BOTTINI BOTTINI INC - courthousenews.com · Francis A. Bottini, Jr. (SBN: 175783) Yury A. Kolesnikov (SBN: 271173) 7817 Ivanhoe Avenue, Suite 102 La Jolla, California 92037 Telephone:

Shareholder Class Action and Derivative Complaint

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BOTTINI & BOTTINI, INC. Francis A. Bottini, Jr. (SBN: 175783) Yury A. Kolesnikov (SBN: 271173) 7817 Ivanhoe Avenue, Suite 102 La Jolla, California 92037 Telephone: (858) 914-2001 Facsimile: (858) 914-2002 Counsel for Plaintiff Gregory N. Gehrich

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF SAN DIEGO

GREGORY N. GEHRICH, on behalf of himself and all others similarly situated and derivatively on behalf of MEDIMPACT HOLDINGS, INC., Plaintiff,

vs.

FREDERICK HOWE, STEVEN J. SHULMAN, GEORGE S. GOLDSTEIN, JAMES L. GOLLAHER., and DOES 1-25, Defendants,

– and –

MEDIMPACT HOLDINGS, INC.,

Defendant and Nominal Defendant.

Case No.:

Class Action

SHAREHOLDER CLASS ACTION AND DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY, AIDING AND ABETTING BREACH OF FIDUCIARY DUTY, CORPORATE WASTE, VIOLATION OF CAL. CORP. CODE § 1601 ET SEQ., AND DECLARATORY AND INJUNCTIVE RELIEF DEMAND FOR JURY TRIAL

2 Shareholder Class Action and Derivative Complaint

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Plaintiff Gregory N. Gehrich, by his attorneys, alleges the following on information and

belief, except as to the allegations specifically pertaining to Plaintiff, which are based on personal

knowledge.

NATURE AND SUMMARY OF THE ACTION

1. Plaintiff brings this class action on behalf of the minority stockholders of MedImpact

Holdings, Inc. (“MedImpact” or the “Company”) against MedImpact and its Board of Directors (the

“Board” or the “Individual Defendants”) for breach of fiduciary duty, aiding and abetting breach of

fiduciary duty, corporate waste, violation of California Corporations Code § 1601 et seq., and

declaratory as well as injunctive relief. Defendant Frederick Howe, the founder, Chairman, CEO, and

90% shareholder of MedImpact, is using his control of MedImpact to benefit himself personally to the

detriment of the Company’s minority shareholders. Plaintiff brings claims against the Defendants for

their breaches of fiduciary duty and/or for aiding and abetting other Defendants’ breaches of fiduciary

duty. Defendants’ actions are substantially unfair to MedImpact’s minority shareholders and have

caused and will continue to cause significant damage to the Company and its shareholders.

2. Howe is attempting to use his control of the Company to benefit himself and his family to

the detriment of the Company’s minority shareholders. Howe has promised to pay dividends to the

minority shareholders but has reneged on his promise to do so. Meanwhile, Howe has taken all the

liquidity he needs from the Company in the form of at least $275 million (and possibly up to $480

million) in loans that Howe caused MedImpact to provide to him. The judge in Howe’s divorce

proceedings found that Howe used a substantial portion of the loans to pay for the outrageous $42

million in attorneys’ fees incurred during Howe’s divorce proceedings.

3. Howe depressed the value of the MedImpact stock while his contentious divorce

proceedings were ongoing, in order to decrease the amount in alimony, child support, and other

payments that would be due to his ex-wife at the end of the marital dissolution proceedings. At the

same time, Howe has failed to provide financial information, annual reports, and other basic

information to the minority shareholders, thus inhibiting their ability to discover the true worth of their

stock.

/ / /


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4. After taking as much liquidity as he wants out of MedImpact, but providing no similar

liquidity for minority shareholders, and taking other action to artificially depress the value of

MedImpact stock, Howe has further abused his domination and control of MedImpact and breached his

fiduciary duty as a majority and controlling shareholder of MedImpact by causing the Company to buy

back shares from minority shareholders at depressed and unfair prices.

5. The Defendants’ conduct represents a continuing course of conduct. The most recent

proposed buyback of minority shareholders was sent to shareholders by the Company on July 8, 2018.

The buyback offer conveyed an offer to buy back a limited number of shares from shareholders at a

price of $21.70. The offer stated that the Board (the Individual Defendants named herein) had approved

the buyback and had determined that the $21.70 represented fair market value “based on, among other

things, the most recently received valuation report.” However, no valuation report or any other

financial information was provided to minority shareholders to allow them to perform their own

analysis of the fair market value of MedImpact stock. Moreover, according to Wheeler’s lawsuit,

MedImpact repurchased his shares at $24.10 per share, an amount Wheeler – a former top executive and

Board member - stated was “far less than fair market value.” Thus, the Board is causing MedImpact to

repurchase minority shareholders’ stock at far less than fair market value, yet misrepresenting that the

price is fair market value.

6. Howe’s conduct is plagued by substantial conflicts of interest, and Howe is attempting to

prevent the minority public shareholders from realizing fair value for their shares.

7. MedImpact is headquartered in San Diego, California. As stated by the Company’s

website, MedImpact “is the nation’s largest privately held PBM [pharmacy benefit manager], serving

health plans, self-funded employers and government entities.” MedImpact focuses on helping clients

manage the pharmacy benefit rather than increasing revenue from drug sales. MedImpact has been in

business for 29 years and serves more than 32 million individuals nationwide. Clients include

employers, unions, managed care organizations, insurance carriers, third-party administrators, as well as

local, state and federal employee programs. MedImpact has approximately 1200 employees and

revenues of over $650 million per year.

