Cardinal Health 2008 Annual Report Download - page 124

Section 20(a) of the Exchange Act by issuing a series of press releases and public filings disclosing significant
sales growth in Syncor’s international business, but omitting mention of certain allegedly improper payments to
Syncor’s foreign customers, thereby artificially inflating the price of Syncor shares. The consolidated complaint
seeks unspecified money damages and other unspecified relief against the defendants. Syncor filed a motion to
dismiss the third amended consolidated complaint on January 31, 2005. On April 15, 2005, the District Court
granted the motion to dismiss with prejudice and the lead plaintiff appealed this decision to the United States
Court of Appeals for the Ninth Circuit. On June 12, 2007, the Court of Appeals entered an order reversing, in part,
the District Court’s dismissal of the plaintiffs’ claims and remanding the case to the District Court. The order
reversed the dismissal of the claims against Syncor and certain individual defendants, including its former
Chairman and CEO, and affirmed the dismissal of all other defendants. On January 17, 2008, the defendants filed
an answer to the third amended consolidated complaint. The defendants entered into a memorandum of
understanding effective on June 27, 2008 to settle the Syncor federal securities litigation for a payment of
$15.5 million. The substantial majority of the settlement payment will be funded by insurance.
A purported class action complaint, captioned Pilkington v. Cardinal Health, et al., was filed on April 8, 2003
against the Company, Syncor and certain officers and employees of the Company by a purported participant in the
Syncor Employee Savings and Stock Ownership Plan. A related purported class action complaint, captioned Donna
Brown, et al. v. Syncor International Corp, et al., was filed on September 11, 2003 against the Company, Syncor and
certain individual defendants. Another related purported class action complaint, captioned Thompson v. Syncor
International Corp., et al., was filed on January 14, 2004 against the Company, Syncor and certain individual
defendants. Each of these actions was brought in the United States District Court for the Central District of
California. A consolidated complaint was filed on February 24, 2004 against Syncor and certain former Syncor
officers, directors and/or employees alleging that the defendants breached certain fiduciary duties owed under the
Employee Retirement Income Security Act (“ERISA”) based on the same underlying allegations of improper and
unlawful conduct alleged in the federal securities litigation (the “Syncor ERISA litigation”). The consolidated
complaint seeks unspecified money damages and other unspecified relief against the defendants. On April 26, 2004,
the defendants filed motions to dismiss the consolidated complaint. On August 24, 2004, the District Court granted in
part and denied in part defendants’ motions to dismiss. The District Court dismissed, without prejudice, all claims
against two individual defendants, all claims alleging co-fiduciary liability against all defendants, and all claims
alleging that the individual defendants had conflicts of interest precluding them from properly exercising their
fiduciary duties under ERISA. A claim for breach of the duty to prudently manage plan assets against Syncor was not
dismissed, and a claim for breach of the alleged duty to “monitor” the performance of Syncor’s Plan Administrative
Committee against defendants Monty Fu and Robert Funari was not dismissed. On January 10, 2006, Syncor and the
other parties entered into a term sheet to settle the Syncor ERISA litigation for a cash payment of $4.0 million and
payment of an additional amount not to exceed $4.0 million for litigation fees and expenses and reported the
settlement to the District Court. Also on January 10, 2006, the District Court entered summary judgment in favor of
all defendants on all remaining claims. Consistent with that ruling, on January 11, 2006, the District Court entered a
final order dismissing this case and the lead plaintiff appealed this decision to the United States Court of Appeals for
the Ninth Circuit. On February 19, 2008, the Court of Appeals entered an order reversing the District Court’s
dismissal of the plaintiffs’ claims and remanded the case to the District Court to hold a hearing to review the fairness
of the settlement agreement. On June 25, 2008, the parties submitted the settlement agreement to the District Court
for preliminary approval. On July 29, 2008, the District Court preliminarily approved the $4.0 settlement amount, but
ordered the parties to revise the attorneys’ fees to not exceed 33
1
⁄ 3 % of the settlement amount. The Company
recorded a reserve of $5.4 million for the fiscal year ended June 30, 2008 related to the Syncor ERISA litigation.
Settlement of the Syncor federal securities litigation is subject to completion of definitive documentation
and certain conditions, including notice to the class of plaintiffs in the litigation and court approval. Settlement of
the Syncor ERISA litigation is subject to completion of certain conditions, including notice to the class of
plaintiffs in the litigation and final court approval. The defendants in these matters continue to deny the
violations of law alleged in those actions, and any settlement reached would be solely to eliminate the
uncertainties, burden and expense of further protracted litigation. At this time, there can be no assurance that all
of the conditions for settlements will be met.
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