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Feuer v. Merck & Co., Inc.

Superior Court of New Jersey, Appellate Division

June 1, 2018

R.A. FEUER, Plaintiff-Appellant,
v.
MERCK & CO., INC., Defendant-Respondent.

          Argued December 4, 2017

          On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-000042-16.

          Lisa J. Rodriguez argued the cause for appellant (Schnader Harrison Segal & Lewis LLP, attorneys; Lisa J. Rodriguez, on the briefs).

          J. Gordon Cooney, Jr. (Morgan, Lewis & Bockius LLP) of the Pennsylvania bar, admitted pro hac vice, argued the cause for respondent (Morgan, Lewis & Bockius LLP, and J. Gordon Cooney, Jr., attorneys; John McGahren, J. Gordon Cooney, Jr., Jason H. Wilson, and Marc J. Sonnenfeld (Morgan, Lewis & Bockius LLP), of the Pennsylvania bar, admitted pro hac vice, on the brief).

          Before Judges Sabatino, Ostrer and Whipple.

          OPINION

          OSTRER, J.A.D.

         This appeal involves the scope of a shareholder's right to inspect a corporation's records under N.J.S.A. 14A:5-2 8 and the common law. Plaintiff, a Merck & Co., Inc. shareholder, appeals from the dismissal of his complaint seeking various Merck corporate records. We conclude his demand exceeds the scope of "books and records of account, minutes, and record of shareholders, " which the court was empowered to permit him to inspect under N.J.S.A. 14A:5-28(4). Plaintiff also misreads a 1988 amendment to the statute, which allows a court to limit a shareholder's inspection, rather than expand it as plaintiff contends. Finally, plaintiff misplaces reliance on the common law. We therefore affirm.

         I.

         As a prelude to a threatened shareholder derivative action, plaintiff R.A. Feuer, the owner of 288 shares of Merck stock, sought the production of twelve broad categories of documents from Merck. Feuer intended to search for evidence that Merck acted wrongfully when it rejected his previous demand that Merck's board of directors commence suit against itself and senior management responsible for Merck's acquisition of another pharmaceutical firm, Cubist Pharmaceuticals, Inc.

         Feuer asserted the acquisition was ill-advised and reckless. He alleged Merck proceeded with the transaction although it knew certain Cubist patents were challenged, and it did not reserve the right to cancel the acquisition if Cubist lost the patent litigation. After a decision that invalidated some Cubist patents, but before the Merck-Cubist transaction closed, Feuer wrote to Merck's board, demanding it reconsider or renegotiate the deal; and if it did not, then to commence litigation against the board and responsible managers and advisors, to recover the damages that Feuer alleged Merck would suffer. Shortly after the transaction was complete, Feuer said in a second letter the board "should be held accountable to the Company for the difference between what Merck will be paying for Cubist and its current value . . . ."

         In response to Feuer's demands, the board appointed a "Working Group" of three of its members to evaluate his demand, retain counsel, conduct an investigation, and recommend a response. Four months later, the Working Group's counsel informed Feuer that "following a thorough and good faith investigation, the Board of Directors of Merck . . . in the exercise of its business judgment, has rejected all of your demands with respect to the acquisition of Cubist Pharmaceuticals, Inc."

         Feuer submitted seventeen questions to the attorney, inquiring about the criteria for selecting the Working Group, potential conflicts, and its internal operations. Dissatisfied with the lack of response, Feuer then wrote to the board to demand that the board sue the Working Group's counsel and his firm, alleging they aided and abetted the board's "underlying wrongdoing" and were "proceeding with an effort to 'whitewash it.'"

         Several months after that, in another letter to the board, Feuer demanded the documents that lie at the heart of this appeal. He invoked his rights under N.J.S.A. 14A:5-28(4), but not the common law. He described twelve categories of "Merck's 'Books and Records'" pertaining generally to the Working Group's activities, communications, and formation; documents provided to the board regarding Cubist and two of its drugs before Merck's tender offer; and the board's consideration of Feuer's Demands and the Working Group's recommendations. Feuer demanded:

1. All documents requested and/or examined by the "Working Group" and/or its counsel in connection with Mr. Feuer's Demand Letters and/or the claims made therein.
2. All documents that refer or relate to the selection of counsel for the "Working Group."
3. All documents which refer or relate to internal "conflict checks" made by any of the lawyers considered for representation of the "Working Group."
4. All documents that refer or relate to the selection of the members of the "Working Group, " including any investigation regarding bias, conflicts and/or any other factors that might serve to disqualification [sic] of any such person from serving.
5. All documents which refer or relate to the manner in which interviews of witnesses by the "Working Group" and/or its counsel would be taken (i.e. under oath, recorded, transcribed, etc.).
6. All documents which refer or relate to the amount of time each of the members of the "Working Group" expended personally learning about and/or considering the claims made in the Demand Letters.
7. All documents which refer or relate to communications between or among any member of the "Working Group" or its counsel with any Board member (other than Mr. Frazier) regarding the Demand Letters and/or the claims set forth therein.
8. All documents provided to the Board prior to the commencement of the tender offer for Cubist shares regarding Cubicin, Zerbaxa and Cubist generally.
9. All documents including emails and notes referring or relating to communications between ML&B and any of the counsel for the "Working Group."[1]
10. All documents which refer or relate to the meeting of the Board at which the demands made in the Demand Letters were rejected.
11. All documents which refer or relate to the amount of time the Board spent to consider the demands made at such meeting.
12. All minutes of the Board and/or the "Working Group" at which there was any discussion of the Demand Letters and/or the demands made therein.

         After Feuer agreed to confidentiality restrictions, the board released to him pertinent minutes of the board and the Working Group. The board otherwise refused Feuer's demand.

         Feuer's two-count complaint followed. Feuer alleged that he sought the documents for a proper purpose, because his demand was "reasonably related to his interests as a stockholder . . . and his forthcoming commencement of a shareholder's derivative suit on behalf of Merck." In count one, Feuer sought documents responsive to his twelve demands pursuant to N.J.S.A. 14A:5-28 and the common law. In count two, he sought a declaratory judgment that Merck "wrongfully rejected" his demands in his three letters, and "that Merck and its Board, in failing to produce . . . all the documents relating to the Board's investigation and rejection of Plaintiff's Demands, have failed to, ...


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