Opinion
C. A. PC-2017-4398
12-15-2020
EDWARD BORON, derivatively on behalf of CVS HEALTH CORPORATION, Plaintiff, v. RICHARD M. BRACKEN, et al., Defendants, and CVS HEALTH CORPORATION, a Delaware Corporation, Nominal Defendant.
For Plaintiff: Robert M. Duffy, Esq. Stephanie F. Friedel, Esq. For Defendant: Robert Corrente, Esq. Matthew H. Parker, Esq.
Providence County Superior Court
For Plaintiff: Robert M. Duffy, Esq. Stephanie F. Friedel, Esq.
For Defendant: Robert Corrente, Esq. Matthew H. Parker, Esq.
DECISION
STERN, J.
Before the Court is Defendants', the individual director defendants (Director Defendants) and CVS Health Corporation (CVS) (collectively, Defendants), motion for determination of a deadline for Plaintiff, Edward Boron (Plaintiff), to file an amended complaint and Plaintiff's motion to compel Defendants' further response to Plaintiff's inspection demand. Following the parties' submissions of legal memoranda and after hearing oral argument on the motions, the instant decision follows. Jurisdiction is pursuant to Rule 15(a) of the Rhode Island Superior Court Rules of Civil Procedure and G.L. 1956 §§ 8-2-14 and 8-2-17.
I
Facts & Travel
On September 15, 2017, Plaintiff filed a verified stockholder derivative complaint (the Complaint) seeking to hold CVS's directors and officers liable for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and civil conspiracy arising from the directors' failed oversight of, and participation in, management wrongdoing. Compl. ¶¶ 211-232. In the Complaint, Plaintiff alleges a near complete lack of oversight by the directors, including that the directors failed to oversee a wide range of business issues, which included (a) allowing management to propose and implement unlawful business plans and (b) the board's failure to act after learning of this wrongdoing. Compl. ¶¶ 1-7. As the basis for the allegation of the Director Defendants' wide-ranging breach of fiduciary duty, Plaintiff points to numerous investigations and lawsuits. Id. Within this set of investigations and lawsuits, the Complaint highlights and emphasizes the actions and knowledge of the board and management with respect to CVS's Health Savings Pass (the HSP) program and the alleged unlawful conduct in reporting usual and customary pricing. Compl. ¶¶ 64-107; Decision at 9, Apr. 29, 2019 ("Plaintiff's first and most developed theory of liability concerns the Director Defendants' role in adopting . . . the HSP program.").
On May 21, 2018, Defendants filed a motion to dismiss the Complaint, arguing that Plaintiff failed to assert facts sufficient to demonstrate demand-futility. Defs.' Mot. to Dismiss, May 21, 2018. On April 29, 2019, this Court granted Defendants' motion to dismiss the Complaint, and, on May 30, 2019, granted Plaintiff leave to amend the Complaint. Decision at 25, Apr. 29, 2019 ("the Plaintiff has not demonstrated a basis for demand futility that would entitle the Plaintiff to bring this action on CVS's behalf"); Order at 1, May 30, 2019. The Court deferred the setting of a deadline to amend the Complaint until the completion of Plaintiff's anticipated demand for inspection of CVS's books and records. Id. at 2. The Order did not specifically limit Plaintiff's amendment of the Complaint nor any aspect of the anticipated inspection demand solely to demand futility issues. Id.
Plaintiff, on May 23, 2019, made a demand upon CVS for inspection of its books and records under Del. Code Ann. tit. 8, § 220 (2010) (Section 220). Defs.' Mot. to Set Deadline Ex. 1, May 23, 2019 (Demand Letter). In the Demand Letter, Plaintiff requested inspection of (1) all board and senior management materials concerning or relating to a number of identified topics, (2) all documents CVS produced in response to any other shareholder demand relating to those same topics, (3) all board of director independence evaluations and board questionnaires, and (4) all board and senior management materials relating to CVS's internal controls that pertain to compliance with laws applicable to its Pharmacy Services and Retail/Long Term Care operating segments. Demand Letter at 1-4. In addition, Plaintiff stated his purpose as follows: "The purpose of Mr. Boron's inspection demand is to (1) obtain accurate and complete information concerning his investment in CVS; and (2) investigate potential mismanagement and breaches of fiduciary duties at CVS." Demand Letter at 4. CVS initially denied Plaintiff's inspection demand on multiple grounds, Defs.' Mot. to Set Deadline Ex. 2, but after discussions with Plaintiff, CVS agreed to provide (a) board-level documents related to the HSP program, including e-mails CVS managers sent to any director, (b) disclosure statements Director Defendants submitted to CVS as part of the process of determining director independence, (c) certain settlement agreements CVS and government agencies reached, and (d) documents CVS produced in response to a Section 220 demand made several years ago by another shareholder. Defs.' Mot. to Set Deadline at 2; Defs.' Mot. to Set Deadline, Ex. 3. After determination that some of the documents CVS produced were illegible, CVS completed production of the requested documentation on December 2, 2019. See Defs.' Mot. to Set Deadline Ex. 4. However, CVS declined to produce (a) documentation unrelated to the HSP program or "usual and customary" price reporting, (b) senior management materials that did not go to or come from a director, and (c) documentation related to the other compliance issues Plaintiff identified in the inspection demand. Pl.'s Omnibus Mem. at 4, Feb. 14, 2020.
CVS, asserting that it completed all required production, filed a motion to set a deadline for filing an amended complaint. Defs.' Mot. to Set Deadline. Plaintiff, asserting that he is entitled to further production, opposes the setting of a deadline and filed a motion to compel further responses. Pl.'s Omnibus Mem. The Court heard oral arguments on March 10, 2020.
II
Standard of Review
Section 220 of the Delaware General Corporation Law grants stockholders a qualified right to inspect "for any proper purpose . . . [t]he corporation's stock ledger, a list of its stockholders, and its other books and records . . . ." 8 Del. C. § 220(b). A stockholder's right to inspection, however, is limited to those documents that are "necessary and essential" to accomplish the stated proper purpose. Saito v. McKesson HBOC, Inc., 806 A.2d 113, 116 (Del. 2002). That limitation reflects the need to balance the interest of the stockholder with burden of production on the corporation. Seinfeld v. Verizon Communications, Inc., 909 A.2d 117, 118 (Del. 2006). Highlighting this, "[a] Section 220 inspection . . . is not the equivalent of discovery in a plenary action." See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 789 (Del. Ch. 2016). The Court, therefore, has wide discretion to determine the scope of the inspection demand in recognition of the need to balance those interests. See Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271 (Del. 2014) ("The plain language of Section 220(c) provides that '[t]he Court [of Chancery] may, in its discretion, prescribe any limitations or conditions with reference to the inspection.'") (quoting 8 Del. 220(c))).
