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In re McKesson Corporation Derivative Litigation



Court: United States District Court, Northern District of California, Oakland Division
Case Number: 4:17-cv-01850-CW
Judge: Hon. Claudia Wilken
Case Contacts: Meagan Farmer, James Notis

SELECTED CASE FILINGS:

Order Granting Preliminary Approval of Settlement and Authorizing Dissemination of Notice 01/31/20
Summary Notice of Pendency and Proposed Settlement 01/31/20
Notice of Pendency and Proposed Settlement 01/31/20
Second Consolidated Amended Complaint, 09/12/18
Order Denying Motion to Stay; Denying in Part and Granting in Part Motions to Dismiss, 05/14/18

BACKGROUND

This case is a derivative action brought on behalf of nominal Defendant McKesson Corporation (“McKesson") based on the McKesson board's failure to monitor and oversee the Company's operations to make sure that McKesson was not breaking the law and was abiding by the terms of a settlement agreement entered into with various agencies of the United States government.

McKesson, which distributes more than one-third of all controlled substances in North America, is at the epicenter of the nation's opioid crisis. In 2008, the Drug Enforcement Administration (“DEA") found that McKesson had failed to maintain effective controls for controlled substances. McKesson was required to establish and implement a compliance program – the “Controlled Substances Monitoring Program" or “CSMP"– to ensure that the Company maintained effective internal controls over the distribution of controlled substances and that the Company reported suspicious orders to DEA field offices.

McKesson continued to break the law by filling suspicious orders for controlled substances. Its board had done nothing to ensure that the CSMP was actually functioning as intended to prevent the diversion of controlled substances. At one point, the DEA found that McKesson had sustained and systemic compliance failures at almost 50% of its distribution facilities.

Finally, pursuant to a 2017 agreement with the DEA, the DOJ, and various United States Attorneys' offices, McKesson was forced to admit that it had breached the terms of the 2008 Settlements and that it had failed to identify and report to the DEA orders that “should have been detected by McKesson as suspicious." The DEA imposed a record $150 million fine and prohibited McKesson from shipping controlled substances from four of its distribution centers for periods ranging from two to three years. The DOJ characterized these draconian penalties as among “the most severe sanctions ever agreed to by a [DEA] registered distributor."

PROCEDURAL HISTORY AND CASE STATUS

On April 3, 2017, Plaintiffs commenced this derivative action to hold Defendants liable for their breaches of fiduciary duty in causing and knowingly allowing McKesson to repeatedly and continuously violate federal law designed to prevent the illegal distribution of opioids. Defendants' failure to oversee McKesson's operations has caused substantial harm to the Company. Defendants' breaches of duty have caused McKesson to become the subject of multiple government investigations (by both federal and state authorities, as well as Congressional committees) and the defendant in a number of large scale civil actions (including the Opioid MDL and numerous actions by state, city, and other government entities).

On October 17, 2017, this Court held a Status Conference. During this Conference, Defendants agreed to a briefing schedule and a hearing date on their anticipated motion to dismiss. Under this schedule, Plaintiffs were given until December 1, 2017 to file an amended complaint, Defendants were given until January 5, 2018 to file a motion to dismiss, Plaintiffs were given until February 9, 2018 to file an opposition, and Defendants were given until March 2, 2018 to file a reply. The Court set a hearing for the motion on April 10, 2018.

On December 1, 2017, Plaintiffs filed their amended complaint. On December 15, 2017, McKesson filed a motion to stay their January 5, 2018 response deadline, requesting a briefing schedule for their proposed motion to stay this action in favor of the Delaware Action. Finding a lack of good cause, the Court denied McKesson's request for a stay on December 19, 2017. The parties then fully briefed both motions to dismiss and motions to stay, and the Court held a hearing on the motions on April 24, 2018.

On May 14, 2018, this Court denied the motion for a stay, and granted in part and denied in part the motion to dismiss. Defendants then moved for partial reconsideration of the ruling on the motion to dismiss, and after briefing, the Court denied that motion.

On July 25, 2018, McKesson's Board formed a Special Litigation Committee (“SLC") “to investigate claims in the derivative litigation, make decisions on McKesson regarding the litigation, and determine whether it is in McKesson's best interests for Plaintiffs to pursue their claims in this litigation."

On December 27, 2019, the Plaintiffs submitted a motion for preliminary approval of a proposed settlement of $175 million, plus substantial corporate governance reforms. The Court granted preliminary approval of the proposed settlement on January 31, 2020, and has scheduled the final approval hearing for April 21, 2020, at 2:30 pm.

CONTACT: mck@gardylaw.com
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