Lebanon County Employees' Retirement Fund v. Collis

• Court: Court of Chancery of Delaware
• Decided: December 15, 2022
• Docket: C.A. No. 2021-1118-JTL
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LEBANON COUNTY EMPLOYEES’ ) RETIREMENT FUND and TEAMSTERS ) LOCAL 443 HEALTH SERVICES & ) INSURANCE PLAN, ) ) Plaintiffs, ) ) v. ) C.A. No. 2021-1118-JTL ) STEVEN H. COLLIS, RICHARD W. ) GOCHNAUER, LON R. GREENBERG, JANE E. ) HENNEY, KATHLEEN W. HYLE, MICHAEL J. ) LONG, HENRY W. MCGEE, ORNELLA ) BARRA, D. MARK DURCAN, and CHRIS ) ZIMMERMAN, ) ) Defendants, ) ) and ) ) AMERISOURCEBERGEN CORPORATION, ) ) Nominal Defendant. ) ) OPINION

Date Submitted: September 23, 2022 Date Decided: December 15, 2022

Samuel L. Closic, Eric J. Juray, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Lee D. Rudy, Eric L. Zagar, Justin O. Reliford, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeroen van Kwawegen, Eric J. Riedel, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Counsel for Plaintiffs. Stephen C. Norman, Jennifer C. Wasson, Tyler J. Leavengood, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Michael S. Doluisio, Carla Graff, DECHERT LLP, Philadelphia, Pennsylvania; Matthew L. Larrabee, Hayoung Park, DECHERT LLP, New York, New York; Michael D. Blanchard, Amelia Pennington, MORGAN, LEWIS & BOCKIUS LLP, Boston, Massachusetts; Counsel for Defendants.

LASTER, V.C. Nominal defendant AmerisourceBergen Corporation (“AmerisourceBergen” or the

“Company”) is one of three major wholesale distributors of opioid pain medication in the

United States. Over the past two decades, AmerisourceBergen has found itself at the center

of America’s tragic opioid epidemic. In 2021, AmerisourceBergen agreed to pay over $6

billion as part of a nationwide settlement to resolve multidistrict litigation brought against

the Company and the other two major opioid distributors (the “2021 Settlement”).

AmerisourceBergen has incurred hundreds of millions of dollars settling other lawsuits and

over $1 billion in defense costs. Those financial figures do not attempt to quantify the

reputational harm that the Company has suffered, nor the damage from lost opportunities

or management distraction. Those harms obviously pale in comparison to the human cost

of the opioid epidemic.

The plaintiffs own stock in AmerisourceBergen. They contend that the Company’s

directors and officers breached their fiduciary duties by making affirmative decisions and

conscious non-decisions that led ineluctably to the harm that the Company has suffered.

They seek to shift the responsibility for that harm from AmerisourceBergen to the human

fiduciaries that caused it to occur.

The plaintiffs advance two theories of breach. For their first claim, they rely on the

proposition that corporate fiduciaries cannot consciously ignore evidence indicating that

the corporation is suffering or will suffer harm. Most plainly, corporate fiduciaries cannot

knowingly ignore red flags evidencing legal non-compliance. The Delaware Supreme

Court recognized this theory in Graham v. Allis-Chalmers Manufacturing Co., 188 A.2d

125 (Del. 1963). In his landmark decision in In re Caremark International, Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), Chancellor Allen explained that Allis-Chalmers

was not the only path to liability and that corporate fiduciaries also could be held liable if

they knowingly failed to adopt internal information and reporting systems that were

“reasonably designed to provide to senior management and to the board itself timely,

accurate information sufficient to allow management and the board, each within its scope,

to reach informed judgments concerning both the corporation’s compliance with law and

its business performance.” Id. at 970.

In Stone v. Ritter, 911 A.2d 362 (Del. 2006), the Delaware Supreme Court combined

the holdings in Allis-Chalmers and Caremark by stating that directors could be held

liable if

[i] the directors utterly failed to implement any reporting or information system or controls; or [ii] having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention. In either case, imposition of liability requires a showing that the directors knew that they were not discharging their fiduciary obligations.

Id. at 370. Since Stone, some decisions have labeled the first theory a “prong-one Caremark

claim” and the second theory a “prong-two Caremark claim.” For those of us who have

trouble keeping the two prongs straight, Chancellor McCormick has come to the rescue by

referring to the second type of claim as a “Red-Flags Theory” or a “Red-Flags Claim.”1

1 See City of Detroit Police & Fire Ret. Sys. v. Hamrock, 2022 WL 2387653, at *17 (Del. Ch. June 30, 2022). Using the same functional approach, the first type of claim might be called a “Reporting-Systems Theory” or a “Reporting-Systems Claim.” The plaintiffs do not advance a Reporting-Systems Claim. They contend that information reached the 2 As a distributor of opioids, AmerisourceBergen must comply with extensive

regulatory frameworks imposed by federal and state law. The federal regulatory

frameworks require that a distributor report any suspicious orders to the federal Drug

Enforcement Agency (the “DEA”). A distributor must either not fill a suspicious order or

first conduct due diligence sufficient to ensure that the order will not be diverted into

improper channels.

For their Red-Flags Theory, the plaintiffs contend that the Company’s officers and

directors were confronted with a steady stream of red flags that took the form of subpoenas

from various law enforcement officials, congressional investigations, lawsuits by state

attorneys general, and a deluge of civil lawsuits. Meanwhile, as the opioid epidemic raged,

the rates at which the Company reported suspicious orders remained incomprehensibly

low. The plaintiffs contend that based on those red flags, the defendants knew that the

Company was violating federal and state laws regarding opioid diversion and needed to

implement stronger systems of oversight. Yet the Company’s officers and directors

consciously ignored the red flags and did not take any meaningful action until the 2021

Settlement. The complaint’s allegations support an inference that the officers and directors

declined to take action because they did not want to do anything that might imply that their

earlier actions and policies were inadequate, and they also wanted to preserve their ability

management team and the directors, and that the fiduciaries consciously ignored it because they wanted to use possible fixes to the Company’s order monitoring systems and oversight policies as settlement currency.

3 to use possible fixes to the Company’s order monitoring systems and oversight policies as

settlement currency.

For their second claim, the plaintiffs cite Chief Justice Strine’s pointed admonition,

made while serving on this court, that “Delaware law does not charter law breakers.” In re

Massey Energy Co., 2011 WL 2176479, *20 (Del. Ch. May 31, 2011). “As a result, a

fiduciary of a Delaware corporation cannot be loyal to a Delaware corporation by

knowingly causing it to seek profit by violating the law.” Id. Chancellor McCormick has

helpfully described this type of theory as a “Massey Theory” or a “Massey Claim.” See

Hamrock, 2022 WL 2387653, at *17.

For their Massey Claim, the plaintiffs seek an inference that between 2010 and 2015,

the Company’s officers and directors took a series of actions which, when viewed together,

support a pleading-stage inference that they knowingly prioritized profits over law

compliance. The most telling evidence of intent was a decision in 2015, when management

proposed and the directors approved a revised order monitoring program (the “Revised

OMP”). AmerisourceBergen’s existing order monitoring program used static criteria to

flag orders of interest. The monitoring program called for AmerisourceBergen personnel

to investigate the flagged orders and, if they still appeared suspicious, report them to the

DEA. Under its existing program, AmerisourceBergen was already reporting suspicious

orders at profoundly low rates.

Under the Revised OMP, AmerisourceBergen only would flag orders that both met

the static criteria and were inconsistent with a particular customer’s dynamic pattern of

orders. The second trigger meant that if a pharmacy submitted an order that would be

4 flagged for investigation under the static criteria, but the order was consistent with the

pharmacy’s recent pattern of orders, then the new system would not flag the order for

review. Management’s presentation to the board included a Venn diagram which showed

that the new system only would identify for investigation a sliver of the orders flagged

under the old system.

With the implementation of the Revised OMP, AmerisourceBergen’s already low

rate of suspicious order reporting fell to microscopic levels. Between 2014 and 2015, the

level of suspicious orders declined by 86%. Over the same period, AmerisourceBergen’s

total orders increased by 8.6%. Between 2015 and 2016, the level of suspicious orders

declined by another 92%. Over the same period, AmerisourceBergen’s total orders

increased by another 6.7%.

Prosecutorial investigations, congressional inquiries, and civil lawsuits followed.

Two congressional reports concluded that AmerisourceBergen failed to identify and

address suspicious orders as required by federal law. Cities, counties, American Indian

tribes, union pension funds, and the attorneys general of more than a dozen states sued the

Company for contributing to the opioid epidemic. The plaintiffs maintain that in the face

of these problems, the Company’s officers and directors continued to pursue their illegal

business strategy until the 2021 Settlement.

The defendants have moved to dismiss the plaintiffs’ claims on two grounds. They

argue that the plaintiffs’ claims are untimely and that the plaintiffs’ allegations fail to

support an inference of demand futility.

5 This decision addresses the timeliness defense. When analyzing such a claim, the

court assumes that the claim is valid. The crux of the defendants’ argument is that even if

the claim has merit, the plaintiffs have waited too long to bring it.

No Delaware court has addressed the timeliness principles that govern a Red-Flags

Theory or a Massey Theory. The claims are similar in that they have a starting point when

the wrongful conduct began, but the wrongful conduct then persists over the ensuing days,

months, and years as the Company’s officers and directors either continue to consciously

ignore red flags (the Red-Flags Theory) or continue to employ a business plan that

prioritizes profits over legal compliance (the Massey Theory).2

Both the Red-Flags Theory and the Massey Theory are equitable claims for breach

of fiduciary duty. A court does not assess timeliness for those claims by applying the statute

of limitations. A court applies the doctrine of laches, which considers two factors:

(i) whether the plaintiff has sued within a reasonable time, and (ii) whether there has been

any prejudice to the defendants from the amount of time that has passed.

When a plaintiff seeks money damages as a remedy for a breach of fiduciary duty,

the court looks to the limitations period that would apply to an analogous claim at law. To

2 For that matter, no Delaware court has addressed the timeliness principles that apply to a Reporting-Systems Theory. The claim is also similar in that it necessarily has a starting point when the wrongful conduct began, but the wrongful conduct then continues over the ensuing days, months, and years as the company’s officers and directors continue to consciously fail to implement a reasonable reporting and monitoring system.

6 determine when the analogous limitations period would end, the court must determine

when a claim accrues.

No Delaware court has addressed how to determine when a Red-Flags Claim or a

Massey Claim accrues.3 Delaware decisions have applied three methods to determine when

claims for breach of fiduciary duty accrue. This decision calls them the discrete act method,

the continuing wrong method, and the separate accrual method.

The discrete act method applies in the vast majority of cases. When a plaintiff

contends that fiduciaries have breached their duties by making a specific decision that was

complete when made, that decision constitutes a discrete wrongful act that causes the claim

to accrue. To apply the statute of limitations, the court starts from when the decision was

made, counts forward to determine when the limitations period would end, and checks

whether the plaintiff filed suit within the limitations period. Tolling doctrines can extend

the time for filing suit, but once a plaintiff is on inquiry notice, tolling stops, and the

plaintiff must sue within a reasonable time or the claim will be barred. For a Red-Flags

Claim or a Massey Claim, the discrete act approach dramatically constrains the

stockholders’ ability to sue, because an initial decision to ignore a red flag or pursue an

illegal business plan often will be difficult to detect and will not have discernable

consequences. But once some information about the decision reaches the public sphere, the

3 Nor has any Delaware court addressed when a Reporting-Systems Claim accrues. Because of the conceptual similarities between a Reporting-Systems Theory and a Red- Flags Theory, similar considerations apply. This decision, however, only addresses the timeliness principles applicable to a Red-Flags Theory.

7 time for suit begins to run. Any subsequent continuation of the improper conduct is treated

as the not-separately-actionable implementation of the original decision or the damages

flowing from it. After the analogous limitations period had passed, the defendants can

continue consciously ignoring red flags or pursuing an illegal business plan without any

concern about a viable derivative claim. Such a regime would undermine Delaware’s

system of corporate accountability.

There are two alternatives that Delaware decisions have applied more rarely. One

approach treats a series of inextricably related decisions and conscious non-decisions as a

continuing wrong. Under this approach, the wrongful act is not complete, and the

limitations period does not begin to run, until the continuing wrong ceases. If any portion

of the wrongful act occurs within the limitations period, then the plaintiff can seek to

impose liability and recover damages for the entire period covered by the continuing

wrong. To apply the statute of limitations, the court determines when the wrongful conduct

stopped, counts forward from that point to calculate when the limitations period ends, and

checks whether the plaintiff filed suit within the limitations period. Tolling doctrines and

inquiry notice are irrelevant if the plaintiff sues while the conduct is ongoing or if a portion

of the conduct occurred within the limitations period, because the plaintiff can sue for the

continuing wrong as a whole. Tolling doctrines and inquiry notice only come into play if

the continuing wrong has ceased and the plaintiff did not file suit until after the limitations

period otherwise would have run.

The other approach treats a series of related decisions and conscious non-decisions

as a sequence of wrongful acts, each of which gives rise to a separate limitations period.

8 Under this approach, the plaintiff can seek to impose liability and recover damages for any

portion of the wrongful conduct where the statute of limitations has not yet run, but not for

wrongful conduct that occurred earlier. To apply the statute of limitations, the court

determines when the plaintiff filed suit, looks back from that point over the length of the

limitations period, and checks whether actionable conduct took place within that period.

Tolling doctrines and inquiry notice operate in two ways. Similar to a continuing wrong, if

the conduct has ceased and the limitations period otherwise would have run, then tolling

doctrines can render the suit timely. Similar to a discrete wrongful act, tolling doctrines

can extend the actionable period, enabling the plaintiff to recover over a longer time frame.

Inquiry notice can cut off the ability of a tolling doctrine to extend the actionable period,

but because the ongoing conduct is treated as a series of separate wrongs, inquiry notice

does not cut off the plaintiff’s ability to sue for conduct that took place within the portion

of the actionable period that is unaffected by tolling doctrines.

For the Red-Flags Claim, the separate accrual approach offers a Goldilocks regime

that falls in between a too-defendant-friendly discrete act approach and a too-plaintiff-

friendly continuing wrong approach. As discussed at length later in this decision, the

separate accrual approach best suits the gravamen of the claim and the nature of the harm,

serves the twin goals of equity and efficiency, and fulfills the policy goals associated with

statutes of limitations.

The separate accrual approach could apply to a Massey Claim as well. There are

many similarities between a Red-Flags Claim and a Massey Claim. Arguably, however, the

decision to consciously adopt an illegal business plan carries a greater level of culpability

9 that warrants the application of the continuing wrong doctrine. For purposes of this case,

the Massey Claim is timely under the separate accrual approach, so this decision need not

take the additional step of deciding whether the Massey Claim should implicate the

continuing wrong doctrine. It is sufficient to treat the Massey Claim as raising—at a

minimum—the same combination of considerations as the Red-Flags Claim and apply the

separate accrual approach.

When applying the separate accrual approach within a laches framework, the court

looks to when the plaintiff began vigilantly pursuing its claims. For purposes of a derivative

action, that can be when a plaintiff begins seeking books and records. In this setting, the

act of filing a lawsuit to enforce the books-and-records request is not required, and such a

requirement would undercut this court’s efforts to encourage stockholders and companies

to resolve books-and-records requests without litigation.

In this case, the plaintiffs’ diligent efforts to obtain books and records could support

using May 21, 2019, as a starting date for the actionable period. The plaintiffs, however,

are content to use October 20, 2019, so the court uses that date. Using a three-year statute

of limitations, the actionable period began on October 20, 2016.

Tolling doctrines do not warrant extending the actionable period further.

AmerisourceBergen issued disclosures in 2017 and in subsequent years about the quality

of its anti-diversion program. Under the doctrine of fraudulent concealment, those

disclosures provide a separate basis for extending the actionable period back to September

30, 2017. The actionable period already extends back to October 20, 2016, so those

disclosures are immaterial to the timeliness analysis.

10 Equitable tolling is not available. Stockholders are entitled to rely on the

competence and good faith of their fiduciaries and need not investigate or sue over the

slightest indication of potential wrongdoing. But at some point, a steady stream of lawsuits,

investigations, and other problems will put stockholders on inquiry notice, and they must

take action.

In December 2014, a stockholder represented by an entrepreneurial law firm served

a books-and-records request on the Company and obtained internal documents. In

December 2015, the law firm sent a litigation demand asking the defendants to sue

themselves on claims that anticipate the far-better-developed claims that have been asserted

in the complaint. Even acknowledging that the demands were sent by a frequent and fast

filing firm that was prospecting for a lawsuit, the letters show that stockholders had enough

information to be on inquiry notice by December 2015. The plaintiffs needed to start

pursuing their claims within a reasonable time after 2015. They did not seek books and

records until 2019 and did not sue until 2022.

Because of inquiry notice, the plaintiffs cannot rely on equitable tolling to extend

the actionable period to a date earlier than October 20, 2016. They can still sue for conduct

and consequences that took place after October 20, 2016, because under the separate

accrual approach, the defendants’ ongoing refusal to respond to red flags and their

persistent pursuit of an illegal business plan continued after October 20, 2016, giving rise

to newly accruing wrongs.

Having reached these holdings, it becomes relatively easy to conclude that wrongful

conduct occurred within the actionable period. The defendants’ conduct continued until

11 AmerisourceBergen entered into the 2021 Settlement. The defendants have argued that

their conduct was not actionable, but that is a different basis for dismissal than a timeliness

defense.

It bears emphasizing that a starting date of October 20, 2016 for the actionable

period does not mean that evidence from earlier periods is irrelevant. To determine whether

the Company’s business plan during the actionable period wrongfully prioritized profit

over law compliance, the court must determine what business plan the officers and

directors were pursuing. Answering that question requires an understanding of the state of

affairs leading up to the actionable period. Likewise, to evaluate whether officers and

directors acted in bad faith by ignoring red flags during the actionable period, the court

must understand what they knew and understood when they made those decisions, which

can take into account matters pre-dating the actionable period. For both claims, however,

liability must turn on what the officers and directors did during the actionable period, and

damages are limited to harms that the Company suffered during the actionable period.

The defendants’ motion to dismiss the complaint as untimely is therefore denied.