/ / /


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8. MedImpact is a private, not public, company. It issues stock to its employees as part of

their compensation, and to incentivize them. However, because the stock is not publicly-traded, and

MedImpact does not file its financial statements with the SEC, information about its financial results

and the stock’s value is not publicly available.

9. In recent years, Howe, as the Chairman and CEO of the Company, has compounded the

informational disparity that exists between the Company and its minority shareholders by failing to hold

annual meetings of shareholders, failing to provide minority shareholders with annual reports or other

financial information, and failing to pay dividends on the stock.

10. Prior to 2010, MedImpact paid dividends on at least two occasions. Thereafter, Howe

allegedly repeatedly promised top executives at the Company that MedImpact would pay another

dividend soon.

11. As a majority and controlling shareholder, Howe owes fiduciary duties to Plaintiff and

other minority shareholders to refrain from engaging in self-dealing and to ensure that minority

shareholders are treated fairly. In any transaction in which Howe derives a personal financial benefit,

such as the at least $275 million in loans that Howe has received from the Company, Howe’s conduct is

subject to the exacting entire fairness standard, pursuant to which Defendants have the burden of

demonstrating entire fairness to the minority shareholders, including fair dealing and fair price. The

Individual Defendants owe fiduciary duties to the minority stockholders of the Company. Because the

defendants’ conduct threatens irreparable harm to MedImpact’s minority shareholders, Plaintiff seeks

declaratory and injunctive relief as well as damages.

12. The members of the Company’s Board are not independent and have abdicated their

fiduciary duties. Instead of complying with their fiduciary duties and protecting the Company and its

minority shareholders, they have allowed Howe to benefit himself personally at the expense of the

Company and minority shareholders. In addition to the minority shareholders being directly harmed, as

alleged herein, the Company has also been harmed. In his divorce proceedings, Howe claimed that he

is an absentee CEO and contributed very little to the success of the Company. Indeed, in Howe’s

divorce proceedings, the Court credited Howe’s own testimony to this effect, holding:

/ / /


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“An overview of the trial testimony makes it clear, and the Court finds that before and after the

marital period, Husband [Fred Howe] was not and is not an experienced or dynamic leader.

His style is to give others the responsibility for performing a task and hold them accountable.”

13. In another portion of the Final Statement of Decision (hereinafter “Final Divorce

Decision”) from Howe’s divorce, Judge Ashworth found that:

“The Court agrees with Husband [Howe] that the growth in revenue and value of MI

[MedImpact] was not due in any way to his personal skills, efforts or talents.”1

14. In pursuing their unlawful plan to allow Howe to benefit himself personally at the

expense of the minority shareholders, and refusing to act in good faith and in accordance with the

fiduciary duties owed to MedImpact and its minority shareholders, Defendants violated and continue to

violate applicable law by directly breaching and/or aiding and abetting the other Defendants’ breaches

of their fiduciary duties of loyalty, due care, independence, good faith, and fair dealing.

JURISDICTION AND VENUE

15. This Court has jurisdiction because the Defendants conduct business in California,

including, but not limited to, the conduct here at issue, and because they have sufficient minimum

contacts with California to render the exercise of jurisdiction by the California courts permissible under

traditional notions of fair play and substantial justice.

16. Venue is proper in this Court because the conduct at issue took place and has effect in this

County. The Company’s headquarters and principal place of business are located at 10181 Scripps

Gateway Ct., San Diego, CA 92131.

THE PARTIES

17. Plaintiff Gregory N. Gehrich is a current shareholder of MedImpact Holdings, Inc. and

has continuously owned MedImpact stock at all relevant times, including since the Company was

1 Judge Ashworth also noted that “In listening to the testimony, it was obvious to the Court that key employees such as David Wheeler (CFO), Greg Watanabe (VP of Innovation and Strategy), and Matt Simas, among others, all had a better understanding than Husband of MI’s strategy and functioning.”


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formed in 2010. Previously, Mr. Gehrich owned shares in MedImpact Healthcare Systems, Inc. since

approximately 2000.

18. Defendant and Nominal Defendant MEDIMPACT HOLDINGS, INC. is a corporation

headquartered at 10181 Scripps Gateway Ct., San Diego, CA 92131. Through its wholly-owned

subsidiary, MedImpact Healthcare Systems, Inc. (collectively referred to herein as “MedImpact” or the

“Company”), MedImpact operates the nation’s largest privately held PBM [pharmacy benefit manager],

serving health plans, self-funded employers and government entities. MedImpact focuses on helping

clients manage pharmacy benefits rather than increasing revenue from drug sales. MedImpact has been

in business for 29 years and serves more than 32 million individuals nationwide. Clients include

employers, unions, managed care organizations, insurance carriers, third-party administrators, as well as

local, state and federal employee programs. Upon information and belief, MedImpact has

approximately 1200 employees and revenues of over $650 million per year.

19. Defendant FREDERICK HOWE (“Howe”) is the Company’s Chairman of the Board,

CEO, and founder. He has been a director of the Company at all relevant times. He is the controlling

shareholder of the Company, owning approximately 90% of the Company’s stock.

20. Defendant STEVEN J. SHULMAN (“Shulman”) is a director of the Company and has

been a director at all relevant times.

21. Defendant GEORGE S. GOLDSTEIN (“Goldstein”) is a director of the Company and

has been a director at all relevant times.