III
Analysis
CVS argues that it has provided Plaintiff with all necessary documents under Plaintiff's Section 220 inspection demand, and that a deadline of thirty (30) days after this Court decides the motion is a sufficient amount of time for Plaintiff to amend his Complaint. Specifically, CVS asserts that it has responded to the inspection demand to the degree necessary given that the demand is (a) defective as to its form and manner, (b) fails to provide a proper purpose, and (c) is overly broad. Plaintiff denies all those allegations. Notwithstanding, Plaintiff argues that CVS has not complied with the inspection demand, leaving numerous documents undelivered, and Plaintiff is, therefore, without the information necessary to amend his Complaint.
A
Form and Manner
First, CVS asserts that it has no obligation to respond to Plaintiff's inspection demand because Plaintiff did not properly address the request, and, therefore, the inspection demand does not meet the mandatory "form and manner" requirements. Plaintiff responds that the Rhode Island Rules of Professional Conduct require that Plaintiff address the letter to CVS's counsel because CVS is represented in this matter. R.I. R. Prof. Conduct 4.2. However, Plaintiff argues that the purpose of the address requirement is to ensure CVS received the demand, and CVS demonstrated actual receipt through its response.
Section 220 gives "a stockholder a statutory right to inspect the books and records of a corporation so long as certain formal requirements are met. . . ." Central Laborers Pension Fund v. News Corp., 45 A.3d 139, 144 (Del. 2012) (en banc). Those requirements protect '"corporations from improper demands by requiring that evidence of beneficial ownership be both furnished with the demand and provided under oath.'" Id. (quoting Seinfeld v. Verizon Communications. Inc., 873 A.2d 316, 317 (Del. Ch. 2005)). Where the requesting party has not evidenced ownership properly, demands are routinely rejected. See Central Laborers Pension Fund, 45 A.3d at 146 (denying inspection where party demanding inspection did not include evidence of ownership); Mattes v. Checkers Drive-In Restaurants, Inc., No. C.A. 17775, 2000 WL 1800126, at *1 (Del. Ch. Nov. 15, 2000) (denying inspection where demand was made under oath by an attorney purporting to be acting on behalf of the stockholder but failed to include a power of attorney as mandated by Section 220). The great majority of Section 220 disputes regarding the form and manner of the demand letter pertain to the evidence establishing the demanding party had a direct or indirect beneficial ownership in the corporation at the relevant time. See Central Laborers Pension Fund, 45 A.3d at 145-47 (denying inspection where ownership of stock was not accurately and properly demonstrated).
Section 220 also requires that Plaintiff direct the demand "to the corporation at its registered office in [Delaware] or at its principal place of business." 8 Del. C. § 220(b). Statutes and agreements that require communications specify the address to which communications should be sent in order to ensure that the counterparty receives the communication. See Leal v. Fontaine, 636 A.2d 731, 731 (R.I. 1993) (vacating a judgment in an arbitration when there was overwhelming evidence that a party never received notices because the notices were sent to the wrong address); Friendly Finance Corp. v. Bovee, 702 A.2d 1225, 1225 (Del. 1997) (affirming summary judgment against a creditor who failed to show it gave reasonable notice to debtors after sending notices to the wrong address); Kaufman v. Egger, 758 F.2d 1, 4 (1st Cir. 1985) (upholding an award of attorney's fees to taxpayers who retained counsel to fight complications from an IRS tax audit when notice, and all subsequent correspondence, was sent to the wrong address). At the same time, Rule 4.2 of the Rhode Island Superior Court Rules of Professional Conduct requires that "a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter. . ." The purpose of this rule is to "contribute[] to the proper functioning of the legal system[, ]" Rule 4.2 cmnt. 1, by "safeguard[ing] the client-lawyer relationship from interference by adverse counsel." Pleasant Management, LLC v. Carrasco, 870 A.2d 443, 446 (R.I. 2005) (quoting ABA Committee on Ethics and Professional Responsibilities, Formal Op. 95-396 at 334 (1995)). Failure to adhere to this rule may be grounds for the court to vacate subsequent rulings. See Pleasant Management, 870 A.2d at 447 (finding violation of anti-contact rule by plaintiff's counsel led to vacating of default decree against defendants where defendants demonstrated direct communications with plaintiff's counsel caused confusion about conditions under which they should appear for a hearing).
In this case, Plaintiff's counsel knew CVS to be represented by counsel on this matter, as it had repeatedly interacted with CVS's counsel throughout the case. See Joint Status Report ¶ 2, Aug. 30, 2019; Joint Status Report ¶¶ 2, 5, (Jan. 15, 2020). Therefore, Plaintiff's counsel had an obligation, under Rule 4.2 of the Rhode Island Superior Court Rules of Professional Conduct, to communicate with CVS's counsel and not directly with CVS. Additionally, the purpose of Section 220's address requirement is to ensure parties receive communications. See Leal, 636 A.2d at 731 (vacating a default judgment because the defaulting party never received notice of the hearing). In directing the demand letter to CVS's counsel, Plaintiff's attorney relied on CVS's counsel-its agent-to ensure that CVS received the communication, while simultaneously complying with Rule 4.2. See 4 A.L.R.3d 224 ("it is a general rule that knowledge of or notice to an agent received while acting as such within the scope of his authority and in reference to a matter over which his authority extends is imputed to and binds his principal"). In addition, CVS's response demonstrated CVS's actual receipt of the demand letter. See Defs.' Mot. to Set Deadline Ex. 2. Thus, Plaintiff satisfied the purpose of the address requirement because CVS had actual notice of the demand, which CVS demonstrated through its response. See Hutchison v. National Supply Co., 1971 WL 1, at *1 (Del. Ch. Feb. 9, 1971) (granting inspection even though demand not sent to the address mandated by statute when there was clear evidence of receipt by the corporation).
Separately, corporate defendants in Section 220 cases must raise their technical defenses to the demand in a timely manner. See Mattes, 2000 WL 1800126, at *1. The Court should not permit the late assertion of "'hypertechnical defenses'" unless the defendant is able to make '"a good faith showing . . . that it could not by its own efforts and diligence determine the existence of such defense prior to its actual assertion."' Id. (quoting Van Leeuvan v. Gas Service Co., 467 A.2d 455 (Del. 1983)).