I. FACTUAL BACKGROUND

The facts are drawn from the complaint and the documents that the complaint

incorporated by reference. Before filing this lawsuit, the plaintiffs spent two years litigating

a books-and-records action in which AmerisourceBergen raised a host of defenses,

including arguments that sought to defend preemptively against the merits of an eventual

derivative action. The plaintiffs prevailed at the trial level and on appeal. See Lebanon

Cnty. Empls.’ Ret. Fund v. AmerisourceBergen Corp. (220 Decision), 2020 WL 132752

12 (Del. Ch. Jan. 13, 2020), aff’d, 243 A.3d 417 (Del. 2020). After that hard-fought and

resource-intensive victory, the plaintiffs obtained books and records under the terms of a

confidentiality order which provided that if the plaintiffs relied on the documents in a future

action, then all of the documents “will be deemed incorporated by reference in any

complaint subject to the conditions set forth in Amalgamated Bank v. Yahoo! Inc., 132 A.3d

752 (Del. Ch. 2016), subject to Delaware law.” C.A. No. 2019-0527-JTL, Dkt. 64 ¶ 9

(Del. Ch. May 8, 2020).

Relying on the incorporation-by-reference condition, the defendants submitted

sixty-one exhibits in support of their opening brief, plus another seven exhibits in support

of their reply brief. The defendants ask the court to consider the sixty-eight exhibits when

evaluating the complaint’s allegations.4

The incorporation-by-reference doctrine does not enable a court to weigh evidence

on a motion to dismiss. It permits a court to review the actual documents to ensure that the

plaintiff has not misrepresented their contents and that any inference the plaintiff seeks to

have drawn is a reasonable one.5 The doctrine limits the ability of a plaintiff to take

language out of context, because the defendants can point the court to the entire document.

4 Citations in the form “Ex. — at —” refer to exhibits that the defendants submitted. Page citations refer to the internal pagination or, if there is none, then to the last three digits of the control number. Citations in the form “Compl. ¶ ___” refer to the paragraphs of the complaint. 5 See In re General Motors (Hughes) S’holder Litig., 897 A.2d 162, 169–70 (Del. 2006); In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995); In re Gardner Denver, Inc., 2014 WL 715705, at *2 & n.17 (Del. Ch. Feb. 21, 2014).

13 But the doctrine does not change the pleading standard that governs a motion to dismiss.

If there are factual conflicts in the documents or the circumstances support competing

interpretations, and if the plaintiffs made a well-pled factual allegation, then the court must

credit the allegation. See Savor, Inc. v. FMR Corp., 812 A.2d 894, 896 (Del. 2002). The

plaintiffs also remain entitled to “all reasonable inferences.” Id. at 897. Consequently, if a

document supports more than one possible inference, and if the inference that the plaintiffs

seek is reasonable, then the plaintiffs receive the inference. Id.

At this stage of the proceeding, the well-pled allegations of the complaint are

deemed to be true. The plaintiffs are entitled to all reasonable inferences that the well-pled

allegations support. To the extent that factual allegations or documents incorporated by

reference support competing inferences, the plaintiffs are entitled at this stage to the

inference that favors their claims.

The factual background for this decision emphasizes matters pertinent to the

timeliness analysis. It de-emphasizes matters pertinent to the defendants’ alternative

contention that demand is not futile because the plaintiffs’ claims do not pose a substantial

threat of liability to at least half of the directors in office when the lawsuit was filed.

A. AmerisourceBergen And Its Legal Obligations As An Opioid Distributor

Nominal defendant AmerisourceBergen is one of the largest distributors of

pharmaceutical products in the world.6 It is a Delaware corporation, headquartered in

6 The Company conducts its pharmaceutical distribution business through two subsidiaries: AmerisourceBergen Drug Corporation (the “Drug Company”) and AmerisourceBergen Specialty Group, LLC (the “Specialty Group”). The Drug Company 14 Pennsylvania, whose shares trade on the New York Stock Exchange under the ticker

symbol “ABC.”

In the United States, AmerisourceBergen is one of the “Big Three” wholesale

distributors of pharmaceutical products. The other two are Cardinal Health, Inc. and

McKesson Corporation. AmerisourceBergen and McKesson each control approximately

one-third of the domestic pharmaceutical distribution market. Cardinal Health controls

another fifth.

As an opioid distributor, AmerisourceBergen acts as a middleman between the

companies who manufacture opioids and the pharmacies that fill prescriptions for opioids.

In its role as a distributor, AmerisourceBergen must comply with the Comprehensive Drug

Abuse Prevention and Control Act of 1970 and its implementing regulations. To obtain

and maintain a license to distribute opioids, a Company must maintain “effective controls

against diversion of [opioids] into other than legitimate medical, scientific, research, and

industrial channels.” 21 U.S.C. § 823(b)(1). A distributor must also “design and operate a

system to disclose to the registrant suspicious orders of [opioids].” 21 C.F.R. § 1301.74(b).

distributes healthcare products and supplies, including opioids, and provides pharmacy management and other consulting services to institutional healthcare providers such as hospitals and retail pharmacies. The Specialty Group serves the specialty pharmaceuticals market, focusing on products involving biotechnology, blood plasma, and oncology. The Specialty Group also provides pharmaceutical distribution and related services to physicians and institutional healthcare providers. While important for many reasons, the distinctions between AmerisourceBergen and its subsidiaries are not relevant to this decision, which refers only to AmerisourceBergen.

15 “Suspicious orders include orders of unusual size, orders deviating substantially from a

normal pattern, and orders of unusual frequency.” Id.

A distributor must report suspicious orders to the DEA. Once a distributor has

reported a suspicious order, it must either (i) decline to ship the order or (ii) ship the order

only after conducting due diligence and determining that the order is not likely to be

diverted into illegal channels. See Masters Pharm., Inc. v. Drug Enf’t Admin., 861 F.3d

206, 212–13 (D.C. Cir. 2017). The DEA can suspend or revoke the license of any

distributor that fails to maintain controls or respond appropriately to suspicious orders. See

21 U.S.C. § 824.

B. The Ongoing Opioid Crisis

The United States remains mired in an opioid crisis that has spanned more than two

decades, killed hundreds of thousands of Americans, and affected the lives of millions

more. In the late 1990s, the pharmaceutical industry pushed to increase the use of

prescription opioids to treat pain management. Manufacturers created new formulations of

extended-release opioids, which they marketed as non-addictive and superior to existing

methods of pain management. Doctors responded by writing more prescriptions for

opioids, often without appreciating or advising patients about the risk of addiction. See 220

Decision, 2020 WL 132752, at *2.

Between 1999 and 2014, the sale of prescription opioids in the United States

practically quadrupled. The medications proved far more addictive and dangerous than the

pharmaceutical industry had led the nation to believe, and the expanded use of the

medications led to widespread misuse. As many as 29% of the patients who were

16 prescribed opioids for chronic pain misused them, and as many as 12% developed an

opioid-use disorder. Id

The increased levels of opioid abuse had tragic consequences. The Centers for

Disease Control and Prevention reported that there were nearly 218,000 overdose deaths

related to prescription opioids between 1999 and 2017. Between 2000 and 2015, the rate

of opioid overdose deaths in the United States more than tripled. The number of opioid-

related deaths reached 69,710 in 2020, and opioid overdoses comprised the vast majority

of drug overdoses in the country.

To help fight the epidemic, the DEA increased its scrutiny of distributors like

AmerisourceBergen in an attempt to have them fulfill their legal obligations to identify

suspicious orders and prevent diversion. The Big Three supply drugs to pharmacies using

“just-in-time” delivery. That means that most pharmacies receive drug deliveries every day

and sometimes multiple times a day. Because deliveries are so frequent, distributors know

exactly how many individual opioid pills they are delivering to each pharmacy. Distributors

like AmerisourceBergen are thus uniquely positioned to assess whether a pharmacy is

facilitating the diversion of prescription opioids.

C. AmerisourceBergen’s Initial Run-Ins With The DEA

In April 2007, the DEA suspended AmerisourceBergen’s license for a distribution

center in Orlando, Florida, because of involvement with suspicious orders of opioids. The

DEA found that the Orlando center had sold over 5.2 million dosage units of opioids to

pharmacies that AmerisourceBergen knew, or should have known, were diverting the

opioids into improper channels. The DEA found that the pharmacies in question (i) ordered

17 opioids in amounts that far exceeded what an average pharmacy orders, (ii) ordered small

amounts of other drug products relative to the pharmacies’ opioid purchases, (iii) ordered

opioids much more frequently than other pharmacy customers, and (iv) were publicly

known to fill prescriptions written by physicians acting outside the usual course of

professional practice. The DEA concluded that AmerisourceBergen had failed to maintain

effective controls against diversion.

In June 2007, AmerisourceBergen settled with the DEA (the “2007 Settlement”).

As part of the settlement, AmerisourceBergen committed to implement a more

sophisticated order monitoring program designed to detect and prevent diversion of

controlled substances (the “2007 OMP”). In August, in reliance on the implementation of

the 2007 OMP, the DEA reinstated the license for the Orlando center.

That same year, AmerisourceBergen acquired Bellco Drug Company (“Bellco”),

another drug distributor. In June 2007, between signing and closing, Bellco entered into a

consent decree with the DEA for failing to report suspicious orders of controlled

substances. Bellco paid an $800,000 fine and surrendered its DEA license.

After these events, AmerisourceBergen developed and implemented the 2007 OMP.

When doing so, the Company consulted with the DEA to establish what at the time

constituted the industry-standard compliance program.

AmerisourceBergen described the 2007 Settlement and the Bellco settlement in its

annual reports on Form 10-K for the years 2007, 2008, 2009, 2010, and 2011.

18 D. The Independent Pharmacy Strategy

During 2010, management embarked on a plan to extract maximum value from the

independent pharmacy market (the “Independent Pharmacy Strategy”). Independent

pharmacies offered a potentially significant source of revenue because they had

significantly less market power than chain pharmacies and could not bargain as effectively

for lower prices. Their smaller size also meant that they had fewer resources to devote to

monitoring suspicious orders and could more easily become pill mills.

In 2011, management continued to pursue the Independent Pharmacy Strategy.

Management hired McKinsey & Co. to help make the AmerisourceBergen sales force more

effective and focused on expanding its independent pharmacy business in New York. Sales

to independent pharmacies increased by 11.7% between July 2010 and March 2011.

During this same period, AmerisourceBergen’s commitment to diversion control

began to ebb. At the time, Chris Zimmerman held the position of Vice President of

Corporate Securities and Regulatory Affairs (“Regulatory Affairs”), where he was in

charge of diversion control. On April 22, 2011, he sent an email to the five senior members

of the diversion control team that contained a set of lyrics for a song titled “Pillbillies,” a

parody of The Beverly Hillbillies theme song. The parody described opioid addicts visiting

Florida “Pain Clinics” to buy “Hillbilly Heroin.” Another email that circulated among the

senior compliance staff included the lyrics for the song “OxyContinVille,” a parody of

Jimmy Buffet’s “Margaritaville.” It described addicts driving from Kentucky to Florida

“[l]ookin’ for pill mills.” On May 6, 2011, Zimmerman emailed the leadership team for

diversion control about recently enacted Florida legislation that was designed to crack

19 down on pill mills. He offered the following prediction: “Watch out Georgia and Alabama,

there will be a max [sic] exodus of Pillbillies heading north.”

In March 2012, Zimmerman was promoted to the positions of Chief Compliance

Officer and Senior Vice President in charge of Corporate Securities and Regulatory Affairs,

a position he held until October 2018. During that period, Zimmerman and his division

were responsible for overseeing the order monitoring program and anti-diversion efforts,

and Zimmerman personally was responsible for bringing issues to the attention of the Audit

Committee. Zimmerman’s communications with his team support an inference that he was

not a suitable individual to hold these important positions, and his callous and scornful

disregard for the victims of the opioid crisis supports an inference that AmerisourceBergen

lacked a culture of compliance.

Also in March 2012, the board learned that the DEA had suspended Cardinal

Health’s license to distribute controlled substances from a distribution facility in Lakeland,

Florida. The basis for the suspension was Cardinal Health’s dealings with four independent

retail pharmacies.

In the face of the DEA’s enforcement actions, management and the board doubled

down on the Independent Pharmacy Strategy. Management and the board discussed ways

to expand the independent pharmacy business by offering a “[s]uite of offerings to reduce

churn and increase profitability,” including “a ‘light touch’ franchise model” and “‘friendly

landings’ for [AmerisourceBergen] independent pharmacists looking to transfer

ownership.” Compl. ¶ 119. The light touch franchise model meant easy onboarding for new

20 independent pharmacies and minimal compliance-related diligence by

AmerisourceBergen.

Two months later, in May 2012, management reported to the Audit Committee that

the Company had received subpoenas from the DEA and the United States Attorney’s

Office for the District of New Jersey that sought documents concerning the Company’s

anti-diversion programs. In June 2012, the Attorney General of West Virginia named

AmerisourceBergen as a defendant in a lawsuit that alleged violations of state law related

to the distribution of opioids.

In November 2012, the Audit Committee received a report on the Company’s

regulatory compliance efforts, including anti-diversion controls. The report informed the

committee members that AmerisourceBergen’s levels of suspicious order reporting were

extremely low:

AmerisourceBergen Averaged 215,000,000 Line Orders from 2009-2012

Suspicious Orders Reported

2009 0.000864% [1,858]

2010 0.001085% [2,322]

2011 0.001870% [4,020]

2012 0.002564% [5,512]

Id. ¶ 129. The committee also learned that the Company was expending far fewer resources

on compliance than peer companies. Its staff of fourteen internal audit personnel was less

than one-third the average of forty-six internal audit staff at other Fortune 500 companies.

21 AmerisourceBergen’s internal audit expenditure of $1.85 million was similarly well below

the $7.1 million average at other Fortune 500 companies.

The Company’s quarterly report on Form 10-Q for the quarter ending December 31,

2012, disclosed the subpoena from the United States Attorney’s Office for the District of

New Jersey and the lawsuit filed by the Attorney General of West Virginia. Similar

disclosures appeared in the Company’s Form 10-Q for the period ending March 30, 2013.

E. The Walgreens Alliance

During 2013, management sought to increase the Company’s sales through an

alliance with Walgreens. By taking on a distribution relationship with Walgreens,

AmerisourceBergen added more than 8,000 retail pharmacies to its portfolio.

AmerisourceBergen estimated that the alliance would increase its orders for controlled

substances by 213%.

By increasing order flow, the alliance increased AmerisourceBergen’s risk of

suspicious orders. Not only that, but Walgreens was already having problems with the

DEA. In June 2013, Walgreens agreed to pay an $80 million fine to the DEA for negligently

allowing opioids to be diverted for misuse.

With the Company expecting to double its orders, management advised the board

that the Diversion Control Group in Regulatory Affairs would increase from just five

employees to seven. The Investigations Group would increase from only four employees

to six. The resources associated with diversion thus would not keep pace with anticipated

growth. In real-world terms, the per-order level of resources was reduced.

22 F. Increasing Regulatory Scrutiny

As 2013 wore on, the regulatory and enforcement environment intensified. In

September 2013, management advised the board that there was an “increasing focus in [sic]

[controlled substances] sales and [order monitoring programs] in US.” Id. ¶ 148. In

November 2013, the board received an update on subpoenas issued by the DEA and

multiple United States Attorneys’ Offices.

The Company’s Form 10-K for the fiscal year ending September 30, 2013, disclosed

the complaint filed by the Attorney General of West Virginia, the subpoenas issued by the

United States Attorney for the District of New Jersey, and additional subpoenas issued by

the United States Attorneys for the Districts of Kansas and the Northern District of Ohio.

The Company’s Form 10-Q for the period ending December 31, 2013, contained similar

disclosures.

Throughout 2014, the directors received reports on the ongoing investigations into

the Company. During its meeting in October 2014, the Audit Committee learned that the

United States Attorneys’ Office for the District of New Jersey had subpoenaed the

Company’s outside auditor as part of a pending grand jury investigation involving the

Company.

During 2014, the Company’s public filings continued to contain disclosures

regarding the investigations being conducted by the United States Attorneys’ Offices and

the lawsuit filed by the Attorney General of West Virginia.

23 G. The Revised OMP

In 2015, against a backdrop of increasing legal scrutiny and already low levels of

suspicious order reporting, management and the board implemented the Revised OMP. The

plaintiffs contend that the Revised OMP was plainly intended to reduce the number of

suspicious orders that the Company would report to the DEA. The plaintiffs assert that,

when viewed in conjunction with the Company’s efforts to expand its opioid distribution

business through measures like the Independent Pharmacy Strategy and the Walgreens

alliance, and in the context of intensifying regulatory scrutiny, the adoption of the Revised

OMP evidences a knowing breach of fiduciary duty in which the directors prioritized

profits over compliance.

In March 2015, Zimmerman and David May, the Director of Diversion Control and

Federal Investigations, gave a presentation to the Audit Committee about the Revised

OMP. The Company was still using the 2007 OMP, which flagged orders using static

thresholds. The Revised OMP added a second test that compared an individual order’s size

against “[d]ynamic thresholds refreshed annually based upon actual consumption data over

the most recent 12-month period.” Id. ¶ 166. It thus added an additional trigger that would

fail only if a current order was inconsistent with the customer’s recent pattern of orders.

Ultimately, both tests needed to fail for an order to be marked as suspicious.

As depicted in a Venn diagram presented to the Audit Committee, the double-trigger

Revised OMP would inevitably result in only a portion of orders flagged for investigation:

24 Ex. 39 at 9. The Audit Committee reported on this presentation to the full board the next

day. After the board meeting, the Revised OMP went into effect. Dkt. 28 at 3–5.

Between 2014 and 2015, the level of suspicious orders that AmerisourceBergen

reported to the DEA declined by 86%, dropping from 14,003 to 1,892. Over the same

period, AmerisourceBergen’s total orders increased by 8.6%, from 20,777,594 to

22,560,562.

Between 2015 and 2016, the level of suspicious orders that AmerisourceBergen

reported to the DEA declined by another 92%, dropping from 1,892 to 139. Over the same

25 period, AmerisourceBergen’s total orders increased by 6.7%, from 22,560,562 to

24,067,791.

