Gilead Sciences must pay $1.8 million in attorney fees and costs after denying shareholders access to records

(CN) — A Delaware court on Thursday ordered Gilead Sciences Inc. to pay nearly $1.8 million in attorneys' fees and legal expenses to shareholders who sued the biopharmaceutical company for records related to its development and marketing of HIV drugs. 

“Although there is a fine line between glaringly egregiousness conduct and an aggressive litigation position, Gilead crossed the line in this case,” wrote Chancellor Kathaleen St. Jude McCormick in a 6-page letter on Thursday.

McCormick, who was nominated to the Delaware Court of Chancery by Democratic Governor John Carney, said the company had refused to produce a single document requested by any of the five plaintiffs in the case. 

The withholding of information, she said, had forced the plaintiffs to file the lawsuit. 

Seeking information about possible anticompetitive conduct, the shareholders requested access to Gilead’s internal records under California and Delaware “inspection” statutes.

Cotchett, Pitre & McCarthy, whose attorneys represented one of the shareholders along with co-counsel from Bottini and Bottini, said in a statement on Thursday that these statutes allow shareholders to inspect certain corporate records for many purposes. 

One of the purposes covered under these longstanding statutes, they say, is to determine whether a corporation has engaged in improper conduct.

The information requests had arisen after multiple different lawsuits alleged, among other things, that the company used licensing agreements with rivals in an effort to slow down generic competition with its breakthrough HIV prevention drugs. 

Gilead continued to decline the shareholders’ inspection requests, arguing that they had not met the requirements to investigate wrongdoing. 

McCormick said, however, that the plaintiffs in that case had “ample support” for their proposition.

 “The Court’s Order noted that Gilead's conduct 'epitomizes a trend' by corporate management to make inspection requests difficult for shareholders. The opposite should be true. As the true owners of a corporation, shareholders’ rights need to be vigorously protected,” wrote attorney Frank Bottini in a statement on Thursday. 

About eight months ago, then-Vice Chancellor McCormick ruled in favor of the shareholders, calling out the California-based company’s “abusive litigation tactics.”

According to the chancellor’s subsequent order on Thursday, “Gilead took a series of positions during litigation that, when viewed collectively, were glaringly egregious.” 

The term, “glaringly egregious,” has been used in the past by Delaware courts to award legal costs to successful parties. In this case, the five shareholders who brought the challenge came out on top. 

McCormick says the company had misrepresented the record in forming an argument that the plaintiffs “were not entitled to inspection because any follow-on claims challenging the wrongdoing at issue would be dismissed.” 

Rather, she said, the shareholders did not need to demonstrate that the alleged mismanagement or wrongdoings were “actionable” in order to be entitled to inspection.

Mark Molumphy, an attorney at Cotchett, called Thursday’s order an “important victory for shareholders.” 

“Over the past few years, corporate management and their outside advisors have become increasingly aggressive in trying to prevent shareholders from accessing corporate records,” Molumphy wrote in a statement. “With this decision, and others like it in California, the pendulum seems to be swinging the other way to protect these vital shareholder rights.” 

 A spokesperson for Gilead Sciences said they are disappointed with the ruling.

“Gilead's defense was rooted in good faith and supported by the case law. We intend to appeal this decision with the appellate court,” the spokesperson told Courthouse News.

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