Here, CVS responded to the demand letter seventeen days after Plaintiff sent it, identifying numerous issues that compromise its validity. However, in its response, CVS made no mention of the "wrong address" issue. Defs.' Mot. to Set Deadline Ex. 2. Since that time, CVS and Plaintiff's counsel have worked for months to try to resolve the demand issue, and, during that time, there is no evidence that CVS raised the "wrong address" issue. Defs' Mot. to Set Deadline Exs. 3, 4. CVS cannot raise this technical issue after having accepted the demand letter service for the past nine months, when its true objection was the scope of the demand. See Mattes, 2000 WL 1800126, at *1.
Therefore, based on the foregoing, this Court finds that the demand meets the form and manner requirements as set out in Section 220(b).
B
Plaintiff's Proper Purpose
CVS next argues that Plaintiff has not shown a proper purpose for making his demand because (1) his stated purpose is too vague, (2) he fails to state a reason for his purpose, and (3) he has not shown a credible basis for inquiring into mismanagement at CVS. However, Plaintiff asserts that (a) his stated purpose is proper, (b) CVS is aware of his reason for the demand, and (c) he has shown a credible basis for the demand.
1
Purpose is too Vague
Under Section 220, a party seeking to inspect a corporation's books and records must have a proper purpose. 8 Del. C. § 220(b). A proper purpose is a purpose reasonably related to the party's interest as a stockholder of the corporation. Id. Courts have repeatedly held that "a stockholder's desire to investigate wrongdoing or mismanagement is a 'proper purpose.'" Seinfeld, 909 A.2d at 121 (internal quotation omitted). To warrant relief under Section 220, the stated purpose must also be "sufficiently specific to permit the court (and the corporation) to evaluate its propriety." Norfolk County Retirement System v. Jos. A. Bank Clothiers, Inc., No. 3443-VCP, 2009 WL 353746, at *11 (Del. Ch. Feb. 26, 2015). Courts have held that demands that are general in nature have been held to be insufficiently specific to warrant relief. See Catalano v. T.W.A., No. 5352, 1977 WL 2579, at *2 (Del. Ch. Dec. 27, 1977) (finding that the party making a demand to inspect books and records must "cite some specific transaction to be entitled to an inspection"); Weisman v. Western Pacific Industries, Inc., 344 A.2d 267, 269 (Del. Ch. 1975) (finding that a demand for a stockholders list, for the purpose of communicating with other stockholders and lacking surrounding circumstances that provide context as to specificity, is too general for the grant of relief under Section 220). An interest in general mismanagement, without more, is not a proper purpose. See Seinfeld, 909 A.2d at 122 (citing Helmsman Management Services Inc. v. A & S Consultants, Inc., 525 A.2d 160, 166 (Del. Ch. 1987)). Where a purpose would otherwise be too vague, the demand may, however, "be given an expanded reading [when] viewed in the light of surrounding circumstances, such as an impending stockholders' meeting." Weisman, 344 A.2d at 269.
Here, Plaintiff has stated his purpose is "to (1) obtain accurate and complete information concerning his investment in CVS; and (2) investigate potential mismanagement and breaches of fiduciary duties at CVS." Demand Letter at 4. His first purpose, "to obtain accurate and complete information concerning his investment in CVS[, ]" is impermissibly vague and subjective. See Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Technologies, Inc., No. 9542-ML, 2015 WL 915486, at *5 (Del. Ch. Feb. 26, 2015). Plaintiff provides no indication as to what stockholder interest Plaintiff is referring to. Demand Letter at 4. Demanding the information for the purpose of having the information is insufficient. See Southpaw, 2015 WL 915486, at *5 ("To the extent [plaintiff] simply is seeking the most complete information it can obtain, that desire is understandable, but it is not sufficiently specific and concrete for this [c]ourt to evaluate. . ."). In the balance between the needs of the stockholder and the burden on the corporation, such a purpose would be akin to a "fishing expedition" and would weigh heavily in favor of the corporation. See Wal-Mart, 95 A.3d at 1280.
This Court is cognizant, however, that Plaintiff's demand is being made in the context of continuing proceedings in which Plaintiff has been given leave to amend a prior derivative shareholder complaint against CVS. Pl.'s Obj. to Defs.' Proposed Order 3-4 (May 10, 2019); Order at 1-2 (May 30, 2019). In this case, this Court might infer that the purpose is essentially for valuation-to assess the impact of the original claims on CVS's stock price. See Compl. ¶¶ 142-158 Typically, demands for more complete and accurate information relate to a stated intent to value the securities held. See CM & M Group, Inc. v. Carroll, 453 A.2d 788, 788 (Del. 1982) (granting a stockholder's request for books and records in order to value his stock). When the stockholder's purpose is to value securities, and those securities are for a publicly traded company such as CVS, the stockholder "must show why publicly available information is not sufficient to perform the valuation." Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc., No. 10425-JL, 2016 WL 4548101, at *8 (Del. Ch. Aug. 31, 2016). Regardless, valuation is just one of a number of possible purposes that this Court could infer for Plaintiff. However, this Court will not engage in conjecture as to what purpose that is, and, therefore, finds that Plaintiff's first purpose, "to obtain accurate and complete information concerning his investment in CVS," as given in his Demand Letter, is not a proper purpose.
Plaintiff's second purpose, to "investigate potential mismanagement and breaches of fiduciary duties at CVS[, ]" is overly broad and vague. Demand Letter at 4. However, Plaintiff's demand requests information that pertains to particular categories of investigations and legal actions. Id. at 1-4. Those categories are (1) the reporting of Usual and Customary pricing and the associated Health Savings Pass plan (the HSP Issue), id. ¶¶ 1(a)-(d); (2) potential anti-remuneration violations in programs under which CVS has offered customers remuneration conditioned upon the transfer of prescription drugs or medications to the company's pharmacies (the Customer Remuneration Issue), id. ¶ 1(f); (3) allegations that CVS violated the federal False Claims Act and the false claims acts of several states, and related allegations (the False Claims Issue), id. ¶¶ 1(g)-(h); (4) allegations that CVS violated requirements of the Controlled Substances Act (the CSA Issue), id. ¶ 1(i); and (5) potential violations pertaining to bona fide service fees and rebates received from pharmaceutical manufacturers in connection with certain drugs utilized under Part D of the Medicare Program (the Rebate Issue), id. ¶ 1(j), (collectively, the Five Investigative Issues).