22. Defendant JAMES L. GOLLAHER (“Gollaher”) is an officer and director of the

Company and has been at all relevant times. In addition to being a director of MedImpact, Gollaher is

listed as a Secretary and Chief Financial Officer of the Company.

23. The true names and identities, whether individual, associate or corporate, of the

Defendants sued herein as Does 1 through 25 inclusive, and the full nature and extent of the

participation of the said Doe Defendants in the activities and conduct on which this action is based, are

presently unknown to Plaintiff. Plaintiff prays for leave to amend to allege the true names and

identities, and the extent of participation in the wrongful activities and conduct, when the same shall

become known.


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CLASS ACTION ALLEGATIONS

24. Plaintiff brings this action as a class action, pursuant to California Code of Civil

Procedure § 382 on behalf of all minority stockholders of the Company (except the Defendants herein

and any person, firm, trust, corporation, or other entity related to, or affiliated with, any of the

Defendants and their successors in interest), who are or will be threatened with injury arising from

Defendants’ actions as more fully described herein (the “Class”).

25. This action is properly maintainable as a class action because:

(a) The Class is so numerous that joinder of all members is impracticable. There are

thousands of shares of the Company’s common stock outstanding owned by hundreds, if not thousands,

of MedImpact stockholders;

(b) There are questions of law and fact which are common to the Class including,

inter alia, the following: (i) whether the Individual Defendants have breached their fiduciary and other

common law duties owed by them to Plaintiff and the other members of the Class; (ii) whether Plaintiff

and the Class are being provided with all material information regarding their investment in MedImpact

stock; (iii) whether the Individual Defendants are pursuing a scheme and course of business designed to

eliminate the public minority stockholders of the Company in violation of their fiduciary duties in order

to enrich themselves at the expense and to the detriment of Plaintiff and the other minority stockholders

who are members of the Class; and (iv) whether the Class is entitled to declaratory and injunctive relief,

as well as damages, as a result of Defendants’ wrongful conduct;

(c) Plaintiff is committed to prosecuting this action and has retained competent

counsel experienced in litigation of this nature;

(d) The claims of Plaintiff are typical of the claims of other members of the Class

and Plaintiff has the same interests as the other members of the Class. Plaintiff will fairly and

adequately represent the Class;

(e) Defendants have acted in a manner which affects Plaintiff and all members of the

Class alike, thereby making appropriate injunctive relief and/or corresponding declaratory relief with

respect to the Class as a whole; and

/ / /


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(f) The prosecution of separate actions by individual members of the Class would

create a risk of inconsistent or varying adjudications with respect to individual members of the Class

which would establish incompatible standards of conduct for Defendants, or adjudications with respect

to individual members of the Class which would, as a practical matter, be dispositive of the interests of

other members not parties to the adjudications or substantially impair or impede their ability to protect

their interests.

DEFENDANTS’ FIDUCIARY DUTIES

26. In accordance with their duties of loyalty, care and good faith, the Individual Defendants,

as directors of MedImpact, are obligated to refrain from:

(a) taking any action that adversely affects the value offered to the corporation’s

shareholders;

(b) participating in any transactions where the directors’ loyalties are divided;

(c) participating in any transaction where the directors receive or are entitled to

receive a personal financial benefit not equally shared by the minority shareholders of the corporation;

and/or

(d) unjustly enriching themselves at the expense or to the detriment of the minority

shareholders.

27. Plaintiff alleges herein that the Individual Defendants and MedImpact, separately and

together, are violating the fiduciary duties owed to Plaintiff and the other minority shareholders of

MedImpact, including their duties of loyalty, good faith and independence, insofar as they stand on both

sides of the transaction and are engaging in self-dealing and obtaining for themselves personal benefits,

including personal financial benefits, not shared equally by Plaintiff or the Class.

28. Because the Individual Defendants are breaching and have breached their duties of

loyalty, good faith and independence, Defendants’ conduct is subject to the “entire fairness” standard of

review and Defendants have the burden of proving the inherent or entire fairness of the challenged

transactions.

/ / /

/ / /


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FRAUDULENT CONCEALMENT AND EQUITABLE TOLLING

29. During the relevant period, Plaintiff did not discover and could not have discovered,

through the exercise of due diligence, Defendants’ breaches of their fiduciary duties or their violations

of California law because Defendants did not disclose, and actively concealed, their conduct.

30. Plaintiff was unaware of and had no knowledge of Defendants’ unlawful conduct.

31. Plaintiff could not have discovered Defendants’ breaches of fiduciary duties and

violations of law prior to filing suit because Defendants made absolutely no disclosure of their conduct,

and failed to provide minority shareholders such as Plaintiff with any annual reports or other

information about MedImpact during the relevant period. Plaintiff retired from MedImpact in 2010 and

has received no information about MedImpact or his MedImpact stock from Defendants in the last 8

years. The only way Plaintiff discovered some of Defendants’ wrongful conduct, such as the loans

Howe took from MedImpact, was from the publicly-available lawsuit David Wheeler filed against

Howe and MedImpact on September 5, 2017. Moreover, thereafter, Plaintiff attempted to obtain more

information from the Company by exercising his statutory and common law stockholder inspection

rights, but MedImpact and Defendants wrongfully refused his inspection demand and thus continue to

conceal information from Plaintiff.

32. Defendants not only failed to disclose any information whatsoever that would have

allowed Plaintiff, exercising due diligence, to discover the unlawful conduct, but Defendants also

intentionally concealed and attempted to disguise the unlawful conduct to avoid detection by the

Company’s minority shareholders.