The following table shows the impact of the Revised OMP.

Percentage of Orders Flagged and Reported to the DEA 2013 2014 2015 2016

Orders Placed 13,580,197 20,777,594 22,560,562 24,067,791

Orders of Interest 60,499 78,707 83,407 48,888

Orders Reported 24,103 14,003 1,892 139

Percent of All Orders Flagged 0.445% 0.379% 0.370% 0.203% (derived)

Percent of All Orders Reported 0.177% 0.067% 0.008% 0.0006% (derived)

The Revised OMP was not the only problem with the Company’s order monitoring

system. In August 2015, AmerisourceBergen engaged FTI Consulting, Inc. to conduct a

review of how AmerisourceBergen went about investigating orders of interest. FTI

identified a series of deficiencies, including a lack of resources, lack of formal training,

inconsistent policies, and communication breakdowns. The report identified the

Company’s regulatory obligations related to diversion control as one of the “Gaps & Risks”

that needed to be addressed.

H. The Stockholder Litigation Demand

On December 1, 2015, the law firm of Scott + Scott LLP sent a litigation demand

to the board on behalf of a stockholder named James Hays that asked the directors to bring

26 claims against themselves for breaches of fiduciary duty in connection with their failure to

oversee the Company’s diversion control and order monitoring systems. Ex. 55 at 5–6.

The Audit Committee retained Fried, Frank, Harris, Shriver & Jacobson LLP

(“Fried Frank”) to evaluate the demand and make a recommendation regarding whether

the Company should pursue litigation against its directors. On August 4, 2016, Fried Frank

presented its report and recommendations to the board. Fried Frank recommended against

pursuing any claims, and the board adopted that recommendation. See Ex. 56.

Except for reviewing the litigation demand, the board did not take any steps in 2016

to evaluate the Revised OMP. Government investigators subsequently asserted that

AmerisourceBergen’s systems could be manipulated easily to avoid flagging orders as

suspicious and that AmerisourceBergen was not conducting adequate diligence into

customer orders.

As noted, AmerisourceBergen reported only 139 orders in 2016. Despite shipping

millions of opioid pills into West Virginia in 2016, AmerisourceBergen reported only three

suspicious orders for all of the pharmacies in West Virginia.

I. 2017: More Red Flags

In 2017, AmerisourceBergen’s officers and directors were confronted with a steady

stream of red flags. In January 2017, the Audit Committee was informed that

AmerisourceBergen had entered into a $16 million settlement with the State of West

Virginia to resolve claims regarding opioid distribution. The Audit Committee was advised

that other West Virginia County Commissions and cities had filed similar complaints.

27 In May 2017, the Energy and Commerce Committee of the United States House of

Representatives (the “House Committee”) opened a bipartisan investigation into large

opioid shipments to small-town pharmacies in West Virginia. Two months later, United

States Senator Claire McCaskill of Missouri, then the Ranking Member of the Senate

Committee on Homeland Security and Governmental Affairs, requested documents and

information related to AmerisourceBergen’s anti-diversion efforts.

AmerisourceBergen’s order reporting statistics for 2017 resembled its numbers for

2015 and 2016. AmerisourceBergen received 24,319,706 opioid orders. The Company

flagged 87,224 for examination, representing a rate of 0.359%. The Company determined

that only 176 orders were actually suspicious, reflecting a rate of 0.0007% of total orders

and 0.2% of flagged orders.

During 2017, a consortium of attorneys general from forty-one states requested

documents and information from AmerisourceBergen and other opioid distributors as part

of an investigation into their distribution practices. See 220 Decision, 2020 WL 132752,

at *3.

In its annual report on Form 10-K for the fiscal year ending September 30, 2017,

AmerisourceBergen represented to stockholders that its diversion controls were sound. The

annual report stated:

[W]e are deeply committed to diversion control efforts, have sophisticated systems in place to identify orders placed warranting further review to determine if they are suspicious (including through the use of data analytics), and engage in significant due diligence and ongoing monitoring of customers.

Compl. ¶ 295.

28 J. 2018: More Red Flags

In January 2018, after AmerisourceBergen failed to respond to a records request,

the State of Delaware filed a complaint alleging that AmerisourceBergen “routinely and

continuously violated [Delaware] laws and regulations” concerning the distribution of

opioids. Id. ¶ 250. In February, the Cherokee Nation filed a complaint against

AmerisourceBergen for having fueled the opioid crisis in Oklahoma. By this point,

AmerisourceBergen faced 840 cases in state and federal courts, as well as investigations

by the Department of Justice and by United States Attorneys’ Offices in New Jersey, New

York, Colorado, and West Virginia.

Management staunchly defended the Company’s practices. When testifying in May

2018, before the House Committee, the Company’s Chairman, President, and CEO, Steven

Collis, denied that AmerisourceBergen had contributed to the nation’s opioid epidemic and

maintained that the Company’s order management program was fully compliant with law.

Two months later, in July 2018, Senator McCaskill published a report titled Fueling

an Epidemic, Report Three: A Flood of 1.6 Billion Doses of Opioids into Missouri and the

Need for Stronger DEA Enforcement. The Senate report concluded that

AmerisourceBergen, McKesson, and Cardinal Health consistently failed to meet their

reporting obligations regarding suspicious orders. The report observed that

AmerisourceBergen was the most egregious of the three and reported suspicious orders far

less frequently than its competitors. Between 2012 and 2017, AmerisourceBergen shipped

approximately 650 million dosage units to Missouri customers and reported only 224

orders as suspicious. McKesson reported seventy-five times more suspicious orders on

29 similar order volumes. Cardinal Health reported twenty-three times as many orders on half

the volume.

In August 2018, Zimmerman gave a deposition in which he testified that although

he met with the Audit Committee quarterly, he did not regularly provide updates on

diversion controls. He also admitted that his department did not perform periodic,

unexpected audits of the Company’s independent pharmacy customers, even the easily

identifiable and relatively small groups of pharmacies that consistently ordered the highest

volumes of opioids.

In December 2018, the House Committee released a report titled Red Flags and

Warning Signs Ignored: Opioid Distribution and Enforcement Concerns in West Virginia.

The report found that AmerisourceBergen, McKesson, and Cardinal Health failed to

address suspicious order monitoring in West Virginia. It concluded that after the 2007

Settlement with the DEA, AmerisourceBergen initially identified and halted suspicious

orders from West Virginia, but that beginning in 2013, AmerisourceBergen’s reporting of

suspicious orders declined significantly from a high of 792 orders in 2013 to a low of only

three orders in 2016. The report inferred that the trend for AmerisourceBergen’s reporting

of suspicious orders in West Virginia reflected a broader nationwide decline, because on a

per-capita basis, West Virginia had the second-highest number of suspicious orders

reported to the DEA by AmerisourceBergen of all states. Stated differently, in other states

AmerisourceBergen was reporting fewer suspicious orders on a per-capita basis. See

Majority Staff of H. Comm. on Energy & Com., Red Flags and Warning Signs Ignored:

30 Opioid Distribution and Enforcement Concerns in West Virginia 16, 250–55 (Comm.

Print 2018).

The House Committee report concluded that AmerisourceBergen was worse than

its competitors when it came to reporting suspicious orders to the DEA. Between 2007 and

2017, McKesson reported more than 10,000 suspicious orders for West Virginia customers.

AmerisourceBergen only reported 2,000 suspicious orders during the same period.

Id. at 16.

The House Committee report provided examples of how the Independent Pharmacy

Strategy and the “light touch” approach operated in practice. For example, in 2011,

AmerisourceBergen approved Westside Pharmacy as a new customer even though two of

the six prescribing “Pain Doctors” were located substantial distances away from the

pharmacy. AmerisourceBergen did not conduct any investigation into why those doctors

were using Westside Pharmacy to fill their prescriptions. AmerisourceBergen stopped

supplying Westside Pharmacy with opioids in 2012, then approved a new customer

application for Westside Pharmacy in January 2016, without considering the pharmacy’s

prior history with the Company. AmerisourceBergen also did not consult public news

reports that contained red flags about the prescribing physicians. Id. at 19–20.

AmerisourceBergen’s order reporting statistics for 2018 resembled its numbers for

2015, 2016, and 2017. AmerisourceBergen received 26,520,195 opioid orders. The

Company flagged 75,431 for examination, representing a rate of 0.284%. The Company

determined that only 489 orders were actually suspicious, reflecting a rate of 0.0018% of

total orders and 0.6% of flagged orders.

31 In its annual report on Form 10-K for the fiscal year ending September 30, 2018,

AmerisourceBergen repeated its disclosure regarding the quality of its diversion

control program.

K. 2019: Still More Red Flags

In February 2019, the board received a report detailing over 1,600 federal cases that

had been consolidated in a multidistrict litigation before the Northern District of Ohio (the

“Opioid MDL”), numerous cases pending in state courts, an investigation being undertaken

by a coalition of state attorneys general, and subpoenas from numerous United States

Attorneys’ offices. The Attorney General for the State of Florida had filed suit in November

2018, and the Attorney General for the State of Georgia had filed suit in January 2019. The

directors also were informed that the United States Attorney’s Office in the District of New

Jersey was opening a criminal investigation into the Company.

The Company’s report on Form 10-Q for the quarter ending January 30, 2019,

included disclosures regarding the litigation facing the Company. It noted that

AmerisourceBergen was engaged in settlement discussions with the United States Attorney

for the District of New Jersey and stated:

[T]he Company continued to receive additional subpoenas from the USAO- NJ that expanded the scope of the previous subpoenas, asking about the Company’s programs from 2013 through the present. Due to this increase in scope, any previous monetary offers made by the Company are suspended and any settlement discussions are now preliminary and incomplete. The Company has concluded, and we concur, that a loss in this matter is reasonably possible in accordance with ASC 450-20, Contingencies- Loss Contingences; however, the Company is unable to reasonably estimate a range of possible loss.

Compl. ¶ 256 (formatting omitted).

32 In March 2019, the Attorney General for the State of Washington filed suit. The

Attorney General for the State of New York filed its own action that same month.

In May 2019, the plaintiffs served a demand for books and records on

AmerisourceBergen. The plaintiffs explained that they sought to investigate whether the

Company’s directors and officers had committed mismanagement or breached their

fiduciary duties in connection with the distribution of opioids, and they described

AmerisourceBergen’s role in the opioid crisis and the avalanche of legal issues facing the

Company. Astoundingly, AmerisourceBergen rejected the demand in its entirety,

contending that the demand did not state a proper purpose or provide a credible basis to

suspect wrongdoing. Over the next two years, the plaintiffs pursued their books-and-

records action, prevailing first before this court and then on appeal. See

AmerisourceBergen Corp. v. Lebanon Cnty. Empls.’ Ret. Fund, 243 A.3d 417, 422 (Del.

2020) (affirming 220 Decision).

On October 21, 2019, on the eve of trial for one of the bellwether cases in the Opioid

MDL, AmerisourceBergen, McKesson, and Cardinal Health settled for a payment of $215

million.

During 2019, more plaintiffs brought claims against the Company. Cabell County

and the City of Huntington in West Virginia filed a joint complaint against

AmerisourceBergen and other major opioid distributors. The State of Tennessee and the

State of Michigan also filed lawsuits.

AmerisourceBergen’s order reporting statistics for 2019 resembled its numbers for

2015, 2016, 2017, and 2018, albeit with slight increases in the numbers of orders flagged

33 and reported. AmerisourceBergen received 27,030,389 opioid orders. The Company

flagged 66,009 for examination, representing a rate of 0.244%. The Company determined

that only 1,091 orders were actually suspicious, reflecting a rate of 0.004% of total orders

and 1.6% of flagged orders.

In its annual report on Form 10-K for the fiscal year ending September 30, 2019,

AmerisourceBergen repeated its disclosure regarding the quality of its diversion

L. 2021: The Settlements

In 2020, AmerisourceBergen continued to face an onslaught of additional opioid

litigation. AmerisourceBergen’s annual report on Form 10-K for the fiscal year ending

September 30, 2020, again reassured stockholders about the quality of its diversion

In the summer of 2021, AmerisourceBergen, McKesson, and Cardinal Health faced

two significant trials, one in West Virginia and one in New York. Before the New York

trial concluded, the defendants offered a global settlement worth $21 billion to resolve all

claims by the states and localities.

On July 20, 2021, AmerisourceBergen, Cardinal Health, McKesson, and Johnson &

Johnson agreed to settle the New York action for $1.18 billion. They simultaneously

reached an agreement with various other states and localities on a global settlement

involving a payment of $26 billion (the “2021 Settlement”). AmerisourceBergen agreed to

pay approximately $6.4 billion over eighteen years.

34 As part of the 2021 Settlement, AmerisourceBergen agreed to permanent injunctive

relief designed to remedy deficiencies in the Revised OMP and require direct board

oversight of the program. Among other things, AmerisourceBergen agreed to improve its

monitoring of customer red flags, conduct more thorough due diligence investigations, and

use model-based thresholds in a manner that actually identifies and stops suspicious orders.

In addition, AmerisourceBergen agreed to establish the position of Chief Diversion Control

Officer and form a management-level committee that would report regularly to the board

on anti-diversion efforts. AmerisourceBergen also agreed to create a board-level

Compliance Committee to directly oversee the new order management

program. Dkt. 28 at 35.

In return for this package of relief, AmerisourceBergen and the individual

defendants received expansive releases from liability. The plaintiffs view the corporate

governance measures as steps that the defendants could and should have taken years before,

but which they saved to use as settlement currency. Id. at 35 n.118.

As of January 2021, anticipated opioid settlements had caused the Company to

suffer an operating loss of $5.135 billion (approximately $16.65 per share). Despite the

massive harm to AmerisourceBergen, the directors approved a raise of $14.3 million for

Collis as CEO, reflecting an increase of 26%. Id. at 35–36.

II. LEGAL ANALYSIS

The defendants have moved to dismiss the complaint under Rule 12(b)(6) on the

grounds that it fails to state a claim on which relief can be granted. The defendants maintain

that the plaintiffs cannot state a claim for relief because their lawsuit is untimely.

35 When considering a Rule 12(b)(6) motion, the court (i) accepts as true all well-

pleaded factual allegations in the complaint, (ii) credits vague allegations if they give the

opposing party notice of the claim, and (iii) draws all reasonable inferences in favor of the

plaintiffs. Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535

(Del. 2011). Dismissal is inappropriate “unless the plaintiff would not be entitled to recover

under any reasonably conceivable set of circumstances.” Id.

For a court to grant a Rule 12(b)(6) motion on timeliness grounds, the complaint’s

allegations must show that the claim was filed too late. Kahn v. Seaboard Corp., 625 A.2d

269, 277 (Del. Ch. 1993) (Allen, C.). When asserting a timeliness defense, a defendant

argues that even if the claims are viable, the plaintiff cannot assert them, so the court

effectively assumes the validity of the claims, then applies timeliness principles. When

evaluating whether the factual allegations in a complaint support a timeliness defense, a

court “must draw the same plaintiff-friendly inferences required in a 12(b)(6) analysis.”

State ex rel. Brady v. Pettinaro Enters., 870 A.2d 513, 524–25 (Del. Ch. 2005).7

7 The Pettinaro decision asserts that “[t]his plaintiff-friendly stance does not govern assertion of tolling exceptions to the operation of a statute of limitations (or the running of the analogous period for purposes of a laches analysis), however. A plaintiff asserting a tolling exception must plead facts supporting the applicability of that exception.” Id. (citing In re Dean Witter P’ship Litig., 1998 WL 442456, at *6 (Del. Ch. July 17, 1998), aff’d, 725 A.2d 441 (Del. 1999) (TABLE) (“[T]he party asserting that tolling applies . . . bear[s] the burden of pleading specific facts to demonstrate that the statute of limitations was, in fact, tolled.”)). As the quotation from the Dean Witter decision shows, that case supports the proposition that a plaintiff has the burden to allege facts at the pleading stage that support the application of a tolling doctrine. Other authorities say the same thing. E.g., Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1995 WL 694397, at *14 (Del. Ch. Nov. 21, 1995) (Allen, C.) (“Plaintiff has the burden of pleading facts that will qualify the case for the tolling principle.”); In re USACAFES, L.P. Litig., 1993 WL 18769, at *3 (Del. Ch. 36 The plaintiffs advance a Red-Flags Claim and a Massey Claim. No Delaware

decision has addressed how to apply timeliness principles to either type of claim. The

defendants argue for applying the same timeliness principles that would govern any breach

of fiduciary duty claim involving an easily identifiable and singular decision. The

defendants then apply a three-year statute of limitations, treating the Red-Flags Theory and

Massey Theory as if they were claims at law.

Jan. 21, 1993) (“[W]here, as here, plaintiff’s pleading shows on its face that if the applicable statute were applied, the claim asserted would be time-barred, then it is plaintiff’s burden to plead facts which could support a conclusion that, in the circumstances, the running of the statute was tolled.”). The authorities do not support the assertion that once a plaintiff has pled facts that could support the application of a tolling doctrine, the plaintiff does not receive the benefit of pleading-stage inferences that would support the tolling doctrine’s application. Nor does the Pettinaro decision explain why the Rule 12(b)(6) standard would not govern in that instance. Subsequent decisions have repeated Pettinaro’s statement about Rule 12(b)(6)’s inapplicability, without investigation. See, e.g., Matter of Est. of du Pont Dean, 2017 WL 3189552, at *4 (Del. Ch. July 13, 2017); Eni Hldgs., LLC v. KBR Gp. Hldgs., LLC, 2013 WL 6186326, at *11 (Del. Ch. Nov. 27, 2013).

The real difference seems to be between Delaware’s fact-based version of notice pleading under Rule 8 and the heightened requirement of particularized pleading under Rule 9. Consistent with how Delaware applies Rule 8, a plaintiff must plead facts supporting an inference that tolling applies. If the plaintiff invokes fraudulent concealment, then the plaintiff must plead particularized facts in compliance with Rule 9. If there are competing inferences to be drawn from those facts, then the plaintiff gets the benefit of the inference at the pleading stage. That is what Rule 12(b)(6) contemplates, and that is how the rule generally operates on other issues where the plaintiff has the burden, such as on the issue of proving an element of a pled claim. See, e.g., In re Am. Int’l Gp., Inc. Consol. Deriv. Litig., 965 A.2d 763, 805–06 (Del. Ch. 2009) (“But, even though fraud must be stated with particularity, this is still a motion to dismiss, and the Stockholder Plaintiffs are entitled to have me draw all reasonable inferences in their favor.”), aff’d sub nom. Tchrs.’ Ret. Sys. of La. v. PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011) (TABLE).

