Beatrice Corwin Living Irrevocable Trust v. Pfizer, Inc.

Robert and Marilyn Corwin were trustees of the Beatrice Corwin Living Irrevocable Trust (plaintiffs), which owned 500 shares of Delaware pharmaceutical company Pfizer, Inc. (defendant). The Corwins alleged Pfizer’s financial statements did not meet generally accepted accounting principles (GAAP) because the statements did not report the repatriation-tax liability Pfizer deferred by reinvesting earnings overseas. The trustees sued seeking to inspect Pfizer’s books and records to value the trust’s shares, investigate possible mismanagement and breaches of the board’s fiduciary duties to ensure compliance with accounting rules, and evaluate the potential for shareholder or derivative litigation. The applicable GAAP standard required a company to report deferred repatriation-tax liability on its financial statements unless the company stated that calculating that liability would be “not practicable.” The trustees’ expert testified it would be practicable for Pfizer to calculate that liability because Pfizer made other tax calculations annually that required essentially the same calculation. Pfizer’s board of directors countered that it had relied on an audit opinion prepared by major accounting firm KPMG International Limited (KMPG). The audit committee of Pfizer’s board of directors and management had met with KPMG to review Pfizer’s financial statements, and KPMG provided an unqualified opinion to the board that Pfizer’s statements were prepared in accordance with GAAP. The trustees did not argue or present any evidence that the board did not rely on KPMG, believe the opinion was outside its expertise, or select KPMG with reasonable care.