IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LEBANON COUNTY EMPLOYEES’

RETIREMENT FUND and TEAMSTERS 

LOCAL 443 HEALTH SERVICES & 

INSURANCE PLAN,

Plaintiffs,

v.

STEVEN H. COLLIS, RICHARD W. 

GOCHNAUER, LON R. GREENBERG, JANE 

E. HENNEY, KATHLEEN W. HYLE, 

MICHAEL J. LONG, HENRY W. MCGEE, 

ORNELLA BARRA, D. MARK DURCAN, 

and CHRIS ZIMMERMAN,

Defendants,

 and

AMERISOURCEBERGEN CORPORATION,

 Nominal Defendant.

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C.A. No. 2021-1118-JTL

MEMORANDUM OPINION

Date Submitted: September 23, 2022

Date Decided: December 22, 2022

Samuel L. Closic, Eric J. Juray, Robert B. Lackey, PRICKETT, JONES & ELLIOTT, P.A., 

Wilmington, Delaware; Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER & 

GROSSMANN LLP, Wilmington, Delaware; Lee D. Rudy, Eric L. Zagar, KESSLER 

TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeroen van Kwawegen, Eric 

J. Riedel, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New 

York; Frank R. Schirripa, Daniel B. Rehns, Kurt Hunciker, Hillary Nappi, HACH ROSE 

SCHIRRIPA & CHEVERIE LLP, New York, New York; Gregory Mark Nespole, Daniel 
Tepper, LEVI & KORSINSKY, LLP, New York, New York; Brian J. Robbins, Craig W. 

Smith, ROBBINS LLP, San Diego, California; Counsel for Plaintiffs.

Stephen C. Norman, Jennifer C. Wasson, Tyler J. Leavengood, POTTER ANDERSON & 

CORROON LLP, Wilmington, Delaware; Michael S. Doluisio, Carla Graff, DECHERT 

LLP, Philadelphia, Pennsylvania; Matthew L. Larrabee, Hayoung Park, DECHERT LLP, 

New York, New York; Michael D. Blanchard, Amelia Pennington, MORGAN, LEWIS & 

BOCKIUS LLP, Boston, Massachusetts; Counsel for Defendants.

LASTER, V.C.
Over the past two decades, an opioid epidemic has devastated America. Much of it 

has been driven by prescription opioids. As one of three major wholesale distributors of 

prescription opioids in the United States, nominal defendant AmerisourceBergen 

Corporation (“AmerisourceBergen” or the “Company”) has faced a barrage of lawsuits 

over its alleged role as a contributor to the opioid epidemic. In 2021, AmerisourceBergen 

agreed to pay over $6 billion as part of a nationwide settlement to resolve multidistrict 

litigation brought against the Company and the other major opioid distributors (the “2021 

Settlement”). AmerisourceBergen has paid hundreds of millions to settle other lawsuits 

and has incurred over $1 billion in defense costs. Those financial figures do not attempt to 

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

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

human toll of the opioid epidemic.

The plaintiffs own stock in AmerisourceBergen. They seek to shift the responsibility 

for the harms that AmerisourceBergen has suffered to the individuals who they believe 

caused the Company to suffer harm. They contend that the Company’s officers and 

directors breached their fiduciary duties to the Company and should be held personally 

liable for the consequences of their actions.

The plaintiffs advance two theories of breach. Their first theory relies on the settled 

principle that corporate fiduciaries cannot consciously ignore evidence indicating that the 

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

knowingly ignore red flags evidencing legal non-compliance. This type of theory is 

sometimes called a prong-two Caremark claim. Taking a functional approach, Chancellor 
2

McCormick has helpfully referred to this type of claim as a “Red-Flags Theory” or a “RedFlags Claim.” City of Detroit Police & Fire Ret. Sys. v. Hamrock, 2022 WL 2387653, at 

*17 (Del. Ch. June 30, 2022).

For their Red-Flags Theory, the plaintiffs start from the proposition that as a 

distributor of opioids, AmerisourceBergen was obligated to comply with extensive 

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

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

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

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

improper channels.

The plaintiffs contend that as the Company’s legal troubles grew, its officers and 

directors were confronted with a steady stream of red flags indicating that the Company

was not complying with its anti-diversion obligations. Those red flags took the form of 

congressional investigations, subpoenas from prosecutors, lawsuits by state attorneys 

general, and an eventual torrent of civil lawsuits. Meanwhile, as the opioid epidemic raged, 

the Company continued to report suspicious orders at incomprehensibly low rates. The 

plaintiffs contend that based on those red flags, the defendants knew that the Company was 

violating its opioid diversion obligations and needed to implement stronger systems of 

oversight. Yet the Company’s officers and directors consciously ignored the red flags and 

did not take any meaningful action until the 2021 Settlement. 

For their second theory, the plaintiffs invoke the admonition that “Delaware law 

does not charter law breakers.” In re Massey Energy Co., 2011 WL 2176479, *20 (Del. 
3

Ch. May 31, 2011). “As a result, a fiduciary of a Delaware corporation cannot be loyal to 

a Delaware corporation by knowingly causing it to seek profit by violating the law.” Id. 

Chancellor McCormick has helpfully described this type of theory as a “Massey Theory”

or a “Massey Claim.” Hamrock, 2022 WL 2387653, at *17.

For their Massey Claim, the plaintiffs seek an inference that the Company’s officers 

and directors took a series of acts which, when viewed together, support a pleading-stage 

inference that they knowingly pursued a business plan that prioritized profits over 

compliance. The plaintiffs allege that between 2010 and 2015, the Company’s officers and 

directors aggressively expanded the Company’s distribution networks without devoting 

comparable resources to anti-diversion control. As the decisive evidence of this strategy, 

they point to the 2015 implementation of a revised order monitoring program (the “Revised 

OMP”), which management and the directors knew was designed to tank the rate of 

suspicious order reporting and evade the federal anti-diversion frameworks. The 

Company’s officers and directors then maintained their illegal business strategy through 

the 2021 Settlement. 

The defendants have moved to dismiss the plaintiffs’ claims for failing to support 

an inference of demand futility. The plaintiffs argue that the demand is futile because their 

claims present facts supporting a reasonable inference that at least half of the directors in 

office when the lawsuit was filed face a substantial threat of liability. 

Standing alone, the avalanche of investigations and lawsuits without any apparent 

response until the 2021 Settlement would support a well-pled Red-Flags Claim. Likewise, 

the series of decisions that culminated in the Revised OMP, along with the decision to keep 
4

that framework in place until the 2021 Settlement, would support a well-pled Massey 

Claim.

The defendants maintain that the documents they produced after a hard-fought 

books-and-records action, and which the complaint incorporates by reference, reveal that 

the board adopted the Revised OMP on the advice of management. The documents also 

show that in 2017, the board received a presentation on the Company’s anti-diversion 

controls. In 2018, the Audit Committee conducted its first-ever review of the Company’s 

anti-diversion controls. And in 2019, the Audit Committee conducted a similar review. The 

defendants say those actions foreclose any reasonable inference of wrongdoing, whether 

framed as a Red-Flags Theory or a Massey Theory.

