

support an inference of possible wrongdoing.” Okla. Firefighters Pension & Ret.

Sys. v. Citigroup Inc., 2015 WL 1884453, at *6 (quoting La. Mun. Police Emps.’

Ret. Sys. v. Lennar Corp., 2012 WL 4760881, at *4 (Del. Ch. Oct. 5, 2012)).

In sum, there is no evidence before the Court which supports a credible basis

to suspect that the Company’s Board ignored purported red flags regarding its

diversion control program’s alleged noncompliance with the law. There is not a

single instance where the diversion control program has been found to have violated

the law since the DEA’s 2007 suspension of ABDC’s Florida license, and

circumstances relating to the settlement with the DEA—including the condition that

ABDC’s program must pass DEA inspections before reinstatement—are consistent

only with the conclusion that the revised program passed those inspections. To the

extent the industry-wide scrutiny that came to bear in 2012 and after can be deemed

a “red flag,” there is no evidence suggesting the Company ignored it. Quite the

opposite, the Company conducted a comprehensive review and revision to its

diversion control program in 2014-15 with further enhancements and initiatives in

40

2017. With no evidence supporting a credible basis that the Company’s Board

ignored red flags, the Demand here is based upon mere suspicion alone, which is

insufficient as a matter of law. Seinfeld, 909 A.2d at 123 (“permitting inspection

based on the ‘mere suspicion’ . . . has been repeatedly rejected as a basis to justify

the enterprise cost of an inspection.”). The Demand should be rejected.

II. STOCKHOLDERS LACK A PROPER PURPOSE BECAUSE ANY

SUCH CLAIMS WOULD BE TIME-BARRED

Stockholders lack a proper purpose because they could not pursue the

professed endgame for their investigation—derivative litigation on behalf of the

Company or making a demand on the Board. Under Delaware law, a stockholder

lacks a proper purpose where it seeks books and records relating to time-barred

derivative claims. Graulich v. Dell Inc., 2011 WL 1843813, at *6 (Del. Ch. May

16, 2011) (denying inspection where statute of limitations plainly barred derivative

claim to be investigated). In this case, derivative claims would be time-barred

because they relate to events that occurred three or more years ago. See Fike v.

Ruger, 754 A.2d 254, 260 (Del. Ch. 1999) (citing 10 Del. C. § 8106), aff’d, 752 A.2d

112 (Del. 2000).

Under Delaware, “the [statute of] limitations period begins to run when the

plaintiff is objectively aware of the facts giving rise to the wrong, i.e. on inquiry

notice.” In re Dean Witter Partnership Litig., 1998 WL 442456, at *6 (Del. Ch. July

41

17, 1998) (emphasis in original), aff’d, 725 A.2d 441 (Del. 1999). “Inquiry notice

does not require a plaintiff to have actual knowledge of a wrong, but simply an

objective awareness of the facts giving rise to the wrong—that is, a plaintiff is put

on inquiry notice when he gains ‘possession of facts sufficient to make him

suspicious, or that ought to make him suspicious.’” Sunrise Ventures, LLC v.

Rehoboth Canal Ventures, LLC, 2010 WL 363845, at *7 (Del. Ch. Jan. 27, 2010)

(citation omitted), aff’d, 7 A.3d 485 (Del. 2010).

Here, as demonstrated by the pleadings, Stockholders were on inquiry notice

of potential claims regarding the Company’s diversion control programs by 2014, at

the latest. In fact, Stockholders’ purported credible evidence of wrongdoing is based

on events, contemporaneously disclosed, dating as far back as 2007 (Bellco

acquisition; Bellco consent judgment; DEA’s suspension of Orlando, Florida

facility; DEA settlement; Development of order monitoring program in consultation

with the DEA), 2012 (ABC’s participation in HDA; ABC’s receipt of subpoena

“related to ABDC’s program for controlling and monitoring diversion of controlled

substances into channels other than for legitimate medical purposes,” Compl. ¶ 67

(footnote omitted); the filing of the lawsuit by the State of West Virginia “alleging

that ABDC failed to implement effective controls and procedures to guard against

diversion of controlled substances for illegitimate purposes,” id. ¶ 68 (footnote

42

omitted)), and 2013-2014 (ABC’s receipt of six additional subpoenas “requesting

more documents relating to ABDC’s diversion control programs,” id. ¶ 69; Ex. A to

Stockholders’ Interrogatory Responses). These disclosures were in addition to

widespread media coverage at the time regarding opioids. (See, e.g., Exhibit 24.)