SUBSTANTIVE ALLEGATIONS

33. MedImpact is a controlled company, with Defendant Howe owning approximately 90%

of the stock and thus constituting a controlling shareholder. Howe and the other directors of the

Company owe the Company and its minority shareholders fiduciary duties.

34. Plaintiff is one of those minority shareholders. Plaintiff was a loyal employee of

MedImpact, working for years for the Company. Due to Plaintiff’s hard work and valuable contribution

to the Company’s success, Plaintiff was awarded stock options and stock by MedImpact beginning in

approximately the year 2000. Plaintiff currently owns approximately 138,477 shares of MedImpact


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stock. Plaintiff retired from MedImpact in 2010, and his MedImpact stock comprises a significant

portion of his retirement savings. Plaintiff was always told that MedImpact paid dividends to its

shareholders and Plaintiff and other minority shareholders of the Company viewed the dividends as a

valuable attribute of the stock and one that increased the value of the stock.

35. Moreover, because MedImpact was and is a private company, not a publicly-traded

company, there is no regular or efficient market for the sale of the stock.

36. Howe caused MedImpact2 to declare and pay dividends at least twice to the Company’s

shareholders, once in 2008 and 2010. However, no dividends have been paid to the minority

shareholders since 2010.

37. David G. Wheeler is a former top executive of MedImpact who worked at the Company

for approximately 25 years and was one of three persons on MedImpact’s Senior Leadership Team.

The Senior Leadership Team allegedly performed the day-to-day activities of CEO of the Company,

even though Howe formally held that title.

38. According to a lawsuit filed by Mr. Wheeler on September 5, 2017, Howe admitted in

testimony he provided in his divorce proceedings that it was the Senior Leadership Team, and not

Howe, that effectively ran the Company. Wheeler’s lawsuit attaches as an exhibit the Final Divorce

Decision, which was not widely or publically available before then (and certainly not available to

Plaintiff). Howe’s divorce proceedings themselves were conducted privately, away from public

scrutiny, because Howe used the Hon. Thomas Ashworth, III (Rex), a privately compensated temporary

judge at JAMS to preside over the confidential proceedings. Wheeler was also allegedly called upon to

provide testimony in the divorce proceedings and the Final Divorce Decision indicates that Judge

Ashworth found Wheeler’s testimony to be credible.

39. Wheeler’s lawsuit also alleges that Mr. Howe has represented numerous times since

2010 that dividends would be paid to shareholders after his divorce was finalized, but this has never

2 MedImpact Healthcare Systems, Inc. was and still is a California corporation. In 2010, however, Howe formed a second corporation – MedImpact Holdings, Inc. – to be a holding company. Those shareholders who owned stock in MedImpact Healthcare Systems, Inc. had their stock in such company exchanged for stock in MedImpact Holdings, Inc. in 2010.


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been done. Howe separated from his ex-wife on June 1, 2010. Howe refused to pay a dividend because

he wanted to depress the value of his MedImpact stock in order to minimize payments to his wife in the

divorce, including child support obligations. The judge’s Final Divorce Decision specifically noted that

Howe had received “substantial funds from shareholder loans” from MedImpact of at least $275

million, but that “loan proceeds are not properly considered income for child support calculations.” The

Final Divorce Decision also noted that Howe had received taxable dividends from MedImpact in the

past, but that he had not received dividends in the two years preceding the date of the Final Divorce

Decision. Howe’s calculated efforts to reduce his income in the years leading up to his divorce

proceedings by causing MedImpact to suspend the payment of dividends, and instead to pay Howe at

least $275 million in non-taxable loans, constitutes self-dealing and a breach of Mr. Howe’s fiduciary

duties to the Company and its minority shareholders.

40. The judge who presided over Howe’s private divorce proceedings, after hearing lengthy

testimony and observing the testimony of Howe and his ex-wife, stated in the Final Divorce Decision

that Howe had not told his wife about his prior marital history and that Howe exhibited a “lack of

candor, trust and open communication” towards his ex-wife, contributing to a “lengthy and expensive

trial” in which at least $42 million was spent on attorneys’ fees.

41. Howe already is paid millions of dollars a year for serving as the CEO and Chairman of

the Company. Further, in his testimony in his marital dissolution proceedings, Howe stated that he is

basically an absentee CEO, that he provides no substantial contribution to the success of the Company,

and that it is other executives at the Company who do the “real” work. Indeed, during his divorce

proceeding, Howe testified that he worked approximately 10 hours per week yet received $3.0 million

in annual W-2 income (not including bonuses). The Final Statement of Decision stated that “He

[Howe] is currently earning over $3 million per year in W2 income while working 10 hours per

week.”

42. The Final Divorce Decision noted that “Husband [Howe] has claimed from the beginning

of this case that any increase in value of MI [MedImpact Holdings] during the marital period was due to

growth in the PBM industry and the natural growth of MI, not Husband’s individual efforts.”


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43. If Howe was already being paid $3 million per year in salary, plus additional substantial

bonuses, and if he was only working 10 hours per week and all the “real” work was being done by the

Senior Leadership Team, there could be no discernible corporate purpose of giving him hundreds of

millions more to incentivize him to perform tasks he has freely admitted were being performed by

others at the Company. Instead, the loans simply represented self-dealing and corporate looting.