If that were the sum of the matter, then the pleading-stage record would support two 

competing inferences. The plaintiff-friendly inference is that the defendants knew that 

AmerisourceBergen was reporting astoundingly low levels of suspicious orders, 

understood that was the whole purpose of the Revised OMP, and went through the motions 

of providing oversight, while consciously deciding not to take any action until the 2021 

Settlement so that they could use changes to the Revised OMP and their oversight policies 

as part of the settlement currently. The defendant-friendly inference is that the defendants 

were doing their jobs, believed that the Revised OMP complied with applicable law, and 

did not take any action because they did not believe they were doing anything wrong. At 

the pleading stage, the court must adopt the plaintiff-friendly inference, so the complaint 

would survive the motion to dismiss.
5

But there is a final factor that fatally undermines the complaint. In 2022, the United 

States District Court for the Southern District of West Virginia (the “West Virginia Court”) 

issued a post-trial decision in which the City of Huntington and the Cabell County 

Commission asserted that AmerisourceBergen and the other major opioid distributors had 

failed to comply with their anti-diversion obligations, thereby fueling the opioid epidemic 

in those localities. After a two-month trial, during which seventy witnesses testified either 

live or by deposition, the court rejected the plaintiffs’ theory and found that the defendants 

had not violated their anti-diversion obligations. The court expressly found that 

AmerisourceBergen had complied with its anti-diversion obligations.

Although the federal court’s findings are not preclusive, they are persuasive. Both 

the Red-Flags Theory and the Massey Theory depend on an inference that the officers and 

directors knowingly failed to cause the Company to comply with its anti-diversion 

obligations, either because they consciously ignored red flags that put them on notice of 

violations or because they intentionally adopted a business plan that prioritized profits over 

compliance. In light of the West Virginia Court’s thorough analysis, it is not possible to 

infer that the Company failed to comply with its anti-diversion obligations, nor is it possible 

to infer that a majority of the directors who were in office when the complaint was filed 

face a substantial likelihood of liability on the plaintiffs’ claims. Demand is therefore not 

futile, and the plaintiffs lack standing to assert their claims on the Company’s behalf. 

I. FACTUAL BACKGROUND

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

incorporated by reference. Before filing this lawsuit, the plaintiffs spent two years litigating 
6

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

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

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

Cnty. Empls.’ Ret. Fund v. AmerisourceBergen Corp., 2020 WL 132752 (Del. Ch. Jan. 13, 

2020), aff’d, 243 A.3d 417 (Del. 2020). After that hard-fought and resource-intensive 

victory, the plaintiffs obtained books and records under the terms of a confidentiality order,

which provided that if the plaintiffs relied on the documents in a future action, then all of 

the documents “will be deemed incorporated by reference in any complaint subject to the 

conditions set forth in Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. 2016), 

subject to Delaware law.” C.A. No. 2019-0527-JTL, Dkt. 64 ¶ 9 (Del. Ch. May 8, 2020).

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

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

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

evaluating the allegations of the complaint.1

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

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

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

1 Citations in the form “Ex. — at —” refer to exhibits that the defendants submitted. 

Page citations refer to the internal pagination or, if there is none, then to the last three digits 

of the control number. Citations in the form “Compl. ¶ ___” refer to the paragraphs of the 

complaint.
7

have drawn is a reasonable one.2 The doctrine limits the ability of a plaintiff to take 

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

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

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

interpretations, and if the plaintiff had made a well-pled factual allegation, then the court 

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

The plaintiff also remains entitled to “all reasonable inferences.” Id. at 897. Consequently, 

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

plaintiff seeks is reasonable, then the plaintiff receives the inference. Id.

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

deemed to be true. The plaintiff is entitled to all reasonable inferences that the well-pled 

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

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

inference that favors their claims.

The factual background for this decision emphasizes the facts pertinent to the 

demand futility analysis. The factual background therefore de-emphasizes or omits certain 

facts that figured into the court’s analysis of the defendants’ timeliness defense. 

2 See In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169–70 (Del. 2006); 

In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995); In re Gardner 

Denver, Inc., 2014 WL 715705, at *2 & n.17 (Del. Ch. Feb. 21, 2014).
8

A. AmerisourceBergen’s Legal Obligations As An Opioid Distributor

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

distributors of pharmaceutical products, along with Cardinal Health, Inc. and McKesson 

Corporation.

3 AmerisourceBergen and McKesson each control approximately one-third of 

the market, and Cardinal Health controls another fifth. 

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

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

acting as a distributor, AmerisourceBergen must comply with the Comprehensive Drug 

Abuse Prevention and Control Act of 1970 and its implementing regulations (collectively, 

the “Controlled Substances Act”). To obtain and maintain a license to distribute opioids, a 

company must maintain “effective controls against diversion of [opioids] into other than 

legitimate medical, scientific, research, and industrial channels.” 21 U.S.C. § 823(b)(1). A 

distributor must also “design and operate a system to disclose to the registrant suspicious 

orders of [opioids].” 21 C.F.R. § 1301.74(b). “Suspicious orders include orders of unusual 

3 The Company has conducted its pharmaceutical distribution business through two 

subsidiaries: AmerisourceBergen Drug Corporation (the “Drug Company”) and 

AmerisourceBergen Specialty Group, LLC (the “Specialty Group”). The Drug Company 

distributed healthcare products and supplies, including opioids, and provided pharmacy 

management and other consulting services to institutional healthcare providers such as 

hospitals and retail pharmacies. The Specialty Group served the specialty pharmaceuticals 

market, focusing on products involving biotechnology, blood plasma, and oncology. The 

Specialty Group also provided pharmaceutical distribution and related services to 

physicians and institutional healthcare providers. While important for many reasons, the 

distinctions between AmerisourceBergen and its subsidiaries are not relevant to this 

decision, which refers only to AmerisourceBergen.
9

size, orders deviating substantially from a normal pattern, and orders of unusual 

frequency.” Id.

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

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

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

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

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

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

See 21 U.S.C. § 824.

The DEA may determine that substantial compliance with the order-diversion 

requirements is sufficient. 21 C.F.R. § 1301.71(b). “A registrant’s regulatory obligations 

. . . do not require strict compliance. Only substantial compliance is required.” In re Nat’l 

Prescription Opiate Litig., 2021 WL 3917174, at *3 (N.D. Ohio Sept. 1, 2021). 

B. The Ongoing Opioid Crisis

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

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

more. In the late 1990s, the pharmaceutical industry made a massive push to increase the 

use of prescription opioids to treat pain management. Manufacturers made new 

formulations of extended-release opioids, which they marketed as non-addictive and 

superior to existing pain management options. Doctors responded by writing more 

prescriptions for opioids, often without appreciating or advising patients about the risk of 

addiction.
10

A vicious cycle developed in which increasing levels of opioid abuse generated

greater demand for opioids. Between 1999 and 2014, the sale of prescription opioids in the 

United States nearly quadrupled. The medications proved far more addictive and dangerous 

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

medications resulted in widespread misuse. As many as 29% of the patients who were 

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

opioid-use disorder. 

The increased abuse of opioids had tragic consequences. The Centers for Disease 

Control and Prevention reported that there had been nearly 218,000 overdose deaths related 

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

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

reached 69,710 in 2020, and opioid overdoses comprised the vast majority of drug 

overdoses in the country.

