NOT RECOMMENDED F OR F ULL-TEXT PUBLICATION F ile Nam e: 13a0755n.06 No. 12-4444 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT

HENRY STANL EY, JR ., Plaintiff-Appellant,

v. COL L EEN F. ARNOL D; GEORGE S. BA RRETT; GL ENN A. B RI TT; CARRI E S. COX; CAL VI N DARDEN; BRUCE L

. DOWNEY; J OHN F. FI NN; DAVI D P. KI

NG; RI CHARD C. NOTEB AERT; DAVI D W. RAI SBECK; J EAN G. SPAUL DI NG; DAVE B I NG; R. KERRY CL ARK; GEORGE H. CONRADES; PHI L I P L . FRANCI S; J OHN F

. H AV ENS; J

. MI CHAEL L OSH; J OHN B

. M CC O Y ; MI CHAEL

O’HA L L ERAN; MATTHEW D. WAL TER; ROBERT D. WAL TER; CARDI NAL HEAL TH, I

NC.; GREGORY KENNY , Def endants-A

ppellees. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNI TED STATES DI ST RI CT COURT FOR THE SOUTHERN DI STRI CT OF OHI O

Be fore : ROGERS and COOK, Circuit J udg es; VAN TA TENHOV E, District J udg e *

PER CURI AM. Plaintiff-Appellant Henr y Stanley , J r. , a share holder of pharma ceutica l distributor Cardinal Health, Inc. (“Cardinal” ), appeals di smi s s al o f his share holder derivative sui t ag ainst Cardinal and its c urre nt a nd former direc tors and office rs. The district cour t dismi ssed his verifie d complaint for lack of standing under Fe dera l Rule of Civil Procedur e 23.1 due to his failure

T h e Ho n o rable Gre g ory F. Van Tatenhove , United States District J udg e for the Eastern * District of Ke ntucky , sitti ngby designation.No. 12-4444

Stanley v. A rnold et al.

to “state with particula

rity” the rea sons for failing to make a pre- suit demand of Cardinal’s board of direc tors. The district court’s opinion diligently and corr ectly sets out the undisputed fac ts and the g overninglaw, and w e AF FI RM. Placing undue emphasis on o n e l i n e i n t he dis trict court’s opinion, Stanley argues t hat t he district court improperly applied an evidentiar y burden, akin to the summary judgme nt standard, in evaluating his de mand-futility argument. Stanley v. A rnold , No. 1:12-cv- 482, 2012 WL 5269147, at *8 (S.D. Ohio Oct. 23, 2012) (“Conver sely , . . . the complaint does not state what information was g iven to the Boa

rd [of Direc tors] about [C ardina l fac iliti es’] n o n -c ompliance with the 2008 [settl ement with the DEA] and there are no alleg ations of repor ts to the Boa

rd or any evide nce of the Bo ard’ s knowledg e of any purported failure to comply with [t he settlement].” (orig inal emphasis repla ced) ). The surrounding context and the rema inder of the district court’s opinion p ro v e otherwise. Be cause Stanley advanc ed a board- inaction theory to show demand futility , the court proper ly revie wed his complaint for particula rized alleg ations g iving rise to a re asonable doubt as to the di sinterestedne ss of a majority of t he directors. See McCall v. Scott , 239 F. 3d 808, 816–17 (6th Cir. 2001) (applying the test set forth in Rales v. Blasband , 634 A.2d 927, 936 (De l. 1993)); see also In re Ferro Corp. Deriv. Liti g. , 511 F.3d 611, 618 (6th Cir. 2008) (“[T]he plaintiff must point to fac ts which show that the pre s u med ability of the direc tors to make unbiased, independe nt business judgme nts about whether i t wou l d b e i n the corporation’s best interests t o file t he action does not exis t in this case .” (interna l quotation marks omitted)). “While the mere threat of persona l liability is not sufficient, re asonable doubt a s to the disinterestedne ss of a dire ctor is cr eate d when - 2 -No. 12-4444

Stanley v. A rnold et al.
the particula

rized alleg ations in the complaint prese nt ‘a substantial likelihood’ of liability on the part of a direc tor.” McCall , 239 F.3d at 817. Applying this standard to Ohio law, the district court proper ly rec og nized that the complaint neede d, at a minimum, particularized alleg ations plausibly demonstrating that a majority of the board acte d “with rec kless disreg ard for the best interests of the corpor ation.” Ohio Rev. Code § 1701.59( E). Stanley also argues t h at t h e d istrict court failed to draw rea sonable infere nces from his complaint and misunderstood h i s theory that Cardinal’s $34-million settlement with the DEA in 2008 constituted a “re d flag ” that should have aler ted the di rectors of the company ’s drug

distribution probl em s and enable d them to preve nt the DEA’s rene wed sanctions ag ainst the L akela nd, Florida fac ility in 2012 for its ox y codone d i s t ribution prac tices. Yet, the district court

corr ectly noted that the complaint lacke d alleg ations that the direc tors knew or had rea son to know of continuing problems at the L akela nd fac ility prior to 2012. The district court’s conclusion finds support in our decision in McCall , 239 F.3d at 820–24, which found alleg ations sufficie nt to establish demand- futility

wher e the sha

reholde r ave rre d, inter alia , internal wa rningrepor

ts to the company ’s audit committee, a direc tor’s instruction to the company ’s hospitals to “ac hieve” an arbitra rily high g rowth figure, numerous article s d e tail in g th e c o mp a ny ’ s s u s p ic ious billing prac tices,

a qui tam suit, and the execution of sear ch war rants at t h irty -five company fac iliti es only months afte r sear ches of the company ’s Texas office s. Wit h o u t m o re , the 2008 settlement, atoning for Cardinal’s hydrocodone distribution problems in four states, was too remote, and its rela tionship to the L akela

nd fac ility ’s ox y codone distribution too tenuous, to support a rea sonable infere nce that a - 3 -No. 12-4444

Stanley v. A rnold et al. majority of the corpor ate direc tors—as opposed to employ ees—r eckle ssly disreg arde d known risks

conce rning distribution prac tices. See Ver

. Compl. Ex

. C, L eonhar t De cl

. ¶ 18 (noting that “the drug s and the end customers” related to the 2007–2008 multi-facility sanctions and 2012 L akela nd sanctions “we re differ ent”) ; id

. ¶¶ 30–33 (ac knowledg ing Cardinal’s national eff orts to comply with the 2008 settlement, but co n cl u d i n g that “the information about the reme dial eff orts made by Cardinal nationally [were not] sufficie nt to addre ss [her] conce rns about Cardinal L akela nd’s failure to maintain eff

ective [di stri b ution prac tices to preve nt the diversion of controlled substances to unauthorized marke ts] ” (e mphasis removed) ). Finally , Stanley ’s re ply brief adds a new argument, askingthis court to take judicial notice of the For m 10-K Cardinal filed wi th the SEC in 2008. We GRANT this unopposed motion, see Fe d. R. Evid. 201( b)(2) ; Lovelace v. Software Spe ctrum Inc. , 78 F.3d 1015, 1018 ( 5th Cir. 1996), but the portion of the form cited by Stanley does not salvag e his complaint. I t show s that direc tors signe d the filing acknow ledg ing Card i n al ’s neg otiation eff orts with the DEA, but neither demonstrates the direc tors’ reje ction o f s et t l em ent terms nor identifies any rec kless inaction. Cardinal F orm 10-K at 48.

Be cause this court’s issuance of a full opin i o n wo u l d be duplicative and would serve no jurisprudential purpose , we AF FI RM on the basis of the district court’ s well-re asoned opinion.

- 4 -