37 The proper framework for evaluating the timeliness of the Red-Flags Theory and

Massey Theory is the doctrine of laches. When examined within the laches framework,

neither of the plaintiffs’ claims is untimely. The defendants’ Rule 12(b)(6) motion is

therefore denied.

A. The Framework For Analyzing Timeliness

There are two conceptual frameworks for analyzing timeliness: the statute of

limitations and the doctrine of laches. See Whittington v. Dragon Gp., L.L.C., 991 A.2d 1,

7 (Del. 2009) (“Both the doctrine of laches and statutes of limitations function as time bars

to lawsuits.”). Depending on the nature of the claim and the relief requested, a court of

equity may apply either doctrine.

When a plaintiff has advanced a legal claim and seeks a form of relief that is

available from a court at law, such as monetary damages, then the court will apply the

statute of limitations in the same manner as a law court. Perkins v. Cartmell, 1845 WL 493

at *5 (Del. June 1845). Otherwise, a plaintiff could “be placed in a potentially better

position to seek to avoid a statute of limitations than if she had filed in a Delaware court of

law by invoking the more flexible doctrine of laches.” Kraft v. WisdomTree Invs., Inc., 145

A.3d 969, 976 (Del. Ch. 2016). For a legal claim seeking legal relief, a plaintiff should not

be able to end run the statute of limitations by finding a basis for jurisdiction in chancery.

BioVeris Corp. v. Meso Scale Diagnostics, LLC, 2017 WL 5035530, at *5 (Del. Ch. Nov.

2, 2017), aff’d, 2019 WL 244619 (Del. Jan. 17, 2019) (TABLE).

If a plaintiff has presented a court of equity with an equitable claim or if the plaintiff

has sought equitable relief, then the court will apply the doctrine of laches. 2 Donald J.

38 Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware

Court of Chancery § 15.07[d] at 15-88 (2d ed. 2021). “Laches is an affirmative defense

that the plaintiff unreasonably delayed in bringing suit after learning of an infringement of

his or her rights.” Levey v. Brownstone Asset Mgmt., L.P., 76 A.3d 764, 769 (Del. 2013).

“Laches consists of two elements: (i) unreasonable delay in bringing a claim by a plaintiff

with knowledge thereof, and (ii) resulting prejudice to the defendant.” Id.

In this case, the plaintiffs have asserted claims for breach of fiduciary duty, which

is an equitable tort.8 The claim sounds in equity, so the doctrine of laches applies.

If a plaintiff has presented a court of equity with an equitable claim and only seeks

money damages, then a modified form of laches applies. U.S. Cellular Inv. Co. of

Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502 (Del. 1996). In this setting,

“[w]here a plaintiff seeks a legal remedy in a court of equity and a statute of limitations

exists for an analogous action at law, the statutory period may create a presumptive time

period for application of laches to bar a claim.” Id.

B. Unreasonable Delay

The first element of the laches analysis is whether a plaintiff has delayed

unreasonably in bringing the claim. Because the plaintiffs seek money damages, the court

8 Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *54 (Del. Ch. July 12, 2010) (“A breach of fiduciary duty is easy to conceive of as an equitable tort.”); see Restatement (Second) of Torts § 874 cmt. b (Am. L. Inst. 1979), Westlaw (database updated Oct. 2021) (“A fiduciary who commits a breach of his duty as a fiduciary is guilty of tortious conduct . . . .”). See generally J. Travis Laster & Michelle D. Morris, Breaches of Fiduciary Duty and the Delaware Uniform Contribution Act, 11 Del. L. Rev. 71 (2010).

39 looks to the limitations period that would govern a comparable claim at law. Whittington,

991 A.2d at 9. “A filing after the expiration of the analogous limitations period is

presumptively an unreasonable delay for purposes of laches.” Levey, 76 A.3d at 769.

“Conversely, in equity, a lawsuit commenced within the analogous period of limitations is

presumed to have been filed within a reasonable time.” Id. at 769–70 (internal

citation omitted).

A threshold issue challenge is to identify a statutory period for a comparable claim.

Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004). For claims for

breach of fiduciary duty that step is easy, because this court regularly looks to Section 8106

of Title 10 and its three-year limitations period. 10 Del. C. § 8106; see, e.g., Dean Witter,

1998 WL 442456, at *4. The parties agree on that point.

Having identified a statutory period, the court must determine when the claim

accrued, because the limitations period is calculated from that point of claim accrual. Wal-

Mart, 860 A.3d at 319. After that, the court must determine whether any tolling doctrines

could extend the statute of limitations. Id. The result is the analogous time period that forms

the laches baseline.

1. The Time Of Accrual

“In addressing when an action is time-barred, a necessary first step in the analysis

is determining the time when the action accrued.” U.S. Cellular, 677 A.2d at 503; accord

Scharf v. Edgcomb Corp., 864 A.2d 909, 920 (Del. 2004) (“[I]t is imperative to identify a

date certain when any statute of limitations begins to run.”). “[A]ny period of limitation is

utterly meaningless without specification of the event that starts it running. As a practical

40 matter, a 4-year statute of limitations means nothing at all unless one knows when the four

years start running. If they start, for example, on the 10th anniversary of the injury, the 4-

year statute is more akin to a 14-year statute . . . .” Klehr v. A. O. Smith Corp., 521 U.S.

179, 199 (1997) (Scalia, J., concurring).

“The statute of limitations begins to run at the time that the cause of action

accrues . . . .” Largo Legacy Gp., LLC v. Charles, 2021 WL 2692426, at *9 (Del. Ch. June

30, 2021) (quoting Tyson Foods, 919 A.2d at 584). Different jurisdictions use different

rules to determine when a cause of action accrues.

Some states accrue a cause of action when damages have been suffered or are ascertainable. Other states accrue a cause of action at the time of loss. Delaware, by contrast, declined to adopt these or other alternatives. Instead, Delaware is an occurrence rule jurisdiction, meaning a cause of action accrues at the time of the wrongful act, even if the plaintiff is ignorant of the cause of action.

ISN Software Corp. v. Richards, Layton & Finger, P.A., 226 A.3d 727, 732 (Del. 2020)

(cleaned up).

“The ‘wrongful act’ is a general concept that varies depending on the nature of the

claim at issue.” Certainteed Corp. v. Celotex Corp., 2005 WL 217032, *7 (Del. Ch. Jan.

24, 2005). “In Delaware, for contract claims, the wrongful act occurs at the time a contract

is breached.” ISN Software Corp., 226 A.3d at 732 (cleaned up). Thus, “the cause of action

accrues at the time of breach.” Certainteed, 2005 WL 217032, at *7, quoted in ISN

Software Corp., 226 A.3d at 732 n.22. “For tort claims . . . the wrongful act occurs at the

time of injury.” Id. at 732 (cleaned up). But the concept of injury for purposes of accrual

does not require that a plaintiff have suffered quantifiable damages, even if pleading

41 damages is an element of the cause of action. See ISN Software Corp., 226 A.3d at 733

(“Under the Delaware occurrence rule, injury is distinct from damages. The statute of

limitations can start to run before any ‘actual or substantial damages’ occur.”); see also id.

733 n.23. It is enough that there has been an injury, however slight, to the plaintiff’s legal

rights. See Kaufman v. C.L. McCabe & Sons, Inc., 603 A.2d 831, 834 (Del. 1992). “It is

not required that all the damages resulting from the act shall have been sustained at that

time, and the running of the statute is not postponed by the fact that the actual or substantial

damages do not occur until a later date.” Id. (cleaned up).

As noted previously, a claim for a breach of fiduciary duty is an equitable tort. Under

the standard formulation, “[t]he claim has only two formal elements: (i) the existence of a

fiduciary duty that the defendant owes to the plaintiff and (ii) a breach of that duty.” Metro

Storage Int’l LLC v. Harron, 275 A.3d 810, 840–41 (Del. Ch. 2022); accord Estate of Eller

v. Bartron, 31 A.3d 895, 897 (Del. 2011) (“To establish liability for the breach of a

fiduciary duty, a plaintiff must demonstrate that the defendant owed her a fiduciary duty

and that the defendant breached it.”). When a fiduciary makes a decision that the plaintiff

alleges is wrongful, the decision is the wrongful act.9 Like other types of claims, “[a] claim

9 A standard exception is if the implementation of the board decision is conditioned on an additional event, such as a favorable stockholder vote, then a claim challenging the decision does not accrue until the condition is satisfied. See Kaufman v. Albin, 447 A.2d 761, 764 (Del. Ch. 1982); Lavine v. Gulf Coast Leaseholds, Inc., 122 A.2d 550, 552 (Del. Ch. 1956) (Seitz, C.).

42 for breach of fiduciary duty accrues at the time of the wrongful act.” Sutherland v.

Sutherland, 2010 WL 1838968, at *8 (Del. Ch. May 3, 2010).

Applying this test is straightforward when a fiduciary makes an affirmative

decision, such as when a board approves a contract or grants an option. The wrongful act

takes place when the decision is made, and any cause of action for breach of fiduciary duty

accrues at that point. As Chancellor Allen explained in a case where a plaintiff challenged

a decision by an interested board majority to cause the corporation to enter into a contract

with its controlling stockholder,

[a]ny such wrong occurred at the time that enforceable legal rights against Seaboard were created. Suit could have been brought immediately thereafter to rescind the contract and for nominal damages which are traditionally available in contract actions. Complete and adequate relief, if justified, could be shaped immediately or at any point thereafter.

Seaboard, 625 A.2d at 271.

Determining a time of accrual is more difficult when the wrongful act is not a

singular decision but rather an ongoing series of continual decisions and non-decisions that

extend over time. Courts have adopted different approaches depending on different

settings. See, e.g., Eric C. Surette, Annotation, Accrual of Claims for Continuing Trespass

or Continuing Nuisance for Purposes of Statutory Limitations, 14 A.L.R.7th art. 8 (2016

& Supp); 4 Am. Jur. Trials 441 § 6 (1966).

One approach is to apply the same methodology used for discrete acts and look to

the point at which the ongoing series begins. A seminal law review article on limitations

periods explains that under this approach, “the period limiting actions to recover for all

harm may commence upon the occurrence of the first invasion of the plaintiff’s rights.”

43 Developments in the Law Statutes of Limitations, 63 Harv. L. Rev. 1177, 1205 (1950)

[hereinafter Developments]; see Kyle Graham, The Continuing Violations Doctrine, 43

Gonz. L. Rev. 271, 273 n.7 (2008) (describing Developments as “seminal”).

Chancellor Allen’s decision in Seaboard can be interpreted as applying this

approach. The interested contract concerned “a ten year time charter of seven vessels”

which required the company to pay substantial management fees and other sums over the

ten-year period. 625 A.2d at 270. The corporation and its controller entered into the

contract in 1986, but the plaintiff did not sue until 1990. Chancellor Allen rejected the

plaintiff’s contention that the approval of the contract created an ongoing wrong that lasted

for all ten years of the contracting period. He reasoned that “the only liability matter to be

litigated involves defendants’ 1986 actions in authorizing the creation of these contract

rights and liabilities.” Id. at 1036. The cause of action accrued at the time of that

distinct act. The next ten years involved the implementation of the contract and the possible

manifestation of damages, but not an ongoing wrongful act or a series of wrongful acts.

A second approach aggregates into a single unit “a series of related and assertedly

wrongful acts, decisions, or failures to act (each of which may or may not be sufficient on

its own to form the basis for a separate claim) occurring both within and outside of the

limitations period prior to suit.” Graham, supra, at 280. Under the aggregation approach,

the limitations period does not commence until the defendant ceases his wrongful conduct,

because as long as the harm is ongoing, the cause of action is not yet complete.

Developments, supra, at 1205.

44 This approach is often called the continuing wrong doctrine.10 To plead a continuing

wrong, the plaintiff must allege that the various acts are “so inexorably intertwined that

there is but one continuing wrong.” Ewing v. Beck, 520 A.2d 653, 662 (Del. 1987). When

a court determines that a continuing wrong exists, “the cause of action is timely so long as

the last act evidencing the continuing wrong falls within the limitations period. That is, the

cause of action does not accrue until the last act of the continuing wrong.” Kerns v. Dukes,

2004 WL 766529, at *4 (Del. Ch. Apr. 2, 2004).

Designating a cause of action as a continuing wrong has significant implications for

liability and damages, because it means that a court can impose liability, and a plaintiff can

recover damages for the entire period during which the continuing wrong took place,

including for periods that plainly preceded the applicable limitations period. Graham,

supra, at 280–81. By contrast, under the discrete act approach, if the course of conduct

began outside the limitations period, then the plaintiff cannot recover at all, even if the

discrete act resulted in damage that manifests itself within the limitations period. See 54

C.J.S. Limitations of Actions § 279, Westlaw (database updated Nov. 2022).

10 Other labels include the “continuing violation doctrine” (or the “continuing violations doctrine”). See Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 110, 114 (2002). When tort claims are involved, it can be called the “continuing tort doctrine.” Matson v. Burlington N. Santa Fe R.R., 240 F.3d 1233, 1236–38 (10th Cir. 2001) (applying the continuing tort doctrine). When contract claims are involved, it can be called the “continuing breach doctrine.” See AM Gen. Hldgs. LLC v. The Renco Gp., Inc., 2016 WL 4440476, at *11–13 (Del. Ch. Aug. 22, 2016) (applying the continuing breach doctrine).

45 “Hostile work environment claims brought under Title VII of the Civil Rights Act

of 1964 offer the paradigmatic example of this type of continuing violation.” Graham,

supra, at 281. The Supreme Court of the United States has explained that the very nature

of a hostile work environment claim “involves repeated conduct.” Morgan, 536 U.S. at

115. “The ‘unlawful employment practice’ therefore cannot be said to occur on any

particular day. It occurs over a series of days or perhaps years and, in direct contrast to

discrete acts, a single act of harassment may not be actionable on its own.” Id. The Court

distinguished the ongoing nature of a hostile work environment from “[d]iscrete acts such

as termination, failure to promote, denial of transfer, or refusal to hire.” Id. at 114–15.

A plaintiff alleging a [continuous] hostile work environment can recover for all injurious manifestations of that environment, regardless of when they occurred, whether they would be actionable if sued upon individually, and when the plaintiff discovered the essential facts supporting his or her claim, provided that the same hostile environment persisted up into the limitations period prior to the filing of an administrative charge.

Graham, supra, at 281.

This court applied the continuing wrong doctrine to a claim for breach of fiduciary

duty in Frederick Hsu Living Trust v. ODN Holding Corp., 2017 WL 1437308 (Del. Ch.

Apr. 14, 2017). The complaint supported a reasonable inference that between 2011 and

2015, a private equity firm and its conflicted representatives on the board of one of its

portfolio companies caused the portfolio company to sell off its assets to create a pool of

cash that the company would be forced to use to redeem the preferred stock held by the

private equity firm. The defendants sought to treat each sale of an asset as a separate

transaction to which a separate limitations period would apply, resulting in the complaint

46 being filed too late to challenge some of the transactions. The court rejected that argument,

holding that it was reasonable to infer that “the defendants’ actions outside the limitations

period were all ‘inexorably intertwined’ with the redemptions that eventually occurred.”

Id. at *43. As a result, the plaintiff could not assert a claim until the redemption occurred,

and the cause of action did not accrue until the redemption took place.11

A third approach takes ongoing conduct and “dissects [the] misbehavior, instead of

aggregating it.” Graham, supra, at 281. It thus “regards the perpetuation of, or (in some

cases) failure to redress prior misconduct as wrongful and actionable in its own right,

giving rise to a series of separate and fresh claims accruing within the limitations period

on a day-by-day, act-by-act, or similarly parsed basis.” Id. Under this approach, “each

11 Id. Delaware courts have also considered the continuing wrong doctrine when applying the contemporaneous ownership requirement imposed by Section 327 of the Delaware General Corporation Law, 8 Del. C. § 327. The court has held that a series of similar decisions, such as a series of stock option grants, does not constitute a continuing wrong for purposes of the contemporaneous ownership requirement. See Desimone v. Barrows, 924 A.2d 908, 924–35 (Del. Ch. 2007) (“[T]he continuing wrong doctrine does not bestow standing upon a stockholder to challenge transactions occurring before he bought his stock simply because they are similar or related to transactions or other conduct that occurred later.”); Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007) (holding that a plaintiff lacked standing to challenge backdated options grants occurring before he acquired his shares even though similar backdated grants continued to be made after the plaintiff became a stockholder”); see also Chirlin v. Crosby, 1982 WL 17872, at *2–3 (Del. Ch. 1982) (“The allegations of a continuing wrong . . . merely attempt to obscure the fact that the plaintiffs are actually complaining about the alleged diversion which took place [before the plaintiff acquired his stock].”); Newkirk v. W.J. Rainey, Inc., 76 A.2d 121, 123 (Del. Ch. 1950) (“Of course, in one sense every wrongful transaction constitutes a continuing wrong to the corporation until remedied. But if the rule embodied in [§ 327’s predecessor statute] is to be meaningful, then clearly ‘continuing wrong’ cannot be construed in such a sense because it would substantially defeat the statutory policy embodied in [§ 327’s predecessor statute].”).

47 continuation or repetition of the wrongful conduct may be regarded as a separate cause of

action for which suit must be brought within the period beginning with its occurrence.”

Developments, supra, at 1205. This decision refers to this approach as the separate

accrual doctrine.12

Writing while as a member of this court, then-Vice Chancellor Strine applied a

version of the separate accrual doctrine in Teachers’ Retirement System of Louisiana v.

Aidinoff, 900 A.2d 654 (Del. Ch. 2006). Stockholder plaintiffs sued derivatively on behalf

of American International Group, Inc. (AIG) to invalidate and recover damages based on

various managing general agent agreements between AIG and entities controlled by its

CEO. The defendants argued that the agreements had been put in place thirty years earlier

12 The terminology is unsettled, and one commentator notes that the continuing wrong approach and the separate accrual approach are “frequently confused or conflated.” Graham, supra, at 275. He refers to a wrongful act subject to the continuing wrong approach as a “pure continuing violation,” while calling a wrongful act subject to the separate accrual approach as a “modified continuing violation.” Graham, supra, at 283.