By waiting until 2019 to make the Demand, Stockholders slept on their rights.

Given the prior disclosures and the subsequent passage of time, Stockholders now

lack standing to pursue any derivative litigation, which would be barred by laches,

as the applicable three-year statute of limitations for fiduciary duty claims has run.

See Polygon Global Opportunities Master Fund v. W. Corp., 2006 WL 2947486, at

*5 (Del. Ch. Oct. 12, 2006) (“This purpose is not reasonably related to Polygon’s

interest as a stockholder as it would not have standing to pursue a derivative action

based on any potential breaches.”). Accordingly, because Stockholders cannot

pursue their untimely claims on behalf of the Company, their Demand can be denied

on this ground alone.

III. EVEN IF STOCKHOLDERS ARE ENTITLED TO AN INSPECTION,

THE BOOKS AND RECORDS THEY SEEK EXCEED ANY

APPROPRIATE SCOPE

Regarding the scope of a books and records inspection, “[p]laintiffs ‘bear the

burden of showing a proper purpose and [must] make specific and discrete

identification, with rifled precision . . . [to] establish that each category of books and

43

records is essential to the accomplishment of their articulated purpose . . . .’ ” Saito

v. McKesson HBOC, Inc., 806 A.2d 113, 117 n.10 (Del. 2002). “[I]t is the

responsibility of the trial court to tailor the inspection to the stockholder's stated

purpose. ‘Undergirding this discretion is a recognition that the interests of the

corporation must be harmonized with those of the inspecting stockholder.” Sec.

First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 569 (Del. 1997) (citation

omitted). Section 220 is not to be used as a fishing expedition, “and is certainly not

meant to be a forum for the kinds of wide-ranging document requests permissible”

in plenary discovery. Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d

156, 165 (Del. Ch. 2006). A Section 220 plaintiff “is not entitled to inspect all the

documents that [it] believes are relevant or even likely to lead to information relevant

to [its] purpose.” Norfolk Cnty. Ret. Sys., 2009 WL 353746, at *6. Rather, “relief

under § 220 is limited to those books and records that are ‘necessary and essential

to the satisfaction of the stated purpose.’” Id. at *9 (citation omitted). Documents

are “necessary and essential” if they address the “crux of the shareholder's purpose”

and if that information “is unavailable from another source.” Espinoza v. Hewlett-

Packard Co., 32 A.3d 365, 371-72 (Del. 2011).

To the extent Stockholders’ purpose of investigating a Caremark claim is

deemed proper, the Company agrees with Stockholders that any production of books

44

and records should be limited to minutes of the Board and its committees and

presentations made to the Board and its committees.6 Yet the 2010 start date

Stockholders propose and several of the topics to which the Board Materials

Stockholders seek relate are far beyond what is necessary and essential to

Stockholders’ purpose.

A. Stockholders’ Timeframe Of 2010 To The Present Exceeds What

Is Necessary And Essential To Investigating A Caremark Claim

Stockholders’ request for nine years’ worth of documents far exceeds what

would be necessary and essential for purposes of investigating potential derivative

litigation. As noted above, the statute of limitations for a Caremark claim is three

years, and Stockholders have provided no basis for why the statute of limitations

would not bar earlier claims. Although true that “when examination of a

corporation's books and records is sought for the purpose of evaluating whether to

pursue derivative litigation, whether or not a shareholder would be able to pursue a

claim based on the information contained in a particular record is not the sole

6 The Demand uses the overly broad term “Board Materials” to mean documents

dated from May 1, 2010 to the present that were provided at, considered at, discussed

at, or prepared or disseminated, in draft or final form, in connection with, in

anticipation of, or as a result of any meeting of the Company’s Board or any regular

or specially created committee thereof, including, without limitation, all

presentations, Board packages, recordings, agendas, summaries, memoranda, charts,

transcripts, notes, minutes of meetings, drafts of minutes of meetings, exhibits

distributed at meetings, summaries of meetings, and resolutions.

45

determinative factor in the Court's analysis . . . [o]n the other hand, the passage of

time, as may be measured against a statute of limitations . . . may be relevant to the

Court’s inquiry as to whether certain corporate books and records are necessary for

a shareholder's purpose of evaluating a potential derivative action.” Amalgamated

Bank v. UICI, 2005 WL 1377432, at *2-3 (Del. Ch. June 2, 2005).