Plaintiff identifies two additional issues in his Demand Letter that this Court has determined are too vague to clearly identify. The first, item 1(e) in the Demand Letter, references CVS's responses to a 2007 document subpoena, and subsequent responses, but fails to identify any particular, associated wrongdoing alleged mismanagement, or business issue. Similarly, item 1(k) identifies a category of documents-all Corporate Integrity Agreements-but fails to identify any particular alleged wrongdoing or issue. Those items are not included in the implied scope of the demand as "it is not the court's responsibility to pick through the debris of a Section 220 demand in this state of disarray" in order to infer the particular issues of wrongdoing. Highland Select Equity Fund, L.P. v. Motient Corp., 906 A.2d 156, 168 (Del. Ch. 2006), aff'd, 922 A.2d 415 (Del. 2007).
The focus of the Complaint, and Plaintiff's most developed theory of director liability, relates to the HSP Issue. However, in the Complaint, Plaintiff cites all the allegations of regulatory and legal noncompliance and investigation contained in his Demand Letter in order to claim broad mismanagement and a breach of fiduciary duty on the part of CVS's directors and management. Compl. ¶¶ 2-4. Seemingly, Plaintiff is suggesting that a purpose "to . . . investigate potential mismanagement and breaches of fiduciary duties[, ]" unrestricted as to any particular event or issue, is warranted based upon those numerous instances of alleged wrongdoing. See id.; Demand Letter at 4. While broad access is provided in cases where there is evidence of significant related-party transactions, this Court cannot find any instance where a comparable allegation of widespread mismanagement has led the Court to approve an unqualified "investigation of mismanagement and fiduciary duties" as a proper purpose. See Amalgamated Bank v. UICI, No. Civ.A 884-N, 2005 WL 1377432, at *3-4 (Del. Ch. June 2, 2005) (allowing for broad access where there was evidence of a decade of related party transactions between the company and nearly all of the officers and directors of the company); Skoglund v. Ormand Industries, Inc., 372 A.2d 204, 211 (Del. Ch. 1976) (providing for broad access of minutes only during the period when there was evidence of improper self-dealing transactions). Rather, purposes to investigate mismanagement must always be focused on the particular issues of concern. See Catalano, 1977 WL 2579, at *2 ("[the stockholder] must cite some specific transaction to be entitled to an inspection"). Therefore, the Court finds that Plaintiff's purpose is to investigate potential mismanagement and breaches of fiduciary duties at CVS with respect to the Five Investigative Issues.
2
Reason for Demand
In addition to providing a purpose reasonably related to the party's interest as a stockholder, a stockholder also "must state a reason for the purpose, i.e., what [the stockholder] will do with the information, or an end to which that investigation may lead." West Coast Management & Capital, LLC v. Carrier Access Corp., 914 A.2d 636, 646 (Del. Ch. 2006). Such reasons for investigating corporate mismanagement may include seeking an audience with the board, preparing a stockholder resolution, mounting a proxy fight, or filing a derivative lawsuit. Saito, 806 A.2d at 117. Without such a reason, the stockholder has not stated a proper purpose. See West Coast Management & Capital, LLC, 914 A.2d at 646 . '"[U]nless a demand in itself unspecific as to purpose can in some way successfully be given an expanded reading viewed in the light of surrounding circumstances . . . a vague demand without more must a fortiori be deemed insufficient.'" Norfolk County Retirement System, 2009 WL 353746, at *11 (quoting Weisman, 344 A.2d at 269). However, where the surrounding circumstances support an expanded reading of the purpose, the reason may be inferred by the Court. See Southeastern Pennsylvania Transportation Authority v. Abbvie Inc., No. 10374-VCG, No. 10408-VCG, 2015 WL 1753033, at *12 (finding, though unstated in the demand letter, the stockholder's reason for the demand was to pursue future derivative litigation against the corporation).
Here, Plaintiff's demand letter is undeniably silent as to the reason for the information request. See generally Demand Letter. The Court, however, finds it apparent enough, from Plaintiff's Objection to CVS's Proposed Order, to infer that Plaintiff is making this demand in order "to amend his complaint" and "bolster his demand-futility allegations[.]" Pl.'s Obj. to Defs.' Proposed Order at 1-2, May 10, 2019. Furthermore, since Plaintiff has not indicated any other reason for his demand-at briefing or at argument-the Court finds that Plaintiff's sole reason for making his Section 220 demand is to file an amended derivative complaint. See Abbvie, 2015 WL 1753033, at *12 (finding the only reason for investigation, in the absence of any other indication by the stockholder, was litigation); Graulich v. Dell Inc., No. 5846-CC, 2011 WL 1843813, at *6 (Del. Ch. May 16, 2011) (finding, where the stockholder stated no reason other than filing an "appropriate suit" if the directors breached their fiduciary duty, that filing a derivative suit is the sole reason for the demand).
3
Credible Basis for Non-Exculpated Claims
In order to obtain relief under a Section 220 books and records request, a stockholder must present '"some evidence of possible mismanagement as would warrant further investigation of the matter.'" Security First Corp. v. U.S. Die Casting and Development Co., 687 A.2d 563, 568 (Del. 1997) (quoting Helmsman, 525 A.2d at 166). Investigations prompted by mere suspicion or curiosity, or disagreements with business judgments, with nothing more, do not rise to the level necessary to obtain relief. Seinfeld, 909 A.2d at 122. However, the stockholder "need only show, by a preponderance of the evidence, a credible basis from which the [Court] can infer there is possible mismanagement that would warrant further investigation. . ." Seinfeld, 909 A.2d at 123 (emphasis added).
The '"credible basis"' standard sets the lowest possible burden of proof. Yahoo!, 132 A.3d at 778 (quoting Seinfeld, 909 A.2d at 123). That threshold may be met by a credible showing- through documents, testimony, and logical inferences-that wrongdoing or mismanagement may have occurred. See Yahoo!, 132 A.3d at 778. The Court may rely on circumstantial evidence, see Wal-Mart, 95 A.3d at 1273, as well as "hearsay, as long as it is sufficiently reliable." Lebanon County Employees' Retirement Fund v. Amerisourcebergen Corp., No. 2019-0527-JTL, 2020 WL 132752, at *8 (Del. Ch. Jan. 13, 2020) (citing Thomas & Betts Corp. v. Leviton Manufacturing Company, Inc., 681 A.2d 1026, 1032-33 (Del. 1996)). "Ongoing investigations and lawsuits can provide the necessary evidentiary basis to suspect wrongdoing or mismanagement warranting further investigation." Amerisourcebergen, 2020 WL 132752, at *9. That "type of evidence is stronger when governmental agencies or arms of law enforcement have conducted the investigations. . ." Id.