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

AmerisourceBergen and its competitors supplied drugs to pharmacies using “just-in-time”

delivery. That meant that most pharmacies received drug deliveries every day—sometimes 

multiple times a day. Because deliveries were so frequent, the distributors knew exactly 

how many opioid pills they were delivering to each pharmacy. The distributors thus were 

uniquely positioned to assess whether pharmacies were facilitating the diversion of 

prescription opioids. 
11

C. The Independent Pharmacy Strategy

After some run-ins with the DEA over poor anti-diversion controls in 2007, 

AmerisourceBergen worked with the DEA to establish an industry-standard order 

monitoring program (the “2007 OMP”). As part of that process, AmerisourceBergen 

engaged Davis Polk & Wardwell LLP to assess the Company’s compliance program. Ex. 45 

at ’664. In August 2010, the Audit Committee reviewed Davis Polk’s report, which concluded 

that the Company’s compliance program “was functioning effectively,” although the firm 

“made [a] few process improvement suggestions that were implemented, including better 

tracking of compliance issues.” Id.

The complaint depicts 2010 as the high-water mark for AmerisourceBergen’s antidiversion compliance. The plaintiffs allege that in early 2010, management received the 

go-ahead from the board to maximize the value that the Company could extract from the 

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

pharmacies offered a significant source of profits because they had less market power than 

chain pharmacies and therefore could not bargain as effectively for lower prices. Their 

smaller size also meant that they had fewer resources to devote to monitoring suspicious 

orders and could more easily become pill mills. 

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

Management focused on improving the efficiency of the Company’s sales force and 

expanding the number of independent pharmacies that the Company served. The strategy 

worked, with sales to independent pharmacies increasing year-over-year by 11.7%.
12

Management and the directors did not devote similar resources to improving the 

Company’s anti-diversion efforts. Instead, management emphasized cost control, expense 

reductions, and efficiency gains.

At the time, Chris Zimmerman was in charge of diversion control. On April 22, 

2011, he sent an email to the five senior members of the diversion control team that 

contained a set of lyrics for a song titled “Pillbillies,” a parody of the theme song for The 

Beverly Hillbillies. The parody described opioid addicts visiting Florida pain clinics to buy 

“Hillbilly Heroin.” Another email that circulated among the senior compliance staff

included the lyrics for the song “OxyContinVille,” a parody of Jimmy Buffet’s 

“Margaritaville,” which described addicts driving from Kentucky to Florida “Lookin’ for 

pill mills.” On May 6, 2011, Zimmerman emailed the diversion control leadership team 

about recently enacted Florida legislation that was designed to crack down on pill mills. 

He offered the following prediction: “Watch out Georgia and Alabama, there will be a 

mass exodus of Pillbillies heading north.” Compl. ¶ 110.

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

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

(“Regulatory Affairs”), a position he held until October 2018. During that period, 

Zimmerman and his division were responsible for overseeing the Company’s order 

monitoring program and anti-diversion efforts. Zimmerman personally was responsible for 

bringing issues to the attention of the Audit Committee. 

Zimmerman’s communications with his team support a pleading-stage inference 

that he was not a suitable individual to hold these critical positions. But the complaint does 
13

not support an inference that the directors knew about Zimmerman’s callous and 

inappropriate communications with his team.

In early 2012, management reported to the board that the DEA had suspended

Cardinal Health’s controlled substances license for a distribution facility in Lakeland, 

Florida based on its dealings with four independent pharmacies. In the face of the DEA’s 

enforcement actions, management doubled down on the Independent Pharmacy Strategy 

and sought to further increase AmerisourceBergen’s market share by offering “a ‘light 

touch’ franchise model” and “friendly landings” for pharmacies looking to transfer 

ownership. Id. ¶ 119. The model amounted to the easy onboarding for new independent 

pharmacies and minimal compliance-related diligence by AmerisourceBergen. 

Two months after reporting on the DEA’s enforcement action against Cardinal 

Health, management reported that the Company had received subpoenas from the DEA 

and the United States Attorney’s Office for the District of New Jersey that sought 

documents concerning the Company’s order monitoring program. In June 2012, the 

Attorney General of West Virginia named AmerisourceBergen as a defendant in a lawsuit 

that alleged violations of state law related to the distribution of opioids. By August 2012, 

the Company considered regulatory compliance to be the number two risk factor facing the 

drug distribution business for the 2013 fiscal year. Ex. 47 at ’464.

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

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

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

were extremely low: 
14

AmerisourceBergen Averaged 215,000,000

Line Orders from 2009-2012

Suspicious Orders Reported

2009 0.000864% [1,858]

2010 0.001085% [2,322]

2011 0.001870% [4,020]

2012 0.002564% [5,512]

The committee also learned that the Company was expending far fewer resources 

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

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

AmerisourceBergen’s internal audit expenditure of $1.85 million compared similarly to the 

$7.1 million average at other Fortune 500 companies. 

D. The Walgreens Alliance

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

an alliance with Walgreens. AmerisourceBergen estimated that the alliance would increase 

its orders for controlled substances by 213%. By increasing order flow, the alliance would 

increase the risk of order diversion. Not only that, but Walgreens was already having 

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

DEA for allowing opioids to be diverted for misuse. 

Anticipating the significant expansion in its distribution business, management 

reported to the board that the diversion control group in Regulatory Affairs would increase 

from just five employees to seven, and the investigations group would increase from only 

four employees to six. Management thus planned to increase order-diversion resources at 
15

a lower rate than sales and in the context of an alliance with a company that had recent 

problems with diversion control. 

As 2013 wore on, it became clear that the regulatory and enforcement environment 

was intensifying. The DEA and the United States Attorney’s Office for the District of New 

Jersey continued their investigations into the Company, and the United States Attorneys 

for the District of Kansas and the Northern District of Ohio served subpoenas of their own. 

During its meeting in October 2014, the Audit Committee learned that the United States 

Attorney’s Office for the District of New Jersey had subpoenaed the Company’s outside 

auditor as part of its grand jury investigation. Board minutes throughout 2014 contain 

references to reports on the Company’s order monitoring program.

E. The Revised OMP

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

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

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

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

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

business through measures like the Independent Pharmacy Strategy and the Walgreens 

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

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

profits over compliance. 

In March 2015, Zimmerman gave a presentation to the Audit Committee about the 

Revised OMP. He was assisted by David May, the Director of Diversion Control and 
16

Federal Investigations. May had joined AmerisourceBergen in 2014 after working for the 

DEA for thirty years.

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

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

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

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

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

orders. Ultimately, both tests needed to fail for an order to be flagged for investigation. 

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

would inevitably result in only a small fraction of AmerisourceBergen’s orders being 

flagged for investigation: 
17

Ex. 39 at 9. 

The Audit Committee reported on this presentation to the full board the next day. 

After the board meeting, the Revised OMP went into effect. 

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

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

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

22,560,562.

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

reported to the DEA declined by another 92%, dropping from 1,892 to 139. Over the same 
18

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

24,067,791.

The following table shows the impact of the Revised OMP.

Percentage of Orders Flagged and Reported to the DEA

2013 2014 2015 2016

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

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

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

Percent of All Orders 

Flagged (derived) 0.445% 0.379% 0.370% 0.203%

Percent of All Orders 

Reported (derived) 0.177% 0.067% 0.008% 0.0006%

The Revised OMP was not the only problem with the order monitoring system. In 

August 2015, AmerisourceBergen engaged FTI Consulting, Inc. to conduct a review of 

how AmerisourceBergen went about investigating orders of interest. FTI identified a series 

of deficiencies, including a lack of resources, a lack of formal training, inconsistent 

policies, and communication breakdowns. The report identified the Company’s regulatory 

obligations related to diversion control as one of the “Gaps & Risks” that needed to 

be addressed. 

