IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

TEAMSTERS LOCAL 443 HEALTH 

SERVICES & INSURANCE PLAN, ST. 

PAUL ELECTRICAL 

CONSTRUCTION PENSION PLAN, 

ST. PAUL ELECTRICAL 

CONSTRUCTION WORKERS 

SUPPLEMENTAL PENSION PLAN 

(2014 RESTATEMENT), 

RETIREMENT MEDICAL FUNDING 

PLAN FOR THE ST. PAUL 

ELECTRICAL WORKERS and SAN 

ANTONIO FIRE & POLICE PENSION 

FUND,

Plaintiffs,

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v.

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C.A. No. 2019-0816-SG

JOHN G. CHOU, STEVEN H. COLLIS, 

RICHARD W. GOCHNAUER, LON R. 

GREENBERG, TIM G. GUTTMAN, 

JANE E. HENNEY, M.D., KATHLEEN 

W. YLE, MICHAEL J. LONG, and 

HENRY W. MCGEE,

Defendants,

–and–

AMERISOURCEBERGEN 

CORPORATION,

Nominal Defendant.

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MEMORANDUM OPINION

Date Submitted: July 12, 2023

Date Decided: November 17, 2023

Gregory V. Varallo and Glenn R. McGillivray, BERNSTEIN LITOWITZ BERGER 

& GROSSMANN LLP, Wilmington, Delaware; Ned Weinberger and Mark D. 

Richardson, LABATON SUCHAROW LLP, Wilmington, Delaware; Christine M. 

Mackintosh and Rebecca A. Musarra, GRANT & EISENHOFER P.A., Wilmington, 

Delaware; OF COUNSEL: Christopher J. Orrico, BERNSTEIN LITOWITZ 

BERGER & GROSSMANN LLP, New York, New York; Frank Schirripa, HACH 

ROSE SCHIRRIPA & CHEVERIE LLP, New York, New York; Nathaniel L. 

Orenstein and Steven L. Groopman, BERMAN TABACCO, Boston, Massachusetts,

Attorneys for Plaintiffs.

William M. Lafferty, D. McKinley Measley, and Thomas P. Will, MORRIS,

NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: F. 

Joseph Warin, Jonathan M. Phillips, and Courtney M. Brown, GIBSON, DUNN & 

CRUTCHER LLP, Washington, D.C., Attorneys for the Special Litigation Committee

of the Board of Directors for AmerisourceBergen Corporation.

GLASSCOCK, Vice Chancellor
1

This is a derivative action, in which the Plaintiff stockholders allege that the 

board of AmerisourceBergen Corporation (“ABC”, “AmerisourceBergen”, or the 

“Company”) allowed a division of the Company to act as, in effect, a criminal 

enterprise. That subsidiary, Medical Initiatives, Inc. d/b/a Oncology Supply 

Pharmacy Service (“MII” or the “Pharmacy”), repackaged cancer drugs from singledose vials into syringes, for distribution to physicians. The complaint alleged that 

the Pharmacy was operated in an illegal manner, including by pooling the small 

amounts left in vials after charging a syringe, and using the resulting product to fill, 

and sell, extra syringes, in a manner that was illegal and unsanitary. The Defendant 

Directors’ and Officers’ failures to oversee operations were actionable breaches of 

fiduciary duties, per the complaint, and led to fines and penalties in settlement of 

DOJ investigations amounting to hundreds of millions of dollars. On a motion to 

dismiss by the Defendant Directors, I found the allegations of the complaint, taken 

as true and with the plaintiff-friendly inferences therefrom, sufficient to state a claim 

for breach of fiduciary duty; and that the majority of ABC’s board of directors (the 

“Board”) faced a substantial risk of liability for failure to properly oversee the 

Pharmacy operations, justifying derivative litigation on the part of the Plaintiff 

stockholders.

Such a situation, of course, is a departure from the paradigm that the assets of 

a corporation, including litigation assets, are under the control of the directors. 
2

Operation of a conflicted board may be restored by empowering a special committee 

of independent directors. Here, the Board appointed such a committee (the “SLC”), 

ultimately composed of a single independent fiduciary, to review whether the 

litigation was in the best interest of ABC. I permitted a stay of litigation to facilitate 

that review. The resulting report of the SLC paints a different picture from that 

contained in the complaint. After a thorough review, the SLC concluded that there 

had been no breach of duty on the part of the majority of the Board, that the litigation 

was inimical to the corporate weal, and recommended that the matter be dismissed.

That does not end my review. Of course, this Court usually defers to the 

business judgment of directors. Several scenarios exist, however, where pressures 

on directors, even though technically unconflicted, have the potential to skew their 

judgment, and in those situations the Court must determine that the directors’ review 

and resulting exercise of judgment are reasonable.1 One such case is a 

special committee’s review of derivative litigation, where the directors on the 

committee are asked to evaluate the potential culpability of fellow board members. 

The resulting examination by the court of a special committee’s report 

1 Vice Chancellor Laster has created a scholarly review of various scenarios invoking intermediate 

scrutiny of fiduciaries. See In re Columbia Pipeline Grp., Merger Litig., 299 A.3d 393 (Del. Ch. 

2023).
3

recommending dismissal is known colloquially as a Zapata review.2 Such a review 

follows.

Plaintiffs argue that the SLC’s work cannot withstand such review, in part, 

because the report of a single-member committee is inherently suspect. They point 

out that the independence of such a committee, and the conduct of its investigation,

must be “above reproach.” Here, because Plaintiffs purport to find ground to 

reproach the SLC’s sole member, they contend the motion to dismiss must be denied.

The Plaintiffs’ standard is essentially correct, but I reject Plaintiffs’ 

conclusion. I have considered the facts with which Plaintiffs reproach the SLC 

member, and find them unpersuasive. I have also considered the scope of the SLC’s 

examination of the allegations in the complaint, and find it adequate; and the bases 

for the SLC’s conclusions, which I find reasonable, even under the “gimlet eye”

3

with which a single-member committee’s conclusions should be viewed. 

Accordingly, the motion to dismiss is granted. The facts developed by the SLC, and 

my reasoning, follow.

A word about the factual background is in order. An interested reader will 

find a walk through the Background section below less of a stroll and more like, say, 

2 Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981).

3

See Chesapeake Corp. v. Shore, 771 A.2d 293, 323 (Del. Ch. 2000).
4

the pilgrimage Way of St. James.4 This detailed statement is justified here, because 

it informs my review of the reasonableness of the SLC’s recommendation. The 

reader is forewarned.5

I. FACTUAL BACKGROUND

The facts that follow are drawn from the record submitted by the special 

litigation committee (the “SLC”) and the Plaintiffs, including the special litigation 

committee’s report (“SLC Report”), the 420 exhibits attached thereto, and the 

transcript of the deposition taken of the sole SLC member, Dennis M. Nally.6 

A. AmerisourceBergen Corporation

AmerisourceBergen is a Delaware corporation headquartered in 

Conshohocken, Pennsylvania.7 The Company was formed on August 29, 2001, after 

Bergen Brunswig Corporation merged with AmeriSource Health Corporation and 

subsequently changed its name to AmerisourceBergen Corporation.8 Following the 

merger and the subsequent yearslong integration process, ABC became the largest 

4

I refer to an “interested” reader, because a casual reader, I suspect, will find her faith insufficient 

to sustain the effort.

5 Readers will quickly discover that the factual treatment below contains a misery of acronyms. I 

have attempted to define the acronyms repeatedly in text to reduce the mental effort of 

comprehending the facts here; in a further attempt to reduce the acro-batics required of the reader, 

I have appended a list of acronyms and their meaning at the end of this Memorandum Opinion, as 

Exhibit A.

6

See Letter from D. McKinley Measley to Vice Chancellor Glasscock, Ex. A, Dkt. No. 73 (“SLC 

Report”). Citations in the form of “SLC Report Ex. __” refer to exhibits to the SLC Report.

7 ABC Annual Report on Form 10-K (Nov. 19, 2020), at 1.

8 SLC Report 56–57.
5

pharmaceutical distribution or services company in the U.S. dedicated only to the 

pharmaceutical supply channel.9 

As of 2001, AmerisourceBergen operated its pharmaceutical distribution 

business through wholesale and specialty drug distribution subsidiaries.

10 Two 

subsidiaries, AmerisourceBergen Drug Corporation (“ABDC”) and 

AmerisourceBergen Specialty Group (“ABSG” or “Specialty Group”), primarily 

drove ABC’s pharmaceutical distribution and services business.11 ABSG and its 

subsidiaries served the specialty drug distribution market, including oncology 

supply.12

1. AmerisourceBergen Specialty Group

Prior to the merger, ABSG was relatively decentralized, holding various 

portfolio companies that primarily operated independently.13 One of ABSG’s 

portfolio companies was ASD Specialty Healthcare, LLC d/b/a Oncology Supply 

(“OS”), which was—and still is—an oncology distribution company based in 

Dothan, Alabama.14 OS distributes chemotherapy and other cancer drugs throughout 

the United States.15 Another portfolio company owned by ABSG was Medical 

9 ABC Annual Report on Form 10-K (Dec. 19, 2003), at 42.

10 SLC Report 57.

11 Id. at 4–5, 57.

12 Id. at 57.

13 ABC Annual Report on Form 10-K (Dec. 28, 2001), at 13.

14 SLC Report 7, 58. Bergen Brunswig acquired OS in 1996. Bergen Brunswig Annual Report 

on Form 10-K (Dec. 30, 1996), at II-19.

15 SLC Report 58.
6

Initiatives, Inc. d/b/a Oncology Supply Pharmacy Service (“MII” or the 

“Pharmacy”).16 MII was an Alabama-licensed pharmacy that exclusively provided 

services to OS and OS customers that purchased certain medications, via MII

preparing pre-filled syringes of oncology drugs.

17

 

The Specialty Group’s portfolio also included subsidiary group purchasing 

organizations (“GPOs”), such as International Oncology Network (“ION”), that 

served a variety of medical specialty practices, including oncology practices.18 ION 

would negotiate with pharmaceutical manufacturers and vendors, such as OS, on 

behalf of ION’s paying member practices.19 Vendors would pay ION a fee, typically 

a percentage of each sale.20

Since the merger, the Company has grown the Specialty Group and revised 

its organizational structure.21 As ABSG grew by expanding its services and gaining 

new subsidiaries, it created the ABSG Oncology Group consisting of OS, ION, and 

MII.22 

16 Id. at 7, 58. Bergen Brunswig acquired MII in 1998. Bergen Brunswig Form 10-Q (Feb. 16, 

1999), at 9.

17 SLC Report 58–59.

18 Id. at 22–23, 59.

19 SLC Report Ex. 20, at 3.

20 Id.

21 SLC Report 60. 

22 SLC Report Ex. 21, at 11.
7

2. AmerisourceBergen Drug Corporation

ABDC operates twenty-seven distribution facilities throughout the United 

States.23 After acquiring ABDC in the merger, ABC grew ABDC through a series 

of acquisitions, including PharMEDium through which ABDC operated five Food 

and Drug Administration (“FDA”) registered sterile compounding outsourcing 

facilities to provide sterile compounded preparations to acute hospitals within the 

United States.24 

B. AmerisourceBergen’s Corporate Governance Structure

1. The Board of Directors’ Functions

AmerisourceBergen’s board of directors (the “Board”) has consisted of ten 

members since the Company’s formation in 2001.25 From 2001 to 2006, eight of the 

directors were independent and not employed by the Company; from 2007 to 2015, 

all but one director were independent.26 When the Chairman of the Board is not 

independent, a majority of the independent directors elect a Lead Independent 

Director annually.27 In 2016, when Defendant Steven Collis, ABC’s CEO, became 

23 SLC Report Ex. 22, at 6.

24 Id.; AmerisourceBergen Annual Report on Form 10-K (Dec. 10, 2004), at 50.

25 See, e.g., Schedule 14A Proxy Statement (Jan. 22, 2002), at 2.

26 Schedule 14A Proxy Statement (Jan. 18, 2008), at 1; Schedule 14A Proxy Statement (Jan. 23, 

2015), at 15.

27 Schedule 14A Proxy Statement (Jan. 22, 2016), at 20. 
8

the Chairman, Defendant Dr. Jane Henney was elected Lead Independent Director, 

a position she holds to this day.

28

The Board met formally and informally throughout each year.29 Between 

2001 and 2014, the Board conducted five to seven formal meetings each year.30 The 

Board also held monthly telephone calls, called “First Monday.”31 At many of the 

Board meetings, each Board committee’s Chair would report to the full Board on 

topics discussed at the most recent meeting of their committee.32 The Board received 

regular reports on legal and compliance-related matters and, on occasion, outside 

counsel would present to the Board on such matters.33

2. The Board of Directors’ Standing Committees

From 2001 to 2011, the Board maintained four standing committees: the Audit 

Committee, Compensation Committee, Executive and Finance Committee, and 

Governance Committee.34 In 2011, the Company split the Executive Finance 

Committee into separate committees to form a Finance Committee consisting of only 

non-employee directors.35

28 Id. at 18. 

29 SLC Report 71.

30 See, e.g., Schedule 14A Proxy Statement (Jan. 28, 2004), at 9; Schedule 14A Proxy Statement 

(Jan. 18, 2008), at 11.

31 SLC Report 71.

32 See, e.g., Schedule 14A Proxy Statement (Jan. 23, 2015), at 18.

33 SLC Report 72.

34 See, e.g., Schedule 14A Proxy Statement (Jan. 23, 2002), at 4; Schedule 14A Proxy Statement 

(Jan. 20, 2012), at 10.

35 SLC Report 62.
9

Most relevant to this discussion is the Board’s Audit Committee, which was 

charged with overseeing the Company’s financial statements and financial reporting 

practices; reviewing the adequacy of the Company’s accounting practices and 

financial controls; and reviewing financial disclosures in the Company’s Annual 

Report on Form 10-K and quarterly Form 10-Q filed with the Securities and 

Exchange Commission.36 The Audit Committee also oversees the Company’s 

internal audit function, reviewing findings from completed internal audits, 

managements’ response to internal audit reports, and the senior internal auditor’s 

performance.37 Internal audit reports were typically discussed quarterly when 

ABC’s Internal Audit Department (“Internal Audit”) leaders met.38

The Audit Committee’s responsibilities were expanded in 2004 to expressly 

include oversight of the Company’s legal and regulatory compliance function.39 In 

2011, the Audit Committee also assumed responsibility for overseeing and 

developing an enterprise risk management program “designed to assist the Company 

with monitoring and mitigating business, operational and technological risks.”40 The 

Audit Committee retained oversight responsibilities for regulatory compliance, 

36 See, e.g., Schedule 14A Proxy Statement (Jan. 28, 2021), at 23–24; SLC Report Ex. 25, at Ex. 

A, 1–2; SLC Report Ex. 26, at Ex. A, 1–2; Schedule 14A Proxy Statement (Jan. 9, 2006), at 9–10. 

37 See, e.g., Schedule 14A Proxy Statement (Jan. 28, 2021), at 23–24; SLC Report Ex. 25, at Ex. 

A, 2–4.

38 SLC Report 64. 

39 SLC Report Ex. 29, at A-8.

40 SLC Report Ex. 32, at 6; see also Schedule 14A Proxy Statement (Jan. 20, 2012), at 15.
10

compliance with the Code of Ethics and Business Conduct (the “Code of Conduct”), 

and the enterprise risk management program through December 2019, at which time 

the newly-formed Compliance and Risk Committee assumed those 

responsibilities.41

Between 2002 and 2014, the Audit Committee held approximately ten 

meetings per year.42 ABC’s compliance and legal teams made presentations to the 

Audit Committee at its meetings that occurred shortly before formal Board 

meetings.43 At about half of the Audit Committee meetings each year, the Chief 

Compliance Officer (“CCO”), the Company’s General Counsel, the Corporate 

Security and Regulatory Affairs (“CSRA”) Director, the head of Internal Audit, or 

the Director of Internal Controls reported to the Committee on compliance matters, 

including any allegations or incidents, management’s mitigating or corrective 

actions, and Compliance Hotline Reports.44

Beyond presenting to the Audit Committee at committee meetings, the CCO 

and the Vice President of Internal Audit had direct lines of communication to the 

Audit Committee, including routine meetings prior to Audit Committee meetings to 

discuss ongoing issues.45 The Chair of the Audit Committee would review the 

41 Schedule 14A Proxy Statement (Jan. 24, 2020), at 27–28.

42 SLC Report 65.

43 Id. at 72.

44 Id.

45 Id. at 73.
11

Compliance Network Hotline and Internal Audit reports before each meeting, and 

either the Chair or the Head of CSRA or the Head of Internal Audit reviewed them 

in depth with the rest of the Audit Committee.46 A member of the Audit Committee 

would present to the Board about the topics of discussion at the Committee Meeting 

and CSRA would provide its own overview of key issues with the full Board.47 

Defendant John Chou, as Chief Legal Officer, also presented relevant legal issues 

first to the Audit Committee before apprising the full Board of the Company’s top 

priority issues.48

C. The History of AmerisourceBergen’s Compliance Program

1. The Board Adopts a Formal Compliance Program

Following the 2001 merger, the Board created two management-level 

committees and one Board-level committee to address corporate governance and 

compliance.49 The pre-existing management-level Compliance Committee was 

tasked with overseeing legal and regulatory compliance at the Company.50 The 

Board also created the position of Chief Compliance Officer to manage the 

Company’s Compliance Program and ensure compliance with applicable laws and 

internal policies.51 The second management-level committee created was the Ethics 

46 Id.

47 Id.

48 Id. at 73–74.

49 Id. at 78.

50 SLC Report Ex. 45, at 11.

51 Id. at 8.
12

Committee, which was comprised of senior ABC managers, to receive regular 

reports from the Compliance Committee.52 The Compliance Committee reported 

quarterly to the Ethics Committee, which in turn reported directly to the Board’s 

Audit Committee.53

On February 27, 2003, the Board was informed by the Vice President of 

CSRA that the Drug Enforcement Administration (the “DEA”) was the Company’s 

primary federal regulator.

