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In re Cardinal Health Inc. Derivative Litigation

Court: United States District Court, Southern District of Ohio, Eastern Division
Case Number: 2:19-cv-2491
Judge: Hon. Sarah D. Morrison
Case Contacts: Jennifer Sarnelli, James Notis


SELECTED CASE FILINGS:


BACKGROUND

This is a derivative action (the "Action") brought on behalf of nominal defendant Cardinal Health Inc. ("Cardinal") based on allegations that Cardinal's board of directors failed to monitor and oversee the Company's opioid distribution operations to make sure that Cardinal was not breaking the law and was abiding by the terms of settlement agreements entered into with various agencies of the United States government.

In 2008, the Drug Enforcement Administration ("DEA") found that Cardinal failed to maintain effective controls for controlled substances as required by the Controlled Substances Act ("CSA"). The 2008 settlement required Cardinal to establish and implement a compliance program and pay a $34 million civil penalty.

But Cardinal continued to break the law by continuing to fill suspicious orders for prescription opioids. And Cardinal's board failed to ensure the efficacy of the Company's anti-diversion program and the Company's compliance with the CSA and the 2008 settlement, prompting the DEA to take action again.

In 2012, the Company entered into a new settlement with the DEA and other government agencies relating to much of the same misconduct addressed in the 2008 settlement. In 2016, the Company belatedly agreed to pay a $44 million penalty to the DEA in connection with the 2012 settlement.

In addition, the Company faced numerous lawsuits filed by state and municipal governments relating to its role in the opioid crisis and public investigations by a coalition of state attorneys general, and reports of two congressional committee investigations describing evidence of long-standing compliance failures at the Company.

On July 21, 2021, Cardinal offered to settle claims by various states and localities pursuing litigation related to the distribution of opioids in a $21 billion global settlement, with Cardinal agreeing to pay $6.4 billion of that amount, and further agreeing to certain injunctive relief terms, including certain compliance and governance reforms to improve the diversion related controls and oversight.

PROCEDURAL HISTORY AND CASE STATUS

Between June 14, 2019 and January 13, 2020, Plaintiffs who are Cardinal stockholders filed three separate derivative actions against Defendants in the United States District for the Southern District of Ohio, Eastern Division: (1) Melissa Cohen v. Arnold, et al., Case No. 2:19-cv-2491; (2) Stanley M. Malone v. Anderson, et al., Case No. 2:19-cv-5442; and (3) Michael Splaine v. Anderson, et al., Case No. 2:20-cv-203.

On January 28, 2020, the Court entered an order consolidating the Individual Actions for all purposes into In re Cardinal Health, Inc. Derivative Litigation, Case No. 2:19-cv-2491 and on February 11, 2020, appointed Gardy & Notis, LLP and Kessler Topaz Meltzer & Check, LLP as co-lead counsel for Plaintiffs in the Action. On March 12, 2020, Plaintiffs filed a Consolidated Verified Shareholder Derivative Complaint. The Complaint asserted claims for breach of fiduciary duties and corporate waste by the members of Cardinal's board of directors (the “Defendants").

On June 19, 2020, the Defendants filed a motion to dismiss the Action. On February 8, 2021, the Court issued an Order granting in part and denying in part the motion to dismiss: (i) dismissing Plaintiffs' claims for corporate waste; and (ii) sustaining Plaintiffs' claims that Defendants breached their fiduciary duties to Cardinal. On April 7, 2021, Cardinal and the Defendants each filed answers to the complaint.

The parties thereafter engaged in extensive discovery to gather evidence regarding the claims alleged in the Action. The parties, having discovered the strengths and weaknesses in their respective cases, chose to mediate the case in an attempt to resolve the action without a trial. The mediation resulted in an agreement to settle the Action for $124 million.

On May 25, 2022, the Plaintiffs submitted a motion for preliminary approval of the proposed $124 million settlement.

On July 18, 2022, the Court issued an Order granting preliminary approval of the proposed settlement, and scheduled the final approval hearing for October 4, 2022, at 2:00 p.m.