At the same time, while the "credible" standard is low, it is not "a mere speed bump." Hoeller v. Tempur Sealy International, Inc., No. 2018-0336-JRS, 2019 WL 551318, at *1 (Del. Ch. Feb. 12, 2019). Seinfeld recognized that, while low, "the threshold for a stockholder in a section 220 proceeding is not insubstantial." Seinfeld, 909 A.2d at 123. Consent orders, subpoenas, or other legal actions, in and of themselves, do not necessarily provide a credible basis for the purpose. See Oklahoma Firefighters Pension & Retirement System v. Citigroup Inc., No. 9587ML (VCN), 2015 WL 1884453, at *6 (Del. Ch. Apr. 24, 2015). Whether or not the credible basis has been met is based upon a "consider[ation] [of] the totality of the evidence. . . ." Security First Corp., 687 A.2d at 565.
The 'credible basis' standard "reflects judicial efforts to maintain a proper balance between the rights of stockholders to obtain information based upon credible allegations of corporate mismanagement and the rights of directors to manage the business of the corporation without undue interference from stockholders." Seinfeld, 909 A.2d at 122. Reflecting that balance, when a stockholder seeks inspection solely to evaluate whether to bring derivative litigation, courts routinely deny the stockholder a right to production where the corporate wrongdoing they seek to investigate is not justiciable. See Abbvie, 2015 WL 1753033, at *13. When an investigation is solely for the purposes of pursuing a derivative action, a Section 220 demand may be denied as a matter of law when "the filing of such a future derivative action would be barred by claim or issue preclusion. . . ." Norfolk County Retirement System, 2009 WL 353746, at *6 (citations omitted). Likewise, the court has denied a stockholder the ability to inspect books and records solely to investigate bringing litigation where the stockholder would lack standing in the underlying suit, see Polygon Global Opportunities Master Fund v. West Corp., No. Civ.A. 2313-N, 2006 WL 2947486, at *5 (Del. Ch. Oct. 12, 2006), or when the underlying suit would be time-barred. See Graulich, 2011 WL 1843813, at *6.
Shareholders can extend protection to directors by including an "exculpatory" provision in the corporation's charter, limiting personal liability for breaches of fiduciary duty as a director. See 8 Del. C. § 102(b)(7). Such provisions are often included to encourage directors to make "value-maximizing" decisions for the benefit of the corporation without fear of personal liability. See In re Cornerstone Therapeutics Inc., Stockholder Litigation, 115 A.3d 1173, 1185 (Del. 2015). These provisions do not, however, shield directors completely, as Delaware law precludes shareholders from exculpating directors for egregious acts. 8 Del. C. § 102(b)(7). While directors can be shielded from breaches of their fiduciary duty of care, they cannot be shielded from liability due to (i) any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) issuing unlawful dividends and stock repurchases or (iv) any transaction from which the director derived an improper personal benefit (collectively, the Non-Exculpated Liabilities). Id. Where directors are exculpated from liability for breaches of their fiduciary duty as a director, a shareholder whose sole reason for the demand is to file a derivative action must target a non-exculpated wrongdoing. See Abbvie, 2015 WL 1753033, at *13 ("a stockholder seeking to use Section 220 to investigate corporate wrongdoing solely to evaluate whether to bring derivative litigation has stated a proper purpose only insofar as the investigation targets non-exculpated corporate wrongdoing").
Here, CVS has exculpated the Director Defendants from liability for breaches of the duty of care. See Gordon v. Ryan, No. PB 12-3098, R.I. Super. LEXIS 180, at *18-19 (Super. Ct. Oct. 1, 2013). Plaintiff's purpose-to investigate potential mismanagement and breach of fiduciary duties at CVS with respect to the Five Investigate Issues and for the sole reason of filing an amended derivative suit-is, therefore, proper only as to investigating whether CVS's directors breached their duty of loyalty. See Abbvie, 2015 WL 1753033, at *13. Unless Plaintiff provides a credible basis for the possibility of a non-exculpated director liability for each investigative issue, the investigation could not result in justiciable mismanagement or wrongdoing on the part of the directors. Id. Since Plaintiff's Demand Letter states as its purpose to investigate breaches of fiduciary duty, the non-exculpated liability that demand seeks to investigate must be limited to the justiciable fiduciary duties, specifically the duty of loyalty. Demand Letter at 4.
A director's duty of loyalty requires that they hold the best interest of CVS and its shareholders '"over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally."' In re Walt Disney Company Derivative Litigation, 907 A.2d 693, 751 (Del. Ch. 2005) (quoting Cede & Company v. Technicolor, 634 A.2d 345, 361 (Del. 1993)). Implicit in the duty of loyalty is the requirement that directors act in good faith. See Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003) ("there is no case in which a director can act in subjective bad faith towards the corporation and act loyally").
I
HSP
First, Plaintiff requests books and records relating to the reporting of usual and customary pricing and the associated HSP. Demand Letter at 1-2. Plaintiff alleges that directors breached their duty of loyalty by failing in their oversight of the HSP program. Compl. ¶¶ 140-41, 213. Specifically, Plaintiff alleges that, despite having been confronted with "red flags" that should have warned them that the HSP program was exposing CVS to liability, the directors took no action to ensure the program was implemented in compliance with the law. Id. Often referred to as "Caremark" claims, In re Caremark International Inc. Derivative Litigation., 698 A.2d 959 (Del. Ch. 1996), such a claim holds directors liable for a breach of their fiduciary duty of loyalty where they "failed to act when they otherwise should have done so." David B. Shaev Profit Sharing Account v. Armstrong, No. Civ.A. 1449-N, 2006 WL 391931, at *4 (Del. Ch. Feb. 13, 2006). Plaintiff points to a number of Civil Investigative Demands (CIDs) issued to, and lawsuits filed against, CVS during the period from 2012 onward, which should have served as the "red flags." Demand Letter at 4-6. Specifically, in early 2012, the Office of Inspector General and the Texas Attorney General requested information on the HSP program, and, in July and September of 2015, class action suits pertaining to the HSP program were filed. Id. Additionally, in his original Complaint, Plaintiff presented evidence from a variety of news services, Compl. ¶¶ 5, 108, and CVS's annual reports, Compl. ¶¶ 52-54, and made logical inferences based on the evidence presented. Compl. ¶¶ 65, 67, 78, 82, 84, 95. Plaintiff provided evidence that the HSP plan was implemented corporate-wide and impacted the profitability of a major segment of CVS's business. Compl. ¶¶ 64, 83-88, 90-107.