54

 The Vice President further identified the FDA, 

Environmental Protection Agency (“EPA”), Occupational Safety & Health 

Administration (“OSHA”), and the Department of Transportation (“DOT” and 

“FAA”) as other federal agencies that regulate the Company.55

In 2004, the Board built on ABC’s existing compliance framework to further 

formalize its compliance program.56 The corporate compliance program included a 

Code of Conduct, a Network Hotline for anonymous reporting, and compliance 

training.57 The Code of Conduct, in relevant part, encompassed the Company’s 

policy on the handling of ABC work product.58 Calls made to the Network Hotline 

were by compiled by the Compliance Committee alongside non-network compliance 

52 Id. at 11.

53 SLC Report Ex. 47, at 2–3.

54 See SLC Report Ex. 48.

55 Id. at 19–20.

56 SLC Report 76.

57Id. at 76–77.

58 SLC Report Ex. 52, at 2–4.
13

complaints in a “Compliance Incident Report” (“CIR”) that tracked things such as 

the number of calls, the number of call-related inquiries that remained open, and the 

details of each complaint.59 Under this formalized compliance program, local 

compliance officers at each business unit reported to the CCO, who was a member 

of the Compliance Committee.60 The CCO then reported directly to the Company’s 

General Counsel, who was a member and Chair of the Ethics Committee.61 

a. Corporate Security and Regulatory Affairs

From 2001 until 2012, CSRA was solely responsible for all aspects of 

regulatory compliance oversight and physical security at the Company.62 CSRA 

focused on compliance with federal and state regulations, in addition to processing 

all of the Company’s DEA registration renewals, while each respective Distribution 

Center processed its own state and local licensing.63 Though CSRA assisted, the 

Company’s pharmacies were primarily responsible for their own DEA and state 

board of pharmacy licensing.64 After hiring a CSRA Senior Director to handle 

specialty group- and pharmacy-related assessments, reviews, investigations, and 

periodic compliance counseling for the ABSG and ABC pharmacies in 2007, CSRA 

59 See, e.g., SLC Report Ex. 56.

60 SLC Report Ex. 50, at 9.

61 SLC Report 82. According to a 2007 David Polk report, this relationship was common at the 

time. SLC Report Ex. 57, at 18.

62 SLC Report 85.

63 SLC Report Ex. 60, at 1.

64 Id.
14

had four leaders who all reported to CSRA’s Vice President, who in turn reported to 

the Company’s General Counsel.65

The senior directors of CSRA reviewed and audited the Distribution Centers’ 

licensing and regulatory processes, providing a bi-weekly update to the Company’s 

General Counsel.

66

 The audits conducted by CSRA included “Health & Safety 

Program Compliance Audits” and “Security and Regulatory Compliance Audits” at 

Distribution Centers.67 CSRA performed these audits without notice to the chosen 

Distribution Centers and conducted a review of the Distribution Centers’ compliance 

with federal, state, and local law.68 If a Distribution Center received a high risk 

score, CSRA would perform a follow-up audit to ensure that the Distribution Center 

implemented a corrective action plan.69 The results of CSRA’s audits were shared 

with the Company’s legal department to review for legal risk.70

CSRA was also tasked with managing the Network Hotline until the 

establishment of the Company’s Office of Compliance in 2012.71 While the 

Company contracted with an independent company to operate the Network Hotline, 

CSRA reviewed the resulting reports and triaged them as appropriate within the 

65 SLC Report 86; see also SLC Report Ex. 61.

66 SLC Report 90; see also SLC Report Ex. 64, at 1.

67 See, e.g., SLC Report Exs. 66–67.

68 SLC Report Ex. 68, at 2.

69 SLC Report Ex. 69, at 1.

70 SLC Report 91.

71 Id.
15

Company.72 Network calls were logged in the Company’s tracking system, 

LawTrac, and a copy of the report was sent to Employment Counsel and the Vice 

President of CSRA.73 The nature of the call was then evaluated by these individuals 

and assigned appropriate personnel for follow-up investigation, which was updated 

in LawTrac to ensure a response.

74

 The final disposition of the investigations were 

forwarded to the Manager of Corporate Security who distributed monthly reports 

and quarterly summary reports to the Vice President of CSRA and the Director of 

Corporate Security and Investigations.75 Not only did the Audit Committee Chair 

receive all Network Hotline reports, but as of 2012, the Audit Committee was also 

provided quarterly updates from the CSRA Director.76

b. Internal Audit Department

The Company’s Internal Audit manages reviews of financial controls, 

financial audits, and distribution audits.77 Internal Audit was required to keep the 

Audit Committee “informed of emerging trends. . . in internal auditing,” develop

and submit an annual audit plan to the Audit Committee, “[i]ssue periodic reports to 

the [A]udit [C]ommittee and management summarizing result[s] of audit activities,” 

and provide the Audit Committee with a “list of significant measurement goals and 

72 SLC Report Ex. 70, at 1. 

73 Id. at 2.

74 Id.

75 Id.

76 SLC Report Ex. 53, at 24; see, e.g., SLC Report Ex. 71, at 4.

77 SLC Report 92.
16

results.”78 The Audit Committee received updates from Internal Audit at least 

quarterly, including executive sessions that excluded management, to provide a 

review of the Company’s financials and internal controls.79 Internal Audit also 

executed an annual risk assessment survey, which asked each Distribution Center’s 

management to rank their perceived top risks to the Company.80 

2. Reporting to the Ethics and Audit Committees Under ABC’s 

Corporate Compliance Program

Under the Company’s 2004 compliance program, the Ethics Committee 

consisted of senior leadership at the Company, including the General Counsel, Head 

of Human Resources, and Vice President of Internal Controls.81 At the Ethics 

Committee meetings, the General Counsel presented legal updates and discussed the 

Network Hotline Reports; the Vice President of CSRA and the CCO updated the 

Committee on compliance policies and investigations; and Internal Audit 

summarized its quarterly audit reports.82

Between 2001 and 2008, the Audit Committee held at least seventy-three 

meetings.83 The CFO often addressed the impact of compliance concerns on ABC’s 

78 SLC Report Ex. 72, at 2.

79 See, e.g., SLC Report Exs. 73–76.

80 See, e.g., SLC Report Ex. 35, at 2; SLC Report Ex. 77, at 9; SLC Report Ex. 78, at 6; SLC 

Report Ex. 79; SLC Report Ex. 80, at 8; SLC Report Ex. 81, at 4.

81 SLC Report Ex. 47, at 9. Defendant Chou became the Ethics Committee Chair on February 7, 

2007. SLC Report Ex. 107, at 2.

82 See, e.g., SLC Report Ex. 106.

83 SLC Report 103–04.
17

business.84 In 2007, the CFO kept the Audit Committee updated on the FDA’s 

issuance of a “black box” warning “on Aranesp & Procrit[,]”

85 two drugs that ABSG 

distributed.

86

 Defendant Tim Guttman, ABC’s former CFO, would address risk 

factors pertaining to the Company’s compliance with federal law during the Audit 

Committee’s discussions of risk factors to be listed in the Company’s Annual 

Report.87

The General Counsel reviewed matters related to the Company’s Code of 

Ethics and provided updates on ongoing legal matters, investigations, and the 

compliance policies.88 The CCO reported on the Company’s Corporate Compliance 

program, key policies and procedures, ongoing investigations at ABC subsidiaries, 

and implementation of new compliance measures.89 The CSRA Director began 

providing quarterly updates to the Audit Committee in 2012.90 Between the 

Compliance, Ethics, and Audit Committees, representatives from all major 

compliance departments presented regularly to both management and Board-level 

committees.91

84 See, e.g., SLC Report Ex. 113, at 3. 

85 See SLC Report Ex. 114, at 16; see also SLC Report Ex. 115, at 5. 

86 See SLC Report Ex. 16; SLC Report Ex. 304, at 5–7.

87 See, e.g., SLC Report Ex. 116, at 1–3; SLC Report Ex. 117, at 1–3; SLC Report Ex. 28, at 1–4.

88 See, e.g., SLC Report Ex. 36, at 4–5.

89 SLC Report 106.

90 See, e.g., SLC Report Ex. 119.

91 SLC Report 106.
18

3. The 2007 Davis Polk Report

In March 2007, while auditing the billing practices of a delivery and courier 

service used by the Company’s Sacramento Distribution Center, the Company 

“identified substantial questionable billing practices and irregularities [] and [a] 

consequential lack of detection controls by ABDC to prevent erroneous billing 

errors.”92 A month later, the DEA suspended the license of a Distribution Center 

located in Orlando, Florida, which distributed DEA-controlled substances, for 

allegedly “not maintain[ing] effective controls against diversion of controlled 

substances” in 2006.93 In response, Defendant Chou engaged David Polk in June 

2007 to conduct a ”high-level review. . . of certain aspects of the compliance, legal 

and regulatory functions at [ABC].”94 Davis Polk was specifically hired to (1) 

“[e]valuate the adequacy of the [compliance] program,” (2) “[r]ecommend 

improvements, if any,” and (3) “[r]eport to the Board on findings, conclusions and 

recommendations.”95

After conducting its review, Davis Polk presented its findings in a report (the 

“Davis Polk Report”) to the Audit Committee, concluding that, in light of the 

Board’s Caremark duties, the Company: met the “[b]asic legal requirements” for 

92 SLC Report Ex. 120, at 2.

93 SLC Report Ex. 121, at 1.

94 SLC Report Ex. 122, at 1.

95 SLC Report Ex. 57, at 2.
19

compliance; had “[c]omprehensive and high-quality written materials;” had a 

“[h]igh level of professionalism and dedication” by its compliance staff; and had a 

“[g]ood overall compliance track record.”96 Davis Polk also presented five “areas 

of improvement” for the Company’s compliance program.97 Following Davis Polk’s 

presentation, the CCO presented the Audit Committee with the Company’s 

“Preliminary Action Plan in Response to Davis Polk Assessment,” which addressed 

all areas of improvement.98 The Audit Committee met at least twice more to receive 

updates on the Company’s response to the Davis Polk Report.99 

The Company’s response included developing a penalty matrix to standardize 

penalties for violations of the Company’s Code of Conduct;

100 integrating ABSG 

into the corporate compliance program by adding a senior level CSRA employee to 

oversee ABSG compliance, tasking other corporate departments with oversight of 

ABSG, and creating a more “streamlined organizational structure[;]”101 and began 

expanding its use of its internal electronic matter management system to track 

hotline calls, compliance complaints, and all issues arising from the Ethics and/or 

Compliance Committees in one, centralized location.102

96 Id. at 34.

97 SLC Report 109.

98 Id.

99 SLC Report Ex. 91, at 1–2; SLC Report Ex. 134, at 6.

100 SLC Report Ex. 129, at 1.

101 SLC Report Ex. 130, at 5.

102 SLC Report Ex. 91, at 1–2.
20

The CCO also engaged an outside ethics compliance organization through the 

Compliance and Ethics Leadership Council of the Corporate Executive Board 

(“CEB”) to conduct a “cultural diagnostic survey.”103 Of the nine categories 

surveyed and analyzed, ABC scored above benchmark in all but one.104 The CCO 

continued to engage with CEB to understand and implement industry best practices 

for compliance risk.105 The Board was kept apprised of the updates on ABC’s 

compliance program including the integration of ABSG.

106

 From August 2009 

through May 2012, the Board received no less than eight such updates specifically 

concerning the Company’s response to the Davis Polk Report.

107

 

4. AmerisourceBergen Reorganizes its Compliance Program

When the then-CCO left ABC in January 2012, the Company conducted a 

review of its compliance program.

108

 The Head of CSRA, who had been at the 

Company since 1990 and in the health care industry since 1984, was appointed as 

the new CCO.109 Defendant Chou led the Company to establish a second senior 

compliance position, Chief Compliance Counsel (“CCC”), which was filled by the 

103 SLC Report Ex. 134, at 6; see also SLC Report Ex. 144, at 1.

104 SLC Report Ex. 144, at 16–17; see also SLC Report Ex. 134, at 6.

105 SLC Report Ex. 145.

106 SLC Report 123.

107 See SLC Report 123–27.

108 Id. at 127.

109 Id. at 127–28.
21

Group General Counsel who had worked in the health care industry since 1985.

110

 

Both the CCO and CCC reported to the Audit Committee.111

Prior to 2012, the CCO’s methods of communicating with the Board were 

limited to either directly reporting to the General Counsel who reported to the Audit 

Committee or reporting to the Compliance Committee, of which the CCO was a 

member, that reported directly to the Ethics Committee, which then in turn reported 

to the Audit Committee.112 Starting in 2012, the CCO participated directly in the 

executive sessions of the Audit Committee after each regularly scheduled 

meeting.113 The CCO and CCC were instructed by the Audit Committee to “review 

ABC’s Compliance Program annually with the [Audit] Committee.”114 At that time, 

the CCO and CCC also began working under a newly created “Office of 

Compliance” that was charged with, among other things, notifying, investigating, 

and tracking all compliance-related investigations and incidents; providing quarterly 

reports to the Audit Committee; and continuously monitoring the changing 

compliance environment through various outside organizations to ensure that ABC’s 

compliance program was up to date and comprised of industry best practices.115

110 Id. at 128.

111 Id. at 129.

112 Id.

113 SLC Report Ex. 160.

114 SLC Report Ex. 159.

115 SLC Report Exs. 163–64.
22

The Compliance Committee began implementing internal reforms in 2012.116 

One such reform was to double the frequency of its meetings to twice per month.117 

The agenda for these meetings was standardized to include a review of all new CIRs 

and all pending investigations into incident reports, in addition to approving the 

closures of completed incident investigations when appropriate.118 All actions taken 

by the Compliance Committee were required to “be documented in either a [CIR] or 

an assigned Compliance project, and [to] be maintained in the ABC Corporate Risk 

Management System.”119 The CIRs were provided to the Audit Committee at least 

once a quarter, prior to each Committee meeting.120 The CCC provided the Audit 

Committee updates on the Company’s progress updating compliance initiatives on 

at least four occasions between May 2012 and February 2013.121

The Audit Committee continued to meet more frequently than was required, 

with at least half of these meetings focusing on financial reviews and performance, 

meeting seventy-four times from 2012 to 2018.

122

 Twenty-six of the Committee’s 

seventy-four meetings included an update specifically about the Company’s 

116 SLC Report 133.

117 SLC Report Ex. 157, at 1.

118 Id.

119 Id. at 1–2.

120 SLC Report 133.

121 SLC Report Ex. 151, at 4; SLC Report Ex. 158, at 4–5; SLC Report Ex. 159, at 6; SLC Report 

Ex. 168, at 4.

122 SLC Report 134.
23

compliance program.123 At all meetings, the Committee reviewed the Network 

Hotline and incident reports in addition to receiving updates on any corrective 

actions taken by management.124 Once a year, the Committee received an update on 

the enterprise risk management system and risk assessment results and discussed any 

ongoing investigations and any significant legal matters.

125

 The Audit Committee 

continued to also be notified by senior management of ongoing updates to the 

Company’s compliance response as new regulations and compliance concerns 

emerged.126

D. The Legal and Regulatory Landscape Relating to Pharmacies

From 2001 to 2014 (the “Relevant Period”), the regulatory landscape shifted 

significantly as federal regulators increased scrutiny of state-regulated 

pharmacies.127 This shift was of particular relevance to pharmacies like MII that 

pooled or compounded pharmaceuticals to dispense to health care providers for 

treatment of patients.128 Between 2002 and 2012, “there [was] a lack of consensus 

regarding whether states should have primary responsibility for regulating 

123 See, e.g., SLC Report Ex. 71; SLC Report Ex. 151; SLC Report Ex. 158; SLC Report Ex. 159.

124 See, e.g., SLC Report Ex. 71.

125 See, e.g., SLC Report Ex. 171, at 5; SLC Report Ex. 172, at 3.

126 SLC Report 136.

127 Id. at 143.

128 Id.
24

[compounding pharmacies] as pharmacies, or [whether the] FDA should have 

primary responsibility to regulate them as manufacturers.”129

The U.S. Supreme Court recognized the tradition that the regulation of the 

practice of pharmacy was left to the states.130 Pharmacies are not required under 

federal law to register with the FDA if they “maintain establishments in conformance 

with any applicable laws regulating the practice of pharmacy and medicine and 

which are regularly engaged in dispensing prescription drugs or devices.”131 

1. Alabama Law

MII was located in Dothan, Alabama, and subject to Alabama’s State Board 

of Pharmacy, which promulgates regulations, issues licenses, and inspects 

pharmacies to evaluate their compliance with state pharmacy law.132 Alabama law 

defines a pharmacy as a “place licensed by the [Alabama State Board of Pharmacy] 

in which prescriptions, drugs, medicines, medical devices, chemicals, and poisons 

are sold, offered for sale, compounded, or dispensed.”133 Prescription134 labels are 

required under Alabama law to include the “name and address of the pharmacy from 

129 U.S. GOV’T ACCOUNTABILITY OFF., GAO-13-702, DRUG COMPOUNDING: CLEAR AUTHORITY 

AND MORE RELIABLE DATA NEEDED TO STRENGTHEN FDA OVERSIGHT 9–12 (2013).

