As is often the case with larger filings, the juiciest part appears at the end — on pages 28 and 29 — when it is revealed that in August, a Schering in-house lawyer (see letter at right — click image to enlarge) tried thwart a statutory shareholder right-to-inspect official books and records of the company (a company this shareholder owns, at least in part, BTW!) — saying that compliance by Schering, with the portion of the statute governing corporate records access, would allow an “end run” around “the court’s discovery order“. The problem is that the federal district court in Newark entered no such order. Oops! Do take a look:
. . . .Schering’s Efforts To Thwart Plaintiffs’ New Jersey Statutory And Common Law Rights To Inspect Schering’s Books And Records Further Evidences Defendants’ Bad Faith
On July 22, 2008, Plaintiffs invoked their right under N.J. S. A. 14A: 5-28(4) and common law to inspect the books and records of Schering. This “inspection statute” is common in most states and is an expansion of the common law right of shareholders to protect themselves by keeping abreast of how their agents were conducting corporate affairs. See, e.g., Drake v. Newton Amusement Corp., 123 N.J.L. 560, 562-63, 9 A.2d 636 (N.J. 1939) (“This common law right has not been abridged by statute.”). Use of inspection statutes is recommended in many shareholder derivative cases as a means to investigate management wrongdoing. See, e.g., Melzer v. CNET Networks, Inc., 934 A.2d 912 (Del. Ch. 2007); Wood v. Baum, 953 A.2d 136 (Del. Supr. 2008); Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 1057 n.52 (Del.Ch.2003), aff’d 845 A.2d 1040 (Del. 2004). Despite Plaintiffs having satisfied every requirement of the statute, Schering nonetheless refused to permit Plaintiffs to inspect the records. Incredibly, Schering informed Plaintiffs that to comply with the books and records request would constitute “an end-run around this Court’s discovery order.” (See Scolnick Decl., Ex. D).
Obviously, this Court issued no such order, and it is apparent Defendants have directed Schering to thwart Plaintiffs’ statutory and common law rights to inspect corporate records. As a result, Plaintiffs have been forced to initiate an Order to Show Cause in Union County Superior Court (Docket No. UNN-C-134-08) seeking to compel Schering to comply with the statute and produce the requested records (Board and Committee minutes). The return date is October 2, 2008. (See Scolnick Decl., Ex. E). Plaintiffs expect to learn facts from the inspection that will allow them, in an amended complaint, to particularize in even greater detail precisely what the Board and its various committees actually knew about the suppression of the ENHANCE trial results and the false advertisements and when they knew it, rather than having to guess at whether the directors’ refusal to take corrective action was due to actual knowledge, or a reckless failure of oversight. In either event, the facts alleged in the Amended Complaint compel the conclusion that at the least eight, and more likely eleven, Board members failed to satisfy the requisite disinterest due to a substantial likelihood of liability. Nevertheless, based upon the information which Plaintiffs expect to learn through limited discovery in this case and inspection of the corporate records they may well wish to amend the complaint. Accordingly, Defendants’ request that this complaint be dismissed with prejudice to amend is wholly inappropriate. . . .
[Footnote: The law is clear that leave to amend should be “freely given when justice so requires.” Fed. R. Civ. P. 15(a). The Third Circuit has consistently held that “leave to amend should be granted freely, and court[s] should use ‘strong liberality’ in considering whether to grant leave to amend.” Dole v. Arco Chemical Co., 921 F.2d 484, 486-87 (3d Cir.1990) (citations omitted). “The United States Supreme Court stated that amendments to pleadings should be granted under Rule 15(a) except in certain limited circumstances- ‘such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.’” Ikelionwu v. Nash, No. 06-625, 2008 WL 762864, at *3 (D.N.J. Mar. 19, 2008) (quoting Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)).]
Well — it seems, once again (as Zen philosophy would have it), Schering’s in-house lawyers are pushing so hard for a certain result, they are likely to acheive the precise opposite of that result.
More on this, if time permits.