F. 2017: More Red Flags

In January 2017, the Audit Committee was informed that AmerisourceBergen had 

entered into a $16 million settlement with the State of West Virginia to resolve claims 
19

regarding opioid distribution. The Audit Committee was advised that other West Virginia 

County Commissions and cities had filed similar complaints. In March 2017, the full board 

received an update on the lawsuits that various West Virginia cities and communities had 

filed against AmerisourceBergen. 

In May 2017, the Audit Committee received a further report which listed Legal 

Contingencies as an “Area of Emphasis.” See Ex. 5, at ’510–14. During the meeting, the 

Audit Committee received a presentation from management on the Revised OMP. See Ex. 

3 at ’960; Ex. 4 at ’023. Lead director Jane E. Henney asked management to provide “an 

in-depth review of the Company’s compliance program” at the board’s meeting in August. 

Compl. ¶ 197. 

Also in May 2017, the Energy and Commerce Committee of the United States 

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

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

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

Senate Committee on Homeland Security and Governmental Affairs, requested documents 

and information related to AmerisourceBergen’s anti-diversion efforts.

During the board’s meeting in August 2017, Zimmerman and May provided a

presentation that the directors had asked for about the Company’s anti-diversion efforts. 

The directors also received sixteen pages of written materials. The presentation described 

the Revised OMP and its “Data Driven Risk Adjusted Framework.” Id. ¶ 213. Zimmerman 

and May explained that the program established “individual customer order and peer group 

parameters relying on widely accepted methodology for identifying statistical outliers.” Id.
20

The presentation noted that orders exceeding the program parameters became “orders of 

interest” that were “reviewed and adjudicated by trained personnel,” with the Company

canceling and reporting any orders that were determined to be suspicious. Id. The 

presentation added that management was creating a new opioid task force that would focus 

on developing “proactive initiatives to address issues surrounding controlled substances.”

Id. ¶ 210. 

The presentation identified a total of eighteen individuals assigned to diversion 

control, including a Senior Director of Diversion Control and Federal Investigations, a 

Director of Diversion Control, a DEA Consultant, three Regulatory Affairs Investigators,

three Diversion Control Program Specialists, a Diversion Control Analyst, and many 

others. The presentation also described a Diversion Control Advisory Committee, 

comprising nine senior employees who met quarterly to provide “oversight, guidance and 

recommendations for improvement to the Diversion Control Program.” Ex. 41 at 12.

During the meeting, a compliance employee provided an overview of the seven 

elements of an effective compliance program. Zimmerman explained how the Company’s 

compliance program satisfied each element. Management also reported that the healthcare 

regulatory practice group at Reed Smith LLP had reached the same conclusion while also 

recommending improvements to make the program even more robust.

The plaintiffs point out that whatever the content of the presentation, the reality was 

that the Revised OMP was flagging an infinitesimal level of suspicious orders. The 

plaintiffs contend that directors operating in good faith, against a backdrop of the opioid 

crisis and in the context of heightened levels of regulatory scrutiny, could not have accepted 
21

these figures as the legitimate outcomes of a functioning system. The plaintiffs maintain 

that the board should have questioned the microscopic levels of suspicious order reporting 

and sought to improve the system.

Instead, the board focused on how to change the public perception of the opioid 

crisis and AmerisourceBergen’s role in it. The discussion explored how public relations 

efforts could improve the balance of media coverage and how lobbyists could reach

key audiences.

AmerisourceBergen’s order reporting statistics for 2017 as a whole resembled its 

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

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

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

total orders and 0.2% of flagged orders. 

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

documents and information from AmerisourceBergen and other opioid distributors as part 

of an investigation into their distribution practices. In December 2017, the Judicial Panel 

on Multidistrict Litigation consolidated what was then nearly two hundred pending opioidrelated cases into a multidistrict litigation in the United States District Court of the 

Northern District of Ohio (the “Opioid MDL”). 

G. 2018: More Red Flags

In January 2018, after AmerisourceBergen failed to respond to a November 2017 

records request, the State of Delaware filed a complaint alleging that AmerisourceBergen

“routinely and continuously violated [Delaware] laws and regulations,” including 
22

regulations requiring distributors to reject suspicious orders, conduct due diligence of 

customers, and maintain inventory security and control systems to prevent diversion.

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

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

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

being conducted by the Department of Justice and by the United States Attorneys’ Offices 

for New Jersey, New York, Colorado, and West Virginia.

During a meeting in April 2018, the Audit Committee reviewed an audit of the

Revised OMP, which the minutes described as something that the Audit Committee was 

doing “for the first time.” Id. ¶ 221. Management staunchly defended the Revised OMP. 

When testifying before the House Committee on May 8, 2018, the Company’s CEO denied 

that AmerisourceBergen had contributed to the nation’s opioid epidemic while maintaining 

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

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

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

Need for Stronger DEA Enforcement. The report concluded that AmerisourceBergen, 

McKesson, and Cardinal Health consistently failed to meet their reporting obligations 

regarding suspicious orders. The report observed that AmerisourceBergen was the most 

egregious of the three, and that the Company reported suspicious orders far less frequently 

than its competitors. Between 2012 and 2017, AmerisourceBergen shipped approximately 

650 million dosage units to Missouri customers and reported only 224 orders as suspicious. 

McKesson reported seventy-five times more suspicious orders on similar order volumes. 
23

Cardinal Health reported twenty-three times as many suspicious orders on half the 

order volume. 

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

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

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

address suspicious order monitoring in West Virginia. It concluded that beginning in 2013, 

AmerisourceBergen’s reporting of suspicious orders declined significantly from a high of 

792 orders in 2013 to a low of only three orders in 2016. The report inferred that the trend 

for West Virginia reflected a broader nationwide decline, because on a per-capita basis, 

West Virginia had the second-highest number of suspicious orders for all states. Stated 

differently, in all but one other state, AmerisourceBergen was reporting fewer suspicious 

orders on a per-capita basis.

Like the Senate report, the House report concluded that AmerisourceBergen’s 

reporting failures were worse than its competitors. Between 2007 and 2017, McKesson 

reported more than 10,000 suspicious orders to the DEA for West Virginia customers. 

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

The House report provided examples of how the Independent Pharmacy Strategy 

and its program of “light touch” regulatory oversight operated in practice. For example, in 

2011, AmerisourceBergen approved Westside Pharmacy as a new customer despite the fact 

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

the pharmacy. AmerisourceBergen did not conduct any investigation into why Westside 

Pharmacy was filling prescriptions for one doctor whose office was a four-hour round-trip 
24

drive away or for a second doctor whose office was an eleven-and-a-half-hour round-trip

drive away. AmerisourceBergen discontinued supplying Westside Pharmacy with opioids 

in 2012, then approved a new customer application for Westside Pharmacy in January 

2016, without any reference to the pharmacy’s prior history with the Company.

AmerisourceBergen also did not consult public news reports that contained red flags about 

the top prescribing physicians. 

In another example, the House report described how AmerisourceBergen responded 

inconsistently when pharmacies placed suspicious orders. AmerisourceBergen claimed 

that repeated suspicious orders for a single customer would be considered a problem, yet 

the Company continued to supply Beckley Pharmacy for nearly a year after reporting 109 

suspicious orders filled by that pharmacy in five months from 2013 to 2014. 

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

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

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

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

total orders and 0.6% of flagged orders. 