130 Thompson v. W. States Med. Ctr., 535 U.S. 357, 361 (2002).

131 21 U.S.C. § 360(g)(1).

132 SLC Report 144.

133 Ala. Code § 34-23-1(21) (2019).

134 Prescription is statutorily defined as “[a]ny order for drug or medical supplies, written or signed 

or transmitted by word of mouth, telephone, telegraph, closed circuit television, or other means of 

communication by a legally competent practitioner.” Ala. Code § 34-23-1(25).
25

which the prescriptions are dispensed, the prescriber’s directions for use, the name 

of the drug as it is dispensed, and the strength per dosage unit.”135

A “traditional component” of pharmaceutical practice is “compounding,” the 

“process by which a pharmacist or doctor combines, mixes, or alters ingredients to 

create a medication tailored to the needs of an individual patient.”136 Compounding 

is statutorily defined as “[t]he preparation, mixing, assembling, packaging, and 

labeling of a drug or device as the result of a licensed practitioner’s prescription drug 

order or initiative based on the practitioner/patient/pharmacist relationship in the 

course of professional practice.”

137

 Also included in compounding is “the 

preparation of drugs or devices in anticipation of prescription drug orders based on 

routine, regularly observed prescribing patterns.”138

The regulation of compounding pharmacies in Alabama consists primarily of 

requirements relating to drug purity, storage conditions, qualifications and training 

of pharmacists and technicians, facilities, security, and record retention.139 The chief 

pharmacist is responsible for the pharmacy’s operations, as well as for supervision

of pharmacy technicians.140 Pertinent to MII’s operations, Alabama law allows 

135 Ala. Admin. Code r. 680-X-2-.13 (1982).

136 Ala. Code § 34-23-1(5) (2019).

137 Id. § 34-23-150 (1975).

138 Id.

139 SLC Report 146.

140 Ala. Code § 34-23-70(a) (2018).
26

“compounded product” to be “prepared in advance in reasonable amounts in 

anticipation of estimated needs.”141

2. Federal Regulation of Pharmacies

The Federal Food, Drug, and Cosmetic Act (“FDCA”) regulates the 

manufacturing, marketing, and distribution of drugs,

142 including all “new drugs,” 

i.e., “any drug. . . the composition of which is such that such drug is not generally 

recognized [among experts] as safe and effective for use under the conditions 

prescribed.”143 Manufacturers of new drugs must register with the FDA, comply 

with various pre- and post-market requirements, and comply with current Good 

Manufacturing Practices (“cGMPs”).144 The FDCA defines the term “manufacturer” 

to include entities engaged in “preparation, propagation, compounding, or 

processing” of drugs, such as drug repackaging and relabeling.145 A “repackager” is 

defined as an entity that “repackag[es] or otherwise chang[es] the container, 

wrapper, or labeling of any drug package or device package in furtherance of the 

distribution of the drug or device from the original place of manufacture to the 

person who makes final delivery or sale to the ultimate consumer or user.”146

141 Ala. Code § 34-23-159 (1975).

142 See, e.g., 21 U.S.C. §§ 355h, 356a, 356i.

143 21 U.S.C. § 321(p).

144 See, e.g., 21 C.F.R. §§ 210, 211 (2011).

145 21 U.S.C. § 360(a)(1).

146 Id.
27

The FDA has concluded that “[c]ompounded drugs” are encompassed by the 

FDCA’s definition of “new drugs” and, therefore, all federal regulations applicable 

to “new drugs” apply to “compounded drugs.”147 However, the FDA has not 

historically required pharmacies to apply for FDA approval of “compounded drugs;” 

rather, the FDA has left the regulation of compounded drugs to the states.148

a. FDA Regulation of Compounded Drugs

In response to concerns that some pharmacies were “engag[ing] in 

manufacturing, distributing, and promoting unapproved new drugs for human use in 

a manner that [wa]s clearly outside the bounds of traditional pharmacy practice[,]” 

the FDA issued Compliance Policy Guide 7132.16 in 1992 (the “1992 CPG”).

149

 In 

the 1992 CPG, the FDA warned that it would consider “initat[ing] enforcement 

action when pharmacy practice extends beyond the reasonable and traditional 

practice of retail” after considering several factors, such as whether a pharmacy 

solicited business, compounded “inordinate amounts” of drugs, and used 

commercial scale equipment.150

Portions of the 1992 CPG were adopted into Section 503A of the Food and 

Drug Administration Modernization Act (“FDMA”) by Congress in 1997.151 These 

147 SLC Report 148.

148 Id.

149 Compliance Policy Guide (“CPG”) 7132.16 (“1992 CPG”)

150 Id.

151 See Food and Drug Administration Act of 1997, Pub. L. No. 105-115, § 503A, 111 Stat. 2296 

(codified at 21 U.S.C. § 353a).
28

provisions were challenged in court and, in April 2002, the Supreme Court 

determined that some of these provisions were unconstitutional but did not rule on 

the severability of the unconstitutional provisions from others adopted in 1997.152 

In response to this ruling, the FDA issued a revised CPG (the “2002 CPG”) that 

removed the unconstitutional provisions of the 1992 CPG.153 The 2002 CPG 

reaffirmed the FDA’s intent to “seriously consider enforcement action” when “the 

scope and nature of a pharmacy’s activities raise the kinds of concerns normally 

associated with a drug manufacturer[,]” and included a non-exhaustive list of factors 

relevant to its determination of whether “compounding pharmacies” were actually 

“manufacturers” of new drugs.154 

b. FDA Enforcement Activity Related to Pharmacies

From February 2002 to May 2012, the FDA conducted 194 “for cause” 

inspections of compounding pharmacies and issued thirty-one Warning Letters.

155

 

The FDA frequently cited entities for issues such as dispensing an unreasonably 

large volume of drugs and/or drugs that were copies of FDA-approved, 

commercially available products, and compounding drugs without a patient-specific 

medical need.156 For example, in 2010, the FDA issued a Warning Letter to MII’s 

152 Thompson, 535 U.S. at 366, 377.

153 Compliance Policy Guide 460.200 (“2002 CPG”).

154 Id.

155 SLC Report 153.

156 Id.
29

competitor, Med Prep Consulting, Inc. (“Med Prep”), for shipping pre-filled syringes 

to health care providers without receiving prescriptions for individual patients.157 

Med Prep’s Warning Letter specifically stated that Med Prep’s “practice of 

repackaging and distributing drugs without patient-specific prescriptions” exceeded 

“the regular course of a pharmacy’s business,” therefore subjecting Med Prep to 

cGMP regulations as a “repackager.”158 

3. United States Pharmacopeia <797>

In 2004, Congress moved guidelines title “Sterile Compounding” to chapter 

<797> of the U.S. Pharmacopeia (“USP”) standards, thereby making those 

guidelines enforceable by the FDA.159 Among the issues covered by USP <797> 

was sterility and purity of dispensed compounded sterile preparations (“CSPs”).

160

 

Despite Congress authorizing the FDA to enforce USP <797>, individual states 

remained the principal regulators of pharmacy compounding activity and sterility.161 

Alabama did not adopt USP <797>, but in 2009, the Alabama Board of Pharmacy 

157 Warning Letter from Diana Amador Toro, Director, New Jersey District, U.S. Food & Drug 

Admin., to Gerald R. Tighe, Pres., Med Prep Consulting (July 9, 2010), 

https://web.archive.org/web/20130324195733/http://www.fda.gov/ICECI/EnforcementActions/

WarningLetters/2010/ucm222283.htm (“Med Prep Warning Letter”).

158 Id. at 1.

159 SLC Report 156.

160 Pharmaceutical Compounding—Sterile Preparation (USP <797>), United States 

Pharmacopeial Convention, 2008.

161 Pew Charitable Trs., National Assessment of State Oversight of Sterile Drug Compounding 1 

(Feb. 2016), 

https://www.pewtrusts.org/~/media/assets/2016/02/national_assessment_of_state_oversight_of_s

terile_drug_compounding.pdf.
30

interpreted its comparable provision on the “strength, quality, or purity” of 

compounded drugs as “requir[ing] sterile products to be compliant with USP <797> 

standards.”162 On December 31, 2010, the Alabama State Board of Pharmacy began 

enforcing compliance with USP <797>.163

E. MII and its Pre-Filled Syringe Program

At the time it was acquired by Bergen Brunswig in 1998, MII was a Florida 

corporation that operated a Tampa, Florida, pharmacy providing compounding 

services and pre-filled syringes for physicians.164 As part of the acquisition, Bergen 

Brunswig engaged outside counsel to review MII’s operations.

165

 Potential issues 

associated with MII’s customer billing practices were identified by the review, but 

the review did not focus on nor identify FDA regulatory issues concerning MII’s 

pharmacy operations.166 MII’s operations were reviewed again during the 2001 

merger process between Bergen Brunswig and AmeriSource,167 again raising 

questions related to MII’s customer billing and inventory practices while not 

identifying FDA regulatory risks or concerns regarding product quality or sterility.

168

162 SLC Report Ex. 184.

163 Id.

164 SLC Report 158.

165 SLC Report Ex. 186, at 3.

166 SLC Report 158–59.

167 SLC Report Ex. 189, at 1; SLC Report Ex. 187, at 1.

168 SLC Report 159.
31

Bergen Brunswig moved MII to a pharmacy in the OS warehouse in Dothan, 

Alabama, where MII focused solely on the pre-filled syringe program (“PFS

Program”).169 During the Relevant Period, MII was an ABSG subsidiary and 

incorporated in Florida.

170

 After its move to Alabama, the Company registered MII 

with the Alabama Board of Pharmacy, but not the FDA.171

When MII’s pharmacist-in-charge, who was tasked with overseeing MII’s 

operations, stepped down in 2005, the Chief Pharmacist was promoted to the role.172 

The Chief Pharmacist had more than twenty-five years of experience as a 

pharmacist.173 Generally, the Chief Pharmacist reported to OS’s Head of Operations 

but also reported to OS’s President for a time during the Relevant Period.174 The 

Chief Pharmacist was responsible for MII’s pharmacy license in Alabama and he 

worked closely with OS’s Compliance Manager on licensing issues.175 The Chief 

Pharmacist was responsible for with overseeing a technician supervisor, who 

managed the Pharmacy technicians, and the Pharmacy’s policies and procedures, 

including those intended to ensure that MII prepared sanitary and sterile pre-filled 

syringes.176

169 SLC Report Ex. 190, at 3.

170 SLC Report 160.

171 SLC Report Ex. 14; SLC Report Ex. 15, at 1.

172 SLC Report 160. 

173 Id.

174 Id. at 160–61.

175 Id. at 161.

176 SLC Report Ex. 15, at 1.
32

1. The Pre-Filled Syringe Program

MII pre-filled syringes with oncology products for OS’s customers upon 

request.177 Under the terms of the PFS Program agreement between OS and its 

customer oncology practices, the practices were required to provide a patientspecific physician’s order to MII.178

 If a customer ordered products in pre-filled 

syringes rather than vials, OS would transfer product vials to MII to pre-fill syringes 

with the drug contained in the vials.179

Over time, MII developed extensive policies and procedures requiring strict 

adherence to aseptic techniques and sterilization protocols.180 As of April 1, 2005, 

MII required all “personnel working in the sterile environment” to be tested for 

compliance with these policies and procedures “at least once a year.”181 When prefilling syringes, technicians were required to follow a six-step procedure to ensure 

the product’s integrity.182 Once the syringes were filled, MII technicians transferred 

the labeled syringes to a separate room of the Pharmacy where MII pharmacists 

performed a quality check by using a magnifying glass to check that the syringes 

included the appropriate product volume and did not include particulates.183 Next, 

177 SLC Report 161.

178 SLC Report Ex. 193, at 1; SLC Report Ex. 194, at 1.

179 SLC Report Ex. 15, at 2.

180 SLC Report 163–65.

181 SLC Report Ex. 199.

182 SLC Report 167.

183 Id. at 167–68.
33

MII staff matched the syringes with orders and labeled them with the product name, 

dose, batch number, and expiration date.184 The syringes were then placed in bags 

with printed physician order information and another label was affixed to the outside 

of the bags.185 MII then transferred the syringes to OS for packaging and delivery.186

OS usually delivered the pre-filled syringes to oncology practices overnight 

for use the next day.187 This time pressure resulted in a significant rush during the 

latter half of the working day at MII, as the Pharmacy prepared pre-filled syringes 

in response to customers’ orders.188 To alleviate this pressure, MII began preparing 

some pre-filled syringes before receiving particularized orders based on Alabama 

regulations that permitted advanced preparation “in anticipation of estimated 

needs.”189

2. MII’s Harvesting of Overfill

MII provided the pre-filled syringe service in exchange for customers

agreeing to let MII retain the product overfill remaining in the vials after the prefilled syringes were drawn.190

 Overfill is the amount of product within a vial that 

exceeds the amount of product stated on the vial’s label; manufacturers generally 

184 SLC Report Ex. 208; SLC Report Ex. 192, at 14; SLC Report Ex. 215, at 1.

185 SLC Report Ex. 215, at 1.

186 SLC Report 168.

187 Id.

188 Id. at 168–69.

189 Ala. Code § 34-23-159 (1975).

190 SLC Report Ex. 15, at 1.
34

include slightly more product in each vial than the label indicates to ensure that end 

users can successfully draw and administer the necessary amount of product.191 

Historically, healthcare practices often salvaged overfill for clinical use.192 In May 

2001, Reed Smith advised Bergen Brunswig that MII’s practice of harvesting 

overfill was considered “standard practice at hospital[s] and other large pharmacies”; 

that “the dispensing of the prescribed amount from the billing units” purchased from 

the manufacturer was “an acceptable practice[;]” and the “[s]alvage of drug 

remaining in [the original] containers [wa]s also permissible.”193 Filling new 

prescriptions with this harvested overfill also did not “itself raise concerns.”194

MII harvested overfill to satisfy customer orders while saving numerous 

unopened vials, which it called “overfill inventory.”195 These unopened, overfill 

vials were sold monthly by MII back to OS, which then distributed the overfill vials 

to other affiliates of ABC or directly to customers.196 MII derived profits from its 

sale of overfill vials to OS.197 This incentivized MII’s technicians to harvest as much 

191 Pharmaceutical Dosage Forms—Injections (USP <1151>); see also SLC Report Ex. 187; SLC 

Report Ex. 195.

192 Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 

2011, 75 Fed. Reg. 73467 (Nov. 29, 2010); cf. Vanessa Romo, Some Vials of COVID-19 Vaccine 

Contain Extra Doses, Expanding Supply, FDA Says, NPR (Dec. 16, 2020, 9:47 PM), 

https://www.npr.org/sections/coronoavirus-live-updates/2020/12/16/947386411/some-vials-ofcovid-19-vaccine-contain-extra-doses-expanding-supply.

