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By Michael Greene
Jan. 21 — AbbVie Inc. won't have to turn over books and records to an investor seeking to investigate whether directors breached their fiduciary duties in connection with the company's failed tax inversion deal, the Delaware Supreme Court ruled Jan. 20.
At issue was an April 2015 decision in which the Delaware Chancery Court held that plaintiff Southeastern Pennsylvania Transportation Authority failed to establish a credible basis that actionable wrongdoing had occurred (30 CCW 127, 4/22/15). In doing so, the lower court reasoned that the investor could only investigate claims that the directors breached their duty of loyalty because the company's charter contained an exculpatory provision pertaining to the board's duty of care.
The state high court majority affirmed on the basis of the chancery court's decision.
In a brief order, the majority added that while Justices Karen Valihura and James T. Vaughn Jr. agreed on the outcome of the case, they would affirm only on the ground that the investor failed to show a credible basis that even a breach of the fiduciary duty of care had occurred.
The litigation stemmed from North Chicago, Ill.-based AbbVie's plan to buy Shire Plc for an estimated $52 billion, then move the combined company's legal address to the U.K. to lower its tax bill and access cash trapped overseas.
However, the two companies in October 2014 agreed to terminate what would have been the biggest U.S. tax inversion at the time after AbbVie pulled its support for the deal in the wake of proposed changes to U.S. rules governing such transactions.
In his April 2015 decision, Vice Chancellor Sam Glasscock III said that in order to establish a proper purpose for a books and records inspection, the corporate wrongdoing sought to be investigated must be “justiciable.”
Because AbbVie's certificate of incorporation contained an exculpatory provision that insulated its directors from liability for breach of the duty of care, Glasscock found that only duty of loyalty claims could be investigated.
On appeal, the plaintiff argued that the chancery court erred by applying a heightened threshold burden for inspection requests (30 CCW 343, 11/11/15).
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