H. 2019: Still More Red Flags

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

were pending in the Opioid MDL, numerous cases pending in state courts, an investigation 

being undertaken by a coalition of state attorneys general, and subpoenas from numerous 

United States Attorneys’ offices. The Attorney General for the State of Florida filed suit in 

November 2018, and the Attorney General for the State of Georgia filed suit in January 
25

2019. The directors also were informed that the United States Attorney’s Office for the 

District of New Jersey had notified management that it was opening a 

criminal investigation. 

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

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

In May 2019, the board received another legal update. By this point, the number of 

federal cases consolidated in the Opioid MDL had climbed to 1,800, and there were over 

270 cases in state court. The Company also faced thirteen investigations and lawsuits from 

state attorneys general. The directors reviewed the status of discovery, the prospects for 

bellwether trials, and the status of settlement discussions. 

In August 2019, the Audit Committee received a presentation on “diversion control 

and an Order Monitoring Program update.” Id. ¶ 226. The accompanying eighteen-page 

presentation explained that the Company had a “[c]omprehensive program to prevent 

diversion” that had continued to “evolve and expand,” including by “prohibiting sales of 

schedule II controlled substances to secondary customers” and using “[e]nhance[d] data 

analytics to monitor and predict trends.” Id. ¶ 227.

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

MDL, AmerisourceBergen, McKesson, and Cardinal Health settled the case for a payment 

of $215 million. 

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

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

and reported. AmerisourceBergen received 27,030,389 opioid orders. The Company 
26

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

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

and 1.65% of flagged orders.

I. 2021: The Settlements

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

offered a global settlement worth $21 billion to resolve all claims by the states and localities

in the Opioid MDL. On July 20, 2021, AmerisourceBergen, Cardinal Health, McKesson, 

and Johnson & Johnson agreed to settle a case brought by the Attorney General of New 

York for $1.18 billion. They simultaneously entered into the 2021 Settlement with various 

other states and localities. The total settlement consideration was $26 billion.

AmerisourceBergen agreed to pay approximately $6.4 billion over eighteen years. 

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

relief that remedied deficiencies in the Revised OMP and required direct board oversight 

of the program. Among other things, AmerisourceBergen committed to improving its 

monitoring of customer red flags, conducting more thorough due diligence, and using

model-based thresholds that would actually identify and stop suspicious orders. In addition, 

AmerisourceBergen agreed to establish the position of Chief Diversion Control Officer and 

form a management-level committee that would report regularly to the board on antidiversion efforts. AmerisourceBergen also agreed to create a board-level Compliance 

Committee to directly oversee the new order management program.

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

defendants received expansive releases of claims. The plaintiffs view the corporate 
27

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

but which they saved to use as settlement currency. 

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

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

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

the Company’s CEO, reflecting an increase of 26%.

J. The West Virginia Decision

On July 4, 2022, the West Virginia Court issued its post-trial decision in litigation 

that the City of Huntington and the Cabell County Commission filed against the Big Three 

distributors. City of Huntington v. AmerisourceBergen Drug Corp. (West Virginia 

Decision), — F. Supp. 3d —, 2022 WL 2399876 (S.D.W. Va. July 4, 2022). The cases had 

been part of the Opioid MDL, then were remanded back to the West Virginia Court as the 

bellwether cases for the lawsuits against distributors. Id. at *1. The trial ran from May 3, 

2021, through July 12, 2021, during which seventy witnesses testified either live or by 

deposition. Id. at *1–2.

Huntington and Cabell asserted that the defendants’ practices of wholesale 

distribution of opioids in Huntington and Cabell created a public nuisance. As their 

principal defense, the defendants argued that their activities complied with law and 

therefore could not constitute a nuisance. 

The evidence showed that West Virginia had been ground zero for the national 

opioid epidemic and was the hardest-hit state in the country. The evidence showed that 

Huntington and Cabell were among the West Virginia communities most affected by the 
28

opioid epidemic. Id. at *8. The question was whether any of the defendants contributed to

the epidemic by failing to comply with their anti-diversion obligations and thus creating a 

public nuisance.

To evaluate the sufficiency of AmerisourceBergen’s anti-diversion program, the 

West Virginia Court reviewed the program’s development from its origins in 1996. Id. at 

*13–16. The court discussed the events of 2007 which resulted in the 2007 OMP. Id. at 

*14–16. The court also discussed events in 2014 and 2015 that led to the Revised OMP. 

Id. at *16. The West Virginia Court found that “[b]y 2008, each defendant had in place an 

SOM [Suspicious Order Monitoring] program that blocked all suspicious orders they 

identified.” Id. at *61. 

The West Virginia Court next reviewed the plaintiffs’ evidence, finding that 

“Plaintiffs did not prove that defendants failed to maintain effective controls against 

diversion and design and operate sufficient SOM systems to do so. Relatedly, plaintiffs did 

not prove that defendants’ due diligence with respect to suspicious orders was inadequate.”

Id. at *25. 

The West Virginia Court analyzed the expert testimony on which the plaintiffs 

relied and found that evidence “unpersuasive.” Id. The plaintiffs’ expert reviewed data on 

AmerisourceBergen’s shipments into Huntington and Cabell between 2002 and 2018. The 

expert offered six different analyses of the data, each of which was designed to demonstrate 

that AmerisourceBergen identified only a fraction of the suspicious orders that should have 

been flagged. Id. at *26–29. The West Virginia Court rejected each of the methods, finding 
29

that they “were not convincing ways to achieve accurate results of the number of orders 

that should have been flagged or blocked.” Id. at *26. 

The West Virginia Court found that the plaintiffs had failed to prove that the Big 

Three had acted unreasonably in supplying opioids in Huntington and Cabell. The court 

reviewed the evidence regarding the causes of the opioid crisis and found most persuasive 

the role of changing standards of care and the decisions that doctors made to prescribe 

opioids to help patients with pain. The court found that the defendants were not responsible 

for an oversupply of opioids. Instead, “[d]octors in Cabell/Huntington determined the 

volume of prescription opioids that pharmacies in the community ordered from defendants 

and then dispensed pursuant to those prescriptions.” Id. at *49. 

The West Virginia Court found no evidence that any of the defendants distributed 

through pill mills. Id. at *53. The court found “no evidence that Defendants ever distributed

controlled substances to any entity that it knew was dispensing for any purpose other than 

to fill legitimate prescriptions written by doctors.” Id. And the court found that the levels 

of prescription and distribution in Cabell County “matched almost perfectly,” with an 

average of 141.2 opioid pills prescribed per person and an average of 142.19 opioid pills 

distributed per person. Id. at *49.

Based on these findings, the West Virginia Court ruled that “[n]o culpable acts by 

defendants caused an oversupply of opioids in Cabell/Huntington.” Id. *61. The court 

explained that under the Controlled Substances Act, the distributors were charged with 

preventing opioids from being sent to rogue pharmacies. The distributors were not expected 

to address over-prescribing. Id. at *64. And the distributors were not responsible for 
30

policing any diversion that occurred downstream from their pharmacy customers. Id. at 

*65. The court found “no admissible evidence in this case that defendants caused diversion 

that resulted in an opioid epidemic.” Id.