Even one of the Delaware greats was not immune. In Seaboard, Chancellor Allen used the term “continuing wrong” to describe a separate accrual theory, writing that

[w]here a continuing wrong acts as an answer to the defense of limitations it is typically the case that plaintiff can prove her claim by reference only to actions within the limitations period. Thus, for example, if plaintiff is complaining about a nuisance (a noise for example) emitted by a neighborhood plant for, say five years, plaintiff can prove her claim by proving the elements of the claim which occur daily or weekly or whenever, within the limitations period. It is irrelevant for limitations purposes that these daily or weekly invasions have been going on for years.

625 A.2 at 1035–36 (internal citation omitted). 48 such that any challenge was time-barred. Id. at 666. The court rejected that argument,

noting that the board “had the business option of choosing not to continue that relationship

annually, the complaint is not untimely as to the payments made to Starr in the period 2000

to 2004—i.e., those payments beginning three years before the filing of the original

complaint.” Id. In reaching this conclusion, the court treated each year of performance

under the contract as a newly accrued claim. Id.; see also Price v. Wilm. Tr. Co., 1995 WL

317017, at *2 (Del. Ch. May 19, 1995) (applying separate accrual approach to claim that

trustee breached its fiduciary duties and violated its contractual obligations by imposing a

series of excessive charges over a seven-year period).

Applying the separate accrual theory has important implications for liability and

damages. The plaintiff can prove liability and recover for acts that occurred during the

limitations period, even if other aspects of the ongoing conduct occurred outside of the

limitations period. See ODN Hldg., 2017 WL 1437308, at *43; Seaboard, 625 A.2 at 1035–

36; Graham, supra, at 282.

Claims of copyright infringement provide the paradigmatic example of this

approach. Acts of infringement that are substantially similar can span an extended period,

but copyright law imposes a three-year statute of limitations. See 17 U.S.C. § 507(b). A

circuit split emerged between a minority position that applied the continuing wrong

doctrine and a majority position that applied the separate accrual doctrine. Compare Taylor

v. Meirick, 712 F.2d 1112 (7th Cir. 1983) (Posner, J.) (continuing wrong), with Danjaq

LLC v. Sony Corp., 263 F.3d 942, 954 (9th Cir. 2001) (separate accrual). The Supreme

Court of the United States resolved the circuit split by adopting the separate accrual

49 approach and holding that an ongoing infringement should be treated as a series of

infringing acts such that the limitations period extends backward from the time of suit.

Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 671, 677 (2014); see 2 Howard B.

Abrams & Tyler T. Ochoa, The Law of Copyright § 16:18, Westlaw (database updated

Oct. 2022).

Ongoing breaches of fiduciary duty under the Employment Retirement Income

Security Act (ERISA) are also governed by the separate accrual approach. 13 In an

illustrative decision, the United States District Court for the Southern District of New York

considered a claim alleging that the fiduciaries of an employee benefit plan breached their

fiduciary duties by failing to divest from improper investments in individual life insurance

policies. Buccino v. Cont’l Assur. Co., 578 F. Supp. 1518, 1521 (S.D.N.Y. 1983). The court

rejected the defendants’ argument that the claim was time barred because the initial

decision occurred outside the limitations period. Id. at 1520–21. The court reasoned:

13 60A Am. Jur. 2d Pensions § 754 (“Where the fiduciary breach is a recurring one, the limitations period for an action under [ERISA] with respect to the breach or violation of a fiduciary duty is triggered anew each time another in the series of violations occurs, as, for example, each time a pension fund is injured as a result of unlawful investments or excessive benefit payments.” (footnotes omitted)); see Morrissey v. Curran, 567 F.2d 546 (2d Cir. 1977) (holding claim timely under ERISA for breach of duty from failing to divest plan of unlawful investment even though original decision to invest pre-dated ERISA and was lawful); see also Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of Cal., Inc., 522 U.S. 192, 195 (1997) (concluding that when an employer fails to make obligatory installment payments under ERISA, “each missed payment creates a separate cause of action with its own . . . limitations period”); Bd. of Trustees of Dist. No. 15 Machinists’ Pension Fund v. Kahle Eng’g Corp., 43 F.3d 852, 857–861 (3d Cir. 1994) (statute of limitations runs from each missed ERISA payment, but damages are limited to those that fall within limitations period).

50 The flaw in defendants’ argument is that as Fund fiduciaries they were under a continuing obligation to advise the Fund to divest itself of unlawful or imprudent investments. Their failure to do so gave rise to a new cause of action each time the Fund was injured by its continued possession of individual policies, that is, each time it made a premium payment.

Id. at 1521. Consistent with the separate accrual rule, the court limited the trustees’ liability

to the harm suffered within the limitations period.14

When deciding on the accrual method for a particular claim, commentators

recommend considering the gravamen of the claim and the nature of the harm, the accrual

method’s ability to maximize the equities and efficiencies of litigation, and the extent to

which the method appropriately balances the policy considerations associated with statutes

of limitations.15 On one side of the ledger are considerations associated with finality,

14 Id. at 1522. Continuing antitrust violations also implicate the separate accrual rule. See Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1051 (5th Cir. 1982) (“[T]he continuing conspiracy or continuing violation exception . . . permits a cause of action to accrue whenever the defendant commits an overt act in furtherance of an antitrust conspiracy or, in the absence of an antitrust conspiracy, commits an act that by its very nature is a continuing antitrust violation.”); Barnosky Oils, Inc. v. Union Oil Co. of Cal., 665 F.2d 74, 81 (6th Cir. 1981) (“When a continuous antitrust violation is alleged, a cause of action accrues each time a plaintiff is injured by an act of the defendants.”). 15 See Graham, supra, at 277, 283; Developments, supra, at 1200–01. There are other possible accrual approaches beyond the three discussed above the line. Under one alternative, “the period for all harm may be postponed until there is a manifestation of compensable harm.” Developments, supra, at 1205. Many jurisdictions follow a rule in which a plaintiff must suffer some compensable harm before being able to file suit, and in those states, a cause of action does not accrue until that element is satisfied. Id. at 1204. There is much to recommend that approach as a method of avoiding premature lawsuits over wrongs that never blossom into damages, while at the same time providing a concrete setting for litigating actual harms. Delaware, however, has declined to tie accrual to the 51 including the advantages that repose has for the certainty of legal relationships, the savings

of judicial and litigant resources that result from avoiding litigation over stale claims, and

the improved reliability of results when evidence is fresh. On the other side of the ledger

are considerations associated with access to justice, including the importance of providing

plaintiffs with a fair opportunity to present their claims and the savings of judicial and

litigant resources that result from avoiding premature lawsuits on issues that may never

ripen into meaningful disputes.16 For Delaware corporate law, an additional policy

realization of compensable damages. ISN Software, 226 A.3d at 732–33, 733 n.23. That alternative would be inconsistent with Delaware law.

Courts have developed a variety of other approaches when wrestling with the accrual of civil RICO claims. See generally G. Robert Blakey, Time-Bars: Rico-Criminal and Civil-Federal and State, 88 Notre Dame L. Rev. 1581 (2013); Paul B. O’Neill, “Mother of Mercy, Is This the Beginning of RICO?”: The Proper Point of Accrual of A Private Civil RICO Action, 65 N.Y.U. L. Rev. 172 (1990). As with a Caremark claim, a plaintiff pursuing a civil RICO claim must use a variety of sources to piece together wrongful conduct that is difficult to identify and which may have occurred over a lengthy period. Taking into account those features of the claim, courts have developed a range of possible accrual rules. See Blakely, supra, at 1702–30; O’Neill, supra, at 197–234. Those regimes each have their pros and cons, and each could be tailored to a Red-Flags Theory or a Massey Theory. This decision has tried to stay closer to home and consider only accrual regimes that Delaware courts have used previously to evaluate claims for breach of fiduciary duty. 16 See generally Melissa DiVincenzo, Repose vs. Freedom—Delaware’s Prohibition on Extending the Statute of Limitations by Contract: What Practitioners Should Know, 12 Del. L. Rev. 29, 31 (2010) (identifying rationales for statutes of limitations); Graham, supra at 277 (same); Developments, supra, at 1200–03 (same).

52 consideration is our reliance on private litigants to enforce legal norms and provide

fiduciary accountability.17

a. The Red-Flags Theory

One possibility would be to use the discrete act approach for the Red-Flags Theory.

That approach makes the most sense when (i) the gravamen of the action involves a finite

quantum of conduct that causes all of the harm which may result, such that the continuation

or repetition of the act will not increase the plaintiff’s damages, and (ii) the initial impact

of the act provides the potential plaintiff with both knowledge of the conduct and an

incentive to sue. See Developments, supra, at 1205. When a claim has those features, the

discrete act approach gives a plaintiff an incentive to proceed promptly by filing a single

suit that can address all of the harm resulting from the discrete act. By contrast, either a

continuing wrong or a separate accrual approach makes more sense when it is difficult to

identify a clear starting point for a claim, and the harm develops gradually over time.

Id. at 1207.

17 See, e.g., Bird v. Lida, Inc., 681 A.2d 399, 402–03 (Del. Ch. 1996) (Allen, C.) (discussing system of private enforcement); Reinier Kraakman et al., When Are Shareholder Suits in Shareholder Interests?, 82 Geo. L.J. 1733, 1733 (1994) (“Shareholder suits are the primary mechanism for enforcing the fiduciary duties of corporate managers.”); Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1, 10 (1991) (“The shareholder’s derivative suit is one of many devices in corporate law for controlling these conflicts between managers and shareholders.”); Donald E. Schwartz, In Praise of Derivative Suits: A Commentary on the Paper of Professors Fischel and Bradley, 71 Cornell L. Rev. 322, 323 (1986) (“Liability rules, enforced by shareholder litigation, are theoretically sound and profoundly affect the conduct of corporate managers, at least some aspects of their duties.”).

53 The gravamen of a Red-Flags Theory is that management and the directors

“consciously failed to monitor or oversee [the corporation’s] operations thus disabling

themselves from being informed of risks or problems requiring their attention.” Stone, 911

A.2d at 370. To plead a Red-Flags Theory, a plaintiff might allege, for example, that the

directors

ignored “red flags” indicating misconduct in defiance of their duties. A claim that an audit committee or board had notice of serious misconduct and simply failed to investigate, for example, would survive a motion to dismiss, even if the committee or board was well constituted and was otherwise functioning.

David B. Shaev Profit Sharing Acct. v. Armstrong, 2006 WL 391931, at *5 (Del. Ch. Feb.

13, 2006) (footnote omitted).

A Red-Flags Theory thus has two aspects. One involves the initial decision to

consciously ignore a particular red flag. The other involves the ongoing series of explicit

or implicit decisions to continue consciously ignoring the red flag. Fiduciaries who have

committed a knowing failure to act on day one will engage in the same knowing failure on

day two and on each day thereafter until they eventually respond to the red flag. A Red-

Flags Theory is thus not solely a discrete act; it has an ongoing dimension.

Another feature of a Red-Flags Theory is that there is rarely a single and definitive

red flag. Grounds for alarm typically add up over time. Admittedly there sometimes will

be a clear and dramatic event, such as an airplane crash, that shines like a beacon and puts

directors on notice. See In re Boeing Co. Deriv. Litig., 2021 WL 4059934, at *34 (Del. Ch.

54 Sept. 7, 2021). (“The Lion Air Crash was a red flag about [a new software system] that the

Board should have heeded but instead ignored.”). More commonly, the situation evolves.18

The same is true for the harm. Yes, there will be rare cases in which the failure to

ignore a clear red flag like an airplane crash leads to immediate harm, such as a second

airplane crash and a business shutdown. See Boeing, 2021 WL 4059934, at *17. More

commonly, the initial decision to ignore a red flag may have no immediate effect, and

meaningful injury may not result until years later. In this case, the harm that

AmerisourceBergen suffered escalated over a decade, with AmerisourceBergen bearing

litigation costs, suffering reputational damage, and paying out individual settlements along

the way before ultimately agreeing to massive settlements in 2021.

Those features make a discrete act approach ill-suited to a Red-Flags Theory. Using

a discrete act approach would treat a Red-Flags Theory as if the fiduciaries made a singular

decision, ignoring its ongoing dimension. The approach also would treat a Red-Flags

Theory as if the singular act of ignoring the first red flag was both easily identifiable to a

18 See, e.g., Hughes v. Hu, 2020 WL 1987029 (Del. Ch. Apr. 27, 2020) (denying motion to dismiss where board received multiple audit reports identifying audit risks and control weaknesses over three-year period); Teamsters Local 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065 (Del. Ch. Aug. 24, 2020) (denying motion to dismiss 2019 complaint, which alleged board ignored red flags dating back to 2006 that indicated non- compliance with federal Food and Drug Administration regulation); cf. Reiter v. Fairbank, 2016 WL 6081823, at *13 (Del. Ch. Oct. 18, 2016) (finding company’s “escalating . . . compliance risk” and “heightened regulatory scrutiny” over two-year period were “yellow flags of caution”).

55 plaintiff outside the organization and would lead by itself to all of the harm that the entity

would suffer. Neither is true.

A discrete act approach also fares poorly when evaluated from the standpoint of the

equities and efficiencies of litigation and the policy considerations associated with

limitations periods. To be sure, a discrete act approach is more likely to deliver the benefits

of repose to defendants, because it is more likely to result in claims being time-barred. But

the discrete act approach achieves these benefits at the cost of providing a fair opportunity

for plaintiffs to present their claims.

Ordinarily, a discrete act approach might be expected to encourage the prompt

enforcement of claims while conserving judicial and litigant resources by barring stale

claims, but those benefits are unlikely for a Red-Flags Theory. The chronic problem in

stockholder derivative litigation involves entrepreneurial plaintiffs’ counsel seeking to sue

too quickly because of the competitive dynamics involved in gaining control of a case. See

La. Mun. Police Empls.’ Ret. Sys. v. Pyott, 46 A.3d 313, 336 (Del. Ch. 2012) (describing

competitive dynamics that lead to fast filing), rev’d on other grounds, 74 A.3d 612 (Del.

2013). The Delaware courts have consistently dismissed cases where stockholders sued

quickly without taking the time to conduct a meaningful investigation. Id. at 343–44. “Put

simply, fast-filing generates dismissals.” Id. at 344.

Under a discrete act regime, more plaintiffs are likely to file suit prematurely rather

than risk having the limitations period run. That understandable response will generate

cases about conceptual harms that may never ripen into meaningful disputes. As a

56 consequence, both courts and litigants consume resources addressing matters that are not

ready for litigation.

And there is another problem. The decisions addressing premature complaints are

likely to result in dismissals, which under current law have preclusive effect on the ability

of any other stockholder to pursue the same or similar claims. See Cal. State Tchrs.’ Ret.

Sys. v. Alvarez, 179 A.3d 824, 843–44 (Del. 2018) (holding that Rule 23.1 dismissal had

preclusive effect under standard that required a final judgment on the merits); Pyott v. La.

Mun. Police Employs.’ Ret. Sys., 74 A.3d 612, 617 (Del. 2013). That outcome undercuts

the accountability system of Delaware law. Meanwhile, because the premature lawsuits are

unlikely ever to reach the merits, the potential benefits from resolving cases while evidence

is fresh never arise. Instead, premature lawsuits are likely to increase the number of

pleading-stage false negatives, resulting in preclusive dismissals in situations where a

complaint filed later and after greater diligence could demonstrate the need for post-

pleading-stage investigation.

Requiring a plaintiff to file suit within the limited period of time tied to an initial

wrongful act makes sense for purposes of a discrete act. When the wrongdoing is ongoing,

cutting off the accountability mechanism allows the wrongdoing to continue. Delaware

should not be in the business of facilitating ongoing wrongdoing, suggesting that the

discrete act approach should not be the law for a Red-Flags Claim.

That conclusion leads to the next possibility, which would be to apply the continuing

wrong approach and treat a Red-Flags Theory as viable until the fiduciary takes action to

57 address the red flags. Conceptually, that approach is a better fit, but it goes too far in the

other direction.

From the standpoint of the gravamen of the claim, the continuing wrong approach

presents the mirror image of the discrete act approach. The continuing wrong approach

affords full significance to the ongoing nature of the decision to ignore red flags, but de-

emphasizes the reality that the ongoing act started at some point. It thus fits no better than

the discrete act approach.

The continuing wrong approach does better than the discrete act approach in

accommodating the origins and nature of the harm. Using a continuing wrong approach

acknowledges that it is difficult for an outsider to determine when the first red flag is

ignored. It also acknowledges that the harm from ignoring red flags is likely to grow

over time.

In terms of the equities and efficiencies of litigation and the policy considerations

associated with limitations periods, the continuing wrong approach generates a range of

benefits and detriments. Most notably, the approach does not deliver the benefits of repose

to defendants until the ongoing conduct stops. It thus opens the door to the potential

litigation of stale claims and a greater risk of erroneous results as memories fade and

evidence is lost. Counterbalancing those effects are the benefits of avoiding an additional

incentive for the filing of premature lawsuits. On the margin, using the approach could lead

to additional litigation over events long past, with concomitant burdens on the parties and

the courts.

58 The third possibility is the separate accrual approach. It provides a

Goldilocks solution.

In terms of the gravamen of the claim, the separate accrual approach recognizes that

a Red-Flags Theory has two dimensions. The wrong began at some point, but also persists

until the fiduciaries correct it. The ability of a board to take action to end a red flag scenario

makes the situation analogous to Aidinoff, where the board had the option each year to

terminate the offending contracts. The separate accrual approach acknowledges both

aspects of the claim.

The separate accrual approach also accommodates the difficulty in identifying the

accrual of a claim from outside the organization and the nature of the harm. The separate

accrual approach does not require a plaintiff to sue quickly and potentially prematurely.

Once a corporate trauma has occurred, a plaintiff can sue on the corporation’s behalf for

the harm that the corporation suffered during the actionable period leading up to the

lawsuit. When a corporation has suffered a trauma, the actionable period should encompass

the bulk of the harm. Unlike the discrete act approach, there is no risk that an early point

of accrual will make the wrongdoing non-actionable in its entirety. And unlike with the

continuing wrong approach, there is no risk that the damages figure can extend back across

time to the earliest possible act.

