Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Sept. 1 — Pfizer Inc. doesn't have to turn over internal documents to investors seeking to investigate whether directors failed to ensure the company was complying with accounting rules, the Delaware Chancery Court ruled Aug. 31 ( Beatrice Corwin Living Irrevocable Tr. v. Pfizer Inc., 2016 BL 286139, Del. Ch., No. 10425-JL, 8/31/16 ).
The plaintiffs sought information related to the company's decision not to calculate a particular deferred tax liability. Judge Abigail M. LeGrow found that the plaintiffs failed to show they had a credible basis to investigate whether Pfizer's board breached its oversight duty.
“The plaintiffs' evidence at trial and arguments in their briefs did not address Pfizer's reporting system, or lack thereof, or whether any 'red flags' might have been raised but ignored by Pfizer's board,” LeGrow wrote. “Nor is there anything in the record from which the Court might infer the absence of such a reporting system or the presence of such red flags.”
The plaintiffs' inspection request was sparked by a New York Times article that identified Pfizer as a company that doesn't calculate its deferred repatriation tax liability.
A company's foreign earnings that are indefinitely reinvested overseas aren't taxed until they are brought back to the U.S. Under generally accepted accounting principles (GAAP), a company doesn't have to report the repatriated tax liability it is deferring when it isn't “practicable” to do so.
The investors presented at trial an expert who testified that it was practicable for Pfizer to calculate the liability.
According to the court's decision, the investors sought to investigate what is known as a Caremark claim. Under the theory, directors can be held liable for consciously disregarding their duties to oversee the company's compliance with applicable laws.
The court said the plaintiffs failed to produce evidence of an “actionable corporate wrongdoing.” LeGrow also said the plaintiffs failed to show that the board wasn't justified in relying on an outside accounting firm's opinion that Pfizer financial statements were free of material misstatements and complied with GAAP.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
The opinion is available at http://src.bna.com/ifn.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)