193 SLC Report Ex. 189, at 2, 5.

194 Id.

195 SLC Report Ex. 15, at 2.

196 Id. at 3.

197 Id. at 4.
35

overfill as possible while maintaining quality standards,198 as laid out in MII’s 

incentive compensation program.199

In 2003, ABC’s then-General Counsel and his staff conducted a preliminary 

risk assessment of ABSG companies, including OS and MII.200 This assessment 

resulted in a memorandum describing, in relevant part, MII’s PFS Program and its 

use of overfill.201 While the former Assistant General Counsel noted that some of 

MII’s customer contracts did not explicitly authorize MII to collect and sell overfill, 

he did not identify concerns related to FDA regulatory issues, quality, or sterility.202 

ABC’s Assistant General Counsel also engaged health care regulatory 

attorneys at Reed Smith to conduct a compliance review and risk assessment of 

ABSG companies, including OS and MII.203 Reed Smith prepared a memorandum 

in which it stated that the PFS Program did not appear to raise significant regulatory, 

anti-kickback, or double chargeback concerns.204 The Reed Smith memorandum 

recommended that MII disclose to physicians that it collected overfill and that OS 

convey the need for customers to account for their discounts when reporting to the 

government, to ensure compliance with safe harbors to the federal Anti-Kickback 

198 SLC Report 170–71.

199 See SLC Report Ex. 216, at 2, 4. 

200 SLC Report 171.

201 SLC Report Ex. 188, at 5–6. 

202 SLC Report 171–72.

203 Id. at 172.

204 SLC Report Ex. 195, at 26–27, 37. 
36

Statute (“AKS”).205 With respect to the pre-filled syringes, Reed Smith observed 

that customers provided MII with lists of patients with the pharmacy staff used to 

mark syringes with patient-specific labels.206 When responsibility for the Specialty 

Group shifted to ABSG’s General Counsel, he received the Reed Smith 

memorandum, which he reviewed, and concluded that Reed Smith approved of 

MII’s business model.207

3. MII is Expanded

In March 2006, OS submitted an official Capital Expenditure Request 

(“CER”) to ABSG management208 seeking approval to purchase vacant land 

adjacent to OS’s facility and to remodel the warehouse.209 According to the CER, 

MII was a “significant contributor” to OS’s profitability, but MII’s pharmacy space 

where product was drawn into syringes was inadequate to meet ABSG’s Fiscal Year 

2006 target sales.210 ABSG’s executive team, ABC’s executive team, and the ABC 

Board approved the CER in 2006.211 In 2007, OS expanded its Dothan Distribution 

205 Id. at 40.

206 Id. at 24, 36.

207 SLC Report 175–76.

208 SLC Report Ex. 230, at 1.

209 SLC Report Exs. 224–28.

210 SLC Report Ex. 222, at 7.

211 Id. at 1; SLC Report Ex. 221, at 8–9.
37

Center,

212

 increasing the size of the Distribution Center by 70,000 square feet and

expanding MII’s pharmacy from 1,000 square feet to 3,000 square feet.213

4. MII’s Alabama License and Board of Pharmacy Inspections

Although the CSRA Senior Director was primarily responsible for general 

pharmacy oversight, an OS Compliance Manager in Dothan handled the particulars 

of MII’s state licenses.214 The OS Compliance Manager understood MII to be a 

mail-order pharmacy because it shipped syringes to physicians, who owned and 

administered the medications.215 During the Relevant Period, MII had an active 

license as a parenteral216 and mail-order pharmacy in Alabama.217

The Alabama Board of Pharmacy inspected MII in 2007, 2009, 2010, 2011, 

and 2013, with MII passing each of these inspections without any adverse 

observations about the safety or sterility of products dispensed by the Pharmacy.218 

All inspections prior to 2010 were announced, in-person reviews of MII’s storage 

conditions, facilities, security, record-keeping, and written policies and 

procedures.219 After Alabama began enforcing USP <797> in 2010, its inspectors 

212 SLC Report 176.

213 SLC Report Ex. 221, at 8; SLC Report Ex. 222, at 7.

214 SLC Report 181.

215 Id.

216 “Parenteral” here is used to mean a pharmacy preparing drugs to be administered by injection.

217 See, e.g., SLC Report Ex. 233.

218 SLC Report Exs. 234–38.

219 SLC Report Ex. 239.
38

focused on sterility, dose containers, personnel cleansing and garbing, and quality 

testing and documentation, among other things.220 

5. Sterility Testing at MII

During the Relevant Period, MII tested its pre-filled syringes, as well as its 

pharmacists, technicians, and workspaces, for sterility and safety.221 An external 

testing service conducted a majority of MII’s sterility tests every six to twelve 

months.222 MII tested the sterility of its syringes at least once per year from 2009 

through 2013.

223

 Some years, MII tested its syringes internally while other years 

MII shipped syringes to an external laboratory for shelf-life testing.224 For example, 

in September 2012, MII conducted internal tests of syringes drawn by its 

technicians.225 The following month, MII shipped syringes to BioScreen Testing 

Services for additional testing.

226

 The September and October 2012 testing results

of these syringes did not find any sterility problems.

227

 

While MII passed the vast majority of its sterility tests, it did have occasional 

failures.228 These failures were generally addressed internally with MII taking 

220 SLC Report Ex. 240; see also SLC Report Ex. 241.

221 SLC Report 183.

222 Id.

223 Id. at 184.

224 E.g., SLC Report Ex. 246, at 2; SLC Report Ex. 200, at 8, 11; SLC Report Ex. 247, at 1; SLC 

Report Ex. 248, at 1.

225 SLC Report Ex. 200, at 11.

226 Id.; SLC Report Ex. 247, at 1; SLC Report Ex. 250, at 1.

227 SLC Report Ex. 247, at 1; SLC Report Ex. 248, at 1.

228 See, e.g., SLC Report Ex. 249, at 5, 23; SLC Report Ex. 245, at 5–6.
39

corrective measures and retesting when deemed necessary.229 Through its 

inspections, the Board of Pharmacy reviewed each of MII’s sterility test results, 

including the occasional failures, to ensure that MII documented its testing and to 

certify that MII’s results comported with International Organization for 

Standardization standards.230 Despite the occasional sterility test failures considered 

by the inspectors, MII passed each Alabama Board of Pharmacy inspection without 

any issues.231

6. CSRA Audits and Reviews of OS and MII

Prior to 2007, the audits of OS by the Company’s Corporate Security and 

Regulatory Affairs group (“CSRA”) focused on OS Distribution Center’s 

operations.232 These audits were conducted by the Compliance Manager at OS in 

accordance with a 400-page checklist, which, other than licensing, did not focus on 

the Pharmacy.233 The Company’s audit of MII included evaluating the licensing 

status of MII under applicable state board of pharmacy requirements.234

229 SLC Report Ex. 250, at 1–2; SLC Report Ex. 251, at 17.

230 See SLC Report Ex. 239, at 1; SLC Report Ex. 241, at 6–7.

231 SLC Report Exs. 234–38.

232 SLC Report 188.

233 Id. at 188–89.

234 See, e.g., SLC Report Ex. 256, at 5–6; SLC Report Ex. 257.
40

a. CSRA’s Pharmacy-Related Experience and Expertise

In July 2007, a new Senior Director joined CSRA and provided additional 

regulatory oversight of MII.235 From his experience as a pharmacist and Compliance 

Officer of another ABC entity,

236 the Senior Director was familiar with pharmacy 

regulations, including the distinctions between state-regulated pharmacies and FDAregulated manufacturers or repackagers.237

 The OS Compliance Manager reported 

to the CSRA Senior Director who then in turn reported to the CSRA Vice 

President.238 The Senior Director frequently consulted with the OS Compliance 

Manager on issues relating to MII and also served as a resource to MII’s Chief 

Pharmacist.239

The CSRA Senior Director conducted regular in-person reviews of MII

roughly once a quarter, including during the annual CSRA audit of the OS 

Distribution Center,240 with his attention on regulatory compliance issues.241 When 

all of his visits were considered together, the Senior Director spent approximately 

one month of every year at the Dothan facility.242 The Senior Director did not follow 

235 SLC Report 189.

236 Id.

237 Id.

238 Id. at 190.

239 Id.

240 Id. at 191.

241 Id.

242 Id.
41

a formal checklist nor file a separate formal written report when reviewing MII;

243

instead he would follow a prescription through the Pharmacy’s processes by asking

the Pharmacy to walk through the process of receiving a prescription or order, 

entering the associated data into the computer system, generating the label of the 

pre-filled syringes, filling the prescription, conducting a prescription check, and then 

packaging the syringes before they were dispensed to customers.244

b. CSRA’s 2008 Review of MII

In January 2008, the CSRA Senior Director expressed concerns that “some 

customers request not to have patient names on the syringes which is a concern due 

to the fact that the FDA could potentially say that the [P]harmacy is wholesaling and 

not dispensing which would require us to meet extra requirements similar to a 

manufacturer/repackager.”245 The Senior Director also questioned a pending nonresident sterile compounding license in California and documentation for the 

Pharmacy’s policy on expiration dates.246 

The Senior Director reiterated his concerns during a formal CSRA audit of 

the OS Distribution Center in September 2008.247 He instructed the OS Compliance 

243 Id. MII was the only pharmacy under CSRA’s purview, so the Company saw no urgent need 

to develop a formal checklist that could be used at other locations. Id.

244 Id. at 192.

245 SLC Report Ex. 259.

246 Id.

247 SLC Report Ex. 257.
42

Manager to ensure that MII’s license in California was properly maintained248 and

took steps to gather documentation to justify the Pharmacy’s expiration-date 

practices.249 The Senior Director further instructed MII personnel to secure patientspecific orders because he was concerned by the lack of patient-specific names on 

each dispensed order.250

In his November 2008 CSRA Compliance Audit Report, the Senior Director 

only recommended MII’s California license as a “Risk Value,” but that had been 

resolved by the time the Report was issued.251 The Senior Director was not alarmed 

that MII’s practices were non-compliant with FDA regulations because the FDA was 

permitting the Alabama Board of Pharmacy to enforce the relevant requirements.252 

He further believed that the FDA would, if it had concerns, issue a Warning Letter 

before taking any additional action, which would allow the Company to address the 

concerns before the FDA would pursue more severe enforcement activity.253

c. Alabama’s Implementation of USP <797>

On March 30, 2009, the Alabama Board of Pharmacy sent a letter to all 

pharmacies “known to prepare sterile compounds” in Alabama, including MII,

254

 

248 SLC Report 193.

249 SLC Report Ex. 260, at 1–2.

250 SLC Report 193.

251 SLC Report Ex. 257, at 4.

252 SLC Report 195.

253 Id.

254 SLC Report Ex. 184.
43

explaining that Board of Pharmacy would begin enforcing USP <797> on December 

31, 2010.255 MII’s Chief Pharmacist received another letter from the Alabama Board 

of Pharmacy in May 2009, announcing that “[t]he first action taken by the [Alabama] 

Board [of Pharmacy] [would be] to assist pharmacies in evaluating their degree of 

compliance with USP <797>.”256 The Alabama Board of Pharmacy asked MII to 

complete a Risk Level Assessment Form to define its compounding category as lowrisk, medium-risk, or high-risk.257

 This form contained questions about the sterility 

of the pharmacy, such as whether the pharmacy practiced routine disinfection and 

air quality testing.258 The Alabama Board of Pharmacy also requested that MII to 

complete a Compliance Self-Assessment and, as necessary, a Compliance Action 

Plan.259

MII reported that it was compliant with a range of USP <797> requirements, 

including the activities of compounding personnel, personnel training, aseptic 

technique, personnel cleansing and garbing, quality checks, and maintaining the 

sterility, purity, and stability of products.260 On the Risk Level Assessment Form, 

MII reported that it was a “medium-risk level” pharmacy because it “pool[ed]” 

products, a process that USP <797> defines as combining “multiple individual or 

255 Id.

256 SLC Report Ex. 262.

257 Id.

258 SLC Report Ex. 263.

259 SLC Report Ex. 262.

260 SLC Report Exs. 263–64.
44

small doses of sterile products. . . to prepare a [Compounded Sterile Preparation].”261 

MII further noted that it expected to be compliant with USP <797> by October 2009, 

fifteen months before the USP standard’s effective date.262 After completing its 

self-assessment, the Compliance Manager worked with operations personnel within 

OS to execute MII’s action plan by, among other things, updating new Standard 

Operating Procedures and upgrading air pressure and air exchange systems.263

d. CSRA’s 2009, 2010, 2011, and 2012 Reviews of MII

CSRA’s Senior Director conducted further reviews of MII in 2009 and 

2011.264 The Chief Pharmacist periodically informed the Senior Director that MII 

customers265 often complained about MII’s requirement that they submit patientspecific orders for pre-filled syringes.266

 During these reviews of MII, the Senior 

Director saw patient names placed on the bags containing the pre-filled syringes.267 

In January 2012, following a complaint from a customer regarding MII 

“put[ting] a random name on a medication, call[ing] it a prescription and sell[ing] it 

to us. . . without the name being on any of the packaging or anywhere else,”268 the 

261 SLC Report Ex. 263, at 2.

262 SLC Report Ex. 265, at 9.

263 SLC Report 198.

264 SLC Report Exs. 267–68.. The Senior Director did not conduct the 2010 review; rather, other 

CSRA personnel conducted these reviews and did not identify issues related to patient names. See

SLC Report Exs. 269–70.

265 That is, the physician-purchasers of the pre-filled syringes.

266 SLC Report 199.

267 Id.

268 See SLC Report Ex. 271, at 2; SLC Report Ex. 272, at 1.
45

Chief Pharmacist and the OS President escalated the complaint to CSRA and 

ABSG’s General Counsel.269 In February 2012, the Senior Director conducted an 

in-person review of MII’s operations as requested by ABSG’s General Counsel.

270

 

The Senior Director provided an update to ABSG’s General Counsel, noting that 

only fifty-nine of 869 of the prescriptions in his sample had been “completed with a 

‘proper [patient] name.’”271

Due to the significance of the Senior Director’s findings, CSRA added this 

review to the agenda for the upcoming February 23, 2012, Ethics Committee 

Meeting.272 At the meeting, CSRA’s Vice President “discussed the MII 

investigation” and stated that “[t]here is a concern that the [P]harmacy is not 

providing the patient name” because “[i]t appears that 90% of the [P]harmacy 

records were incomplete.”273 Following this meeting, the Senior Director continued 

to investigate the MII issues alongside ABSG’s Corporate Counsel.274 Based on

their research, ABSG’s Corporate Counsel and the Senior Director concluded that 

the conduct observed at MII did not violate Alabama law, which was relatively lax 

on patient-specific labeling.275

269 SLC Report 200.

270 Id.

271 SLC Report Ex. 273, at 1.

272 SLC Report Ex. 274.

273 SLC Report Ex. 276, at 2.

274 SLC Report 203.

275 Id. at 204.
46

On March 15, 2012, ABC’s Compliance Committee met and discussed what 

should be included on the list of CIRs to be presented to the Company’s Audit 

Committee.276 The Compliance Committee decided against adding the MII syringe 

dispensing procedure review to the CIR because “it appear[ed] that the practice may 

be in compliance with State regulations. If this should change, the MII matter will 

be added to the CIR Report.”277 

Two months later, ABSG’s Corporate Counsel sent a memorandum to MII’s 

Chief Pharmacist stating that “a recently conducted audit directed by ABC’s legal 

department of randomly inspected orders dispensed by [MII] revealed that 

prescriptions filled under these orders were indeed consistent” with Alabama law, 

which did not require a prescription label to contain a patient’s name.

278

 It continued 

on to caution that “[r]ecent guidance from the [FDA] suggests additional 

prescription label requirements may be necessary” because “processing and 

repacking (including repackaging) of approved drugs may be viewed by the FDA as 

exceeding the traditional practice of pharmacy and, as such, requiring licensure with 

the FDA as a repackager.”279 Therefore, the memorandum directed that MII add 

“[t]he name of the patient” to each “prescription label” at the Pharmacy.280

276 Id. at 205.

277 SLC Report Ex. 282, at 1.

278 SLC Report Ex. 284, at 1.

279 Id. at 1–2.

280 Id. at 2.
47

e. ABSG Monitored FDA’s Warning Letter to Med Prep

In July 2013, Morgan Lewis notified ABC and ABSG legal counsel of a 

federal complaint against an ABC competitor, Med Prep, related to sterility issues 

and its practice of repackaging drugs without a patient-specific prescription 

described in the Med Prep Warning Letter, as discussed supra in Section I.D.2.b.

281

 

While Morgan Lewis advised ABC personnel that the sterility concerns related to 

Med Prep’s practices were not present at MII, Morgan Lewis suggested that Med 

Prep’s requirement to adhere to cGMP regulations as a repackager was relevant to 

MII and recommended that ABC and ABSG monitor developments in the Med Prep 

case.282

f. MII’s Closure

MII closed its operations on January 31, 2014, primarily because of its

declining profitability in the face of increasing potential reputational harm caused 

by continuing the PFS Program during the federal government’s investigation, 

discussed infra at Section I.F.6.

283

 The exit of MII’s largest customer, Florida 

Cancer Specialists & Research Institute, from the PFS Program—which 

significantly reduced MII’s profitability and demonstrated the reputational harm 

281 SLC Report Ex. 290, at 1; Med Prep Warning Letter, at 1.

282 Id.

283 SLC Report 211.
48

caused by the government’s investigation—was the primary trigger for the decision 

to close MII.284

F. Michael Mullen and the DOJ Investigation

Michael Mullen served as CFO of ABSG from May 2003 until September 

2008, President of Distribution Services at ABSG from September 2008 until 

September 2009, and COO of ABSG from September 2009 until April 2010.285 

After his termination in April 2010, he raised concerns about violations of the AntiKickback Statute (“AKS”) and price reporting compliance issues, similar to those at 

issue in an earlier qui tam complaint brought against the Company and others, 

described below.

286

1. United States ex rel. Westmoreland v. Amgen et al.

On June 5, 2006, a qui tam lawsuit was filed against Amgen, Inc., as well as 

AmerisourceBergen Corporation, and its subsidiaries, INN, Oncology Supply

(“OS”), and AmerisourceBergen Specialty Group.

