Court Gives Green Light to Allergan Derivative Case

6/11/2012 - Vice Chancellor Laster of the Delaware Chancery Court gave the green light to a derivative action against the members of Allergan Inc.’s Board of Directors. Barrack, Rodos & Bacine, representing co-lead plaintiff Louisiana Municipal Police Employees’ Retirement System, serves as co-lead counsel in the action. BR&B filed this action on behalf of LAMPERS, an Allergan shareholder, after news reports that Allergan had paid a $600 million fine for off-label marketing and promotion of one of its primary products, BOTOX®Therapeutic. Derivative cases were also filed in a California federal court and another institutional investor served a “books and records demand” on the Board for additional information about the circumstances surrounding the imposition of the fine. After receiving certain documents from Allergan pursuant to the books and records demand, BR&B along with counsel for the other institutional investor filed a consolidated complaint on behalf of the two funds, with particularized allegations stemming not only from our independent investigation but also from the documents produced pursuant to the books and records demand.

The defendants moved to dismiss the complaint, claiming that: (1) a decision of the California federal court dismissing an amended complaint filed by the plaintiffs in that court prevented the continuation of the Delaware Chancery Court case; (2) the complaint failed to satisfy the standard for showing that it would have been futile for the institutions to demand that the Allergan Board take the action requested in the complaint; and (3) the complaint failed to plead actionable claims for breach of fiduciary duties and corporate waste. After full briefing on the issues and oral argument, Vice Chancellor Laster denied the motions to dismiss in their entirety. The Court found that the allegations in the complaint, read as a whole, raise a reasonable doubt that a majority of the Board could properly consider a demand, and further support a reasonable inference that the Board consciously approved a series of business plans predicated on violating the federal statutory prohibition against off-label marketing of medical products. As the opinion states: “[Plaintiffs’] particularized allegations support a reasonable inference that the Board knew Allergan personnel were engaging in or turning a blind-eye towards illegal off-label marketing and promotion and the Board nevertheless decided to continue Allergan’s existing business practices in pursuit of greater sales.” Further, since ten of the twelve defendant directors served on the Board since 2005 and earlier, the Vice Chancellor found, based on the allegations in the complaint, that one could “reasonably infer that these directors approved multiple iterations of Allergan’s strategic plan, monitored Botox’s explosive sales growth, learned of [a particular incident highlighted in the complaint] in October 2006, then approved the 2007 Strategic Plan, fully conscious of the role of off-label marketing in Allergan’s success,” which supported the finding that LAMPERS and its co-lead plaintiff are able to pursue the case without having made a demand on the Board.

If you have any questions about the case, please email BR&B partner Jeffrey W. Golan at or contact him by telephone at (215) 963-0600.