44. Howe’s refusal to pay the long-promised dividends did not affect all shareholders equally,

however. For Plaintiff and the Company’s minority shareholders, the failure to pay the dividends

eliminated any cash flow or yield from the stock and depressed its value. For Howe, in stark contrast,

the failure to pay the dividends was remedied in a glaring way not made available to other shareholders:

over the last decade, the Company has given loans to Mr. Howe of at least $275 million, and possibly in

excess of $400 million.3 Upon information and belief, Howe has never repaid any of these loans and

does not intend to do so unless and until there is a liquidity event – i.e., the Company is sold or taken

public.

45. The loans obtained by Mr. Howe from the Company appear to be disguised dividends. If

dividends were paid to Mr. Howe, the Company is obligated to pay a proportional amount of dividends

to the minority shareholders. Several facts appear to demonstrate the disguised nature of the dividends.

First, Mr. Howe has apparently never re-paid any of the loans according to the terms called for in the

loans. Second, the interest paid on the loans (allegedly 4%) is significantly below-market. Third, Mr.

Wheeler’s complaint alleges that not only has Mr. Howe never re-paid the loans, but that he has no

present intention of re-paying the loans and will only do so if and when there is a “liquidity” event at

the Company such as an IPO or sale of the Company. Fourth, there is absolutely no valid business

3 The Final Divorce Decision mentioned $275 million in loans, but it is unclear whether this was the total amount of outstanding loans versus issued loans. Further, upon information and belief, Howe has been granted additional substantial loans by MedImpact since his divorce was finalized in 2015. Plaintiff made a shareholder inspection demand to determine the exact details of the loans, but MedImpact wrongfully refused to produce relevant documents. Because Plaintiff has been provided with no details regarding the current outstanding balance of Howe’s loans, discovery is necessary to obtain such details.


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reason for the loans. The sheer size of the loans would appear to demonstrate that the loans were

merely provided to Mr. Howe to provide him with income and/or liquidity.

46. Mr. Howe and the other members of the Board (Defendants Goldstein, Shulman and

Gollaher) have breached their fiduciary duties by providing massive loans on commercially

unreasonable terms to Howe, thus benefitting Howe personally, and not providing any similar liquidity

opportunities for the minority shareholders. The loans constitute corporate waste because they serve

absolutely no corporate purpose. Howe was paid $3 million in salary, plus bonuses, for being by his

own admission an “absentee” CEO. MedImpact obtained no benefit by giving Howe hundreds of

millions of dollars in cash on commercially unreasonable terms. Instead, the loans represented blatant

self-dealing. Defendants Goldstein, Shulman and Gollaher are not independent and objective directors

and did nothing to check Howe’s self-dealing. The sheer magnitude of Howe’s self-dealing

demonstrates the extent to which he completely dominates and controls MedImpact and its Board.

47. Wheeler’s lawsuit alleges that the Senior Leadership Team (“SLT”) “were pushing Howe

to make MedImpact Holdings issue a special dividend to the minority shareholders of approximately

$20 million. This figure took into account Howe’s borrowing at low interest rates and extravagant use

of company property for Howe’s personal benefit.” Instead of heeding the advice of the SLT, however,

Howe simply fired Wheeler without ever consulting the Board. The Board thereafter did nothing to

correct Howe’s improper conduct.

48. Howe has also abused his control of MedImpact to benefit himself financially in other

ways that serve no corporate purpose. For example, Howe owns a 21-acre mansion in Rancho Santa Fe.

The Final Divorce Decision noted that MedImpact pays for at least some of the expenses related to this

personal residence owned by Howe. Judge Ashworth noted that Howe’s “standard of living is opulent

and beyond common experience.” There is no corporate purpose served by this usurpation of corporate

money by Howe.

49. Defendants have breached their fiduciary duties of loyalty and good faith by acceding to

Howe’s personal interest in refusing to pay dividends in order to depress his reported income while his

divorce was ongoing, and by otherwise approving and failing to curtail Howe’s blatant self-dealing.


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50. The failure to pay dividends or provide commensurate liquidity opportunities caused

direct financial harm to Plaintiff and the Class because dividends belong to shareholders, not the

Company, and thus Plaintiff and the Class were directly harmed because they have been denied

promised dividends.

51. Second, the failure to pay dividends has decreased the value of the stock held by Plaintiff

and the Class. Defendants then benefitted from the depressed price by causing the Company to buy

stock from minority shareholders through stock redemptions, without providing any information to

shareholders about MedImpact’s financial condition. Because the Company’s stock is not publicly

traded, there is no liquid market for the stock and thus Company-sponsored redemptions represent one

of the only ways for minority shareholders to sell their stock. The withholding of dividends reduced the

value of the stock received by Plaintiff and other minority shareholders who participated in these

redemptions in order to obtain needed liquidity. Mr. Howe personally benefitted from these actions

because, by unreasonably refusing to pay dividends, he reduced the amount of money he had to pay his

wife in his divorce, where the largest item of community property was the value of Mr. Howe’s

MedImpact stock. Moreover, corporate redemptions also increased the ownership stake and voting

power of Mr. Howe and the other Board members by reducing the number of outstanding shares, and

because Howe is able to allocate some of the proceeds from the repurchases to himself. This will also

benefit Mr. Howe when future dividends are paid and if the Company conducts an IPO. The Board

breached its duty of loyalty and good faith by preferring the interests of one group of shareholders over

another, and by failing to provide all material information to minority shareholders about the value of

their MedImpact stock.

