## Facts

- In September 2009, the U.S. Department of Justice announced that Pfizer Inc. agreed to pay $2.3 billion in criminal and civil penalties arising from illegal off-label marketing of certain drugs, including Bextra and Celebrex, and related misconduct.
- Pfizer’s business depended heavily on marketing prescription drugs to physicians and other health care professionals, a field regulated by the Federal Food, Drug, and Cosmetics Act, which bars drugmakers from marketing drugs for uses or dosages not approved by the FDA.
- The consolidated complaint alleged Pfizer and subsidiaries had a long history of off-label marketing enforcement activity and had previously paid fines for similar conduct.
- Plaintiffs alleged Pfizer’s sales force was encouraged to make false safety-related claims to physicians, that Pfizer arranged publications and programs aimed at influencing prescribing practices, and that Pfizer engaged in improper payments to health care professionals.
- After the 2009 settlement, Pfizer shareholders filed multiple derivative actions in the Southern District of New York; the cases were consolidated and lead plaintiffs filed a consolidated, amended, verified complaint asserting five counts.
- The complaint asserted: (I) a federal proxy claim under Exchange Act § 14(a); (II) a Delaware fiduciary-duty claim tied to the alleged proxy violations; (III) a Delaware fiduciary-duty claim against director defendants for knowingly approving or deliberately ignoring illegal off-label marketing and kickbacks; (IV) a similar Delaware fiduciary-duty claim against certain senior executives; and (V) unjust enrichment.
- Plaintiffs did not make a pre-suit demand on Pfizer’s board, alleging demand futility because a majority of directors faced a substantial likelihood of liability for oversight failures.
- Defendants moved to dismiss under Fed. R. Civ. P. 23.1 (failure to plead demand futility with particularity) and Rule 12(b)(6).

## Issues

1. Whether plaintiffs pleaded demand futility with particularity under Rule 23.1 and Delaware law so they could proceed derivatively without first making a board demand.
2. Whether the complaint stated a plausible Delaware oversight claim (Caremark/Stone v. Ritter) that directors and executives, acting in bad faith, knowingly allowed or consciously ignored illegal off-label marketing and kickbacks despite repeated warning signs.
3. Whether plaintiffs stated a viable federal § 14(a) proxy claim (and related state fiduciary claim based on the proxies) based on alleged misstatements or omissions in Pfizer’s proxy materials.
4. Whether plaintiffs adequately pleaded unjust enrichment tied to the alleged wrongdoing.

## Decision

- The court granted in part and denied in part defendants’ motion to dismiss.
- The court dismissed Count I (the federal § 14(a) proxy claim), concluding the complaint did not adequately plead actionable, material misstatements or omissions in the proxy statements.
- The court dismissed Count II (Delaware fiduciary-duty claim premised on the proxy disclosures) because it depended on the failed proxy theory.
- The court dismissed Count V (unjust enrichment) for insufficiently specific allegations linking defendants’ compensation or benefits to the alleged misconduct.
- The court denied the motion to dismiss as to Counts III and IV, allowing the Delaware fiduciary-duty oversight claims concerning off-label marketing and kickbacks to proceed.
- For the remaining counts, the court held plaintiffs pleaded demand futility with sufficient particularity by alleging facts supporting a reasonable inference that a majority of the relevant directors faced a substantial likelihood of personal liability for oversight failures tied to recurring legal violations and prior compliance obligations.
- Because Counts I, II, and V were the only claims asserted against certain former directors and one current director not named in Counts III or IV, those individuals were dismissed from the case once the court dismissed the proxy-related and unjust-enrichment counts.
- The court specified that the dismissals of Counts I, II, and V were with prejudice.

## Legal Principles

- A shareholder bringing a derivative action must either make a pre-suit demand on the board or plead with particularity why demand is excused. (Fed. R. Civ. P. 23.1).
- For a Delaware corporation, demand futility is evaluated under Delaware law, including the Aronson and Rales frameworks; demand may be excused when particularized facts show reasonable doubt that a majority of the board could exercise disinterested and independent judgment because they face a substantial likelihood of liability.
- Director oversight liability under Caremark and Stone v. Ritter is “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,” and generally requires well-pled facts supporting an inference of bad faith—such as a conscious failure to monitor or to respond to known warning signs, not mere negligence.
- Claims under Exchange Act § 14(a) require pleading a materially false or misleading statement or omission in proxy materials and a sufficient causal link; disclosure claims fail where the challenged proxies adequately disclosed the relevant matters or where omissions are not materially misleading in context.
- An unjust-enrichment claim requires nonconclusory allegations that defendants received a specific benefit at the corporation’s expense tied to the alleged wrongful conduct.

## Conclusion

In re Pfizer Inc. Shareholder Derivative Litigation arose from Pfizer’s $2.3 billion settlement over illegal off-label drug marketing and related misconduct. Applying Delaware demand-futility and oversight standards, the court dismissed with prejudice the proxy-based federal and related state disclosure counts and the unjust-enrichment count, but held that plaintiffs adequately pleaded demand futility and sufficiently stated Caremark-type oversight claims against remaining directors and executives, allowing the core fiduciary-duty claims concerning illegal marketing and kickbacks to go forward.


In re Pfizer Inc. Shareholder Derivative Litigation, 722 F. Supp. 2d 453 (2010)