This analysis does not change if Stockholders were to claim that, instead of

bringing a derivative action, they might make demand on the Board. Delaware law

does not differentiate the production of documents under Section 220 depending on

whether the purpose is to make a demand on the board or bring derivative litigation.

In any case, the pleading standards applicable to bringing derivative litigation (i.e.,

pleading demand futility with particularity) versus making a demand (where there is

no applicable pleading standard requiring particularity), suggest that a purpose of

making a demand requires less, not more information.

But more important here, in light of the facts of this case, the possibility that

Stockholders might make a demand on the Board in no way warrants production of

documents over and above what is necessary to investigate potential derivative

litigation. It is axiomatic that documents reflecting information that is available

from other sources already in Stockholders’ possession are neither necessary nor

essential. See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 788 (Del. Ch. 2016)

46

(“[I]f the stockholder already has ‘sufficient’ information from other sources or as a

result of other books and records requests, then the inspection can be curtailed

because the additional documents are not ‘essential.’”) (citations omitted),

abrogated on other grounds, Tiger v. Boast Apparel, Inc., -- A.3d --, 2019 WL

3683525 (Del. Aug. 7, 2019); Polygon Global Opportunities Master Fund, 2006 WL

2947486, at *4-5 (holding the “wealth of detailed information” provided in SEC

filings “would appear to satisfy the obligation to disclose all facts material to the

decision whether to demand appraisal” and rejecting Polygon's contention that “it

should be given access to the same information it would receive through discovery

in an appraisal action”). Here, Congressional reports and complaints filed against

the Company regarding its diversion control program provide more than enough

information to make a demand on the Board. Indeed, this Court has long held that

the function of making a demand is to give the Board notice of a potential claim

which the Board might then have a duty to investigate. Schick Inc. v. Amalgamated

Clothing & Textile Workers Union, 533 A.2d 1235, 1240-41 (Del. Ch. 1987).

B. Several Of Stockholders’ Proposed Board Material Topics Exceed

What Is Necessary And Essential To Achieving Their Purported

Purpose

Subject to the above date-range considerations and conditions of production

requested below, the only topics identified in the Demand and Complaint that are

47

arguably necessary and essential to the stated purpose are the following categories

of documents, to the extent provided to the Board:

the Company’s written policies regarding anti-diversion and compliance

programs;7

any investigation or analysis of the Company’s duty or obligation to

conduct due diligence with respect to compliance with anti-diversion laws;

lawsuits, investigations, or congressional inquiries relating to the

Company’s distribution of prescription opioid medications;

the Company’s anti-diversion and compliance programs, including, but not

limited to:

information concerning the origins of, causes of, or remedial steps

taken in response to any deficiencies in the programs; and

any investigation, review, or analysis conducted by the Company

relating to any aspect of its anti-diversion and compliance programs,

and any modifications made in response thereto; and

copies of the director independence questionnaires completed by each

Board member during the prior four (4) years.8

7 The Demand’s use of the terms “administration records” and “through OMP and

CSRA” in connection with this category are vague and ambiguous and, therefore,

not drafted with “rifled precision.”

8 With respect to Stockholders’ request for documents concerning “the creation of a

committee of the Board to review the Board’s oversight of risks associated with the

Company’s role as a distributor of prescription opioid medications,” the request

creates the incorrect impression that the Company formed a committee specifically

for the purpose of “review[ing] the Board’s oversight of risks associated with the

Company’s role as a distributor of prescription opioid medications.” Demand at 11.

While the company has committees charged with oversight and compliance

responsibilities (e.g., the Audit Committee), no committee was ever created

48

The remaining categories of Board Materials in the Demand, however, would

far exceed that which is necessary and essential for Stockholders to achieve their

stated purpose.

1. Board Materials Related To The 2007

DEA Settlement And 2007 Bellco Acquisition

Stockholders curiously seek Board Materials from 2010 forward concerning

the Company’s 2007 DEA Settlement and acquisition of Bellco. Even assuming

such documents exist, they can hardly be deemed necessary to investigating a

Caremark claim concerning the Board’s attention to diversion control years later.

Such documents would, at best, be barely relevant in a plenary litigation. They are

a long way from addressing the crux of Stockholders’ Demand here and their

production should be denied.