52. Under corporate law, the needs of all stockholders must be considered and addressed

when corporate decisions are made to provide some form of liquidity. The MedImpact Board has

breached this duty by allowing Mr. Howe to take out all the liquidity he desires (at least $275 million in

“loans”) while providing no similar liquidity event for the minority shareholders. Even where

redemptions have been offered, the Company has refused to redeem the full indication of interest from

minority shareholders and the price offered has been inadequate, unfair, and depressed. The minority

stockholders have no bargaining power and must accept whatever terms are dictated by Defendants or


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retain their stock. In short, the MedImpact Board, which is dominated and controlled by Howe, has

treated the minority shareholders disparately and unfairly. Had the true facts been disclosed and had

dividends been timely paid, the valuation of MedImpact stock would have been higher in the

redemptions and shareholders including Mr. Gehrich would have received more money in the

redemptions.

I. The Board’s Failure to Provide Annual Reports or Other Financial Information to the Minority Shareholders

53. The Board has further breached its fiduciary duties of candor and good faith by failing to

provide annual reports and financial information to the minority shareholders. Plaintiff has not received

any annual report or financial information from MedImpact in recent years. The Board has

compounded this informational disparity by authorizing the Company to engage in limited buybacks of

Company stock from minority shareholders at unfair prices and without providing any information to

minority shareholders that would allow them to assess the value of their shares.

54. The Defendants’ conduct represents a continuing course of conduct. The most recent

proposed buyback of minority shareholders was sent to shareholders by the Company on July 8, 2018.

The buyback offer conveyed an offer to buy back a limited number of shares from shareholders at a

price of $21.70. The offer stated that the Board (the Individual Defendants named herein) had approved

the buyback and had determined that the $21.70 represented fair market value “based on, among other

things, the most recently received valuation report.” However, no valuation report or any other

financial information was provided to minority shareholders to allow them to perform their own

analysis of the fair market value of MedImpact stock. Moreover, according to Wheeler’s lawsuit,

MedImpact repurchased his shares at $24.10 per share, an amount Wheeler — a former top executive

and Board member — stated was “far less than fair market value.” Wheeler also alleges that

MedImpact’s counsel represented to him in 2016 that MedImpact’s stock was worth at least $25.55 — a

fact that was never disclosed to the minority shareholders. Thus, the Board is causing MedImpact to

repurchase minority shareholder’s stock at far less than fair market value, yet misrepresenting that the

price is fair market value.

/ / /


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55. On May 17, 2018, Plaintiff exercised his right as a shareholder to inspect the Company’s

books and records, as permitted by shareholder inspection statutes. MedImpact and its Board

wrongfully refused the inspection demand and failed to provide any documents whatsoever for three

months after the inspection demand was sent, even though MedImpact is required under the law to

respond within five days.

II. MedImpact’s Supine Board Approved Loans to Howe Instead of Dividends or Share Repurchases or Paying Down Corporate Debt

56. As noted supra, MedImpact has made hundreds of millions of dollars in loans to Howe,

and such loans serve no corporate purpose and have not been re-paid by Howe according to the terms of

the loans. In contrast, MedImpact has made very limited stock repurchase offers to minority

shareholders, in each case noting that only a very limited number of shares would be repurchased and

that the Company expected that demand would far exceed supply and thus that the Company would not

be able to repurchase the number of shares tendered or offered to be tendered. This tactic had the

desired effect of creating very limited options for shareholders to re-sell their stock and making them

think this was their only option, and also of impeding shareholders’ ability to gauge the fairness of the

repurchase offer by not providing any financial information to shareholders. Moreover, as noted supra,

MedImpact is currently offering to repurchase minority shareholders’ stock at just $21.70 and

representing the price represents fair market value, but repurchased Wheeler’s shares over a year ago at

$24.10 per share, an amount Wheeler — a former top executive and Board member — stated was “far

less than fair market value.” According to Wheeler, MedImpact’s counsel also stated to him in July

2016 that MedImpact shares had a “current valuation of $25.55.”

57. The fact that Howe’s loans serve no corporate purpose is reflected in the Final Divorce

Decision. There, Judge Ashworth noted that, of the approximately $275 million in loans Howe caused

MedImpact to grant to him, “a substantial portion [ ] was used to fund this dissolution proceeding.”

Simply put, using the loans to fund an outrageous amount of attorneys’ fees ($42 million) in Howe’s

personal divorce served absolutely no corporate purpose of MedImpact. The loans thus constituted

corporate waste.

/ / /


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58. Howe has also used his control of the Board to cause MedImpact to pay other improper

personal expenses. Due to his improper conduct and misuse of alleged business expenses, Howe has

been audited by the IRS. Howe has caused MedImpact to pay for accountants to handle Howe’s

personal audits. As noted by Judge Ashworth in the Final Divorce Decision, “These audits are being

handled by MI [MedImpact] and retained accountants and primarily relate to business deductions for

expenses related to yachts, planes and real estate. Husband was generally the one involved in the

personal use of these items.”

59. Howe has also failed to hold any annual meeting of shareholders in recent years. If he

held any such meeting, the minority shareholders were not invited and have never been sent any annual

report detailing the actions taken. Upon information and belief, Howe just decides what he wants to do

and then has his lawyer type up “Uniform Written Consent” minutes reflecting his fiat.

60. Plaintiff and the Class have been harmed by Howe’s self-dealing. Had Howe made good

on his promise to pay dividends, and/or had MedImpact invested the hundreds of millions of dollars

siphoned off by Howe into legitimate corporate purposes, Plaintiff and the Class would have received

dividends and realized an increase in the value of their stock as the proper corporate investments would

have earned a positive return on investment.

