In the recent decision handed down by Chancellor Bouchard in the case of In re NantHealth, Inc. Stockholder Litigation, Lead C.A. No. 2018-0302-AGB (Del. Ch. Jan. 14, 2020), the Delaware Court of Chancery granted in part and denied in part a motion to dismiss filed by the director defendants of NantHealth, Inc.

In this consolidated lawsuit, several NantHealth investors asserted that Patrick Soon-Shiong, a South African billionaire who invented the cancer fighting drug Abraxane, and two former executives and four directors, misled the public regarding a research deal with the University of Utah.

Specifically, according to the amended complaint, Soon-Shiong caused certain nonprofits controlled by him to make a donation to the University of Utah with the undisclosed understanding that the University would be required to pay substantially those funds to NantHealth to use its technology.  As NantHealth’s controlling stockholder, plaintiffs alleged that Soon-Shiong stood to benefit  to make it appear as if a prestigious academic institution had independently endorsed NantHealth’s technology and that there was greater commercial demand for its products than in reality.  Plaintiffs asserted claims of breach of fiduciary duty, corporate waste, and unjust enrichment against defendants.

Chancellor Bouchard denied defendants’ motion to dismiss the breach of fiduciary duty claim against Soon-Shiong for failure to allege demand futility, holding that a “constellation of facts” had been adequately pled creating a reasonable doubt about certain directors’ independence from Soon-Shiong such that a majority of the board could not have impartially considered a demand against Soon-Shiong.  The remaining defendants, however, were dismissed given that the amended complaint failed to allege demand futility separately as to them.

In addition, the Court of Chancery dismissed the unjust enrichment claims against all defendants.  Chancellor Bouchard found that the conduct underlying the amended complaint, such as making false and misleading disclosures, was not related to the defendants’ receipt of money from the company.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.