In terms of equities, efficiencies, and policy considerations, the separate accrual

approach strikes an appropriate balance by respecting the important interests served by

limitations periods while preserving a litigation vehicle that can provide accountability and

generate compensation for injuries. The separate accrual method provides a measure of

59 repose to defendants by recognizing that some wrongdoing has occurred too far in the past

to be actionable. And by avoiding damages claims involving events long past, the separate

accrual method reduces the risk of erroneous results based on stale evidence. At the same

time, the separate accrual approach does not simplistically treat the wrong as a singular

event such that after the limitations period has run, the ongoing wrongdoing can continue

with impunity. By recognizing the ongoing nature of the wrong, the separate accrual

approach preserves the ability of the corporation to recover for harms that it has suffered

during the actionable period and facilitates meaningful litigation oversight. Meanwhile, the

focus on the actionable period promotes the likelihood of accurate results by centering the

litigation on periods of time when the evidentiary record is relatively fresh.

This decision therefore concludes that to determine the time at which the Red-Flags

Claim accrued, the proper method is the separate accrual approach.

b. The Massey Theory

Similar considerations apply to the Massey Theory. The principal difference is that

in a Red-Flags Claim, the fiduciary makes a conscious decision to ignore red flags. In a

Massey Claim, the fiduciary makes a conscious decision to prioritize profit over

legal compliance.

The analysis of the gravamen of the claim and the nature of the harm proceeds along

similar lines. Like a Red-Flags Theory, a Massey Theory combines an initial wrongful act

with the ongoing continuation of that act. The initial wrongful act underlying a Massey

Claim is more prominent and serious, because the plaintiff must allege that the defendants

made a specific decision to pursue profit over legal compliance. But the wrongful act does

60 not end on that date. The ongoing violation continues as the company pursues the illegal

strategy. As in Aidinoff, the fiduciaries can decide at any time to stop the illegal business

plan and take corrective action.

A Massey Theory also resembles a Red-Flags Theory in that it may be difficult to

identify a specific point at which the wrongful decision was made. Corporate fraud and

illegality can involve deliberateness from the outset, but it often manifests as a classic

slippery-slope problem, where what eventually manifests as wrongdoing “starts small and

innocently and then builds.” Donald. C. Langevoort, Selling Hope, Selling Risk:

Corporations, Wall Street, and the Dilemmas of Investor Protection, 36 (2016). What

results is

a process that begins with some period of time during which there is no perception of wrongfulness that needs rationalization, which only later turns into awareness that something is amiss. Precisely because of the now-deep commitment, the cognitive pressure to justify deception at this point is stronger than it would be at the outset, and self-serving inference goes to work . . . . The third stage comes late in the process: the realization that one’s rationalizations were just that.

Id. at 37.

This case presents that possibility. The plaintiffs argue that management and the

board adopted a business plan that prioritized profits over compliance based on decisions

they made over a five-year period, starting with the Independent Pharmacy Strategy,

continuing with the Walgreens alliance, and culminating in the adoption of the Revised

OMP, with disregard for regulatory compliance and order-diversion monitoring along the

way. The plaintiffs allege, as they must, that the wrongful business strategy started with

the Independent Pharmacy Strategy, and they view the Revised OMP as definitive evidence

61 of the type of conscious disregard of consequences that evidences bad faith. They concede,

however, that the case for inferring that management and the board knowingly pursued an

illegal business strategy grows stronger over time. It is possible that different members of

management and the board crossed the line at different points. Perhaps some members of

management had the whole plan in mind at the outset. Perhaps some members of the board

only reached the point of conscious disregard with the Revised OMP.

As with a Red-Flags Theory, the evolving nature of the Massey Theory makes it

difficult to identify from the outside when the claim accrues for filing purposes. And as

with a Red-Flags Theory, the damages that a Massey Claim generates are likely to increase

over time. Indeed, with a Massey Claim, the business plan initially may generate positive

results, precisely because the plan prioritizes profit over legal compliance. Only as the

problems associated with legal noncompliance accumulate will the negative consequences

become apparent, eventually bursting forth as a corporate trauma.

From the standpoint of the gravamen of the claim and the nature of the harm, the

Red-Flags Theory and the Massey Theory operate similarly. Just as those considerations

support rejecting the discrete act approach for a Red-Flags Theory, they counsel similarly

against using the discrete act approach for a Massey Theory.

The analysis of the equities and efficiencies of litigation and the policies associated

with limitations periods is also similar. Even more so than with a Red-Flags Theory, a

discrete act approach would be likely to fixate on the initial decision to adopt an illegal

business plan and risk insulating the ongoing pursuit of that plan from a challenge. Such

62 an approach would provide the defendants with repose and finality, but at the expense of

deterrence, accountability, and compensation for injury.

The real question for the Massey Theory is whether there is an additional degree of

culpability associated with the affirmative adoption of a business plan that prioritizes profit

over legal compliance such that the continuing wrong approach should apply rather than

the separate accrual approach. Notwithstanding Delaware authorities equating action and

conscious inaction,19 humans intuitively distinguish between the two and associate greater

culpability with an affirmative act rather than a conscious decision not to act.20

19 See Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) (subsequent history omitted) (“[A] conscious decision to refrain from acting may nonetheless be a valid exercise of business judgment and enjoy the protections of the rule”); Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 183 (Del. Ch. 2014) (“The Complaint alleges that the Board had the ability to defer interest payments on the Junior Notes, that the Junior Notes would not receive anything in an orderly liquidation, that [Defendant] owned all of the Junior Notes, and that the Board decided not to defer paying interest on the Junior Notes to benefit [Defendant]. A conscious decision not to take action is just as much of a decision as a decision to act.”); In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, at *23 (Del. Ch. May 21, 2013) (“The Special Committee decided not to take any action with respect to the Audit Committee’s termination of two successive outside auditors and the allegations made by Ernst & Young. The conscious decision not to take action was itself a decision.”); Krieger v. Wesco Fin. Corp., 30 A.3d 54, 58 (Del. Ch. 2011) (“Wesco stockholders had a choice: they could make an election and select a form of consideration, or they could choose not to make an election and accept the default cash consideration.”); Hubbard v. Hollywood Park Realty Enters., Inc., 1991 WL 3151, at *10 (Del. Ch. Jan. 14, 1991) (“From a semantic and even legal viewpoint, ‘inaction’ and ‘action’ may be substantive equivalents, different only in form.”); Jean-Paul Sartre, Existentialism Is a Humanism 44 (Carol Macomber trans., Yale Univ. Press 2007) (“[W]hat is impossible is not to choose. I can always choose, but I must also realize that, if I decide not to choose, that still constitutes a choice.”). 20 See, e.g., George C. Christie, The Defense of Necessity Considered from the Legal and Moral Points of View, 48 Duke L.J. 975, 1013 (1999) (applying intuition to the Trolley Problem and analogizing to common law distinction between misfeasance and 63 Using the continuing wrong approach might be compelling for a claim against

officers and directors who had embraced the Chicago School concept of “law as price.”21

Assume that a board and management team made a conscious decision to violate the

nonfeasance). This intuition may stem in part from lived experience in which inaction is less likely to be intentional. That intuition breaks down when, as with a Massey Claim and a Red-Flags Claim, the two scenarios require the same level of moral culpability—in this instance, bad faith. Cf. Richard S. Kay, Causing Death for Compassionate Reasons in American Law, 54 Am. J. Comp. L. 693, 712 (2006) (explaining that the persistence of a distinction between action and inaction “may reflect some idea that inaction often can be explained by inadvertence or mistake, while positive actions are, more generally, intentional” and that when the categories each involve intentional decisions, “the differential legal treatment of misfeasance and nonfeasance seems contrived”). 21 See, e.g., Daniel R. Fischel, The Corporate Governance Movement, 35 Vand. L. Rev. 1259, 1271 (1982) (“A firm may also find it advantageous to violate a law deliberately and pay the penalty for the same reason that an individual in some cases may prefer to breach a contract and pay damages. Because the gains from breach or violation presumably exceed the social costs (as reflected in the penalty), compliance with the statute or contract is undesirable from a personal as well as a social perspective.”); Frank H. Easterbrook & Daniel R. Fischel, Antitrust Suits by Targets of Tender Offers, 80 Mich. L. Rev. 1155, 1168 n.36 (1982) (“Managers have no general obligation to avoid violating regulatory laws, when violations are profitable to the firm.”); id. at 1177 n.57 (“[M]anagers do not have an ethical duty to obey economic regulatory laws just because the laws exist. They must determine the importance of these laws. The penalties Congress names for disobedience are a measure of how much it wants firms to sacrifice in order to adhere to the rules; the idea of optimal sanctions is based on the supposition that managers not only may but also should violate the rules when it is profitable to do so.”); David L. Engel, An Approach to Corporate Social Responsibility, 32 Stan. L. Rev. 1, 34–55 (1979) (arguing that corporations can and should maximize profits by factoring in the cost of regulatory and legal sanctions discounted by likelihood of detection and successful enforcement). See generally Cynthia A. Williams, Corporate Compliance With the Law In the Era of Efficiency, 76 N.C. L. Rev. 1265, 1285–1300 (1998) (collecting and summarizing authorities endorsing the view of “law-as-price”). As Massey and related authorities demonstrate, Delaware law explicitly rejects the notion that a board of directors can act loyally by consciously deciding to violate positive law in pursuit of greater profits. See Leo E. Strine, Jr. et al., Loyalty’s Core Demand: The Defining Role of Good Faith in Corporation Law, 98 Geo. L.J. 629, 649 (2010).

64 regulatory laws by engaging in illegal behavior and, over a decade, paid numerous fines

and penalties that were dwarfed by the profits that non-compliance generated. Further

assume that there was sufficient public disclosure about the practice, either through public

information about the fines themselves or through news articles, such that tolling doctrines

would not operate under the separate accrual approach to extend the actionable period. In

this scenario, the separate accrual approach only would permit the imposition of liability

and recovery for the harm that the corporation suffered during the final three years of the

scheme. Some might argue that in an egregious setting like this one, both liability and

damages should extend throughout the period of the scheme. Only the continuing wrong

approach achieves that result.

Whether to apply the continuing wrong approach rather than the separate accrual

approach is thus a fundamentally difficult policy question that would take lots of pages to

explore and resolve. In terms of practical outcomes for litigation, the real difference is in

the magnitude of damages. Nominally, there are differences for both liability and damages,

because the continuing wrong approach permits a plaintiff to prove liability and recover

damages for the entire period that the illegal business plan was in place, while the separate

accrual approach limits liability and damages to the actionable period. But the factual

inquiry for the separate accrual approach often will need to examine earlier periods to

determine what the directors and officers knew and either continued doing or permitted to

persist during the actionable period. Because of the nature of the factual inquiry, the choice

between the two accrual rules principally affects damages.

65 The fact that the main difference between the approaches is the quantum of damages

provides another reason for not choosing between the continuing wrong and the separate

accrual approach at this stage. A court does not typically parse the scope of damages at the

pleading stage. A plaintiff can plead the existence of damages generally as long as the

complaint supports a reasonable inference of harm. See, e.g., In re Ezcorp, Inc. Consulting

Agr. Deriv. Litig., 2016 WL 301245, at *30 (Del. Ch. Jan. 25, 2016); NACCO Indus., Inc.

v. Applica Inc., 997 A.2d 1, 19 (Del. Ch. 2009).

At a minimum, the separate accrual approach applies to the Massey Claim. As

discussed below, that conclusion is sufficient to render the claim timely. This decision

therefore need not confront the additional question of whether the continuing wrong

approach should apply to this subspecies of claim. At the pleading stage, it is sufficient to

measure the time at which the Massey Claim accrued using the separate accrual approach.

2. When The Plaintiff Began To Pursue The Claim

Having decided to apply the separate accrual methodology, I must now determine

the period of time during which the ongoing conduct is actionable. In this case, the

plaintiffs filed this plenary action on December 30, 2021, so the actionable period would

start on December 30, 2018. But for a derivative action in which the plaintiff has sought

books and records, the court can calculate the actionable period using an earlier date tied

to the plaintiff’s diligent pursuit of its informational rights. Because the laches analysis is

flexible and does not turn on statutory standing under Section 220, the court can look to

when the plaintiff began pursuing books and records. The court need not fixate on whether

the plaintiff formally filed a books-and-records action.

66 When applying the doctrine of laches, “[w]hat constitutes unreasonable delay and

prejudice are questions of fact that depend upon the totality of the circumstances.” Hudak

v. Procek, 806 A.2d 140, 153 (Del. 2002). “In determining whether the delay is

unreasonable the situation of the plaintiff, as well as that of defendant, must be considered.”

Henry L. McClintock, Handbook of the Principles of Equity § 28 at 72 (2d ed. 1948). The

doctrine of laches is rooted in the maxim that “equity aids the vigilant, not those who

slumber on their rights.” Adams v. Jankouskas, 452 A.2d 148, 157 (Del. 1982). A plaintiff

who vigilantly pursues a claim is not engaging in unreasonable delay for purposes of a

laches analysis.

These principles enable a court to take into account a plaintiff’s diligent use of

Section 220. While serving as a Vice Chancellor, Chief Justice Steele noted that a plaintiff

could defeat a laches defense by showing that the plaintiff “asserted its rights in a timely

manner by making demand [for books and records] and filing this action.” Gotham P’rs,

L.P. v. Hallwood Realty P’rs, L.P., 714 A.2d 96, 105 (Del. Ch. 1998). He explained that

the pursuit of books and records provided “strong evidence that plaintiff was aggressively

asserting its claims” for purposes of a laches analysis. Id.

Justice Jacobs subsequently applied these principles while serving as a Vice

Chancellor. He rejected a timeliness defense by noting that the plaintiffs had pursued a

Section 220 action to obtain books and records. Technicorp Int’l II, Inc. v. Johnston, 2000

WL 713750, at *9 (Del. Ch. May 31, 2000). He regarded it as “settled Delaware law that

the institution of other litigation to ascertain the facts involved in the later suit will toll the

statute while that litigation proceeds.” Id. For the source of the rule, he cited Cahall v.

67 Burbage, where Chancellor Josiah Wolcott observed that “[d]elay pending other

proceedings has frequently been held excusable . . . where the termination of such

proceedings was necessary for the ascertainment of facts involved in the later suit.” 119 A.

574, 576–77 (Del. Ch. 1922) (quoting Cent. R.R. Co. of N.J. v. Jersey City, 199 F. 237, 245

(D.N.J. 1912), aff’d, 212 F. 76 (3d Cir. 1914)). Justice Jacobs added that when a

stockholder had spent time pursuing books and records,

[i]t would be perverse if the rule were otherwise. On at least two occasions the Supreme Court has expressly encouraged potential derivative plaintiffs to utilize the ‘tools at hand’ to obtain information bearing on the subject of their claims, in order to avoid an unseemly race to the courthouse to file ‘a plethora of superficial complaints that could not be sustained.’ To accept the defendants’ time-bar argument would penalize, not encourage, the use of those important tools.”

Technicorp, 2000 WL 713750, at *9 n.26 (quoting Rales v. Blasband, 634 A.2d 927, 932–

35, n.10 (1993)). Even in 2000, the estimate of only two exhortations missed low, and in

the two decades since then, the calls for stockholders to use Section 220 before filing suit

have only increased.22

22 See, e.g., King v. VeriFone Hldgs., Inc., 12 A.3d 1140, 1145 (Del. 2011) (“Delaware courts have strongly encouraged stockholder-plaintiffs to utilize Section 220 before filing a derivative action, in order to satisfy the heightened demand futility pleading requirements of Court of Chancery Rule 23.1.”); Beam v. Stewart, 845 A.2d 1040, 1056 (Del. 2004) (“Both this Court and the Court of Chancery have continually advised plaintiffs who seek to plead facts establishing demand futility that the plaintiffs might successfully have used a Section 220 books and records inspection to uncover such facts.”); White v. Panic, 783 A.2d 543, 556–57 (Del. 2001) (“This case demonstrates the salutary effects of a rule encouraging plaintiffs to conduct a thorough investigation, using the tools at hand including the use of actions under 8 Del. C. § 220 for books and records, before filing a complaint. . . . Further pre-suit investigation in this case may have yielded the particularized facts required to show that demand is excused or it may have revealed that the board acted in the best interests of the corporation.” (cleaned up)); Brehm v. Eisner, 68 Vice Chancellor Lamb subsequently gave effect to a plaintiff’s diligent use of

Section 220 when denying a motion to dismiss on laches grounds in Sutherland v.

Sutherland, 2009 WL 857468 (Del. Ch. Mar. 23, 2009). The plaintiff had served a books-

and-records demand and filed suit on August 31, 2001. The final opinion in the Section

220 action was not entered until May 16, 2006. The plaintiff filed her complaint promptly

after receiving the books and records. Vice Chancellor Lamb reasoned as follows:

The applicable three-year statute of limitations was tolled, however, during the pendency of the plaintiff’s Section 220 action. The final opinion in the 220 action was entered on May 16, 2006, and the plaintiff filed her complaint on September 6, 2006, less than 120 days later. Given the time between the entry of the opinion and the actual production of the demanded books and records, and affording the plaintiff time to evaluate any potential claims in light of what was produced, the short window between the closing of the 220 action and the filing of the original complaint in this action is reasonable, and the statute is likewise tolled during that period. The plaintiff’s claims are therefore time-barred as to any transactions occurring more than three years prior to the date the 220 action was instituted, i.e., prior to August 31, 2001.

Id. at *5 (cleaned up).

746 A.2d 244, 266–67 (Del. 2000) (disregarding plaintiffs’ complaint “that the system of requiring a stockholder to plead particularized facts in a derivative suit is basically unfair because the Court will not permit discovery under Chancery Rules 26–37 to marshal the facts necessary to establish that pre-suit demand is excused” in part because “plaintiffs may well have the ‘tools at hand’ to develop the necessary facts for pleading purposes” by seeking “relevant books and records of the corporation under Section 220”); Scattered Corp. v. Chi. Stock Exch., 701 A.2d 70, 78–79 (Del. 1997) (subsequent history omitted) (“Plaintiffs inexplicably did not bring [a Section 220 action before filing their derivative complaint]. Accordingly, plaintiffs cannot argue that they have used the available tools at hand to obtain the necessary information before filing a derivative action.” (cleaned up)); Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 567 n.3 (Del. 1997) (“This Court has encouraged the use of Section 220 as an information-gathering tool in the derivative context, provided a proper purpose is shown.” (cleaned up)).