The evidence Plaintiff presented may well reflect the business judgment of the directors and management, potentially influenced to be "value-maximizing" based on the exculpation provisions in CVS's charter. At the same time, while the evidence does not establish that wrongdoing or mismanagement has occurred, it is sufficient to establish a credible basis to infer that the directors may have breached their duty of loyalty through failed oversight. The evidence suggests an aggressive interpretation of a regulation, implemented company-wide in a major segment of the business, which might warrant director oversight and, therefore, further investigation. See Amerisourcebergen, 2020 WL 132752, at *10 (finding that a "flood of government investigations and lawsuits" is sufficient to establish a credible basis to suspect wrongdoing warranting further investigation).
"Based on the [Plaintiff's] assertions [in the Complaint], what can be inferred is that by February 2013, most of the Director Defendants were aware that the OIG and the State of Texas instituted investigations into the HSP program." Decision at 14-15, Apr. 29, 2019.
II
Customer Remuneration
In Plaintiff's demand letter, he requests books and records relating to "the March 2010 subpoena received by [CVS] from the OIG requesting information about programs under which [CVS] has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to [CVS's] pharmacies. . . ." Demand Letter at 2. However, the letter does not indicate which evidence relates to that issue, and the Court finds none after a review of all the evidence cited and contained in Plaintiff's demand letter. See Demand Letter. The only oblique reference found that could be included in this category is under the heading of "Other Legal and Regulatory Proceedings," where CVS notes, "[t]hese other legal proceedings include claims of or relating to . . . marketing misconduct. . . ." Demand Letter at 11. While the threshold for demonstrating a credible basis is low, the evidence presented here-or lack thereof-falls well below that low level. Thus, this Court finds that Plaintiff has not shown a credible basis to investigate the Customer Remuneration Issue.
III
False Claims Act
Next, Plaintiff requests books and records relating to allegations that CVS "violated the federal False Claims Act and the false claims acts of several states" including "allegations that [CVS] submitted, or caused to be submitted, to the Medicare Part D program prescription drug event data that misrepresented true prices paid by [CVS]'s pharmacy benefit manager. . . ." Demand Letter at 2-3. While the demand letter does not indicate how the specific legal actions and investigations listed relate to this issue, the Court finds two sets of evidence. See id. The first set is associated with the "Usual and Customary Litigation" group. See Demand Letter 4-6. The State of Texas alleges that CVS violated the Texas Medicaid Fraud Prevention Act by submitting false claims for reimbursement to the Texas Medicaid program based on CVS's treatment of purchases made under the HSP program. Id. The State of California ex rel. Matthew Omlansky and the State of Mississippi make similar allegations. Id. The second set of evidence falls under the "Prescription Processing Investigations" group, and consist of two CIDs, one from the Northern District of New York in December 2016 and a second from the Southern District of New York in May 2017, requesting information concerning possible false claims submitted to Medicare. Demand Letter at 8-9. No other information or evidence has been provided, and there is no indication that these possible false claims are related to the HSP program.
The first set of legal actions and investigations are inherently related to, and naturally expected to arise from, the claims related to the HSP Program. See Compl. ¶¶ 64-107. Plaintiff alleges that CVS knowingly and improperly excluded the HSP price for a wide variety of drugs when computing the usual and customary price, resulting in higher prices being reported to all parties, including various government healthcare programs. Id. These are part of the HSP Issue, and do not warrant a separate analysis.
The second set of evidence consists of two CIDs related to investigations of potential False Claims violations. See Demand Letter at 8-9. As CIDs are still in the investigatory stage, and the government has not alleged a specific claim of wrongdoing against CVS, these CIDs reflect mere "suspicions" on the part of the government. See Seinfeld, 909 A.2d at 123-25 (denying inspection when the stockholders' evidence was not more than "mere suspicion"). Plaintiff provides nothing further to explain how these CIDs relate to possible breaches of fiduciary duty of loyalty by the directors. See Demand Letter at 8-9. As courts have repeatedly found, mere suspicions do not rise to the level necessary to serve as a credible basis for a Section 220 demand. See Seinfeld, 909 A.2d at 125. Thus, it follows that this Court finds Plaintiff has not met the requirements of a Section 220 demand on this issue.
IV
CSA
Plaintiff also requests books and records related to allegations that CVS violated requirements of the Controlled Substances Act. Demand Letter at 3. As evidence for a credible basis to demand this information, Plaintiff cites, from CVS's 2018 Annual Report, that (a) CVS is a defendant, along with various defendants, in a consolidated, multidistrict litigation generally concerning the impacts of widespread opioid abuse; (b) CVS has received subpoenas, CIDs and/or other requests for information regarding opioids from the Attorneys General of several states; (c) CVS is routinely audited by the DEA; (d) CVS is in discussions with the DEA concerning allegations of violations of the Controlled Substances Act found in several audits; and (e) the DEA served Omnicare with an administrative subpoena relating to nine CVS pharmacy locations. Demand Letter at 7-8. The evidence here can be placed in three groups-evidence related to (1) the Opioid Litigation, (2) the DEA Audit, and (3) Omnicare.
The Opioid Litigation evidence highlights that CVS is included in the nationwide litigation regarding the impact of widespread opioid abuse. Id. These lawsuits include every part of the opioid manufacturing, prescription, and distribution chain. Given the scope of the Opioid Litigation, it is neither surprising that CVS is included in this litigation, nor is it surprising that CVS has received CIDs and subpoenas as a result of the litigation. Notwithstanding CVS's possible liability in the Opioid Litigation, aside from the Plaintiff's general claim that the directors are responsible for failed oversight, he has not provided any explanation of what the directors did, or failed to do, that constitutes a breach of their fiduciary duty of loyalty. See generally Demand Letter. Without identifying how the board failed in its oversight, as Plaintiff did with respect to the HSP Issue, Plaintiff has nothing more than suspicions.
Similarly, with DEA audit evidence, Plaintiff fails to provide any explanation of how the evidence indicates failed oversight on the part of the directors. Id. As Plaintiff notes, CVS is routinely audited by the DEA, and it is not surprising to find that violations may occasionally occur. Demand Letter at 8. Plaintiff does not allege that violations are more than occasional and warrant further investigation. Id. Rather, Plaintiff provides no explanation of how this evidence indicates possible justiciable wrongdoing on the part of the directors. See id. The Court is left to make that leap, and it declines to do so.
