Henry v. Tyler

Background

Jean E. Henry, a McKesson shareholder, filed a derivative action. A derivative action allows a shareholder to pursue claims belonging to a corporation. Henry sued current and former McKesson executives and directors, alleging breaches of fiduciary duties of loyalty and care.

Henry advanced two theories. First, she alleged that the defendants knowingly, recklessly, or negligently allowed McKesson to become involved in an illegal generic-drug price-fixing and market-allocation scheme. The complaint relied partly on allegations involving Heritage Pharmaceuticals, Inc. and Mayne Pharma Inc., which allegedly conspired to divide the market for Doxy DR, and on allegations that McKesson’s subsidiary, NorthStar Rx, colluded to fix the price of Leflunomide. Henry also relied on employee movement between McKesson and generic-drug manufacturers.

Second, Henry alleged that the defendants exposed McKesson to substantial liability by making false or misleading statements about McKesson’s income and the causes of rising generic-drug prices. The alleged statements included explanations by former Chief Executive Officer John Hammergren and former Chief Financial Officer James Beer, as well as statements in filings with the Securities and Exchange Commission.

Henry did not make a demand on McKesson’s board of directors to pursue the claims. She alleged that making such a demand would have been futile. Under the applicable Delaware law, a shareholder who does not make a demand must plead specific facts showing why a majority of the board could not fairly consider the demand. The court considered the board that was serving when the complaint was filed.

Court’s analysis

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court concluded that Henry failed both to plausibly allege McKesson’s participation in an antitrust conspiracy and to adequately plead that demand on the board would have been futile.

Antitrust theory

The court held that any theory based on McKesson’s participation in price fixing failed because the amended complaint did not plausibly allege that McKesson joined an illegal conspiracy. The court had previously found similar allegations insufficient in a prior related proceeding. The additional allegations about executives moving between McKesson, its suppliers, and generic-drug manufacturers also had an innocent explanation: executives might seek jobs in the field where they had experience. The court therefore found those allegations insufficient to support an inference of an illegal conspiracy.

The court also addressed Henry’s briefing about an alleged Levothyroxine conspiracy. The amended complaint did not refer to Levothyroxine, and the allegations described by Henry suggested only that generic-drug manufacturers supplying McKesson conspired—not that McKesson participated in those agreements. Because the complaint failed to adequately allege McKesson’s involvement, the court did not need to decide the defendants’ other arguments concerning this theory.

False-statements theory and demand futility

The court held that the false-statements theory failed because Henry did not adequately plead demand futility. Henry alleged that the current board was not independent and disinterested because its members were too involved in the alleged misconduct to evaluate a demand to investigate it.

The court required particularized facts creating reasonable doubt that a majority of the board faced a substantial likelihood of personal liability for breaching the duty of loyalty. It found that the amended complaint did not provide specific facts showing that a majority of the board approved, prepared, or knew about the alleged misstatements and omissions.

The complaint alleged that members of McKesson’s Audit Committee were responsible for reviewing or discussing financial statements, earnings releases, and information presented in earnings guidance. Even assuming those allegations sufficiently showed that the Audit Committee defendants approved the alleged statements, the court found that they did not make up a majority of the board when the complaint was filed. The court also found that allegations concerning Hammergren and Beer did not establish demand futility because they were not current board members. Finally, the court rejected Henry’s argument that suing former directors would necessarily implicate the current directors, explaining that the complaint had to plead facts specific to each director.

Disposition

The court granted the motion to dismiss. The order stated that Henry could file an amended complaint within 30 days of the order’s filing if she believed the identified deficiencies could be remedied by amendment. The court also denied the request for judicial notice as moot. The opinion does not state that the motion or claims were dismissed with or without prejudice.