69 For purposes of the separate accrual method, the court must determine when the

plaintiff began to pursue its claims vigilantly. The defendants assert that the point of

vigilant pursuit cannot precede the date on which the plaintiff filed an action under Section

220(c) to obtain books and records. The Sutherland decision used the filing date, but the

court did not need to look back any earlier to address the laches issue. There are also

decisions where this court has focused on the filing date rather than the demand date when

evaluating standing for purposes of a Section 220 action. See, e.g., Swift v. Houston Wire

& Cable Co., 2021 WL 5763903, at *4 (Del. Ch. Dec. 3, 2021). Those decisions apply the

statutory language of Section 220, which requires that a plaintiff be a stockholder when an

enforcement action is filed. 8 Del. C. § 220(c).

The doctrine of laches is flexible and requires case-specific analysis. For laches, a

rule that turned on the filing of a Section 220 enforcement action would incentivize the

filing of more enforcement actions (which the court does not need), simply to secure a

tolling benefit. This court has strived to promote extra-judicial resolutions of books-and-

records disputes. See, e.g., Hightower v. SharpSpring, Inc., 2022 WL 3970155, at *9 (Del.

Ch. Aug. 31, 2022) (“[T]his court encourages corporations to produce Formal Board

Materials in response to meritorious demands for inspection without forcing stockholders

to litigate over them.”). A rule based on the filing of an enforcement action would

undermine that effort.

A stockholder therefore should receive credit for serving a demand and obtaining

books and records without the need for an enforcement action. But that does not mean that

simply sending a demand will yield a benefit in every case. The stockholder plaintiff must

70 pursue the demand diligently to gain a benefit. See, e.g., Firemen’s Ret. Sys. of St. Louis v.

Sorenson, 2021 WL 4593777, at *11 (Del. Ch. Oct. 5, 2021). That does not mean

pressuring the defendant corporation relentlessly, and it does not mean always filing an

enforcement action, but it also should not involve months-long periods of stockholder-side

inactivity. The process should move forward with deliberate speed.

In this case, the plaintiffs served their books-and-records demand on May 21, 2019.

On June 7, 2019, AmerisourceBergen refused the demand, claiming incomprehensibly that

the stockholders lacked a credible basis to suspect corporate wrongdoing and therefore did

not have a proper purpose for obtaining any books and records. After failed efforts to

negotiate, the plaintiffs filed their books-and-records action on July 8, 2019. Lebanon Cnty.

Empls. Ret. Fund vs. AmerisourceBergen Corp., C.A. No. 2019-0527, Dkt. 1 (Del. Ch. July

8, 2019). That litigation turned into a Section 220 gauntlet, with AmerisourceBergen

seeking to litigate the merits of an eventual derivative action in the context of the Section

220 proceeding. The case was not resolved until July 12, 2022, nearly three years later. Id.,

Dkt. 75.

The plaintiffs’ diligent efforts could support using May 21, 2019, as a starting date

for calculating the actionable period, which would cause the actionable period to reach

back to May 21, 2016. But the plaintiffs do not seek that outcome. They are content to use

October 20, 2019, as the starting date. Using that date, the actionable period begins on

October 20, 2016, and ends on December 30, 2022.

71 3. Tolling Doctrines

The next step in the analysis is to consider tolling doctrines. Delaware has many

doctrines that can toll a statute of limitations. Some, such as infancy and incapacity, rarely

play a role in corporate and commercial disputes. Others, such as inherently unknowable

injuries, fraudulent concealment, and equitable tolling, make frequent appearances.

Tolling doctrines operate in a straightforward manner when a court is applying the

discrete act approach and the plaintiff has sued outside the presumptive limitations period.

The court simply asks whether there are grounds to permit the plaintiff to sue over the

discrete act notwithstanding the expiration of the limitations period.

Tolling doctrines have limited effect when a court is applying a continuing wrong

approach. Under that doctrine, the cause of action does not accrue until the conduct ceases.

As long as a part of the continuing wrong takes place within the limitations period, then

the plaintiff can prove liability and damages for the entire time that the continuing wrong

was ongoing, regardless of whether the limitations period would have run if calculated

from when the continuing wrong began. If the conduct remains ongoing at the time suit is

filed, then tolling doctrines have no role to play. The fact that the conduct remains ongoing

renders the entire continuing wrong actionable. See, e.g., Bodner v. Banque Paribas,

114 F. Supp. 2d 117, 134–35 (E.D.N.Y. 2000). See generally Graham, supra, at 272.

Tolling doctrines still can have some effect under a continuing wrong regime.

Envision a scenario in which the continuing wrong persisted for some time then stopped.

For the continuing wrong doctrine to apply, at least part of the ongoing wrongful conduct

must have occurred within the limitations period, so with the cessation of the act, the

72 limitations period begins to run. If a plaintiff does not file suit until after the limitations

period has expired, then a plaintiff may invoke tolling doctrines to render the

lawsuit timely.

Under a separate accrual system, tolling doctrines have two roles to play. As with

the continuing wrong approach, once the ongoing action has stopped, then the statute of

limitations begins to run. If the plaintiff does not file suit until after the limitations period

has run as measured from the cessation of the wrongful activity, then a plaintiff can invoke

tolling doctrines to demonstrate that the suit is timely. But tolling doctrines also play a

second role, similar to the role they have in a discrete act system. The separate accrual

system only treats the portion of the ongoing conduct that takes place within the limitations

period as actionable. As with the discrete act system, a challenge to the portion of the

ongoing conduct that precedes the actionable period is untimely. As with the discrete act

system, a plaintiff can use tolling doctrines to demonstrate that a suit over earlier acts is

timely. As a practical matter, the plaintiff can use tolling doctrines to extend the actionable

period so that it reaches further back in time.

Under Delaware law, inquiry notice universally limits tolling doctrines. A plaintiff

cannot invoke tolling doctrines to push the timeliness period beyond the point when the

plaintiff “was objectively aware, or should have been aware, of facts giving rise to the

wrong.” Tyson Foods, 919 A.2d at 585. “Even where a defendant uses every fraudulent

device at its disposal to mislead a victim or obfuscate the truth, no sanctuary from the

statute will be offered to the dilatory plaintiff who was not or should not have been fooled.”

Id. Once the plaintiff is aware of the injury, or should have discovered it in the exercise of

73 reasonable diligence, then the period for bringing a claim starts to run. See Dean Witter,

1998 WL 442456, at *6. Once a plaintiff knows or should have known about a claim,

tolling ends.

Under a discrete act system, inquiry notice terminates tolling and requires that a

plaintiff pursue the action within a reasonable time. Under a continuing wrong system

where the wrongful conduct remains ongoing, inquiry notice does not matter, because the

continuing nature of the conduct means that the claim has not yet accrued for purposes of

the running of the statute. Under a continuing wrong system where the wrongful conduct

has stopped and a plaintiff has invoked a tolling doctrine to save an otherwise untimely

lawsuit, inquiry notice operates the same way as in a discrete act system and may prevent

the plaintiff from relying on the tolling doctrine to make the claim timely.

Under a separate accrual system, inquiry notice has two effects. If the ongoing

conduct has stopped and a plaintiff has invoked a tolling doctrine to save an otherwise

untimely lawsuit, inquiry notice operates the same way as in a discrete act system and may

prevent the plaintiff from relying on a tolling doctrine to make the claim timely. If the

plaintiff has sought to use a tolling doctrine to extend the actionable period and to show

that a suit over earlier acts is timely, then inquiry notice may cut off the ability of the

plaintiff to extend the actionable period. But the claim is not foreclosed entirely, because

the plaintiff can still pursue claims that fall within the non-extended actionable period.

For example, assume that at Time Zero, the defendants implement an illegal

business plan that prioritizes profit over compliance, giving rise to a Massey Claim. The

defendants continue to pursue the business plan for ten years, at which point they adopt a

74 different business plan. If a plaintiff sues on January 1 of Year 10 and the presumptive

limitations period is three years, then the plaintiff can sue for the breaches of the duty of

loyalty that occurred in Years 7, 8, and 9.

If the plaintiff spent a year diligently pursuing books and records before filing suit,

then the actionable period extends to Year 6.

If the plaintiff successfully alleges that the defendants fraudulently concealed the

wrongful business strategy at all times, then the actionable period extends back to

Time Zero.

75 But if the plaintiff was put on inquiry notice in Year 3, then the plaintiff had an

obligation to sue within a reasonable time over the wrongs covered by the inquiry notice.

Any claims based on conduct in Years 1, 2, or 3 would be untimely, and the limitations

period on the ongoing conduct after that point would continue to run. If the plaintiff sued

in Year 10, then the plaintiff could still sue for the separately accrued breaches of the duty

of loyalty that occurred in Years 7, 8, and 9. But the plaintiff could not reach back further

by relying on fraudulent concealment or a similar tolling doctrine that is negated by inquiry

notice.

In this case, the plaintiffs invoke fraudulent concealment and equitable tolling.

Neither provides a basis for expanding the actionable period.23

23 The defendants initially seek to dispense with tolling doctrines with an argument about pleading. They assert that “[p]laintiffs make no allegations regarding tolling,” and “[t]herefore, for this reason alone, tolling is unavailable.” Dkt. 17 at 42. A complaint does not have to include a separate section titled “equitable tolling” or “tolling by fraudulent concealment.” All that a plaintiff must do is plead facts that support a reasonable inference that tolling applies.

76 a. Fraudulent Concealment

The doctrine of fraudulent concealment tolls the statute of limitations and extends

the time for suit under the doctrine of laches “when a defendant has fraudulently concealed

from a plaintiff the facts necessary to put him on notice of the truth.” Tyson Foods, 919

A.2d at 585. Tolling ends when the plaintiff is placed on inquiry notice, in the sense that

the plaintiff knew or should have known about the wrongful act.24

“Fraudulent concealment requires that something affirmative be done by a

defendant, some ‘actual artifice’ which prevents a plaintiff from gaining knowledge of the

facts, or some misrepresentation which is intended to put the plaintiff off the trail of

inquiry.” Ewing, 520 A.2d at 667. Ignorance alone does not toll the statute. Id.; Halpern,

313 A.2d at 143. “The affirmative act requirement distinguishes fraudulent concealment

from the doctrine of inherently unknowable injuries.”25

24 See Halpern v. Barran, 313 A.2d 139, 143 (Del. Ch. 1973) (“Where there has been fraudulent concealment from a plaintiff, the statute is suspended only until his rights are discovered or until they could have been discovered by the exercise of reasonable diligence.”). Outside of Delaware, some authorities take the view that when a defendant has taken affirmative steps to conceal wrongdoing, the defendant has committed an intentional tort. The limitations period therefore does not begin to run until the plaintiff actually discovers—not should have discovered—the wrongful act. See Davenport v. A.C. Davenport & Son Co., 903 F.2d 1139 (7th Cir. 1990), overruled on other grounds by Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385, 1389 (7th Cir. 1990). 25 2 Wolfe & Pittenger, supra, § 15.07[e][3] at 15-91. “Under the doctrine of inherently unknowable injuries, the running of the statute of limitations is tolled while the discovery of the existence of a cause of action is a practical impossibility.” Dean Witter, 1998 WL 442456, at *5 (emphasis added); accord Coleman v. PricewaterhouseCoopers, LLC, 854 A.2d 838, 842 (Del. 2004) (“Ignorance of the cause of action will not toll the statute . . . unless the injury is inherently unknowable and the claimant is blamelessly ignorant of the wrongful act and the injury complained of.”). “For the limitations period to 77 “The rationale for this doctrine is to disallow a defendant from taking advantage of

his own wrong in preventing a plaintiff from a timely suit in the courts.” Allen v. Layton,

235 A.2d 261, 265 (Del. Super. Ct. 1967), aff’d, 246 A.2d 794 (Del. 1968).

[I]f one by fraud conceals the fact of a right of action, it is not ingrafting an exception on the statute to say that he is not protected thereby, but it is simply saying that he never was within the statute. since its protection was never designed for such as he. By fraud he has put himself outside of its pale. Whether this be taken as an exception, or only a limitation of the statute, it rests upon sound reason and just policy.

Lieberman v. First Nat’l Bank of Wilm., 45 A. 901, 903 (Del. 1900).

When a plaintiff relies on fraudulent concealment, the plaintiff must plead the

circumstances supporting the doctrine with particularity sufficient to advise the defendant

of the basis for the claim. Ct. Ch. R. 9(b); Halpern, 313 A.2d at 143. Simply alleging that

a defendant engaged in fraudulent concealment is insufficient. As with an affirmative claim

for fraud, once the plaintiff pleads facts with the requisite particularity, the plaintiff is

be tolled under this doctrine, there must have been no observable or objective factors to put a party on notice of an injury, and plaintiffs must show that they were blamelessly ignorant of the act or omission and the injury.” Dean Witter, 1998 WL 442456, at *5. “Often, plaintiffs can establish ‘blameless ignorance’ by showing justifiable reliance on a professional or expert whom they have no ostensible reason to suspect of deception.” Id. “This doctrine tolls the limitations period until a plaintiff had ‘reason to know’ that a wrong has been committed.” Id. The tolling doctrine that recognizes a plaintiff’s ability to rely in good faith on a professional operates similarly to the concept of equitable tolling, discussed below. For a recent decision applying this tolling doctrine to a trustee, see Hillblom v. Wilmington Trust Co., C.A. No. 2021-1034-MTZ, slip op. at 29-34 (Del. Ch. Dec. 6, 2022). Directors are quasi-trustees for the corporation and its stockholders. Schoon v. Smith, 953 A.2d 196, 206 (Del. 2008); Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939). The reliance- on-professionals doctrine thus offers a source of insight into how tolling should operate against corporate fiduciaries.

78 entitled to the benefit of the reasonable inferences that can be drawn from those facts. See,

e.g., Am. Int’l Gp., 965 A.2d at 805–06 (“But, even though fraud must be stated with

particularity, this is still a motion to dismiss, and the Stockholder Plaintiffs are entitled to

have me draw all reasonable inferences in their favor.”).

To assert fraudulent concealment as a tolling doctrine, a plaintiff requires facts

supporting an inference of scienter such that the defendant “had actual knowledge of the

wrong done and acted affirmatively in concealing the facts.”26 Delaware decisions have

not clearly stated whether a plaintiff must plead reliance and causation to invoke tolling by

fraudulent concealment. One Delaware case asserts that “a plaintiff must allege an

affirmative act of ‘actual artifice’ by the defendant that either prevented the plaintiff from

gaining knowledge of material facts or led the plaintiff away from the truth.” Tyson Foods,

919 A.2d at 585. By using the verbs “prevented” and “led . . . away,” the decision implies

the need for reliance by the plaintiff and causation by the defendant, and one decision has

cited Tyson Foods with a parenthetical that describes the case as requiring that a plaintiff

plead reliance to support tolling. See Akrout v. Jarkoy, 2018 WL 3361401, at *10 n.80

(Del. Ch. July 10, 2018). Other statements of what a plaintiff must show to plead fraudulent

concealment do not require causation or reliance. See, e.g., Lecates v. Hertrich Pontiac

26 Ewing, 520 A.2d at 667; accord Shockley v. Dyer, 456 A.2d 798, 799 (Del. 1983) (“In order for the doctrine of fraudulent concealment to be applicable [to toll the statute of limitations], the [alleged wrongdoer] must have had actual knowledge of the wrong done and affirmatively acted in concealing the facts from the patient.”); Tilden v. Anstreicher, 367 A.2d 632, 634 (Del. 1976) (“The doctrine of fraudulent concealment requires both knowledge and affirmative action on the part of the [wrongdoer].”).

79 Buick Co., 515 A.2d 163, 176 (Del. Super. Ct. 1986) (“[A] claim of fraudulent concealment

requires the twin showing of (a) the defendant’s knowledge of the alleged wrong, and (b)

an affirmative act of concealment by the defendant.”). See generally 51 Am. Jur. 2d

Limitation of Actions § 166, Westlaw (database updated Nov. 2022) (“According to some

authority, reliance is not an element of fraudulent concealment, as is relevant to the tolling

of a statute of limitations; rather, all that is required is a showing of an underlying wrong

and that the defendant actually knew the plaintiff was in fact wronged and concealed that

fact to deceive the plaintiff.”).

The plaintiffs offer little to support fraudulent concealment. They argue that

“[m]ultiple lawsuits describe [AmerisourceBergen’s] attempts to hide its Board sanctioned

practice of prioritizing profits over safety.” Dkt. 28 at 70 (citing Compl. ¶ 119). Paragraph

119 describes a board meeting in March 2012 at which the board approved management’s

plan to expand AmerisourceBergen’s market share by targeting independent pharmacies.

The paragraph does not contain any references about AmerisourceBergen hiding

information. There are other paragraphs in the complaint that make generalized references

to lawsuits containing descriptions of AmerisourceBergen’s attempts to hide its

wrongdoing, but that is insufficient to support an inference of fraudulent concealment.

Perhaps those other complaints contain specific allegations about concealment. The court

does not have the other complaints, and the plaintiffs’ complaint does not contain the

requisite specific allegations.

The plaintiffs add that “[AmerisourceBergen] falsely assured the public that it was

undertaking efforts to comply with its legal obligations and prevented discovery of

80 statistical data and other information showing the extent of [AmerisourceBergen’s]

unlawful activities.” Dkt. 28 at 70 (citing Compl. ¶¶ 252 & 255). Paragraph 252 alleges

that in a complaint that the Cherokee Nation filed against AmerisourceBergen and other

major opioid distributors and pharmacies in February 2018, the Cherokee Nation

alleged AmerisourceBergen made affirmative efforts to conceal its conduct and avoid detection, including by falsely assuring the public, through trade associations or otherwise, that AmerisourceBergen was undertaking efforts to comply with its legal obligations as well as by preventing discovery of statistical data and other information showing the extent of AmerisourceBergen’s unlawful activities and its impact on the Cherokee Nation.