61. In the divorce proceedings, the judge indicated that, as of 2015, MedImpact had $890

million in bond debt. This debt included a $230 bond transaction in which $63 million was allegedly

diverted for Howe’s use. Howe apparently never told his ex-wife about such transaction. Had

MedImpact paid down its bond debt instead of making hundreds of millions of dollars in loans to

Howe, it would have earned a higher rate of return since, according to Wheeler, MedImpact’s bond debt

carries a much higher rate of interest (initially 10.5%) than that reflected on the loans made to Howe.

Wheeler alleges that the difference in interest rates between what Howe is paying on his loans (4%) and

the rate paid by MedImpact on its bonds would amount to $19 million a year.

SUBSTANTIVE UNFAIRNESS

62. Defendants’ conduct has been, and continues to be, substantively unfair to MedImpact’s

minority shareholders. The loans to Howe and the other improper payments to Howe, including but not

limited to MedImpact’s payment of expenses related to Howe’s 21-acre mansion in Rancho Sante Fe,


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and his planes and yachts, have disproportionately benefitted Howe, serve absolutely no corporate

purpose, and provide no value to the Company or minority shareholders.

63. The prior repurchases of shares held by minority shareholders by the Company have also

been substantively unfair. The price offered to shareholders did not represent fair market value and was

not the highest possible value obtainable. Moreover, the Individual Defendants breached their fiduciary

duties of candor and good faith by failing to provide minority shareholders with all material information

relevant to the value of MedImpact stock at the time of the repurchase solicitations. This conduct is

continuing and threatens irreputable harm to Plaintiff and the Class. As a result, Plaintiff seeks a

preliminary injunction enjoining MedImpact and the Individual Defendants from taking any further

action to solicit or consummate any stock repurchases until all material information is provided to

Plaintiff and the Class concerning the value of their MedImpact stock, the financial condition of the

Company, and the self-interested transactions between the Company and Howe.

PROCEDURAL UNFAIRNESS

64. Defendants’ continuing course of conduct is also procedurally unfair to the Company’s

minority shareholders.

65. Howe is abusing his status as controlling shareholder, Chairman, and CEO to coerce the

Board into rubber-stamping his self-dealing conduct. Upon information and belief, Howe threatens to

fire any individual who challenges his conduct. Indeed, his former top lieutenant and former Board

member Wheeler alleges exactly that: Howe wrongfully fired Wheeler when Wheeler confronted Howe

about his huge loans that were never re-paid, as well as Howe’s unfulfilled promise to pay dividends

after his divorce proceedings were concluded. When these topics were raised, Howe “repeatedly

reminded Wheeler that Howe was the 90% owner of the company.” Wheeler also alleges that Howe

acted in a vindictive manner by forcing Wheeler to re-pay his loans from MedImpact immediately after

he was fired, even though Howe allegedly told Wheeler that he would not have to re-pay the loans until

there was a liquidity event at the Company such as an IPO or sale of the Company.

66. Defendants Howe, Shulman, Goldstein, and Gollaher have all breached their duties of

good faith, candor, and loyalty by failing to provide any information to minority shareholders, including

failing to hold annual meetings of shareholders, failing to provide annual reports to minority


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shareholders, and failing to provide any other financial information about the Company to minority

shareholders, and failing to disclose the transactions between Howe and the Company. Defendants, in

stark contrast, have unfettered information about the Company and its financial condition.

67. As the majority and controlling shareholder of MedImpact, Howe owes fiduciary duties

of good faith, fair dealing, loyalty, candor, and due care to Plaintiff and the other members of the Class.

As described herein, Howe and the other Individual Defendants are breaching those fiduciary duties.

68. Howe has clear and material conflicts of interest and is acting to better his own interests

at the expense of MedImpact’s minority shareholders. Howe, with the acquiescence of the rest of the

directors of MedImpact over whom Howe exerts control, is engaging in self-dealing and not acting in

good faith toward Plaintiff and the other members of the Class.

THE ENTIRE FAIRNESS STANDARD APPLIES TO DEFENDANTS’ CONDUCT

69. In transactions between controlling shareholders and the Company and/or its minority

shareholders, the entire fairness standard applies. That standard applies here because Howe is a 90%

controlling shareholder and he has engaged in self-interested transactions from which he has derived

and continues to derive substantial personal benefits that are not shared by the Company’s minority

shareholders.

70. The entire fairness standard places the burden of proof on the controlling shareholder to

affirmatively demonstrate the entire fairness — both substantive fairness and procedural fairness — of

the challenged transactions. It is not Plaintiff’s burden to demonstrate the unfairness of such

transactions, although such unfairness is evident from the detailed allegations set forth herein.

71. Because Howe cannot demonstrate either substantive or procedural fairness to his self-

interested transactions, such transactions must be set aside and/or he must be ordered to pay damages to

Plaintiff and the Class.

DAMAGES TO MEDIMPACT

72. In addition to directly harming Plaintiff and the Class, Defendants’ misconduct has also

harmed MedImpact. Because of Howe’s self-dealing, the Company has been forced to issue loans to

Howe that serve no corporate purpose and which cost the Company lost opportunities from investing


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the significant capital in higher and better uses which would have earned a return on investment. The

Company has been damaged by receiving commercially unreasonable interest (4%) on Howe’s loans.

73. The Defendants’ wrongful conduct has also subjected the Company to lawsuits. When

the Board unlawfully fired Wheeler, Wheeler sued MedImpact, as a result of which MedImpact has

been forced to spend, and will continue to expend, significant additional money in defense costs and

litigation expenses. Howe’s self-dealing and improper claims of “business expenses” for personal items

has subjected him to IRS audits, and MedImpact has allegedly paid the expenses related to such audits.

