Shareholders Win Limited Access to Minutes of Corporate Meetings

by Mary Pat Gallagher for the New Jersey Law Journal at Law.com– August 19, 2010

A New Jersey appeals court held Tuesday that shareholders have a right under state law to view corporate board and executive committee minutes, but imposed parameters to prevent “fishing expeditions” for corporate mismanagement.

While shareholders are allowed to examine those minutes under a provision of the Business Corporation Act that requires proof of a “proper purpose,” they can only look at minutes that are pertinent to that purpose, the court said in its precedential opinion in Cain v. Merck & Co. , A-2138-08.

The plaintiffs seeking access to the minutes, Mary and James Cain, are also plaintiffs in a shareholders’ derivative action against Schering-Plough Corp. over the alleged suppression of unfavorable clinical trial results for the cholesterol drug Vytorin, known as the ENHANCE study.

The Cains allege that the defendants knew as early as 2005 that Vytorin did not prevent clogged arteries but delayed release of the results until 2008, nearly two years after the study ended. By doing so, the defendants artificially inflated the stock price, which plummeted once the results were released, the plaintiffs alleged.

The study had been expected to demonstrate that Vytorin was superior to cheaper generic statin drugs like Zocor. Instead, though it showed that Vytorin lowered bad LDL cholesterol, the drug provided no added benefit in reducing blocked arteries, says the complaint in Cain v. Hassan , 08-cv-1022, filed on Feb. 25, 2008. The defendants are accused of breach of fiduciary duty, gross mismanagement, waste of corporate assets and unjust enrichment.

On July 22, 2008, the Cains made a written demand on Schering-Plough to see books, minutes and records “germane to our interest as Shareholders to review the manner in which the company is being managed.” Two weeks later, they clarified that the purpose for seeking the documents was Schering-Plough’s alleged wrongful conduct in putting off release of the ENHANCE study results (continue reading…)

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