287

 The relator alleged that 

defendants Amgen, INN, and OS violated the federal AKS by inappropriately 

encouraging providers to submit claims for payment by Medicare for the value of 

the excess product, or “overfill,” that was contained in the vials of their drug 

284 Id. at 212–13.

285 Id. at 213.

286 Id.

287 See United States ex rel. Westmoreland v. Amgen et al., Compl., No. 06-10972-WGY, ECF No. 

1 (D. Mass. 2006).
49

Aranesp, but not included in calculating Aranesp’s average sales price (“ASP”).288 

In relevant part, the relator also alleged that the defendants improperly gave special 

incentives to Aranesp purchasers who contracted with INN and encouraged 

physicians to prescribe medically unnecessary drugs and bill Medicare for overfill 

amounts that were not administered.289

The Westmoreland relator also alleged that Amgen created INN ostensibly to 

be an independent entity that would focus on nephrology practices and physicians,

but that actually acted as a “de facto marketing arm for Amgen” that pushed Amgen 

products to businesses.290 Amgen allegedly funneled business to INN and OS, which 

then targeted customers based on lists provided by Amgen and used an 

administrative fee as a way to pass through discounts to customers.291 The 

Westmoreland complaint did not contain allegations of violations of the FDCA or of 

product quality or safety deficiencies.292

By January 2009, the Company became aware of the Westmoreland

complaint. Defendant Chou informed the Board of its existence at the Board’s

“Monday call” on February 2, 2009, and to the Audit Committee on February 4, 

2009.293

288 Id. ¶¶ 41–48.

289 Id. ¶¶ 55–70.

290 Id.¶¶ 71–72.

291 Westmoreland Fourth Am. Compl. ¶ 303.

292 SLC Report 216.

293 Id. at 216–17.
50

2. Mullen Raises Concerns Internally

a. Mullen’s Time as COO/President of ABSG

Mullen was named COO/President of ABSG in September 2009 after David 

Yost, former CEO and Chairman of the Board, announced his plan to retire.

294

 By 

way of a succession plan, the Board decided to move Defendant Collis from his role 

as President of ABSG to ABDC to give Defendant Collis more experience with other 

parts of ABC’s business so that he could one day take over as ABC’s CEO.295

Mullen was chosen to take over leadership of ABSG as President and COO.296

In his position as COO of ABSG, OS came under Mullen’s purview,

297 so 

Mullen undertook an effort to drill down into the OS business and learn how OS 

went to market.298 However, Mullen learned about OS’s pricing structure, which 

caused him to have questions because he observed that profitability at OS was highly 

variable across products and customers.299 He believed that ION was too close to 

OS, its distributor, which allowed the entities to coordinate which manufacturers 

were or were not providing favorable pricing.300 After attending ION meetings with 

manufacturers and physicians,

301 Mullen assumed that if these meetings were 

294 Id. at 218.

295 Id. at 218–19.

296 Id. at 219.

297 Id.

298 Id.

299 Id.

300 Id. at 220.

301 Id.
51

occurring openly and as a matter of course, they must be “above board.”302 

Similarly, Mullen assumed that the PFS Program was a compliant business 

practice.303

After completing his review of the ABSG business units in January 2010, 

Mullen delivered a “strategic initiatives” presentation at an ABSG Team Lead 

Retreat304 that included the results of a survey of the ABSG business unit general 

managers, broad strategy discussions, and efforts to optimize services provided by 

external vendors.305 However, the presentation did not contain any specific 

regulatory or compliance-related concerns regarding ABSG’s oncology business.306

Throughout his time at ABSG, Mullen never raised any of the allegations 

contained in his qui tam action or this action with either ABSG’s Corporate Counsel 

or ABSG’s Group General Counsel, whose offices abutted that of Mullen, before his 

departure from the Company.307 

b. Mullen Raised Concerns Post-Termination

On April 8, 2010, Mullen was terminated from his role as COO/President of 

ABSG due to his underperformance in the COO position.308 As part of his separation 

302 Id.

303 Id.

304 Id.

305 See SLC Report Ex. 293.

306 Id. at 4.

307 SLC Report 223–24.

308 SLC Report Ex. 297.
52

package, Mullen was required to inform ABC of any concerns not otherwise known 

to ABC management.309 Because Mullen had previously been considered to be the 

corporate representative in Westmoreland, he had reviewed the court records and 

allegations contained within the complaint in preparation.310 He came to believe that 

the Westmoreland allegations potentially applied to ION, OS, and the PFS 

Program.311 Mullen contacted Defendant Chou stating he had concerns he wished 

to share with the Company.312 

In May 2010, ABSG’s Group General Counsel met with Mullen,

313 at which 

point Mullen summarized his two categories of concerns: (1) that average sales price 

(“ASP”) was not reported correctly in connection with how MII handled overfill, 

and (2) that there was insufficient separation of OS and ION.314 Mullen did not raise 

any concerns about FDA regulatory compliance, pharmacy licensing, safety, 

sterility, or any other matter that ultimately became the basis for the resolutions of 

the DOJ’s criminal and civil investigations that resulted in the corporate trauma at 

issue here, discussed infra at Section I.F.9.

315

 After the meeting, Mullen sent the 

Group General Counsel an email outlining the process through which MII’s business 

309 SLC Report Ex. 300.

310 SLC Report 228.

311 Id.

312 SLC Report Ex. 302.

313 SLC Report 229.

314 Id.

315 Id.
53

model purportedly allowed manufacturers to transfer free product in the form of 

overfill to wholesalers that then distributed the free product to physicians.316 The 

Board was informed by Defendant Chou of Mullen’s concerns in the context of 

explaining the Ober Kaler review and introducing the presentation of Ober Kaler’s 

report (the “Ober Kaler Report”).317

3. Ober Kaler Report

In June 2010, the Company engaged Ober Kaler to review the business 

practices of the Company’s Oncology Group as a whole318 and Defendant Chou 

shared the documents provided by Mullen for Ober Kaler’s analysis. 319 Ober Kaler

was charged not only with conducting a target review of ION’s GPO compliance320

but also to assess “overall compliance with federal anti-kickback/fraud and abuse 

laws and the federal false claims act” at both ION and OS.321 As neither the 

Westmoreland complaint nor Mullen raised concerns about FDCA compliance or 

316 SLC Report Ex. 204, at 2–4.

317 SLC Report 232.

318 SLC Report Ex. 308.

319 SLC Report Ex. 306.

320 Group purchasing organizations (“GPOs”) are regulated entities. See SLC Report Ex. 390. As 

a GPO, ION would negotiate with pharmaceutical manufacturers and vendors, such as OS, on 

behalf of ION’s paying member physician practices. See Section I.A.1. Similar to the allegation 

in the Westmoreland complaint that INN was a “de facto marketing arm for Amgen” that pushed 

Amgen products to businesses, Mullen alleged that there was insufficient separation between ION 

and its vendor, OS, such that it violated regulations pertaining to GPOs. See Section I.F.1; Section 

I.F.2.b. As part of this scheme, the Westmoreland relator alleged that Amgen funneled business 

to INN and INN would use an administrative fee to pass through discounts to customers, thereby 

violating the Anti-Kickback Statute. See Section I.F.1.

321 SLC Report Ex. 20, at 2.
54

sterility, Ober Kaler’s mandate did not include a review of those concerns.

322 Also 

excluded from Ober Kaler’s mandate was a review of the legality of the PFS 

Program because it was not at issue in the Westmoreland case or with Mullen.323

As part of its review, Ober Kaler interviewed the Chief Pharmacist at the 

Dothan facility regarding his role in the PFS Program.

324

 The Chief Pharmacist 

explained how the syringes were filled, how the Pharmacy made money, and how 

the service is marketed.

325 However, Ober Kaler did not ask about, and the Chief 

Pharmacist did not discuss, FDCA regulations or sanitation issues.326

Ober Kaler discussed an early version of its draft presentation with Defendant

Chou, the ABC CCO, the ABSG General Counsel, the ABSG Corporate Counsel, 

the ABSG CEO, an attorney at Morgan Lewis, and an attorney at Buchanan 

Ingersoll.327 On the call, Ober Kaler asked about the PFS Program in the context of 

AKS and GPO328 concerns, specifically asking about a discount under the program 

and what the physician took possession of after placing an order.329 After an attorney 

from Ober Kaler requested to “have an adequate explanation of the program when 

or if the government comes and asks about it[,]” Defendant Chou suggested that 

322 SLC Report 234.

323 Id.

324 SLC Report Ex. 313.

325 Id. at 1–2, 4.

326 Id.

327 SLC Report Ex. 314, at 20.

328 See n.320, supra.

329 SLC Report Ex. 307, at 4–5.
55

Ober Kaler “talk to [ABSG General Counsel and [ABSG Corporate Counsel] 

because they had a similar reaction to the program but felt better after examining the 

facts more clearly.”330 ABSG’s General Counsel believed that the PFS Program was 

“previously blessed” by external counsel before he joined the Company, and 

ABSG’s Corporate Counsel believed that the Pharmacy was not subject to FDA 

regulations or cGMPs at the time of the meeting.331 In light of this understanding 

and the fact that neither the Westmoreland case and nor the Mullen allegations raised

concerns about the PFS Program’s FDA compliance or sterility, Ober Kaler’s review 

did not include follow-up on the PFS Program.332

On August 11, 2010, Ober Kaler presented its findings to the Audit 

Committee.333 Ober Kaler’s presentation specifically referenced the PFS Program 

in its general description of the “[r]ole of Oncology Supply,” but Ober Kaler did not 

reference sterility or FDCA concerns.334 Beyond describing three aspects of the PFS 

Program, the final presentation did not otherwise refer to MII or the PFS Program.

335

 

At the end of the presentation, the Audit Committee “instructed management to 

undertake appropriate consideration and follow-up of the recommendations.”336 

330 Id

331 SLC Report 237.

332 Id. at 237–38.

333 SLC Report Ex. 81, at 1–2.

334 SLC Report Ex. 20, at 4, 9–12.

335 Id. at 4.

336 SLC Report Ex. 81, at 1–2.
56

On October 19, 2010, Ober Kaler sent a final memorandum to Defendant

Chou containing action items for the Company to consider, including four broad 

categories: (1) the definition of the roles of ION and OS; (2) discounting practices 

at OS; (3) ION services to pharmaceutical manufacturers; and (4) GPO safe harbor 

compliance.337 The Company began implementing new policies in response to Ober 

Kaler’s report even before the suggested action items were finalized by Ober 

Kaler.338 The Audit Committee received at least two updates from Defendant Chou 

on the Company’s progress in addressing Ober Kaler’s recommendations.

339

 By 

November 21, 2010, the Company implemented nearly all of Ober Kaler’s 

recommended action items.

340

4. Mullen’s October 2010 Qui Tam Complaint

On October 21, 2010, Mullen filed a qui tam complaint under the Federal 

Claims Act (the “FCA”) against ABC, ABSG, ION, OS, and MII in the U.S. District 

for the Eastern District of New York.341 This complaint largely mirrored the 

allegations that Mullen raised in his May 2010 meeting with ABSG’s General 

Counsel, including that the free services provided by ION and OS constituted 

kickbacks in violation of the AKS and FCA.342 He also alleged that ION, OS, and 

337 SLC Report Ex. 317, at 1–3.

338 SLC Report 241.

339 Id. at 242.

340 SLC Report Ex. 323, at 9–13.

341 SLC Report Ex. 4.

342 Id. ¶ 7.
57

MII engaged in an illegal overfill laundering scheme designed to pass kickbacks to 

medical providers and allow drug manufacturers to overreport the drugs’ ASPs.343 

The October 2010 qui tam complaint did not contain any allegations relating to 

sanitation, repackaging, or FDCA violations.344 

While qui tam complaints are kept under seal,345 on October 27, 2010, 

Mullen’s qui tam complaint was inadvertently unsealed.346 An attorney with 

Buchanan Ingersoll transmitted the unsealed complaint to the ABC’s CCO who

notified Defendant Chou, attorneys from Morgan Lewis, and the broader ABC 

executive team and ABSG’s President and Group General Counsel.347 Defendant

Chou notified the Board of the suit348 and the Board discussed “the status of a qui 

tam matter involving Amgen Inc. and two business units of [ABSG], ABSG, and the 

Company” at its November 12, 2010, meeting.349

5. Mullen’s January 2011 Amended Qui Tam Complaint

In January 2011, Mullen filed a First Amended FCA Qui Tam Complaint (the 

“FAC”)350 that added new allegations related to violations of the FDCA and 

343 Id. ¶ 8.

344 See generally SLC Report Ex. 4.

345 31 U.S.C. § 3730(b)(2).

346 See SLC Report Ex. 324.

347 Id.

348 SLC Report Ex. 325, at 4.

349 SLC Report Ex. 326.

350 SLC Report Ex. 5.
58

Alabama state pharmacy regulations.351 Specifically, the FAC alleged that MII was 

operating as an unlicensed manufacturer and repackager of drugs and thus was

operating without proper FDA oversight.352 MII allegedly violated “any number” of 

FDA protocols designed to protect against contamination, product mix-ups, 

misidentification, mislabeling, deficient inventory control, etc.353 For the first time, 

Mullen alleged that MII operated as a drug repackager or manufacturer under the 

FDCA because it “compounded” pre-filled syringes, used large-scale vacuum and 

centrifuge equipment to extract drugs from manufacturer’s vials in a facility 

designed solely for that purpose, and sold the pre-filled syringes to other companies 

as opposed to individual patients.354

The FAC was filed under seal and stayed under seal.355 The Company was 

not informed of the allegations contained within the FAC until January 29, 2016, 

when federal prosecutors shared three complaints with the Company as part of 

efforts to facilitate a settlement.356

351 SLC Report 247.

352 FAC ¶ 8.

353 Id. ¶ 9.

354 Id. ¶ 201.

355 SLC Report 249.

356 SLC Report Ex. 328.
59

6. The Department of Justice’s Investigation

Around the time Mullen filed his qui tam lawsuit, the Department of Justice 

(“DOJ”) initiated parallel criminal and civil investigations into ABC.357 

a. July 2012 Search of MII

On July 11, 2012, an FDA search warrant was executed at OS’s Dothan 

facility with a focus on MII’s pharmacy.358 At the time the search warrant was 

executed, federal agents also served a subpoena on ABSG as part of an investigation 

into potential federal fraud, false claims, and other offenses.359 While executing the

search warrant and subpoena, federal agents seized product—pre-filled syringes, 

partially filled syringes, and empty vials—and interviewed some employees.360

b. ABC Officers’ Response to the Search

The Company engaged Morgan Lewis on the day of the search to help the 

Company respond to the search warrant and subpoena.361 After interviewing the 

employees who were interviewed by federal agents during the search,

362 Morgan 

Lewis learned, and shared with Defendant Chou, that the federal agents asked about 

topics like the employees’ job duties; how MII fit into the corporate structure; how 

357 SLC Report 249.

358 Matt Elofson, FDA Agents Search Oncology Supply Business, DOTHAN EAGLE (July 11, 2012), 

https://dothaneagle.com/news/fda-agents-search-oncology-supply-business/article_a9cb93fc0e3d-5701-9958-35f8544b1f82.html; SLC Report Ex. 239, at 2.

359 SLC Report Ex. 331, at 1.

360 SLC Report Ex. 332.

361 See SLC Report Exs. 334–35.

362 SLC Report Ex. 340.
60

overfill was captured, “stored,” and “tracked”; whether MII profited off of overfill; 

the sterility and stability of the pre-filled syringes, including testing performed at 

MII and employee training; the packaging and labeling of pre-filled syringes with 

patient and lot information and how patient information was protected; the rebate 

program for pre-filled syringes; patient records; and whether MII used a “centrifuge” 

in the pre-filled syringe process.363

To better understand what prompted the search, Defendant Chou and 

Company counsel collected and considered earlier legal reviews and work product 

related to the Pharmacy, including the 2003 Reed Smith memorandum discussing 

MII’s PFS Program; the May 2012 Pharmacy Directive regarding patient-specific 

labeling at MII; and the then-current version of the PFS Program agreement.364 ABC 

in-house counsel also received Mullen’s May 2010 allegations, Ober Kaler’s 2010 

review of ION and OS, and a summary of ABC’s action items in response to Ober 

Kaler’s review.365

c. The Board’s Response to the Search

The Board was informed of the search of MII and the subpoena on July 12, 

2012, a day after the search occurred.366 At the August 9, 2012, Board meeting, 

363 SLC Report Ex. 341.

364 SLC Report Ex. 343, at -498130.

365 SLC Report Exs. 344–47.

366 SLC Report 257.
61

Defendant Chou updated the Board on “significant legal matters affecting the 

company” and on “certain matters that would be disclosed in the Company’s. . . 

Form 10-Q for the quarterly period ended June 30, 2012.”367 The Board members 

discussed the search, the basis for the government’s action, and whether there were 

any concerns about MII’s operations, including any concerns about product 

adulteration, sterility, or patient safety.368 At that time, the Company was only aware 

of Mullen’s original October 2012 qui tam complaint, which did not contain any

FDCA-related allegations.369 The Board was also unaware of any prior history of 

patient safety or sterility issues at MII; ABC management confirmed to the Board

that such problems had not occurred in the past.

