Court of Chancery Dismisses Malone/Caremark ‘Hybrid’ Claims Using Established Principles
The Delaware Court of Chancery recently made a decision regarding Malone and Caremark claims brought by two stockholder plaintiffs in the case of In re FibroGen, Inc. Derivative Litigation. The court dismissed the claims, citing a lack of evidence that any director acted in bad faith.
FibroGen, Inc. is a biopharmaceutical company focused on developing a drug called Roxadustat to treat anemia. After several years of development and trials, the U.S. Food and Drug Administration did not approve the drug, leading to financial issues for FibroGen.
Following a securities class action lawsuit against FibroGen and its management, a derivative action was brought against the company’s directors and officers, alleging breaches of fiduciary duties under Malone and Caremark theories.
The plaintiffs raised concerns about false statements made by management regarding the drug’s safety and FDA approval process, misleading information in Forms 10-Q submitted to the FDA, and manipulated data in the company’s Forms 10-K.
The court analyzed these claims under Malone and Caremark principles. The plaintiffs tried to combine these into a “FibroGen” claim, arguing that the directors failed to investigate possible wrongdoing by management.
Ultimately, the court found that the plaintiffs did not provide enough evidence to support their claims. They needed to show that the directors were directly involved in the misleading statements or were aware of the issues and did nothing to address them.
This decision highlights the importance of clear evidence and specific details when bringing fiduciary duty claims against company directors and officers. The court’s ruling serves as a reminder of the high standards required to prove corporate misconduct in legal proceedings.