Compl. ¶ 252. That may be so, but that summary of what the Cherokee Nation alleged is

no substitute for the plaintiffs alleging facts supporting an inference that

AmerisourceBergen engaged in specific acts designed to fraudulently conceal its actions

from them, nor have they explained when the fraudulent acts took place so that the court

could consider whether to apply a tolling doctrine. The complaint alleges that the United

States District Court for the Eastern District of Oklahoma denied the defendants’ motion

to dismiss, but the plaintiffs do not reference any ruling on fraudulent concealment or

tolling (which the decision does not appear to contain). See Cherokee Nation v. McKesson

Corp., 529 F. Supp. 3d 1225 (E.D. Okla. 2021).

Paragraph 255 also references a complaint that the Attorney General of the State of

Georgia filed against AmerisourceBergen and other major opioid distributors and

manufacturers in January 2019. The plaintiffs describe the Georgia complaint as alleging

that “AmerisourceBergen, among others, made fraudulent misrepresentations,

suppressions, and concealments of material facts in order to fraudulently conceal the

81 existence of causes of action against them.” Compl. ¶ 255. The plaintiffs have not identified

any factual allegations to support this conclusory characterization. Once again, they have

not identified specific acts that AmerisourceBergen took to fraudulently conceal the

existence of causes of action, nor have they explained when the fraudulent acts took place

so that the court could consider whether to apply a tolling doctrine based on those acts.

The plaintiffs fare better with their allegations about disclosures that appeared in

AmerisourceBergen’s annual reports on Form 10-K starting with the fiscal year ending

September 30, 2017. There, AmerisourceBergen represented to stockholders that its anti-

diversion controls were sound, stating:

[W]e are deeply committed to diversion control efforts, have sophisticated systems in place to identify orders placed warranting further review to determine if they are suspicious (including through the use of data analytics), and engage in significant due diligence and ongoing monitoring of customers.

Id. ¶ 295. Similar disclosures appear in the Form 10-Ks for subsequent years.

The plaintiffs have alleged particularized facts which support an inference that the

disclosure in the Form 10-K for September 30, 2017, was false, which makes that

disclosure an actual artifice that would be sufficient to invoke fraudulent concealment for

the purpose of extending the actionable period to that date. But that has no effect on the

actionable period for purposes of this litigation, because the plaintiffs’ diligent use of

Section 220 already results in the actionable period extending back to October 20, 2016.

b. Equitable Tolling

“[T]he doctrine of equitable tolling stops the statute from running while a plaintiff

has reasonably relied upon the competence and good faith of a fiduciary.” Tyson Foods,

82 919 A.2d at 585. “The obvious purpose of the equitable tolling doctrine is to ensure that

fiduciaries cannot use their own success at concealing their misconduct as a method of

immunizing themselves from accountability for their wrongdoing.” Am. Int’l Gp., 965 A.2d

at 813; see also Hillblom v. Wilm. Tr. Co., C.A. No. 2021-1034-MTZ (Del. Ch. Dec. 6,

2022) (tolling statute of limitations for breach of fiduciary duties and trust; finding

plaintiff’s injury was inherently unknowable when the plaintiff had no reason to believe

she should investigate professional trust’s conduct).

In Seaboard, Chancellor Allen engaged in a lengthy and scholarly discussion of the

tolling principle under which a stockholder is entitled to rely on the good faith of directors

such that a claim for breach of fiduciary duty would not arise until the stockholder had

actual knowledge of the wrong or was placed on inquiry notice. Chancellor Allen explained

that “[g]iven the fiduciary duties that the law imposes upon the relationship among those

serving as corporate directors, stockholders are entitled to rely on the good faith of the

directors when they act with respect to the corporation’s property or processes.” 625 A.2d

at 275. He stressed that “[s]ince trust and good faith are the essence of this relationship, it

would be corrosive and contradictory for the law to punish reasonable reliance on that good

faith by applying the statute of limitations woodenly or automatically to alleged self-

interested violations of trust.” Id. He concluded that reasonable reliance upon the

competence and good faith of others who have assumed legal responsibilities towards a

plaintiff was sufficient to toll the running of an applicable statute of limitations. Id.

The Seaboard case involved a self-dealing contract between a corporation and its

controlling stockholder, and in his discussion of the precedents and their application to the

83 facts before him, Chancellor Allen frequently referred to the tolling principle applying in

cases of self-dealing. Id. at 275–77. In discussing several early precedents, however, he

noted that the rule extended to the type of fraud perpetrated by a fiduciary, or as he stated

in describing one case, “fraud perpetuated by one who, because he has legal power over

the property of others, has fiduciary obligations to those others.” Id. at 276. During the era

that generated the precedents that Chancellor Allen reviewed, “fraud” was used when

referring to fiduciary misconduct not in the sense of common law fraud, or even to

equitable fraud as we now conceive of it, but in the general sense of constructive fraud as

a synonym for breach of fiduciary duty.27

When this court next applied Seaboard, the court converted the specific application

to a general rule. See Litman v. Prudential-Bache Props., Inc., 1994 WL 30529, at *3 (Del.

Ch. Jan. 14, 1994), aff’d, 642 A.2d 837 (Del. 1994) (TABLE). Based on the repeated

references to self-dealing in Seaboard, the Litman court reasoned that the fiduciary tolling

principle—which the court described as equitable tolling—only applied to cases involving

27 See Parfi Hldg. AB v. Mirror Image Internet, Inc., 794 A.2d 1211, 1236–37 (Del. Ch. 2001) (“Our corporate case law has thrown [the so-called ‘constructive fraud’] concept around in a not particularly precise way, but always in a context in which the court is examining whether directors have complied with their fiduciary duties.”), rev’d on other grounds, 817 A.2d 149 (Del. 2002). See generally Dan B. Dobbs, Handbook on the Law of Remedies 679–85 (1973) (criticizing the use of the term “constructive fraud” and explaining its function as a tool for enforcing fiduciary relationships); 3 John Norton Pomeroy, A Treatise on Equity Jurisprudence 625–26, 788–92 (5th ed. 1941) (explaining concept of constructive fraud, including its application to situations involving fiduciary breach); 2 Joseph Story, Commentaries on Equity Jurisprudence as Administered in England and America § 307, at 309 (13th ed. 1886) (explaining that courts used the concept of “constructive fraud” to describe breaches of fiduciary duty).

84 self-dealing in the sense of fiduciaries extracting benefits for themselves. Id. The decision

did not cite any authority for this reformulation. The court simply stated, “I think the better

rule, and the one Chancellor Allen intended, is that a limitations period may be tolled absent

allegations of affirmative acts of concealment by the defendants, where the parties to the

litigation stand in a fiduciary relationship to each other and where the plaintiff alleges self-

dealing.” Id. Under this view, “[i]n situations that do not involve self-dealing, equitable

tolling operates in much the same way as the doctrine of fraudulent concealment.” Id.

Because the allegations in Litman did not involve the extraction of personal benefits, the

case did not involve self-dealing, and the court did not toll the statute. Id. Subsequent

decisions have used the Litman framing. See Weiss v. Swanson, 948 A.2d 433, 451 (Del.

Ch. 2008); Dean Witter, 1998 WL 442456, at *6.

The limitation of equitable tolling to one subspecies of loyalty violation—self-

dealing—does not make sense to me. Loyalty and its subsidiary element of good faith

constitute the core fiduciary principle. If fiduciaries act disloyally or in bad faith, but

without engaging in self-dealing, it seems to me that equitable tolling should apply.28

The application of equitable tolling in Weiss supports the broader formulation.

There, the court considered a challenge to grants of spring-loaded and bullet-dodged

28 As discussed in a previous footnote, the doctrine of equitable tolling with its concept of reliance on fiduciaries bears a strong resemblance to the doctrine of blameless ignorance and the role it affords to reliance on professionals. The latter is not artificially limited to self-dealing. See Hillblom v. Wilmington Trust Co., C.A. No. 2021-1034-MTZ, slip op. at 29-34 (applying tolling doctrine to multiple claims not involving classic self- dealing).

85 options that the defendant fiduciaries had made not only to themselves but also to

executives. 948 A.2d at 451. There had never been any disclosure about this practice, and

the court held that the doctrine of equitable tolling applied not only to the self-interested

grants, but also to the grants to the executives. Id. The latter grants were inferably disloyal

because the complaint supported an inference that the directors had knowingly violated

limitations in the governing plan documents and under applicable law, but they did not

constitute self-dealing in the sense mandated by Litman. Id.; accord Tyson Foods, 919 A.2d

at 590–91 (same).

More to the point, while serving as a Vice Chancellor, Chief Justice Strine rejected

an argument that equitable tolling “only applies to cases of pure self-dealing.” Am. Int’l.

Gp., 965 A.2d at 812. The plaintiff in that case alleged that an officer had taken steps to

fraudulently inflate a corporation’s balance sheet. Chief Justice Strine reasoned that “[t]o

allow fiduciaries who engaged in illegal conduct to wield a limitations defense against

stockholders who relied in good faith on those fiduciaries when their disclosures provided

no fair inquiry notice of claims would be inequitable.” Id. Under the reasoning of that case,

equitable tolling extends to breaches of the duty of loyalty that rest on illegality.

A Massey Claim involves a breach of the duty of loyalty that rests on illegality.

Equitable tolling is therefore available for a Massey Claim, even without allegations of

pure self-dealing. A Red-Flags Theory requires conscious wrongdoing that amounts to bad

faith. Equitable tolling is available for that species of claim as well.

For the Massey Claim, equitable tolling theoretically could enable the plaintiffs to

extend the actionable period back to 2010, when they contend that AmerisourceBergen

86 management and the directors first took steps to pursue a business plan that prioritized

profits over legal compliance by embarking on the Independent Pharmacy Strategy. For

the Red-Flags Claim, equitable tolling could enable the plaintiffs to extend the actionable

period back to 2012, when the investigations and lawsuits began. The question then

becomes whether the plaintiffs were placed on inquiry notice before the actionable period.

The defendants point to facts that the plaintiffs have alleged in their complaint about

AmerisourceBergen’s initial difficulties with the DEA and anti-diversion programs in

2007, including the settlement with the DEA over AmerisourceBergen’s Orlando

distribution center and the consent judgment between the DEA and AmerisourceBergen’s

Bellco subsidiary. The plaintiffs have pled those facts to support an inference that the

directors knew about the need for anti-diversion controls and the risks inherent in not

having a strong anti-diversion program. The plaintiffs are not citing those facts as

actionable conduct. To the contrary, the plaintiffs acknowledge that after these events,

AmerisourceBergen developed what at the time constituted the industry-standard anti-

diversion program.

Between 2010 and 2015, however, problems began to emerge at the Company. The

quarterly report on Form 10-Q for the quarter ending December 31, 2012, disclosed that

the Company had received a subpoena from the United States Attorney’s Office for the

District of New Jersey and that the Company had been sued by the Attorney General of

West Virginia. The Form 10-K for the fiscal year ending September 30, 2013, disclosed a

series of legal matters, including a complaint filed by the Attorney General of West

Virginia, the subpoenas issued by the United States Attorney for the District of New Jersey,

87 and additional subpoenas issued by the United States Attorneys for the Districts of Kansas

and the Northern District of Ohio. During 2014, the Company’s public filings continued to

contain disclosures about the investigations being conducted by the United States

Attorneys’ Offices and the lawsuit by the Attorney General of West Virginia.

A reasonable stockholder seeing those disclosures would be concerned about what

was happening at the Company. Evidencing that reality, a law firm that is both a fast and

frequent flier of derivative actions sent a books-and-records demand to the Company in

December 2014 to investigate potential wrongdoing. After obtaining an agreed-upon

production of documents, the law firm sent a litigation demand in December 2015, which

asked the directors to bring claims against themselves and the management team for

breaches of fiduciary duty in connection with their failure to oversee the Company’s

diversion control and order monitoring systems. Ex. 55. As support for an inference of

wrongdoing, the demand cited:

• The DEA’s 2007 suspension of the Company’s license for the Orlando distribution center.

• The Company’s public disclosures about receiving subpoenas from various U.S. Attorneys’ Offices.

• A complaint filed by the Attorney General of West Virginia, as well as complaints filed by the Attorneys General of Boone County, West Virginia, and Fulton County, Georgia.

Id. at 3–4. The demand also cited the Company’s low rate of suspicious order reporting for

2012, which was obtained from documents produced in the books-and-records

investigation. Id. at 4.

88 Even accepting that the law firm was engaged in a hypervigilant search for a lawsuit

and wanted to get out ahead of other entrepreneurial firms, the demand supports an

inference that stockholders were on inquiry notice about problems at AmerisourceBergen

as early as December 2015. Under a discrete act accrual system, the existence of inquiry

notice at that point would make any lawsuit untimely that was not filed within a reasonable

time after December 2015. From that point on, the defendants would be able to continue

their actions without any prospect for accountability through a derivative action for breach

of fiduciary duty.

Under the separate accrual system, inquiry notice does not have that effect. It

prevents the plaintiff from relying on tolling doctrines to extend the actionable period, but

it does not prevent a plaintiff from suing for the portion of the ongoing wrongful acts and

the resulting damages that occurred during the actionable period. Nor does it prevent the

actionable period from including additional time on the basis of when the plaintiffs began

pursuing their claims by seeking books and records. Here, the plaintiffs can sue for wrongs

dating back to October 20, 2016, and can recover damages that the Company suffered

during that period.

C. The Issue Of Prejudice

The second dimension of the laches analysis is prejudice to the defendants. “Laches

is fundamentally concerned with the prevention of inequity in permitting a claim to be

enforced. Inequity for this purpose arises where there occurs some change in the condition

or relation of the parties or the property involved in the pending lawsuit.” Wolfe &

Pittenger, supra, § 15.07[c][4] at 15-18. The time period that a court determines is

89 presumptively permissible may require modification if the defendant can show that a

plaintiff failed to act as expeditiously as the circumstances dictated and suffered actual

prejudice as a result. Id.

The defendants have not pointed to any prejudice that could render the plaintiffs’

suit untimely. They made a straightforward statute of limitations argument, which this

decision has rejected. There are no indications that evidence has been lost. There is no

reason to think that the defendants have suffered any other disadvantage in their ability to

litigate the case.

If anything, now is the appropriate time to litigate the case. With the 2021 Settlement

concluded, the bulk of the harm to the Company has been quantified, and the time has come

to consider whether grounds exist to shift responsibility for the harm that the Company has

suffered to the individuals who made decisions on its behalf.

D. Other Equitable Considerations

When conducting a laches analysis, a court may take into account “unusual

conditions or extraordinary circumstances.”29 This decision has conducted an extensive

29 Levey, 76 A.3d at 770; accord IAC/InterActiveCorp. v. O’Brien, 26 A.3d 174, 178 (Del. 2011) (same); Wright v. Scotton, 121 A. 69, 73 (Del. 1923) (“[I]f unusual conditions or extraordinary circumstances make it inequitable to allow the prosecution of a suit after a briefer, or to forbid its maintenance after a longer period than that fixed by the statute” then a court may “determine the extraordinary case in accordance with the equities which condition it.”). There is a case that sought to interpret laches as a one-way ratchet that could shorten the otherwise applicable limitations period but which could not lengthen it beyond what a recognized tolling doctrine would allow. See, e.g., In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013) (“[L]laches may bar a plaintiff in equity before the analogous statute of limitations has run, but a filing after the analogous statute of limitations has run cannot be justified except in the rare and unusual circumstance that 90 analysis to determine an actionable period for the plaintiffs’ suit. There are no other

equitable reasons to enlarge or shorten the period.

E. The Plaintiffs’ Claims Are Timely.

In their final argument, the defendants contend that the plaintiffs’ claims are

untimely because no actionable conduct took place within the limitations period. Based on

the laches analysis that this decision has conducted, the plaintiffs’ claims are timely.

The factual background describes a litany of events that took place after October

20, 2016, which constitute red flags for purposes of the Red-Flags Theory. The factual

background likewise explains that the defendants did not take action to address the Revised

a recognized tolling doctrine excuses the late filing. In other words, a plaintiff in equity cannot file beyond the statute of limitations unless a tolling doctrine exists that would justify an equally late filing in a court of law.” (cleaned up)). Delaware Supreme Court decisions do not embrace this view, with the high court holding instead that “[a] statute of limitations period at law does not automatically bar an action in equity because actions in equity are time-barred only by the equitable doctrine of laches.” Whittington, 991 A.2d at 9. In Levey and O’Brien, the high court reversed decisions by this court that applied laches in a manner coterminous with the statute of limitations and applicable tolling doctrines, holding instead that a court of equity could permit the claim to proceed even though a recognized tolling doctrine did not apply. See Levey, 76 A.3d at 769; O’Brien, 26 A.3d at 176. In this setting, the high court has upheld equity’s traditional ability to address injustice on a case-by-case basis and ameliorate the potentially harsh effects of a generally sound rule of law. See In re Coca-Cola Enters., Inc., 2007 WL 3122370, at *4 (Del. Ch. Oct. 17, 2007) (“Courts of Equity came into being because universally applicable legal rules are bound to work injustice in certain individual cases. [Accordingly,] it would be antithetical for a court of equity to blindly apply a statute of limitations to bar equitable claims.”), aff’d sub nom. Int’l Bhd. Teamsters v. Coca-Cola Co., 954 A.2d 910 (Del. 2008); see also XRI Inv. Hldgs. LLC v. Holifield, 283 A.3d 581, 630–640 (Del. Ch. Sept. 19, 2022) (discussing the history of the law-equity divide).

91 OMP or institute a system of direct board oversight until the 2021 Settlement, which is

sufficient for the Massey Theory.

This decision does not address the defendants’ contention that demand is futile

because the plaintiffs’ theories do not pose a substantial threat of liability to at least half of

the directors in office when suit was filed. This decision assumes for purposes of the

timeliness analysis that the plaintiffs have viable claims and only considers whether the

plaintiffs pursued them too late. Because the conduct that the plaintiffs challenged

continued and intensified during the actionable period, the plaintiffs’ claims are timely.

III. CONCLUSION

The defendants’ motion to dismiss the plaintiffs’ claims as untimely is denied.