370

While the Board and management considered closing the Pharmacy after the 

July 2012 search, MII remained open in light of the lack of clear indicia that it was 

operating in violation of regulations.371 In August 2012, the Board, in consultation 

with Morgan Lewis, decided to disclose the subpoena in the Company’s upcoming 

Form 10-Q372 and in the Company’s Annual form on Form 10-K for the fiscal year 

ending September 30, 2012.

373

367 SLC Report Ex. 353, at 5.

368 SLC Report 259.

369 Id.

370 Id. at 260.

371 Id. at 260–61.

372 Id. at 261; see also SLC Report Ex. 355.

373 ABC Annual Report on Form 10-K (2012), at 57.
62

7. November 2012 Potential Negative News Article

In October 2012, Katherine Eban,374 a journalist for Fortune magazine, 

contacted a Vice President for Corporate & Investor Relations at ABC about an 

article she was writing regarding the July 2012 search of OS.375

After working with CSRA leadership, in-house counsel, and Defendant Chou,

who consulted outside counsel to develop talking points, the Vice President spoke 

with Ms. Eban by phone on October 22, 2012.376 During the call, Ms. Eban focused 

on the government’s investigation, the Pharmacy’s parenteral license, whether the 

syringe labels included the lot number, the harvesting of overfill, and whether the 

Pharmacy was engaged in the manufacturing process.377 Ms. Eban did not raise any 

concerns about safety or sterility; however, Ms. Eban did inquire into how MII used 

overfill to offer pre-filled syringes at a discount.378 Ultimately, Ms. Eban did not 

publish the article on October 24, 2012, but she continued to ask the Vice President 

follow-up questions into early November.379 The Vice President followed public 

relations firm Starkman & Associates’ recommendation to contact Ms. Eban’s editor

374 Ms. Eban had previously written a book entitled Dangerous Doses that criticized ABC and 

other drug companies for allegedly distributing counterfeit or adulterated drugs, which caused the 

Company to become apprehensive of how Ms. Eban would portray the Company. SLC Report 

263–64.

375 SLC Report Ex. 356, at 4–5; SLC Report Ex. 357, at 1.

376 SLC Report Ex. 356, at 2–3. 

377 SLC Report Ex. 357, at 2.

378 SLC Report Ex. 252, at 2.

379 SLC Report Ex. 360, at 2.
63

regarding the falsity of Ms. Eban’s allegations that the Pharmacy did not have a 

parenteral license, explaining to the editor that the Pharmacy had recently passed an 

inspection by the Alabama Board of Pharmacy.380

The Board was apprised of the potential Fortune article at its November 15, 

2012, meeting.

381

 The Board did not express concern that Ms. Eban was exposing 

wrongdoing at the Company, or that there were compliance issues at MII, because 

the Board was confident in the legality of MII’s business model and its classification 

as a traditional pharmacy as of November 2012.382 On November 16, 2012, Ms. 

Eban’s editor at Fortune e-mailed the Vice President to inform her that Fortune had 

decided against running the article.383

8. Evolution of the DOJ Investigation

a. DOJ Interactions: 2012–2013

Following the July 2012 subpoena, the DOJ issued an additional three 

subpoenas in 2013 alone, all of which were generally focused on financial issues 

related to MII, overfill, and the PFS Program, although one requested information 

regarding sterility testing and communications about the quality of the pre-filled 

380 SLC Report Ex. 363, at 1–2.

381 SLC Report 267.

382 Id. at 267–68.

383 SLC Report Ex. 366, at 1–2.
64

syringes.384 Both in-house counsel and Morgan Lewis viewed Mullen’s qui tam

complaint as the likely impetus for the requests in these subpoenas.385 

Throughout 2013, Morgan Lewis reviewed these subpoenas and advised ABC

on the subpoenas and the status of the MII investigation.386 At a May 2013 

presentation to ABC’s Legal Department, Morgan Lewis described the regulatory 

landscape for pharmacies, addressed when a pharmacy would be subject to FDA 

regulation, and explained why MII was exempt from federal regulation as a stateregulated pharmacy.387

 By the end of 2013, the DOJ’s subpoenas and interviews did 

not provide the Company with a clear understanding of DOJ’s investigative theories, 

although they appeared to derive from Mullen’s qui tam allegations about AKS and 

pricing issues.388 Although ABC employees and Morgan Lewis considered potential 

FDCA theories, they concluded that the Company had a strong defense that MII was 

not subject to FDA regulation.389 

b. DOJ Interactions: 2014–2016

While MII closed in January 2014, ABC continued to receive subpoenas 

related to its operations. From 2014 through March 2016, the DOJ issued twelve 

more subpoenas seeking documents and information about MII and the PFS 

384 See SLC Report Ex. 369; SLC Report Ex. 371.

385 SLC Report 272–74.

386 Id.

387 SLC Report Ex. 376, at 6–17, 53–54.

388 SLC Report 274.

389 See, e.g., SLC Report Ex. 376.
65

Program, including MII’s closure, “bubbles, floating (‘floaters’) or other particulate 

matter” in pre-filled syringes, and the volume of drug product contained in the 

syringes.390 These requests also focused on the Company’s compliance program and 

audits of MII.391 On October 27, 2014, Morgan Lewis presented to the DOJ on 

behalf of MII and argued that MII did not violate the FDCA, FCA, AKS, or the 

Prescription Drug Marketing Act.

392

 Following this presentation, the DOJ issued a 

subpoena about “filter syringes” used at MII and appeared to be focusing on MII’s 

practice of removing particulate from syringes of Procrit.393

The 2014 DOJ subpoenas suggested a possible interest in senior executives’ 

and the Board’s role in MII oversight as evidenced by the DOJ requesting documents 

and information about how sales of overfill or pre-filled syringes factored into 

compensation and performance evaluations of Company personnel, including 

directors and officers;394 the Board’s involvement in the decision to construct the 

Pharmacy;395 and presentations to the Board about MII during the process of 

AmeriSource Health’s merger with Bergen Brunswig.396

390 SLC Report Exs. 378–87.

391 SLC Report 275.

392 SLC Report Ex. 389.

393 SLC Report Ex. 392; see also SLC Report Ex. 384.

394 SLC Report Ex. 385.

395 SLC Report Ex. 386.

396 SLC Report Ex. 387.
66

c. The DOJ Presentation

In October 2015, attorneys from ABC, Morgan Lewis, and the DOJ Civil and 

Criminal Divisions met to discuss DOJ’s theories of liability in the MII 

investigation.397 During this meeting, federal attorneys, both civil and criminal, 

presented a 280-slide PowerPoint deck to the attendees over the course of 

approximately four and half hours.398 From a liability standpoint, DOJ’s 

presentation focused on alleged FDCA violations, many of which hinged on the 

argument that MII was a repackager or manufacturer, therefore not falling within 

FDA’s exception for “bona fide pharmacies.”399 The FDCA violations were alleged 

as misdemeanors.400 The DOJ also presented two civil FCA theories: (1) MII caused 

physicians to submit false claims for payment by providing adulterated and 

unapproved new drugs that were not reasonable or medically necessary, and (2) the 

use of overfill resulted in double billing and improper reimbursement.401 The Audit 

Committee received an update about the DOJ investigation and were informed of 

this meeting between ABC’s counsel and the United States Attorney’s Office.

402

397 SLC Report Ex. 393, at 2.

398 Id. at 1.

399 Id. at 4, 14.

400 See id. at 27.

401 See id. at 26–27.

402 SLC Report Ex. 394, at 3.
67

d. The Company’s Response

Following the October 2015 presentation, the Company asked Morgan Lewis 

to conduct a further investigation into, and to prepare a rebuttal of, the DOJ’s 

theories.403 On February 29, 2016, Morgan Lewis presented its investigative 

findings to civil and criminal DOJ attorneys.404 While Morgan Lewis acknowledged 

that some of MII’s conduct was problematic, Morgan Lewis emphasized that certain 

aspects of the case presented serious litigation risk for DOJ.405 Morgan Lewis also 

contended that the federal regulatory landscape with respect to compounding was 

ambiguous at the time, and thus it was unclear when a state-regulated pharmacy 

would be deemed a drug manufacturer subject to FDA’s registration and cGMP 

requirements.406 The Board was updated again on the MII investigation at its March 

3, 2016, meeting.407 

9. DOJ Resolutions

Following the February 29, 2016, presentation by Morgan Lewis, ABC and 

the DOJ began negotiating resolutions of both the criminal and civil allegations.408 

403 SLC Report 284.

404 Id. at 285.

405 SLC Report Ex. 400, at 2–3; SLC Report Ex. 401, at 2–3.

406 SLC Report Ex. 400, at 109; SLC Report Ex. 401, at 125–26.

407 SLC Report Ex. 402, at 14.

408 SLC Report 288.
68

The Board received seven updates on the investigation at Board meetings, including 

three from Morgan Lewis.409

As the investigation progressed and the DOJ’s legal theories and financial 

demands became apparent, ABC’s management, in close consultation with the 

Board, determined that resolving the criminal case based on a single, strict liability 

misdemeanor count under the FDCA was in the Company’s best interests, 

notwithstanding the Company’s legal defenses.410 In September 2017, ABSG 

pleaded guilty to a misdemeanor FDCA violation stemming from ABSG’s failure to 

register MII with FDA and agreed to pay a $260 million monetary penalty and to 

comply with the terms of a Compliance Agreement.411 The plea agreement was a 

compromised resolution in which ABSG admitted to a limited statement of facts but 

not to the factual allegations in DOJ’s Information.412 During the resolution 

negotiations, the parties “agree[d] that defendant ABSG may challenge, contest and 

refute the factual allegations in the Information in any subsequent proceeding.”413 

No current or former employees were charged as defendants by the DOJ.414 ABSG 

409 SLC Report Ex. 402, at 5; SLC Report Ex. 403, at 5; SLC Report Ex. 404, at 13–14; SLC 

Report Ex. 405, at 4; SLC Report Ex. 406, at 15; SLC Report Ex. 407, at 7; SLC Report Ex. 43, at 

2–3.

410 SLC Report 250.

411 Plea Agreement, United States v. AmerisourceBergen Specialty Group, LLC, No. 17-507 (NG) 

(E.D.N.Y. Sept. 27, 2017).

412 SLC Report 289.

413 Plea Agreement, United States v. AmerisourceBergen Specialty Group, LLC, No. 17-507 (NG), 

¶ 2 (E.D.N.Y. Sept. 27, 2017).

414 SLC Report 292.
69

did not take any disciplinary action against individuals involved in the conduct that 

led to the guilty plea, because MII had already been closed and many of its 

employees had been let go.415

After several additional months of unsuccessful negotiations related to the 

civil matter, the DOJ showed the Company a draft complaint in July 2017.416 Due 

to the gap between the parties’ settlement offers, and the Company and outside 

counsel’s views that DOJ’s case relied on novel theories to which the Company had 

strong defenses, ABC prepared to litigate the case.417 However, after being informed 

that the potential civil penalties and trebled damages could exceed $6.6 billion, the 

Board agreed with Morgan Lewis’s recommendation to continue resolution 

negotiations with DOJ.418 The DOJ eventually accepted the Company’s offer to 

settle the matter for $625 million on November 16, 2017,

419 and the settlement 

agreement and related CIA were fully executed on September 28, 2018.420 As part 

of the resolution, the Company admitted only to facts expressly included in the 

Statement of Facts contained in the civil settlement agreement.421

415 SLC Report Ex. 409; Tr. of Plea and Sentencing Hr’g, United States v. AmerisourceBergen 

Specialty Group, LLC, No. 17-507 (NG) (E.D.N.Y. Sept. 27, 2017)).

416 SLC Report Ex. 43, at 3.

417 See id.; SLC Report Ex. 412.

418 SLC Report Ex. 43, at 2–3.

419 SLC Report Ex. 413.

420 Settlement Agreement (Sept. 28, 2018); SLC Report Ex. 179.

421 Settlement Agreement (Sept. 28, 2018), at Recitals ¶ K.
70

10. Compensation Considerations Relating to Defendants Chou and 

Collis after the MII Resolution

On multiple occasions, the Board considered whether to reduce executive 

compensation or bonus amounts for Defendants Chou and Collis as a result of the 

DOJ Resolutions.422 The Chief HR Officer contacted Pearl Meyer & Partners LLC, 

an executive compensation consulting firm, to receive advice on how to handle the 

situation.423 The firm was unaware of any instances of Compensation Committees 

reducing compensation or bonus amounts, in situations comparable to ABC’s 

current posture, absent “executive misconduct or gross negligence.”

424 They had 

only seen “voluntary bonus give backs in situations involving poor company 

performance that was not already reflected in annual bonus payouts.”425 The 

Compensation Committee met on November 14, 2018, and, following an executive 

session, decided against reducing Defendants Chou’s and Collis’s salaries as a result 

of the DOJ Resolutions after concluding that the conduct of Defendants Collis and 

Chou did not rise to the standard to find individual culpability for intentional 

fraud.

426

422 SLC Report 296.

423 SLC Report Ex. 414.

424 Id.

425 Id.

426 SLC Report 300; SLC Report Exs. 417–18.
71

G. Litigation Ensues

On October 11, 2019, Plaintiffs filed the complaint pleading two counts of 

breach of fiduciary duty and one count of unjust enrichment.427 On August 24, 2020, 

I denied the Defendants’ motions to dismiss under Rule 23.1 for failure to make 

demand or show that demand would have been futile and, in the alternative, under 

Rule 12(b)(6) for failure to state a claim.

428

 I concluded that Plaintiffs sufficiently 

pled that “a majority of the Demand Board faces a substantial likelihood of liability 

for Count I because the Plaintiffs have adequately pleaded that a majority of the 

Demand Board consciously ignored red flags rising to the level of bad faith.”429

H. The Company Forms the SLC

On September 24, 2020, the Company authorized a two-person special 

litigation committee to investigate and evaluate the allegations and issues raised in 

this action, in addition to determining whether prosecuting this action was in the best 

interests of the Company or if the action should be dismissed or settled.430 Initially, 

the two SLC members were D. Mark Durcan and Dennis M. Nally.431 Durcan was 

removed from the SLC on December 11, 2020, because Durcan had previously 

427 Verified S’holder Deriv. Compl. for Breach of Fiduciary Duties, Dkt. 1 (“Verified Compl.”).

428 See Teamsters Local 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065 (Del. Ch. Aug. 

24, 2020) (“Teamsters I”).

429 Id. at *17.

430 SLC Report Ex. 6, at 5.

431 SLC Report 36.
72

served on the Company’s Audit Committee that had received an earlier stockholder 

demand referenced in Mullen’s qui tam complaint.432 

1. Dennis M. Nally

Nally is the former chairman of PricewaterhouseCoopers (“PwC”)

International Ltd. and currently serves on the boards of Morgan Stanley, The HOW

Institute for Society, and the Royal Poinciana Golf Club.433 Prior to joining the 

Company’s board, Nally knew only one other director, nonparty Richard Gozon, the 

former chairman of the Board.434 Nally’s relationship with Gozon was attenuated; 

limited to being members of the same golf club.

435

 

I. The SLC Investigation and its Report

On November 10, 2020, I granted the SLC’s motion to stay the proceedings 

pending its investigation.436 The SLC moved to extend the stay on May 7, 2021, and 

I granted the stay from May 10, 2021, to May 28, 2021.437

The SLC conducted a seven-month-long investigation. During this time, the 

SLC collected more than 12 million documents, of which the SLC reviewed 

432 Id. at 39–40.

433 See id. at 41–42; see also SLC’s Opening Br. in Supp. of Its Mot. to Dismiss 6, Dkt. No. 98 

(“SLC OB”).

434 SLC OB 7.

435 Reply Br. in Supp. of Mot. to Dismiss by the SLC of the Board of Directors for Nominal Def. 

ABC 29–30, Dkt. No. 109 (“SLC RB”).

436 Signed Order Granting Mot. to Stay by the SLC of the Board of Directors of Nominal Def. 

AmerisourceBergen Corp., Dkt. No. 58.

437 Order Granting Mot. to Extend Stay by the SLC of the Board of Directors of Nominal Def. 

AmerisourceBergen Corp., Dkt. No. 62.
73

approximately 220,0000.438 The SLC also conducted 77 interviews of 67 

witnesses.

439

 The Report itself was 365 pages in length, containing over 1500 

footnotes, with 420 exhibits attached. Ultimately, the SLC concluded that pursuing 

this action any further is not in the best interests of the Company in light of “all 

relevant factors—including the factual findings and applicable legal standards, 

potential costs to the Company, public relations, and distraction to the Board, 

management, and other ABC employees[.]”