2. Board Materials Related To “The Company’s Involvement

And Participation In The Pain Care Forum And The HDA”

Based solely upon generic allegations in the MDL applicable to all defendants

there, Stockholders assert in their Demand and in the Complaint that “opioid

manufacturers and distributors collaborated through trade and other organizations,

specifically “to review the Board’s oversight of risks associated with the Company’s

role as a distributor of prescription opioid medications” and, therefore, so no such

documents exist. Id.

49

such as the Pain Care Forum (the “PCF”) or the HDA . . . to increase opioid sales.

In addition, opioid manufacturers and distributors collaborated to ensure that DEA-

imposed quotas remained artificially high to ensure that suspicious orders were not

reported to the DEA, and that the DEA had no basis to refuse to increase said

quotas.” (Compl. ¶ 75 (footnotes omitted).)

Here, neither the Pain Care Forum nor the HDA has any bearing on whether

the Board was aware of red flags, and Stockholders provide no evidence suggesting

that an inspection of documents concerning those organizations is necessary and

essential to Stockholders’ stated purpose.

In addition, in the MDL, the allegations apparently are made in support of a

civil RICO claim against all “RICO Supply Chain Defendants.” (See Third

Amended Complaint and Jury Demand, In re Nat’l Prescription Opiate Litig., C.A.

No. 17-md-2804, at 43 (N.D. Ohio Mar. 21, 2019) (Dkt. No. 1466) (Exhibit 25

hereto).) Stockholders here are not claiming that there is a credible basis to suspect

a civil RICO claim (and there certainly is none). Their purpose is to investigate a

Caremark claim, not to investigate alleged conspiracies the Company supposedly

engaged in to boost sales. This category of Board Materials has no connection to

Stockholders’ purpose.

50

3. The Creation Of The Governance And Nominating

Committee, The Decision To Task the Governance and

Nominating Committee With Preparing A Report Regarding

The Board’s Oversight Of Risks Associated With

Distributing Prescription Opioid Medications, And The

Materials Supplied To The Committee To Prepare The

Report

In their Demand and Complaint, Stockholders allege that in November 2018,

the Company formed a Governance and Nominating Committee that was then tasked

with drafting a report for publication regarding the Board’s oversight of risks in

connection with distributing prescription opioid medications—all in order to create

the false impression that the Company belatedly took action with respect to opioid

distribution. (Compl. ¶¶ 81-82.) As an initial matter, the allegation is false. The

Governance and Nominating Committee was not formed in 2018, as alleged, but in

2003. Moreover, any request for documents regarding the creation of the Committee

are outside even the overly broad time frame proposed by Stockholders. Thus, there

is no legitimate basis for inspecting these documents.

Stockholders apparently concede as much. The Company’s Interrogatory No.

3 requests that Stockholders “[i]dentify and describe every occurrence and all other

facts and circumstances known to you . . . that give rise to your purported suspicion

that ABC’s management and/or directors engaged in wrongdoing, mismanagement,

or breach of fiduciary duties . . . .” (Stockholders’ Interrogatory Responses to

51

Interrogatory No. 3.) Tellingly, in their response, Stockholders make no mention

whatsoever of the Company’s establishment of the Governance and Nominating

Committee, its task of preparing a report, or the materials provided to it in that

connection.

4. Any Documents Produced In Response To Any Other

Section 220 Demand Concerning Any Of The Subjects

Referenced Above

The Company is aware of no case holding that a document becomes necessary

and essential to achieve a stockholder’s proper purpose simply because it was

provided to a different stockholder. The very notion is at odds with the law, which

teaches that a Section 220 order “is a limited form of document production narrowly

tailored to the express purposes of the shareholder requesting access to the

company's books and records. Even where a shareholder has made a sufficient

showing to satisfy the demand requirements of [Section] 220, the right to inspection

is not absolute; instead, ‘it is a qualified right depending on the facts presented.’”

Paul v. China MediaExpress Holdings, Inc., 2012 WL 28818, at *6 (Del. Ch. Jan. 5,

2012) (emphasis added and citations omitted). No stockholder’s demand for

inspection, other than Stockholders’ Demand, is before the Court. Stockholders’

request for this category of Board Materials is outside the parameters of what Section

220 permits.