II. LEGAL ANALYSIS

The defendants have moved to dismiss the complaint under Court of Chancery Rule 

23.1 for failure to plead demand futility. On a cold read, the relevant language in Rule 23.1 

hardly suggests that it would play such an outsized role in corporate jurisprudence. In its 

entirety, Rule 23.1(a) states:

In a derivative action brought by one or more shareholders or members to 

enforce a right of a corporation or of an unincorporated association, the 

corporation or association having failed to enforce a right which may 

properly be asserted by it, the complaint shall allege that the plaintiff was a 

shareholder or member at the time of the transaction of which the plaintiff 

complains or that the plaintiff’s share or membership thereafter devolved on 

the plaintiff by operation of law. The complaint shall also allege with 

particularity the efforts, if any, made by the plaintiff to obtain the action the 

plaintiff desires from the directors or comparable authority and the reasons 

for the plaintiff’s failure to obtain the action or for not making the effort.

The innocuous language of the second sentence supports the edifice of Rule 23.1 

motion practice. 

Rule 23.1’s second sentence is the “procedural embodiment” of substantive

principles of Delaware law. Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993). When a 

corporation suffers harm, the board of directors is the institutional actor legally empowered 

under Delaware law to determine what, if any, remedial action the corporation should take, 

including pursuing litigation against the individuals involved. See 8 Del. C. § 141(a). “A 

cardinal precept of the General Corporation Law of the State of Delaware is that directors, 
31

rather than shareholders, manage the business and affairs of the corporation.” Aronson v. 

Lewis, 473 A.2d 805, 811 (Del. 1984).4“Directors of Delaware corporations derive their 

managerial decision making power, which encompasses decisions whether to initiate, or 

refrain from entering, litigation, from 8 Del. C. § 141(a).” Zapata Corp. v. Maldonado, 430 

A.2d 779, 782 (Del. 1981) (footnote omitted). Section 141(a) vests statutory authority in 

the board of directors to determine what action the corporation will take with its litigation 

assets, just as with other corporate assets. See id.

In a derivative suit, a stockholder seeks to displace the board’s authority over a 

litigation asset and assert the corporation’s claim. Aronson, 473 A.2d at 811. Unless the 

4

In Brehm v. Eisner, 746 A.2d 244, 253–54 (Del. 2000), the Delaware Supreme 

Court overruled seven precedents, including Aronson to the extent that they reviewed a 

Rule 23.1 decision by the Court of Chancery under an abuse of discretion standard or 

otherwise suggested deferential appellate review. Id. at 253 n.13 (overruling in part on this 

issue Scattered Corp. v. Chi. Stock Exch., 701 A.2d 70, 72–73 (Del. 1997); Grimes v. 

Donald, 673 A.2d 1207, 1217 n.15 (Del. 1996); Heineman v. Datapoint Corp., 611 A.2d 

950, 952 (Del. 1992); Levine v. Smith, 591 A.2d 194, 207 (Del. 1991); Grobow v. Perot, 

539 A.2d 180, 186 (Del. 1988); Pogostin v. Rice, 480 A.2d 619, 624–25 (Del. 1984); and 

Aronson, 473 A.2d at 814. The Brehm Court held that going forward, appellate review of 

a Rule 23.1 determination would be de novo and plenary. Brehm, 746 A.2d at 254. The 

seven partially overruled precedents otherwise remain good law. This decision does not 

rely on any of them for the standard of appellate review. Having described Brehm’s 

relationship to these cases, this decision omits their cumbersome subsequent history.

More recently, the Delaware Supreme Court overruled Aronson and Rales, to the 

extent that they set out alternative tests for demand futility. United Food & Com. Workers 

Union & Participating Food Indus. Empls. Tri-State Pension Fund v. Zuckerberg, 262 

A.3d 1034, 1059 (Del. 2021). The high court adopted a single, unified test for demand 

futility. Although the Zuckerberg test displaced the prior tests, cases properly applying 

Aronson and Rales remain good law. Id. This decision therefore does not identify any 

precedents, including Aronson and Rales, as having been overruled by Zuckerberg.
32

board of directors permits the stockholder to proceed, a stockholder only can pursue a cause 

of action belonging to the corporation if (i) the stockholder demanded that the directors 

pursue the corporate claim and they wrongfully refused to do so or (ii) demand is excused 

because the directors are incapable of making an impartial decision regarding the litigation.

Zuckerberg, 262 A.3d 1047; Ainscow v. Sanitary Co. of Am., 180 A. 614, 615 (Del. Ch. 

1935) (Wolcott, C.) (citing Sohland v. Baker, 141 A. 277 (Del. 1927)).

Rule 23.1 imposes a pleading requirement so that demand principles can be applied 

at the outset of a case to determine whether the plaintiff has standing to sue. See 

Zuckerberg, 262 A.3d 1047. To satisfy the pleading requirements of Rule 23.1, the plaintiff 

“must comply with stringent requirements of factual particularity that differ substantially 

from . . . permissive notice pleadings . . . .” Brehm, 746 A.2d at 254. Under the heightened 

pleading requirements of Rule 23.1, “conclusionary [sic] allegations of fact or law not 

supported by allegations of specific fact may not be taken as true.” Grobow, 539 A.2d 

at 187. 

The requirement of factual particularity does not entitle a court to discredit or weigh 

the persuasiveness of well-pled allegations. “The well-pleaded factual allegations of the 

derivative complaint are accepted as true on such a motion.” Rales, 634 A.2d at 931. 

“Plaintiffs are entitled to all reasonable factual inferences that logically flow from the 

particularized facts alleged, but conclusory allegations are not considered as expressly 

pleaded facts or factual inferences.” Brehm, 746 A.2d at 255. Rule 23.1 requires that a 

plaintiff allege specific facts, but “he need not plead evidence.” Aronson, 473 A.2d at 816; 

accord Brehm, 746 A.2d at 254 (“[T]he pleader is not required to plead evidence.”).
33

The plaintiffs in this case chose not to make a pre-suit demand. The operative 

question is therefore whether “demand is excused because the directors are incapable of 

making an impartial decision regarding whether to institute such litigation.” Stone v. Ritter, 

911 A.2d 362, 367 (Del. 2006).

When conducting a demand futility analysis, Delaware courts ask, on a director-bydirector basis: 

(i) whether the director received a material personal benefit 

from the alleged misconduct that is the subject of the litigation 

demand;

(ii) whether the director faces a substantial likelihood of 

liability on any of the claims that would be the subject of the 

litigation demand; and

(iii) whether the director lacks independence from someone 

who received a material personal benefit from the alleged 

misconduct that would be the subject of the litigation demand 

or who would face a substantial likelihood of liability on any 

of the claims that are the subject of the litigation demand.

Zuckerberg, 262 A.3d at 1059. “If the answer to any of the questions is ‘yes’ for at least 

half of the members of the demand board, then demand is excused as futile.” Id.

The plaintiffs rely only on the second basis for establishing director interestedness. 

They contend that nine out of the ten directors in office when the plaintiffs filed their 

lawsuit have served on the board since 2015 or earlier, with some directors serving since 

as early as 2010. The plaintiffs claim that those directors face a substantial risk of liability 

on the claims that the plaintiffs have asserted, because they ignored the red flags giving 

rise to the Red-Flags Claim and made the business decisions giving rise to the Massey 
34

Claim. When a plaintiff advances that type of argument, the demand analysis effectively 

folds into an analysis of the strength of the underlying claims. 