440

With respect to Count I of the complaint, the SLC concluded that the Director 

Defendants did not fail to implement and monitor reporting or information systems, 

or otherwise exercise their oversight duties, but rather had “implemented a system 

of reporting that was more than adequate to meet the Caremark standards.”441 

Specifically, the SLC found that the Company had an Audit Committee with clear 

reporting lines and the Company repeatedly updated the compliance program as the 

Company’s business grew, providing sufficient evidence that the directors did not 

“utterly fail[]” to fulfill their duty to implement and monitor a compliance system.442 

The Audit Committee considered and determined which compliance and regulatory 

matters needed the full Board’s attention and the Audit Committee Chairman 

438 SLC Report 47–53.

439 Id. at 53–54.

440 SLC OB 39.

441 SLC Report 319.

442 Id. at 320.
74

reported to the Board accordingly.443 The SLC also found that ABSG was not 

intentionally nor actually segregated from the rest of ABC’s compliance program.444 

Furthermore, the SLC concluded that MII’s operations were not “mission critical” 

for the Company under Marchand and therefore did not present a strong basis for 

pursuing Caremark claims against the Defendant Directors.445 Thus, “the SLC 

concluded that the Audit Committee and Board’s efforts amounted to more than a 

mere ‘attempt’ to oversee MII’s compliance with applicable laws[.]”446

The SLC also determined that five of the six “red flags” alleged in the 

complaint did not amount to red flags for the purposes of the second prong of 

Caremark.

447

 The SLC found that the Board responded to each of the six events, 

specifically (1) the 2007 Davis Polk Report; (2) Mullen’s qui tam allegations; (3) 

the Ober Kaler Report; (4) the 2012 FDA search warrant and subpoena; (5) the 2012 

Fortune magazine article; and (6) the 2006 Capital Expenditure Report.448 The SLC 

also considered whether unpled events might also qualify as red flags, such as 

patient-specific labeling concerns, and concluded that none did.

449

 Even if the Court 

were to consider the cumulative effects of these multiple events, the SLC concluded 

443 Id. at 325–26.

444 Id. at 326.

445 Id. at 327.

446 Id. at 329.

447 Id. at 329–30.

448 Id. at 330–47.

449 Id. at 330, 348–49.
75

it would not change its conclusion that the Board responded to and actively 

monitored each issue.450

With respect to Count II of the complaint, the SLC concluded that the Officer 

Defendants did not knowingly operate an illegal business model or fail to inform the 

Board about problems with the PFS Program’s regulatory compliance.451 

Specifically, the SLC concluded that the CSRA Senior Director’s review of MII in 

2012 did not put the Officer Defendants on notice of “noncompliance because they 

were informed that state law, rather than the FDCA, applied to the Pharmacy, and 

because they understood that any issues had been corrected and were not 

recurring[,]”

452

 nor were the Officer Defendants grossly negligent in their 

management of MII; rather, “the Officers believed in good faith that MII was 

operating legally as a pharmacy and dispensing safe, sterile products.”453 As to 

Defendant Chou, the Company’s General Counsel, the SLC concluded that he did 

not breach his fiduciary duties with respect to how he handled the Ober Kaler Report, 

CSRA’s 2012 review of MII, and the Company’s handling of the DOJ 

investigation.454

450 Id. at 349–50.

451 Id. at 350–51.

452 Id. at 351.

453 Id. at 352–53.

454 Id. at 355–58.
76

Finally, with respect to Count III, the SLC concluded that there is no basis for 

an unjust enrichment claim against Defendant Collis because he did not breach his 

fiduciary duties as alleged in Counts I and II of this action.455 Because the breach of 

fiduciary duty and unjust enrichment counts rely on the same alleged acts or 

omissions, the SLC’s conclusion that there were no breaches of fiduciary duty 

forecloses the unjust enrichment count.456

The SLC filed its Report and moved to dismiss this derivative action on 

September 22, 2021.457 The parties finished briefing the SLC’s motion to dismiss 

on March 6, 2023,458 and I heard oral arguments on July 12, 2023.459 

II. ANALYSIS

I found in Teamsters I, based on the allegations of the complaint and the 

plaintiff-friendly inferences therefrom appropriate at the motion-to-dismiss analysis, 

that a majority of the ABC directors could not bring their business judgment to bear 

because there existed a substantial risk that they may be liable for breaches of 

fiduciary duty.460 Thus, the traditional deference to the board’s control of corporate 

litigation assets was unwarranted, and the matter could proceed derivatively. ABC 

455 Id. at 359.

456 Id. at 360.

457 See SLC Report.

458 See SLC RB.

459 See Judicial Action Form re Mot. Dismiss before Vice Chancellor Sam Glasscock dated 

7.12.23, Dkt. No. 115.

460 Teamsters I, 2020 WL 5028065, at *26.
77

has attempted to reassert directorial control over the suit by creating a special 

litigation committee consisting of an unconflicted director. That SLC has 

investigated the claims in Plaintiffs’ complaint and recommended dismissal of the 

action.

That recommendation is entitled to some credit but not to the full deference 

of the application of the business judgment rule. There is a tension in review by any 

special litigation committee, which this Court recognizes is faced with the rather 

daunting task of evaluating publicly the behavior of fellow board members. That 

tension is not a conflict sufficient to sterilize the business judgment of the SLC, but 

it is sufficient to cause the Court, in evaluating a determination that a derivative 

action should be dismissed, to review the Committee’s work and the bases for its 

conclusion, for reasonableness. The pressure on a sole-member SLC is especially 

evident, and causes a need for close review by the Court.

When a special litigation committee concludes that it is in the best interest of 

the corporation to dismiss a derivative action, the Court reviews the motion to 

dismiss under “a procedural standard akin to a summary judgment inquiry[.]”461 

Under this standard, “the SLC bears the burden of demonstrating that there are no 

461 In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 928 (Del. Ch. 2003).
78

genuine issues of material fact as to its independence, the reasonableness and good 

faith of its investigation, and that there are reasonable bases for its conclusions.”462

A special litigation committee’s motion to dismiss a derivative action is 

reviewed under the two-pronged analysis—the first prong mandatory, the second 

discretionary—set forth in Zapata Corporation v. Maldonado.

463

 The first prong of 

Zapata requires that the Court “inquire into the independence and good faith of the 

committee and the bases supporting its conclusions.”464 Regardless of what the 

Court finds during its inquiry in the first prong, the Court may, in its discretion, move 

to the second prong, under which the Court must “determine, applying its own 

independent business judgment, whether the motion should be granted.”465

A. Zapata’s First Prong

“The first prong of the Zapata standard analyzes the independence and good 

faith of the committee members, the quality of its investigation and the 

reasonableness of its conclusions.”466 The burden lies with the SLC to prove 

“independence, good faith and a reasonable investigation.”467

462 London v. Tyrrell, 2010 WL 877528, at *12 (Del. Ch. Mar. 11, 2010).

463 430 A.2d 779 (Del. 1981).

464 Id. at 788.

465 Id. at 789; accord. Diep ex rel. El Pollo Loco Hldgs., Inc. v. Trimaran Pollo P’rs, L.L.C., 280 

A.3d 133, 158 (Del. 2022) (reiterating that the Court may apply its own business judgment to 

determine whether the action should be dismissed). 

466 Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831, 836 (Del. 2011).

467 Zapata, 430 A.2d at 788.
79

1. Nally Conducted a Good Faith Investigation

In reviewing whether the SLC conducted a reasonable investigation, the Court 

considers whether there are “material issue[s] of fact” and whether “the SLC acted 

in good faith and had a reasonable basis for its conclusion.”468 The Court considers 

the reasonableness of the scope of the investigation to ensure that the SLC 

thoroughly investigated all causes of action and theories of recovery contain in a 

plaintiff’s complaint, rather than merely “accept[ing] defendants’ version of 

disputed facts without consulting independent sources to verify defendants’ 

assertions.”469 The purpose of the Court’s inquiry is narrow at this “prong one” stage 

of the proceedings. The Court’s inquiry is not meant to allow plaintiff to litigate the 

facts and merits of the derivative cause of action, “[r]ather, it is the conduct and 

activity of the Special Litigation Committee in making its evaluation of the factual 

allegations and contentions contained the plaintiff’s complaint which provide the 

measure for the Committee’s independence, good faith and investigatory 

thoroughness.”470 Thus, it is the SLC and its investigation that are examined under 

the first prong of Zapata, and not this Court’s independent conclusions about “the 

merits of the plaintiff’s [case].”471

468 Kahn, 23 A.3d at 842.

469 London, 2010 WL 877528, at *17.

470 Kaplan v. Wyatt, 484 A.2d 501, 519 (Del. Ch. 1984).

471 Id.
80

Plaintiffs put forth five ways that they allege the SLC failed to conduct a 

reasonable investigation. First, Plaintiffs allege that the SLC deemed the Company’s 

FCA-violating “kickback scheme” to be beyond the scope of the SLC’s 

investigation. Second, Plaintiffs claim that the SLC did not consider materials from 

the DOJ’s investigation of the Company. Third, Plaintiffs assert that the SLC’s 

investigation of the Officer Defendants was inadequate. Fourth, Plaintiffs contend 

that the SLC’s conclusion that the Director Defendants satisfied their Caremark

duties lacks a reasonable basis. Finally, Plaintiffs argue that the SLC’s conclusion 

that the Company did not violate the law lacks a reasonable basis. Plaintiffs’ attacks 

on the SLC’s investigation can be grouped into two categories: (a) reasonableness 

of the scope of the SLC’s investigation and (b) reasonableness of the bases for the 

SLC’s conclusions.

a. The Scope of the Investigation was Reasonable

“To conduct a good faith investigation of reasonable scope, the SLC must 

investigate all theories of recovery asserted in the plaintiffs’ complaint.”472 If the 

SLC totally fails “to explore the less serious allegations in the plaintiffs’ 

complaint[,]” doubt may be cast on the reasonableness of the SLC’s investigation if 

exploring those allegations “would have helped the SLC gain a full understanding 

472 London, 2010 WL 877528, at *17.
81

of the more serious allegations in plaintiffs’ complaint.”473 “The court will not fault 

the SLC for failing to evaluate claims that were not asserted in the Complaint.”474

Plaintiffs first contend that the SLC “intentionally chose not to investigate 

Defendants’ potential liability in connection with the Company’s FCA [False 

Claims Act] violations.”475 Specifically, Plaintiffs point to SLC allegedly declaring 

that the FCA violations, which involved kickbacks and double-billing, were outside 

the scope of its investigation when it declared that “AKS [Anti-Kickback Statute]

and price reporting compliance issues. . . are not at issue in this Action.”476 As 

evidence of the SLC’s failure to investigate the FCA violations, Plaintiffs point to 

the SLC’s (1) dismissal of Mullen’s initial qui tam complaint as “irrelevant” because 

“the assertions he raised were limited to AKS and price reporting compliance 

issues[,]”477 (2) deeming the Ober Kaler Report “inconsequential” because it 

“focused on. . . AKS and price-reporting allegations[,]”478 as well as the SLC’s

“nonsensical[] dismiss[al]” of consideration of the DOJ’s investigation that resulted 

in the Company admitting to liability for violating the FCA.479 

473 Id.

474 Diep ex rel. El Pollo Loco Hldgs., Inc. v. Sather, 2021 WL 3236322, at *20 (Del. Ch. July 30, 

2021), aff’d sub nom. Diep ex rel. El Pollo Loco Hldgs., Inc. v. Trimaran Pollo P’rs, L.L.C., 280 

A.3d 133 (Del. 2022).

475 Lead Pls.’ Answering Br. Opp’n SLC’s Mot. to Dismiss 29, Dkt. No. 104 (“Pls. AB”). 

476 SLC OB 27–28.

477 Pls. AB 31 (quoting SLC OB 27–28). 

478 Id. (quoting SLC OB 56). 

479 Pls. AB 33.
82

The complaint contains three causes of action, all of which are focused on the 

alleged breaches of fiduciary duties with respect to drug safety and sterility in the 

Pre-Filled Syringe Program and FDCA compliance.480 That is, the complaint is 

largely silent with respect to violations of the AKS, and to the same extent the SLC

would have been justified in not addressing such violations.481 While the complaint 

lacks any claims asserting illegal kickbacks or double-billing, however, the SLC

nevertheless investigated Defendants’ knowledge of those issues. The SLC Report 

is replete with discussion and analysis of the kickback and double-billing allegations 

underlying Mullen’s qui tam complaint, the Ober Kaler Report, and the DOJ’s 

investigation.

482

 Given the scope of the complaint and the actual scope of the 

investigation, I find that the SLC has met its burden here.

Regarding Mullen’s qui tam complaint, the SLC Report lays out Plaintiffs’ 

allegations that Mullen raised the AKS and double-billing issues in his qui tam

complaint and explains the steps the SLC took to investigate these issues.483 The 

SLC Report also details its investigation into the Ober Kaler Report that resulted 

from Mullen’s qui tam complaint, including Ober Kaler’s mandate that included, in 

relevant part, assessing the Company’s “‘overall compliance with federal anti480 See Verified Compl. ¶¶ 207–23. 

481 To be clear, a sufficiently glaring omission by the SLC to thoroughly investigate issues as they 

arise in the ordinary course of the SLC’s investigation of the claims contained in a derivative action 

complaint would cause the Court to invoke Zapata’s second prong.

482 See SLC Report 30–32, 48 n.173, 51–52, 53 n.181, 213–33, 243–62, 269–96, 338–40.

483 Id. 30–32, 48 n.173, 51–52, 53 n.181.
83

kickback/fraud and abuse laws and the federal false claims act[;]’” the process Ober 

Kaler used to conduct its investigation; the findings contained within the Ober Kaler 

Report; and the Company’s response to the Ober Kaler Report.

484

 The SLC was not 

“dismissive” of the DOJ’s FCA Investigation; rather, the SLC dedicated over 40 

pages of its report to exploration of the facts and sources relating to the DOJ’s fiveyear investigation.485

Next, Plaintiffs contend that the SLC improperly failed to take into 

consideration the materials underlying the Company’s criminal and civil settlements 

with the DOJ.

486

 They point to documents containing allegations relating to 

Defendant Collis’s role in creating the PFS Program and his knowledge that the 

program caused double-billing in violation of federal law.487 It is Plaintiffs’ position 

that the SLC further failed to review the DOJ’s proffer memoranda and the 

implications those memoranda have on this action.488 

However, I find that not only did the SLC consider both the DOJ’s draft civil 

complaint and the presentation the DOJ gave to ABC about its theories of liability,489

the SLC investigated the allegations underlying it, for example, by interviewing two 

Morgan Lewis attorneys who attended the presentation and reviewing the 

484 Id. at 233–43, 338–40.

485 Id. at 249–62, 269–96.

486 Pls. AB 37.

487 Id. at 38.

488 Id. 38–39.

489 SLC Report 249–62, 269–96.
84

contemporaneous memorandum that documented the meeting.490 In the SLC Report, 

the SLC concluded that the DOJ’s investigation focused on FDCA violations.

491

 The 

SLC Report stated that the SLC reviewed the proffer memoranda but declined to 

rely on those documents after concluding that the information contained within the 

proffer memoranda was duplicative of information the SLC had already obtained 

from its witness interviews.492

Plaintiffs’ last contention with respect to the reasonableness of the scope of 

the SLC’s investigation pertains to Plaintiffs’ allegation that the SLC failed to 

adequately investigate the Officer Defendants. In support of this contention, 

Plaintiffs point out that the SLC’s conclusions are contradicted by the DOJ’s 

allegations against the Officer Defendants, including that they “understood and 

sanctioned” the PFS Program and the kickback scheme; Defendant Collis’s 

“demonstrated intimate knowledge” of how the scheme worked; and Defendant 

Collis’s personal intervention to satisfy manufacturer concerns while keeping illegal 

double-billing in place.493 

With respect to the SLC’s investigation of the Officer Defendants, Plaintiffs 

rely on a mistaken assertion that the SLC failed to consider the allegations contained 

490 Id. at 280–83 & nn.1197–1206.

491 Id. at 281–82. 

492 SLC RB 16–17; see SLC Report 249–62, 269–96. The sole proffer memorandum that the SLC 

did cite to in its Report was that of a witness the SLC was unable to interview. SLC RB 17; see 

also SLC Report 54 n.182.

493 Pls. AB 42.
85

within the DOJ’s draft civil complaint. As explained supra, the SLC considered the 

DOJ’s allegations but found that these were unproven allegations used by the DOJ 

to negotiate a settlement with ABC.494 To investigate these allegations, the SLC

Report explains that the SLC reviewed relevant documents and interviewed thirdparty witnesses about the regulatory landscape during the Relevant Period and about 

the legal reviews of MII that were conducted, such as those conducted by Reed Smith 

and Davis Polk.495 These documents also support the SLC’s conclusion that 

Defendant Collis, at most, had an understanding of MII’s business model and that 

all Officer Defendants believed in good faith that MII was operating as a stateregulated pharmacy, not subject to FDA regulations.496

 

The burden is on the SLC to show that its scope and thoroughness of review

were adequate to its task of evaluating the legal action. This, I conclude, it has done. 

Despite Plaintiffs’ best efforts to attack the reasonableness of the scope of the SLC’s 

investigation, I find there is no genuine question as to whether the SLC investigation 

was reasonable in scope and conducted in good faith.

b. There are Reasonable Bases for the SLC’s Conclusions

Plaintiffs first allege that the SLC’s conclusion that the Director Defendants 

satisfied their Caremark duties lacks a reasonable basis. To support this argument, 

494 SLC’s RB 18–19.

495 SLC Report 141–80.

496 See id. at 353–54.
86

Plaintiffs attack the SLC’s portrayal of ABC’s compliance program as it pertained 

to MII by asserting that, during his deposition, Nally could not explain the evidence 

that supported this conclusion.497 Although Plaintiffs rely on the Davis Polk Report 

to argue that the Company’s compliance system was not uniform throughout the 

Company,498 the SLC Report explains that despite Davis Polk recommending areas 

needing improvement, the Davis Polk Report ultimately concluded that the 

Company’s compliance program met the “[b]asic legal requirements” under 

Caremark.