52

5. The Company Reserves Assertions Of Privilege Until Such

Time As Privileged Documents Are Identified As Responsive

To A Production Order

Stockholders have not expressly requested books and records protected by the

attorney-client privilege and/or work-product doctrine and make no claims to them

under Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), or Court of Chancery

Rule 26(b)(3). If such a request were made, it would, at minimum, be premature,

given that the Company has not asserted any privilege or immunity from production

over any specific documents beyond reserving rights to do so if privileged

documents become subject to production. See Inter-Local Pension Fund GCC/IBT

v. Calgon Carbon Corp., 2019 WL 479082, at *19 (Del. Ch. Jan. 25, 2019)

(“[Stockholder’s] request for a Garner ruling is not ripe. [The company] has not yet

produced any documents, nor has it identified a set of privileged documents against

which to apply the Garner doctrine.”) (footnote omitted); Yahoo! Inc., 132 A.3d at

796 (determining that the company must identify privileged materials, but, at the

time of trial, it was “premature for this court do anything other than require [the

company] to log documents”). Moreover, Delaware law recognizes that

stockholders are not entitled to books and records protected by the attorney-client

privilege and/or work-product doctrine. Sutherland v. Sutherland, 2007 WL

53

1954444, at *4 (Del. Ch. July 2, 2007) (precluding inspection of privileged books

and records).

IV. WHILE THE INSPECTION SHOULD BE DENIED IN ITS

ENTIRETY, IN THE EVENT INSPECTION IS PERMITTED, THE

COURT SHOULD IMPOSE CONDITIONS ON THE PRODUCTION

To the extent the Court grants Stockholders the right to inspect certain books

and records, the Company requests that any inspection be subject to the following

conditions. First, the Company requests that any production be subject to a

mutually-acceptable confidentiality agreement, a typical condition in a Section 220

inspection involving non-public board materials. CM & M Grp., Inc. v. Carroll, 453

A.2d 788, 793-94 (Del. 1982); Disney v. Walt Disney Co., 857 A.2d 444, 447 (Del.

Ch. 2004). See also Stipulation and Order for the Production and Exchange of

Confidential Information ¶ 26 (“‘Discovery Material’ does not include any books

and records that Defendant may be ordered to produce in connection with this

Litigation, which shall be governed by a separate, mutually acceptable

confidentiality agreement to be negotiated by the Parties.”) (Trans. ID 64142959).

Second, the Company requests that any production be conditioned on Stockholders’

agreement to file any subsequent lawsuit that uses those books and records in the

Delaware Court of Chancery. See United Techs. Corp. v. Treppel, 109 A.3d 553,

558-59 (Del. 2014) (citing Disney v. Walt Disney Co., 2005 WL 1538336, at *1 (Del.

54

Ch. June 20, 2005) (quoting Stroud v. Grace, 606 A.2d 75, 89 (Del. 1992))). Third,

the Company requests that production be conditioned on Stockholders’ agreement

that the entirety of any production ordered by this Court be incorporated by reference

in any derivative action complaint that Stockholders may file relating to the subject

matter of the Demand. See Yahoo! Inc., 132 A.3d at 796. Fourth, the Company

requests that the Court’s order require only the production of responsive, non-

privileged portions of any books and records required to be produced.

CONCLUSION

For the foregoing reasons, ABC respectfully requests that the Complaint be

dismissed and that the requested inspection be denied.

55

OF COUNSEL:

MORGAN, LEWIS & BOCKIUS

LLP

Michael D. Blanchard

One Federal Street

Boston, MA 02110

Dated: September 13, 2019

POTTER ANDERSON & CORROON LLP

By: /s/ Stephen C. Norman

Stephen C. Norman (No. 2686)

Jennifer C. Wasson (No. 4933)

Tyler J. Leavengood (No. 5506)

1313 N. Market Street

Hercules Plaza, 6th Floor

Wilmington, DE 19801

(302) 984-6000

Attorneys for Defendant

AmerisourceBergen Corporation

Words: 11,345

CERTIFICATE OF SERVICE

I hereby certify that on September 20, 2019, the foregoing document

was served electronically via File & ServeXpress on the following counsel of record:

Samuel L. Closic, Esquire

Eric J. Juray, Esquire

PRICKETT, JONES & ELLIOTT, P.A.

1310 N. King Street

Wilmington, DE 19801

/s/ Tyler J. Leavengood

Tyler J. Leavengood (#5506)