McKesson Corp.

In re McKesson Corporation Derivative Litigation, Case No. 4:17-cv-01850-CW (N.D. Cal.)

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This derivative action was filed in April 2017 and was brought on behalf of nominal defendant McKesson Corporation (“McKesson") based on the McKesson Board of Director’s alleged failure to monitor and oversee the Company's operations to ensure 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 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 confirm that the Company maintained effective internal controls over the distribution of controlled substances and that the Company reported suspicious orders to DEA field offices.

The action alleges that 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.

Pursuant to a 2017 agreement with the federal government, 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."

On May 14, 2018, the Court denied, in substantial part, defendants’ 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 as well.

On December 27, 2019, 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. Final approval of the settlement was granted in April 2020.

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