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Walgreens Asks Court to Toss Shareholder’s Theranos Suit

May 8, 2019, 9:14 PM

Walgreens Boots Alliance Inc. asked a Delaware court to toss a shareholder lawsuit over its dealings with defunct startup Theranos Inc. because the plaintiff failed to prove the pharmacy giant ignored any red flags about the fraudulent blood-testing venture.

A Walgreens shareholder sued the company and its board of directors in Delaware’s Court of Chancery Oct. 9, asserting that they breached their fiduciary duties by failing to properly vet Theranos before partnering in 2012 to open up blood-testing kiosks in 41 Walgreens stores. Walgreens invested $140 million in the partnership, the suit says.

The suit presents no facts that show the board made any decisions about Theranos or that Walgreens ignored warnings that it should have seen, Nilofer Umar of Sidley Austin LLP told the court in Wilmington, Del., May 8. “There’s nothing about the board here,” she said.

Theranos’ certification from federal regulators and its partnership with Safeway before its fraud was discovered underscore that “Walgreens was far from the only victim of Theranos’ fraud,” she said.

Theranos, a Palo Alto, Calif.-based startup that was once a darling of venture capitalists, claimed it had found new ways to do blood tests with smaller blood samples and at a lower cost than conventional testing. News reports beginning in 2015 began to cast doubt on those claims. Elizabeth Holmes, Theranos’ CEO, was eventually indicted on fraud charges after it was confirmed that the company was outsourcing its blood-testing and using conventional methods.

J. Travis Laster, one of six vice chancellors of the chancery court, asked Umar whether it might be better to stay rather than dismiss the case, given that there are other class-action lawsuits against Walgreens and Theranos pending elsewhere.

“Part of what I’m wondering is if I really should be wading into this now,” Laster said.

“I worry about adjudicating prematurely when the events are still unfolding,” he said. “Why shouldn’t I stay this until the consumer class action is done?”

U. Seth Ottensoser, a partner at Keller Lenkner LLC in New York representing the plaintiff, said the case should continue because of a pending class action lawsuit still in the discovery phase. The results of other cases could have an impact on the company, he said.

“If there’s a huge judgment against Walgreens, Walgreens is going to have to pay,” he said. “Theranos is not a deep pocket anymore.”

The Walgreen Co. merged with Switzerland-based Alliance Boots in 2014 to form Walgreens Boots Alliance. The pharmacy sued Theranos in 2016 and settled for $25 million.

The case is Hays v. Almeida, Del. Ch., No. 2018-0728-JTL, oral arguments motion to dismiss 5/8/19.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at lpappas@bloomberglaw.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com

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