With regard to the Omnicare evidence, the DEA has focused its administrative subpoena on nine pharmacy locations. Id. No evidence was presented, nor allegation made, by Plaintiff that the scope of the investigation goes beyond those nine locations (expanded from eight locations after two years). Id. CVS, however, has close to 10, 000 locations. Compl. ¶ 14. There is no indication or reason to believe the directors were expected to oversee the activity related to 0.1 percent of the total number of corporate locations, particularly with no indication that the investigation is expanding corporate-wide. Without the expectation of director oversight, Plaintiff fails to provide credible evidence of a possible justiciable claim.
V
Manufacturer's Rebates
Lastly, Plaintiff requests books and records relating to service fees and rebates received from pharmaceutical manufacturers in connection with certain drugs utilized under Part D of the Medicare Program. Demand Letter at 3. As evidence for a credible basis to do so, Plaintiff cites a number of putative class action lawsuits alleging that, by contracting for rebates with the manufacturers of diabetes products (in two suits) and epiPens (the third suit), CVS inflated consumer prices in violation of CVS's role to plan members under the Federal Employee Retirement Income Security Act of 1974 (ERISA). Demand Letter at 6-7. Additionally, in 2017, CVS received CIDs from the Attorneys General of Washington and Minnesota requesting information on the rebates paid to manufacturers of insulin products. Demand Letter at 7.
The evidence Plaintiff presented makes clear the potential wrongdoing to be investigated. See Demand Letter at 6-7. While the evidence does not demonstrate that wrongdoing or mismanagement has occurred, three class action suits in progress and two states' attorneys general investigating the same type of claim is more than sufficient to suggest the possibility of wrongdoing. See id. As with the HSP Issue, the practices surrounding manufacturers' rebates can affect many of the products that CVS sells, making the practice widespread and, therefore, potentially requiring oversight from CVS's board of directors. See id. Thus, this Court finds there is a credible basis to warrant further investigation of this issue, and that this issue is a proper target for production under Section 220.
Therefore, the Court finds Plaintiff's purpose, to investigate potential breaches of fiduciary duties of loyalty at CVS with regard to the HSP and Rebate Issues, for the purpose of filing an amended shareholder derivative suit, is proper, and that Plaintiff has provided a credible basis from which the Court can infer there is possible wrongdoing that warrants further investigation. Seinfeld, 909 A.2d at 123.
C
Scope of Demand
Once Plaintiff has established a proper purpose, the Court must determine the scope of production. See Yahoo!, 132 A.3d at 787. "A section 220 inspection . . . is not the equivalent of discovery in a plenary action." Id. (citing Security First Corp., 687 A.2d at 570). Unlike discovery, where the responding party has the burden of showing that scope should be limited, the burden of demonstrating the need for production in a Section 220 demand is on the party seeking production. See Thomas & Betts Corp., 681 A.2d at 1035. In addition, the Court must balance the interests of the stockholder with the burden of production placed upon the corporation. See Security First Corp., 687 A.2d at 569.
Under Section 220, "[a] stockholder . . . should be given access to all of the documents in the corporation's possession, custody or control, that are necessary to satisfy [Plaintiff's] proper purpose." Saito, 806 A.2d at 115. At the same time, an inspection under Section 220 "is not open-ended; it is restricted to inspection of the books and records needed to perform the task." BBC Acquisition Corp. v. Durr-Fillauer Medical, Inc., 623 A.2d 85, 88 (Del. Ch. 1992). The party seeking production must show "that each category of the books and records requested is essential and sufficient to [its] stated purpose." Thomas & Betts, 681 A.2d at 1035. Whether a stockholder is entitled to a particular category of documents "is fact specific and will necessarily depend on the context in which the shareholder's inspection demand arises." Wal-Mart, 95 A.3d at 1271 (internal quotation omitted).
Plaintiff demands four categories of materials for the period from January 1, 2008 to the present: (1) Board Materials relating to the Five Investigative Issues (as well as a 2007 document subpoena and all Corporate Integrity Agreements); (2) Senior Management Materials relating to all the same categories as those given for the Board Materials; (3) all books, records, and other documents produced in response to any other shareholder demand relating to the subjects of the demand; and (4) all Board of Director independence evaluations and board questionnaires completed by Board members from January 1, 2008 to the present. See Demand Letter at 1-4.
1
Board Materials
Board meeting materials are a common source of books and records under Section 220. See Yahoo!, 132 A.3d at 790. They are "[t]he starting point-and often the ending point" for Section 220 document requests that consider directors' decisions, deliberation, and knowledge. Id. Those documents often "provide[] direct evidence of what the directors thought and did" and can be collected by the corporation with minimal burden. Id.
In determining the breadth of the access to board materials, the Court must look to the purpose of the demand. See Security First Corp., 687 A.2d at 569 ("[I]t is the responsibility of the trial court to tailor the inspection to the stockholder's stated purpose."). Where the purpose requires broad access, few restrictions are placed on the scope of the production. See UICI, 2005 WL 1377432, at *4 (granting broad unredacted access to board materials where there was a credible basis to broadly question the disinterestedness of the entire board). However, where the purpose does not require broad access, '"inspection is limited to those documents that are necessary, essential, and sufficient for the shareholder's purpose.'" Oklahoma Firefighters Pension & Retirement System, 2015 WL 1884453, at *7 (quoting BBC Acquisition Corp., 623 A.2d at 88) (restricting production of board materials to only the issues identified in the purpose of the demand); See Robotti & Company, LLC v. Gulfport Energy Corp., No. Civ.A. 1811-VCN, 2007 WL 2019796, at *4-5 (Del. Ch. July 3, 2007) (limiting production of board materials to those related to a rights offering, and associated credit facilities, that were identified for investigation in the purpose of the demand).
In this case, the purpose of the demand is to investigate potential breaches of fiduciary duties of loyalty at CVS with respect to the HSP and Rebate Issues. Any examination of CVS's Board Materials is properly limited to those two issues. See Grimes v. DSC Communications Corp., 724 A.2d 561, 567 (Del. Ch. 1998) (limiting the production of books and records to those necessary to support the shareholder's proper purpose of challenging a decision to refuse the shareholder's demand on the board).