A. The Red-Flags Claim

The plaintiffs’ first theory is their Red-Flags Claim. That theory derives from the 

Delaware Supreme Court’s decision in Graham v. Allis-Chalmers Manufacturing Co., 188 

A.2d 125 (Del. 1963), “which had long been held out as embracing the protective ‘red 

flags’ rule” that premised director liability on a failure to take action despite being aware 

of red flags indicating wrongdoing. Martin Lipton & Theodore N. Mirvis, Chancellor Allen 

and the Director, 22 Del. J. Corp. L. 927, 939 (1997). Under the rule in Allis-Chalmers, 

directors had no duty to act “absent cause for suspicion.” 188 A.2d at 130. Most 

significantly, the Allis-Chalmers court stated that directors had no duty “to install and 

operate a corporate system of espionage to ferret out wrongdoing which they have no 

reason to suspect exists.” Id. Under Allis-Chalmers, therefore, directors arguably had no 

duty to set up a reasonable oversight system to facilitate board-level oversight. They only 

needed to act when information came to their attention. Id. 

In the landmark Caremark decision, Chancellor Allen artfully explained why the 

colorful language in Allis-Chalmers about a system of corporate espionage “could not be 

generalized into a rule that, absent grounds for suspected law violation, directors had no 

duty to assure that an information gathering and reporting system exists to provide senior 

management and the board with material internal operating information, including as 

regards legal compliance.” Lipton & Mirvis, supra, at 939. Caremark’s contribution was 
35

to explain that a board’s fiduciary duties encompass the need to make a good-faith effort 

to ensure that 

information and reporting systems exist in the organization that 

are reasonably designed to provide to senior management and 

to the board itself timely, accurate information sufficient to 

allow management and the board, each within its scope, to 

reach informed judgments concerning both the corporation’s 

compliance with law and its business performance.

In re Caremark Int’l Inc. Deriv. Litig, 698 A.2d 959, 970 (Del. Ch. 1996).

Caremark’s second major contribution was to explain when directors could be held 

liable for failing to implement a reporting system to facilitate board oversight. In the words 

of the original decision, 

only a sustained or systematic failure of the board to exercise 

oversight—such as an utter failure to attempt to assure a 

reasonable information and reporting system exists—will 

establish the lack of good faith that is a necessary condition to 

liability. Such a test of liability—lack of good faith as 

evidenced by sustained or systematic failure of a director to 

exercise reasonable oversight—is quite high. But, a demanding 

test of liability in the oversight context is probably beneficial 

to corporate shareholders as a class, as it is in the board 

decision context, since it makes board service by qualified 

persons more likely, while continuing to act as a stimulus to 

good faith performance of duty by such directors.

Id. at 971 (emphasis omitted). 

In Stone, the Delaware Supreme Court adopted the reasoning of Caremark and 

identified two types of Caremark claims. The high court wrote that the plaintiff must allege 

particularized facts supporting a reasonable inference that either “(a) the directors utterly 

failed to implement any reporting or information system or controls; or (b) having 

implemented such a system or controls, consciously failed to monitor or oversee its 
36

operations thus disabling themselves from being informed of risks or problems requiring 

their attention.” Stone, 911 A.2d at 370. This framing has led to the claims being called 

prong-one and prong-two Caremark claims. Technically, only a prong-one claim traces its 

lineage to Caremark. A prong-two claim traces its lineage to Allis-Chalmers. 

In this case, the plaintiffs have not advanced a prong-one Caremark theory. They 

have advanced a Red-Flags Theory in which they assert that the defendants ignored red 

flags by failing to take action to fix the Revised OMP and improve AmerisourceBergen’s 

system of board oversight until they could use those changes as part of the currency for the 

2021 Settlement. 

Relying on this court’s decision in Reiter v. Fairbank, 2016 WL 6081823 (Del. Ch. 

Oct. 18, 2016), the defendants argue that subpoenas and investigations do not rise to the 

level of red flags. In Reiter, the plaintiff alleged that the board of a large bank ignored red 

flags showing that the bank’s check-cashing business was failing to comply with antimoney laundering (“AML”) regulations. The complaint alleged that the board knew about 

six grand jury subpoenas that had been served on the company, had received reports stating 

that the company’s AML risk was high, and had been told that the company’s AML 

compliance program had been rated as inadequate. Id. at *13. The court dismissed the 

complaint, holding that the plaintiff had not alleged “red flags of illegal conduct” but 

merely “yellow flags of caution” which suggested “escalating AML compliance risk that 

was occurring in tandem with heightened regulatory scrutiny.” Id. The Reiter decision also 

found that the documentary record at the pleading stage showed that the directors engaged 

in sufficient oversight of management’s efforts to negate any inference that they 
37

consciously failed to respond to red flags, even if it was debatable whether they engaged 

in sufficient oversight. Id. at *1, *14. 

Whether allegations about investigations, subpoenas, and lawsuits rise to the level 

of red flags “depends on the circumstances.” Fisher v. Sanborn, 2021 WL 1197577, at *12 

(Del. Ch. Mar. 30, 2021). “A settlement of litigation or a warning from a regulatory 

authority—irrespective of any admission or finding of liability—may demonstrate that a 

corporation’s directors knew or should have known that the corporation was violating the 

law.” Rojas v. Ellison, 2019 WL 3408812, at *11 (Del. Ch. July 29, 2019). In this case, the 

complaint identifies over seventy examples of subpoenas, settlements, civil litigation, 

congressional reports, and analyses of regulatory risks that put the directors on notice of 

problems at the Company. The directors did not just see red flags; they were wrapped 

in them. 

The defendants also argue that the complaint does not support an inference that the 

directors consciously disregarded their obligation to address the red flags. The defendants 

advance arguments about actions that they took between 2007 and 2012. But for the 

plaintiffs’ claim, the critical period started in 2015, after the Revised OMP went into effect. 

During that period, the defendants can point to only three instances of board involvement. 

The full board requested and received an in-depth review of the Company’s compliance 

systems in 2017. The Audit Committee conducted its first-ever review of the Revised OMP 

in 2018, then conducted another review in 2019. The defendants say that the court cannot 

infer a conscious decision to ignore red flags when the directors received those reports. 
38

Three instances are better than none, but they would not be enough to warrant 

dismissal when evaluated against the panoply of allegations in the complaint. That is 

particularly so when the content of the reports detailed the paltry number of suspicious 

orders that the Company was identifying, yet the defendants did nothing in response. The 

allegations of the complaint support a reasonable inference that the defendants knew that 

some level of corrective action was required, but they did not want to do anything that 

might imply that the Company’s existing systems were inadequate. Instead, they wanted 

to save those measures to use as settlement currency when they could obtain a global 

release. Until they could achieve a settlement, they went through the motions. See Massey 

Energy, 2011 WL 2176479, at *19 (drawing inference that outside directors went “through 

the motions” rather than making “good faith efforts to ensure that [the company] cleaned 

up its act”).

The allegations of the complaint fairly support two competing inferences. One 

reasonable inference is that the directors received reports on the Revised OMP and the 

Company’s anti-diversion control systems, determined that the Company’s existing 

systems were adequate, and made a legitimate business judgment to do nothing. Another 

reasonable inference is that the directors knew that the Company’s existing systems were 

inadequate and consciously decided not to take any action in response to the red flags. This 

case is at the pleading stage. At this stage of the case, the plaintiffs get the benefit of the 

inference they seek. 