499

 Moreover, the Company responded to the Davis Polk Report, by 

implementing the recommendations contained therein.500 Plaintiffs’ reliance on 

Nally’s lack of recall about specific facts investigated by the SLC is not significant, 

in light of the fact that SLC’s conclusion that MII was included in ABC’s compliance 

program is well-documented and supported by facts.501

Plaintiffs also posit that the SLC relied exclusively on self-serving statements 

in concluding that the Director Defendants did not breach their Caremark duties in 

their response to Mullen’s qui tam complaint.502 With respect to Mullen’s qui tam

complaint, the SLC found that the Board responded by providing Mullen’s concerns 

to outside counsel at Ober Kaler who then investigated the concerns to develop 

497 See Pls. AB 48–50.

498 Id. at 47.

499 SLC Report 108–11, 331–32.

500 Id. at 113–22, 333–35.

501 Id. at 86–88, 90, 189–92, 324.

502 Pls. AB 52–53.
87

recommendations to reduce regulatory risks and reported these findings to the 

Board.503

Plaintiffs go on to criticize the Company’s compliance program as it applied 

to MII because the reviews CSRA conducted of MII were, according to Plaintiffs, 

not “formal” enough and failed to raise all issues to the Board level.504 The SLC 

Report concludes that while CSRA found MII’s failure to use patient-specific labels 

an issue of concern, CSRA and the Company’s in-house counsel determined that this 

practice was compliant with state law and therefore did not raise the issue to the 

Board.505 Once the allegations in Mullen’s qui tam complaint were made known to 

the Board, the Board discussed them with Defendant Chou and were informed that 

Morgan Lewis had been retained to defend the Company against the claims and 

represent the Company in any investigative action.506 This is a Caremark action; the 

Defendant Directors’ action would be evaluated, if this case were to go forward, not 

for compliance with best practices or in light of what greater rigor the Board could 

have brought to the process; the Defendant Directors would instead be liable only

for failures of oversight so grossly apparent that they amount to bad faith. I find the 

SLC’s conclusions in this regard have a reasonable basis.

503 SLC Report 232–43, 337–38. 

504 Pls. AB 50–51.

505 SLC Report 192–95, 200–10, 348.

506 Id. at 245–47, 338.
88

Plaintiffs next assert that the SLC’s conclusion that the Company did not 

knowingly violate the law also lacks a reasonable basis.507 This conclusion allegedly 

“flies in the face of ABSG’s September 27, 2017 federal criminal plea” and 

“contradicts the admissions in ABC’s September 28, 2018 FCA Settlement 

Agreement with the DOJ[.]”508 SLC concluded that none of the Officer Directors 

knowingly operated and maintained an illegal business model.509 This conclusion 

does not contradict the Company’s federal guilty plea: that plea involved a strict 

liability offense and therefore did not implicate the Officer Defendants’ knowledge 

of the violations admitted to.510 Additionally, Plaintiffs point again to Nally’s 

deposition during which Nally incorrectly stated that states are responsible for 

enforcing the FCA with respect to Medicare billing.511 Plaintiffs’ reliance on Nally’s 

limited understanding of Medicare billing and the FCA as indicative of the 

unreasonableness of the SLC’s conclusions is unfounded—Nally is not an attorney, 

nor has he claimed to be an expert on these specific matters.

512

 He is entitled to 

reasonably rely on the SLC counsel in drawing the conclusions laid out in the SLC 

Report.

507 Pls. AB 53.

508 Id. at 54–55.

509 SLC Report 350–51.

510 Id. at 289–92.

511 Pls. AB at 55.

512 SLC RB at 27.
89

I find that Plaintiffs have failed to discredit the legal bases for the conclusions 

reached by the SLC in its report. Again, however, the burden is on the SLC, and I 

find that the SLC, via its report, has demonstrated that its conclusions have a 

reasonable basis.

2. Nally is Independent

“To establish independence the court must be persuaded that the SLC can base 

its decision on the merits of the issue rather than being governed by extraneous 

consideration or influences.”513 In determining whether extraneous considerations 

or influences existed, the Court considers “the members’ personal interest in the 

disputed transaction, and scrutinizes the members’ relationship with the interested 

directors.”514 Where, as here, the SLC has a single member, it is more closely 

scrutinized and the SLC has the burden of proving that its member was able to bring 

her business judgment to bear without any suspicion of extraneous influence.515 I 

find Nally facially independent, and scrutinize him in light of Plaintiffs’ allegations 

of more cryptic extrinsic conflicts.

a. Nally’s Relationship with Gozon

Nally did not join the ABC Board until months after I denied the Company’s 

motion to dismiss this action. He is, therefore, free of the suggestions of liability 

513 Sutherland v. Sutherland, 958 A.2d 235, 239 (Del. Ch. 2008) (quotations omitted).

514 Id. (quotations omitted). 

515 Lewis v. Fuqua, 502 A.2d 962, 967 (Del. Ch. 1985). 
90

that caused me to allow this matter to proceed derivatively.516 I will focus my 

analysis of Nally’s independence on whether his relationships “with [D]efendants 

are of such a nature that they might have caused [Nally] to consider factors other 

than the best interests of the corporation in making [his] decision to move for 

dismissal.”517 Here, Nally did not have a relationship with any of the named 

Defendants prior to joining the Board. The only relationship that Plaintiffs point to 

is between Nally and a nonparty Board member, Gozon, who served as ABC’s 

Chairman from 2006 to 2016.

518

 Nally asserts that this relationship is limited to 

seeing Gozon on occasion at a golf club where they are both members and serve on 

the board.519 This is not disabling or suspicious.

Plaintiffs, however, contend that this relationship is closer, and is sufficient to 

undermine Nally’s independence. Plaintiffs point to Nally’s admission that the golf 

club is an important outlet for him and his wife, both socially and through his ability 

to serve in leadership at the golf club.520 Further, Plaintiffs attack the SLC’s alleged 

failure to disclose that Gozon was on the golf club’s nominating committee that is 

charged with nominating directors to the golf club’s board.521 Plaintiffs speculate

516 See Teamsters I, 2020 WL 5028065, at *3–4, 25.

517 London, 2010 WL 877528, at *13.

518 Pls. AB 60–61.

519 SLC OB 44 (citing Tr. of Deposition of Dennis Nally (“Nally Tr.”) at 34:22–36:16, Ex. A to 

Transmittal Aff. of Thomas P. Will, Dkt. No. 99).

520 Pls. AB 61 (citing Nally Tr. at 35:10–36:16).

521 Id. at 61.
91

that Gozon nominated Nally for his initial term of the golf club’s board (and 

renominated him during the pendency of this litigation).

522

 

Moreover, Plaintiffs allege that dismissing this derivative lawsuit would

inherently benefit Gozon, despite his non-Defendant status, because this litigation 

implicates actions taken during Gozon’s tenure as the former chairman of the ABC 

Board during the Relevant Period and would, therefore, expose Gozon to potential 

litigation or, at the very least, reputational harm and personal embarrassment.

523

However, Gozon is not a named defendant in the instant action and therefore is not 

an “interested director[]” for purposes of Zapata’s first prong.

524

 Even if I were to 

assume that Gozon’s previous role as chairman of the ABC Board during the 

Relevant Period was sufficient to make Gozon an interested director such that his 

relationship with Nally needs to be more closely examined, Nally and Gozon’s 

service on the board of the golf club is, in and of itself, insufficient to compromise 

Nally’s independence.525 While Plaintiffs contend that Gozon was likely 

instrumental in Nally being nominated for his seat on the golf club’s board, the 

evidence shows that Gozon was not a member of the nominating committee until 

522 Id. at 61–62.

523 Id. at 63–64. 

524 Sutherland, 958 A.2d at 239.

525 See, e.g., In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 357 (Del. Ch. 1998), rev’d on other 

grounds sub. nom. Brehm v. Eisner, 746 A.2d 244 (Del. 2000). 
92

after Nally’s appointment in 2018.526 I find this relationship too attenuated to disable 

reliance on Nally’s exercise of judgment in the best interest of ABC.

b. Nally’s Ability to be Impartial in Light of His Historical 

Involvement with Lawsuits

Next, Plaintiffs argue that Nally is incapable of considering the merits of this 

action because (1) Nally was involved in (but not a party to) a separate class action 

lawsuit that alleged that his former employer PwC violated the FCA (the “Arkansas 

Class Action”) and (2) through the course of his employment with PwC, Nally

acquired an allegedly “long history of adversarial litigation against (and multimillion settlements secured by) the law firms representing Plaintiffs.”

527

 Plaintiffs 

do not cite to any case law to support their contentions that either of these allegations

would have an impact on Nally’s independence.528 Nor do Plaintiffs allege how 

Nally’s experience with his former employer’s entirely separate, now-concluded 

suit, alleging different facts, makes him personally interested in the instant action. 

Their theory instead seems to be that Nally should be suspected to have sympathy 

for the Devil, having been accused of being associated with devils, himself.

First, Plaintiffs allege that Nally’s involvement in the Arkansas Class Action

gave Nally personal experience with pertinent issues such as allegations of 

526 See Aff. of Thomas P. Will Supp. SLC RB, Ex. I, Dkt. No. 109. 

527 Pls. AB 57–60, 64–66 (emphasis in original).

528 See id.
93

fraudulent overbilling, a whistleblower qui tam complaint, and a DOJ investigation 

and civil action alleging FCA violations.529 These personal experiences allegedly 

explain why Nally, in Plaintiffs’ opinion, failed to meaningfully investigate similar 

issues in the instant lawsuit.

530

 Contrary to these allegations, Nally’s involvement 

in the Arkansas Class Action was limited to the court determining, over PwC’s 

objection, that Nally had relevant knowledge and should be deposed.531 Nally was 

not a named defendant in the Arkansas Class Action, nor was he implicated in the

alleged misconduct.532 Given Nally’s limited role and that I have already determined 

that Nally conducted a thorough and good faith investigation of the issues which 

Plaintiffs allege are “striking[ly] similar[]”,

533 I find that Nally’s involvement in the 

Arkansas Class Action does not raise a genuine issue with respect to Nally’s 

independence.

Next, Plaintiffs assert that Nally’s long history of adversarial litigation 

involving Plaintiffs’ counsel’s law firms makes it “reasonable to infer that Nally may 

harbor bias against Plaintiffs’ counsel or class actions in general.”534 Specifically, 

Plaintiffs’ law firms brought multiple class action suits against PwC during Nally’s 

tenure as the chairman of PwC’s U.S. affiliate and PwC International, resulting in 

529 Id. at 57–60.

530 Id.

531 SLC RB 28.

532 Id.

533 Pls. AB 58. 

534 Id. at 65.
94

PwC paying out millions to settle those suits.535 There are no allegations that Nally 

was personally involved in those suits, nor are there allegations that Nally was even 

aware of the attorneys or the law firms representing the plaintiffs in those suits.536 

Plaintiffs’ argument, as I understand it, is that even if Nally were otherwise able to 

conduct an independent investigation in the best interests of ABC, once he learned 

that his nemeses, these class action attorneys, represented Plaintiffs, he was willing 

to skew the investigation to vindicate some personal animosity. This is, I suppose, 

a theory, but not one which deserves serious consideration on these facts.

In sum, neither Nally’s relationship with Gozon, nor Nally’s limited 

involvement in the Arkansas Class Action, nor Nally’s history with Plaintiffs’ law 

firms are enough to establish a genuine dispute of material fact as to Nally’s 

independence. Therefore, I find that the SLC has met its burden in establishing 

Nally’s independence.

B. Zapata’s Second Prong

The second prong of Zapata can be described as a “fiduciary out” for the 

Court, giving it a method to review and, if warranted, set aside conclusions not 

disabled under a prong one analysis, but which nonetheless cause the Court to harbor 

doubts as to whether dismissal is in the corporate interest. Under this prong, “the 

535 Id.

536 SLC RB 32. 
95

trial court’s task. . . is to determine whether the SLC’s recommended result falls 

within a range of reasonableness that a disinterested and independent decision maker 

for the corporation, not acting under any compulsion and with the benefit of the 

information then available, could reasonably accept.”537 The purpose of Zapata

prong two is “to thwart instances where corporate actions meet the criteria of step 

one, but the result does not appear to satisfy its spirit, or where corporation actions 

would simply prematurely terminate a stockholder grievance deserving of further 

consideration in the corporation’s interest.”538

I have already concluded that the SLC conducted an independent, good faith, 

and reasonable investigation that resulted in conclusions not “‘irrational’ or 

‘egregious’ or some other extreme[]” invoking Zapata’s second prong.

539

 Where, 

as here, however, the stockholder-Plaintiffs have not only pointed to substantial 

corporate trauma but have withstood the rigors of a motion to dismiss under Rule

23.1, I think it is incumbent upon the Court, in review of a special litigation 

committee’s motion to dismiss, to go beyond a review of independence and 

reasonableness of the scope of the investigation and the bases for its conclusion. The 

Court should, implicitly in its prong one analysis or explicitly via prong two, apply 

its own judgment of the reasonableness of the special litigation committee’s 

537 In re Primedia, Inc. S’holder Litig., 67 A.3d 455, 468 (Del. Ch. 2013).

538 Zapata, 430 A.2d at 789.

539 Kindt v. Lund, 2003 WL 21453879, at *3 (Del. Ch. May 30, 2003).
96

conclusions as well. Because such an analysis is implicit in the review of the SLC

and its motion, supra, I need not formally address prong two—I do not find that a 

dismissal here tends to implicate a result problematic to the corporate weal. For the 

sake of completeness, however, I will briefly address my findings were I to invoke

the second prong. I largely limit myself here to the Caremark claims against the 

Director Defendants, since that was the sole ground found in Teamsters I to justify 

the stockholder-Plaintiffs proceeding derivativity.540 

First, I must address the underlying corporate trauma that the Plaintiffs are 

trying to vindicate via this action. I acknowledge that the Company has paid 

hundreds of millions of dollars to settle the DOJ’s civil and criminal investigations. 

Plaintiffs assert as well that this action may be the only opportunity for the 

Company’s stockholders to have a meaningful role in addressing the Company’s 

compliance and oversight deficiencies through governance reforms.541 Nonetheless, 

for this litigation to come to a conclusion in favor of ABC, the Court would have to 

conclude that the Defendant Directors’ oversight was so inexplicably lax that it 

amounted to bad faith, a knowing abdication of duty. The evidence before me,

including the facts found by the SLC, does not support such a conclusion, nor does 

it indicate that material facts in this regard are in dispute. Given the facts of record, 

540 Teamsters I, 2020 WL 5028065, at *26.

541 Pls. AB 68–69.
97

it is unlikely that Plaintiffs could prove either prong of a Caremark claim. Finding 

such, with the benefit of the information that the SLC acquired through its 

investigation, I would conclude under Zapata’s second prong that the litigation is 

unlikely to benefit ABC, and that the SLC’s recommendation to dismiss this action 

was reasonable.

III. CONCLUSION

The SLC has met its burden in demonstrating that it conducted an 

independent, good faith, and reasonable investigation of the allegations contained in 

Plaintiffs’ complaint. Its conclusion to seek dismissal of this action rests on a 

reasonable basis. The SLC’s motion to dismiss is therefore GRANTED. The parties 

should provide an appropriate form of order.
Exhibit A

Term Definition

ABC/AmerisourceBergen/the 

Company

AmerisourceBergen Corp.

ABDC AmerisourceBergen Drug Corp.

ABSG/Specialty Group AmerisourceBergen Specialty Group

AKS Anti-Kickback Statute

ASP average sales price

Board AmerisourceBergen’s Board of 

Directors

CCC Chief Compliance Counsel

CCO Chief Compliance Officer

CER Capital Expenditure Report

cGMPs Current Good Manufacturing Practices

CIA Corporate Integrity Agreement

CIR Compliance Incident Report

CSPs Compounded Sterile Preparations

CSRA Corporate Security and Regulatory 

Affairs

DEA Drug Enforcement Administration

DOJ Department of Justice

DOT/FAA Department of Transportation

EPA Environmental Protection Agency

FAC Mullen’s First Amended Qui Tam

Complaint

FCA Federal Claims Act

FDA Food and Drug Administration

FDCA Food, Drug, and Cosmetic Act

FDMA Food and Drug Administration 

Modernization Act

GPO Group Purchasing Organization

Internal Audit ABC’s Internal Audit Department

ION International Oncology Network

MII/the Pharmacy Medical Initiatives, Inc. d/b/a Oncology 

Supply Pharmacy Service

OS ASD Specialty Healthcare, LLC d/b/a 

Oncology Supply
OSHA Occupational Safety & Health 

Administration

PFS Program Pre-Filled Syringe Program

SLC Special Litigation Committee

USP U.S. Pharmacopeia