Westmoreland County Employee Retirement System v. Parkinson

Dist. Ct. erred in granting defendants-corporate officers’ motion to dismiss instant shareholder derivative lawsuit by plaintiffs alleging that defendants breached fiduciary duty by failing to take necessary remedial efforts to bring into FDA compliance corporation’s Colleague Infusion Pump that caused corporation to lose more than $550 million pursuant to FDA-mandated recall of said pump, where basis for dismissal was Dist. Ct.’s finding that plaintiffs had failed to make pre-lawsuit demand with corporation to initiate instant action on corporation’s behalf against instant defendants. Plaintiffs alleged with sufficient particularity under Rule 23.1(b)(3) that defendants’ failure to take remedial steps concerning instant pump was not product of valid exercise of business judgment so as to excuse requirement for pre-lawsuit demand where: (1) despite repeated FDA directives, defendants took no action to ensure compliance with Consent Decree requiring repair of multiple defects in said pump, but rather developed different pump; and (2) defendant’s alleged conduct was similar in nature to defendants in Abbott Labs, 325 F3d 795, where said court found that failure to rectify ongoing FDA violations created reasonable doubt that directors’ actions fell within protection of business judgment rule.