If that were the state of the pleading-stage record, the Red-Flags Claim would 

survive. But there is another factor that tips the outcome in favor of the defendants. In the 
39

West Virginia Decision, the West Virginia Court found on the merits after a lengthy trial 

that AmerisourceBergen had an adequate anti-diversion program in place. West Virginia 

Decision, 2022 WL 2399876, at *61. The West Virginia Court found no evidence that 

AmerisourceBergen distributed opioids to pill mills. Id. at *53. Based on its findings, the 

West Virginia Court ruled that “[n]o culpable act by defendants caused an oversupply of 

opioids in Cabell/Huntington.” Id. at *61. 

The findings in the West Virginia Decision are not preclusive, but they are 

persuasive. The Red-Flags Theory depends on an inference that the officers and directors 

knowingly caused the Company to fail to comply with its anti-diversion obligations. The 

West Virginia Court found that AmerisourceBergen did not fail to comply with its antidiversion obligations. That finding knocks the stuffing out of the plaintiffs’ claim.

The plaintiffs argue that the West Virginia Decision did not specifically address the 

Revised OMP, but that is incorrect. The West Virginia Decision did address the Revised 

OMP as part of the changes that the Company made in 2014 and 2015. See 2022 WL 

2399876, at *16. The court’s discussion did not continue after that point, but that is 

consistent with the plaintiffs’ allegation that the defendants did not make any further 

changes in their order monitoring program until the 2021 Settlement. The West Virginia 

Court’s analysis included the Revised OMP, and the West Virginia Court expressly found 

AmerisourceBergen’s anti-diversion controls were legally compliant. Id. at *61. 

A variant of this objection would be that the West Virginia Decision did not address 

the full period leading up to the 2021 Settlement. To reiterate, the West Virginia Decision

addressed the Revised OMP, and that was the system in place until the 2021 Settlement. 
40

The West Virginia Court also analyzed an expert opinion that covered 

AmerisourceBergen’s sales in Huntington and Cabell County from 2002 through 2018. Id.

at *26. That period included the three years after the adoption of the Revised OMP. The 

plaintiffs have not provided any reason to think that anything changed after that point. 

Another possible objection would be that the West Virginia Decision only addressed 

order diversion in Huntington and Cabell County, not elsewhere. But the West Virginia 

Court found that the opioid problem in West Virginia was the worst in the nation and that 

Huntington and Cabell County were among the worst localities in West Virginia. If there 

was anywhere that AmerisourceBergen could have been held liable for not complying with 

its order-diversion obligations, that was the place.

In light of the West Virginia Decision, it is not possible to infer that the Company

failed to comply with its anti-diversion obligations. It is therefore not possible to infer that 

at least half of the directors who were in office when the complaint was filed face a 

substantial likelihood of liability for ignoring red flags. 

B. The Massey Claim

The plaintiffs’ second theory is their Massey Claim. They contend that between 

2010 and 2015, management and the directors made a series of conscious decisions which 

they knew would result in the Company failing to comply with its anti-diversion 

obligations, thereby evidencing the defendants’ pursuit of a business plan that prioritized 

profit over legal compliance. They claim that after 2015, management and the directors 

adhered to the same business strategy and did not stray from it until the 2021 Settlement. 
41

As with the Red-Flags Claim, the Massey Claim does not present at least half of the 

directors with a substantial threat of liability. 

A Massey Claim derives from the fundamental proposition that

Delaware law does not charter law breakers. Delaware law 

allows corporations to pursue diverse means to make a profit, 

subject to a critical statutory floor, which is the requirement 

that Delaware corporations only pursue “lawful business” by 

“lawful acts.” As a result, a fiduciary of a Delaware corporation 

cannot be loyal to a Delaware corporation by knowingly 

causing it to seek profit by violating the law.

Massey, 2011 WL 2176479, at *20 (footnoted omitted); accord Metro Commc’n Corp. BVI 

v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 131 (Del. Ch. 2004) (“Under 

Delaware law, a fiduciary may not choose to manage an entity in an illegal fashion, even 

if the fiduciary believes that the illegal activity will result in profits for the entity.”).

“Delaware corporate law has long been clear on this rather obvious notion; namely, that it 

is utterly inconsistent with one’s duty of fidelity to the corporation to consciously cause 

the corporation to act unlawfully. The knowing use of illegal means to pursue profit for the 

corporation is director misconduct.” Desimone v. Barrows, 924 A.2d 908, 934 (Del. Ch. 

2007) (cleaned up). 

Although sometimes lumped in with Caremark, a Massey Claim is technically not 

a Caremark claim. Cf. Hamrock, 2022 WL 2387653, at *17 n.144 (questioning whether a 

Massey Claim is a Caremark claim). Both a prong-one Caremark claim and a prong-two 

Allis-Chalmers claim rest on the defendants’ failure to take action. A Massey Claim turns 

on affirmative acts. 
42

The plaintiffs contend that starting around 2010, management and the directors 

made a series of decisions which, when taken together, support an inference that the 

defendants were prioritizing profits over compliance. The process started with the 

Independent Pharmacy Strategy and its light-touch, easy-onboarding model. It continued 

with the Walgreens alliance, which management projected would more than double the 

volume of the Company’s controlled-substances orders, but was not accompanied by a 

similar increase in order-diversion resources. The clearest manifestation of the strategy was 

the adoption of the Revised OMP, which used a double-trigger test to reduce the number 

of orders of interest that the Company flagged for investigation. The Company already was 

flagging low levels of orders, and with the adoption of the Revised OMP, the Company’s 

rates of suspicious order reporting fell to microscopic levels. 

As with the Red-Flags Claim, if this were the state of the record, then the court 

would permit the claim to proceed past the pleading stage. When viewed as a whole, the 

allegations support a reasonable inference that the managers and directors acted with the 

intent necessary for a Massey Claim. The allegations about the Independent Pharmacy 

Strategy are relatively weak and would not be sufficient standing alone. The allegations 

regarding the Walgreens alliance and the failure to increase oversight personnel are 

stronger, but those allegations would not be enough either, whether independently or in 

conjunction with the Independent Pharmacy Strategy. What gets the plaintiffs the inference 

they need is the Revised OMP and its seemingly apparent purpose of driving down the 

already low number of suspicious orders that AmerisourceBergen was reporting.
43

As with the Red-Flags Claim, the defendants seek to defeat the Massey Theory by 

arguing that the board received a report about the Company’s order monitoring system in 

2017, and the Audit Committee reviewed the Revised OMP in 2018 and 2019. Yet the 

directors took no action, despite the Company’s minuscule levels of suspicious order 

reporting. For the directors to receive those reports and take no action while the Company 

was facing a barrage of litigation and investigations supports a pleading-stage inference 

that the Company’s fiduciaries had embarked on a strategy of prioritizing profits over 

compliance and were sticking to it. That is not the only possible inference, but it is one to 

which the plaintiffs would be entitled.

But as with the Red-Flags Claim, the West Virginia Decision is the plaintiffs’

undoing. A Massey Claim depends on a business plan that violates the law. The West 

Virginia Court held that the Company’s business plan did not violate the law. Given the 

West Virginia Decision, it is not possible to infer that management and the board 

consciously embarked on a business plan that violated the law. It is therefore not possible 

to infer that the Massey Claim poses a substantial threat of liability to the defendants. 

III. CONCLUSION

The allegations of the complaint fail to support a basis for demand excusal. The 

plaintiffs therefore lack standing to litigate their claims on behalf of the Company. The 

action is dismissed. Under Rule 15(aaa), the dismissal is with prejudice solely as to

the plaintiffs.