Here, Plaintiff defines "Board Material" as
"all documents provided, considered, discussed, prepared, or disseminated, in draft or final form, at, in connection with, in anticipation of, or as a result of any meeting of the Board or Board committee, including all presentations, Board packages, recordings, agendas, summaries, memoranda, charts, portals, transcripts, notes, minutes, exhibits, or resolutions."
Demand Letter at 1. Some of those materials are essential to an investigation of potential breaches of fiduciary duties of loyalty by the directors. See Yahoo!, 132 A.3d at 790. An investigation of the duty of loyalty would require information concerning what the directors did and did not know at the time of their decisions. Some of the documents requested would provide direct evidence of what the directors did and did not know with respect to the HSP and Rebate Issues. See id.
Plaintiff is, however, limited to just that information necessary to investigate potential breaches of the directors' fiduciary duties of loyalty. See Abbvie, 2015 WL 1753033, at *13. Such claims require a showing that directors "were interested in the transaction, not independent, or were acting in bad faith." See id. at *1. Plaintiff wishes to investigate the possibility that the CVS directors knew of the illegality of the issues and either approved them or, at the least, allowed them to continue. See Compl. ¶¶ 212-15. For those claims, what matters is what directors were and were not told. What others were preparing to tell them has no relevance. Therefore, demand for any materials not actually communicated to or from any director is not necessary for the purpose of the demand.
Therefore, this Court limits the production of Board Materials to only those materials that were actually communicated to or from a director and that pertain only to the HSP and Rebate Issues.
2
Senior Management Materials
Section 220 inspection demands often end with board materials. See Yahoo!, 132 A.3d at 790. However, where the stockholder demonstrates that additional information is essential to his purpose, the Court may order production of documents prepared by management. See Saito, 806 A.2d at 118 (granting production of documents held by corporation created by third parties because the documents were essential to the stockholder's purpose). Where such a need is demonstrated, either through evidence or inference, courts have readily granted the information to the requesting party. See Wal-Mart, 95 A.3d at 1282-83 (granting access to officer-level documents showing communications between directors with officers where there was evidence of coordination between directors and officers with regard to the bribery allegation being investigated); KT4 Partners LLC v. Palantir Technologies Inc, 203 A.3d 738, 756 (Del. 2019) (granting access to emails where there was evidence that the corporation did not keep traditional minutes but kept such records in e-mails). Nevertheless, a Section 220 demand is not discovery, and production is still limited to documents that "address the 'crux of the shareholder's purpose. . . .'" Wal-Mart, 95 A.3d at 1271 (quoting Espinoza v. Hewlett-Packard Company, 32 A.3d 365, 371-72 (Del. 2011)).
Here, Plaintiff defines "Senior Management Material" as
"all documents-regardless of whether they were ever provided to the Board or any Board committee-discussed by, created by, reviewed by, provided to, or sent by any [CVS] officer or lower-level manager, concerning the subjects of this demand."
Demand Letter at 1. As with the board materials, some of these documents may provide information as to what the CVS directors did and did not know as part of their oversight. See Yahoo!, 132 A.3d at 790. Among the Senior Management Materials Plaintiff seeks, there may be communications to directors, from CVS officers, that were not part of Board or Board Committee meetings, and, therefore, are not included in the Board Materials. See Demand Letter at 1. Such communications between the CVS officers and the CVS directors would be essential in determining what the directors did and did not know about the subjects of the demand. See Yahoo!, 132 A.3d at 790. Plaintiff has not, however, demonstrated a need for those Senior Management Materials that go beyond the communications to the directors, nor explained how they are essential to his purpose of investigating breaches of fiduciary duties of loyalty at CVS. See Grimes, 724 A.2d at 567 (denying production of documents not related to the topic of the investigation). Therefore, this Court finds that Plaintiff is entitled to only those Senior Management Materials that reflect communications from CVS officers to the CVS directors relating to the HSP and Rebate Issues.
3
Materials from Prior Inspection Demands
Next, Plaintiff demands all documents produced in response to any other shareholder inspection demand "whether made pursuant to the laws of Delaware or any other state, relating to the topics or facts described above." Demand Letter at 3. Plaintiff's demand, however, must be limited to the information necessary to support his purpose. See BBC Acquisition Corp, 623 A.2d at 88. Here, Plaintiff's purpose is limited to the information needed to file an amended derivative suit. If prior shareholder inspection demands were not limited in the same manner, then they could include materials needed for other purposes, such as seeking an audience with the board, preparing a stockholder resolution, or mounting a proxy fight, among others. See Saito, 806 A.2d at 117. The scope of those demands would exceed what the Plaintiff's purpose requires. However, if those demands are similarly limited, they would be well matched, and the burden placed on CVS to produce such materials should be light, presuming CVS has kept records of the documents it delivered under previous shareholder demands. See Yahoo!, 132 A.3d at 790 (noting the relatively light burden of production when the corporation can easily produce the documents requested).
Therefore, this Court limits the production of documents produced in response to other shareholder inspection demands to only those inspection demands relating to the HSP and Rebate Issues, and where the reasons for those inspection demands were solely for the filing of a derivative shareholder suit.
4
Director Independence Materials
Plaintiff's last demand seeks "[a]ll Board of Director independence evaluations and board questionnaires completed by Board members during the Relevant Period." Demand Letter at 3. As part of his amended complaint, Plaintiff seeks to bolster his demand-futility allegations. See Pl.'s Obj. to Defs.' Proposed Order at 1-2, May 10, 2019. Demonstration that directors lacked independence is directly related to their duty of loyalty and can be key to demonstrating demand-futility allegations. See In re Walt Disney Company Derivative Litigation, 907 A.2d at 751; Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984) (finding that demand is futile if a complaint's facts raise doubts as to whether a director acted in an independent and disinterested manner). As Plaintiff has provided a credible basis to investigate potential breaches of fiduciary duties of loyalty at CVS with regard to the HSP and Rebate Issues, information pertaining to director independence is certainly essential for Plaintiff's purpose. See In re Walt Disney Company Derivative Litigation, 907 A.2d at 751. While not explicit in CVS's response, CVS seems to concede that these materials are subject to inspection. See Defs.' Obj. to Pl.'s Mot. to Compel, Feb. 28, 2020 at 3 n.2. This Court, therefore, finds that Plaintiff is entitled to receive, to the degree not already provided, all director independence evaluations and board questionnaires completed by directors from January 1, 2008 to the present day.
IV
Conclusion
Therefore, the Court grants, in part, and denies, in part, Plaintiff's motion to compel. Counsel shall prepare the appropriate order.