A DEMAND ON MEDIMPACT’S BOARD WOULD BE FUTILE, AND THUS IS EXCUSED 74. Plaintiff has not made a demand on the Board to institute this action against Defendants

because, for the reasons detailed above and as further set forth below, any such demand would be a

futile and useless act.

75. At the time this action was filed, MedImpact’s Board consisted of four members,

defendants Howe, Shulman, Goldstein, and Gollaher.

76. The facts detailed in this Complaint demonstrate that the MedImpact Board is dominated

and controlled by Howe, who owns 90% of the stock and thus controls all corporate actions. Corporate

case law is clear that demand is futile where a controlling shareholder owns 90% of the stock of a

company. Moreover, Howe’s control is amply demonstrated by the facts alleged herein, including his

action in forcing the Company to give him massive loans that serve no corporate purpose and bear

commercially unreasonable terms. Howe’s control of the Company was also demonstrated when Dave

Wheeler, a former director and member of the Senior Leadership Team, was swiftly fired after he

disagreed with Howe with respect to Howe’s failure to repay his loans and failure to pay promised

dividends to shareholders. The Final Divorce Decision noted that Howe “has the final say on all

important decisions [at MedImpact].”

77. Demand is excused as to Defendants Goldstein, Gollaher, and Shulman because they are

not independent and objective, and are completely dominated and controlled by Howe. Because Howe

owns 90% of the stock of MedImpact, he can (and has) fired any director who dares to disagree with

him on any substantive issue. Howe can effectuate any corporate action without even having any

meeting of the Board. To accomplish his fiat, Howe simply dispenses with a meeting and has his


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lawyer draft a Uniform Written Consent taking whatever action Howe desires, after voting his 90%

stock block in favor. In Wheeler’s lawsuit, Wheeler pointed out that “when Howe learned that Wheeler

and the other SLT members were organizing an executive intention to demand a special dividend be

paid, Howe terminated Wheeler and another SLT member on December 7, 2015, in a coordinated attack

that happened simultaneously in two different California cities. In one fell swoop, Howe fired the two

most senior executives on the SLT with no consultation or input from the Board of Directors or the

Company’s Human Relations Department.”

78. Demand is also excused as to Howe, Shulman, Goldstein, and Gollaher because all such

directors have acted in bad faith and engaged in self-dealing. The self-interested loans to Howe were

approved or ratified by Shulman, Goldstein, and Gollaher, who thus have directly participated in, and/or

aided and abetted, Howe’s self-dealing. Moreover, all such directors have failed to cause MedImpact to

hold annual meetings of shareholders and have failed to provide annual reports or any financial

information to the Company’s minority shareholders. They have thus breached their duties of good

faith, loyalty, and candor. Because such breaches cannot be indemnified by the Company, Defendants

Howe, Shulman, Goldstein, and Gollaher face a substantial likelihood of liability for their misconduct.

As such, they lack the ability to consider a demand on the Board to take action in an independent and

disinterested fashion. As a result, demand is futile as to the entire Board.

79. Demand is also futile because the wrongful acts complained of in this Complaint evidence

a pattern of conduct showing a wholesale abandonment of Defendants’ fiduciary duties. These acts,

and the other improper acts set forth in this Complaint, which demonstrate a pattern of misconduct,

were not the product of a valid or good faith exercise of business judgment, nor could they have been.

FIRST CAUSE OF ACTION

Direct Class Claim for Breach of Fiduciary Duty Against the Individual Defendants

80. Plaintiff repeats and realleges each allegation set forth herein.

81. The Individual Defendants have violated their fiduciary duties of care, loyalty, candor,

good faith, and independence owed to the minority shareholders of MedImpact and have acted to put

their personal interests ahead of the interests of MedImpact’s shareholders.


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82. By the acts, transactions, and courses of conduct alleged herein, the Individual

Defendants, individually and acting as a part of a common plan, have violated their fiduciary duties to

the minority shareholders of the Company.

83. As demonstrated by the allegations above, the Individual Defendants failed to exercise the

care required, and breached their duties of loyalty, good faith, candor, and independence owed to the

minority shareholders of MedImpact because, among other reasons:

(a) Howe is attempting to coerce and intimidate the Board he controls into doing what

Howe wants without adequate investigation and analysis;

(b) the Individual Defendants are attempting to divest the minority shareholders of fair

value for their MedImpact stock through coercive stock redemption offers which are being made

without providing any information to the minority shareholders about the fair market value of their

stock;

(c) the Individual Defendants have failed to cause MedImpact to pay dividends that Howe

promised to pay;

(d) the Defendants have ignored or are failing to protect against the numerous conflicts of

interest resulting from the officers and directors’ own financial interests in connection with Howe’s

transactions with the Company;

(e) the Individual Defendants are abdicating their fiduciary duties; and

(f) the Individual Defendants are failing to ensure disclosure of all material facts to

MedImpact’s minority shareholders regarding MedImpact’s financial results, prospects, and all material

facts regarding the Company and the value of their stock in the Company.

84. The Individual Defendants are violating their fiduciary duties by refusing to recuse

themselves from consideration of self-interested transactions between the Company and Howe,

someone with whom they have disabling conflicts, and by failing to ensure a fair and adequate

procedural and substantive process for transactions between Howe and the Company.

85. Because the Individual Defendants dominate and control the business and corporate

affairs of MedImpact, and are in possession of private corporate information concerning MedImpact’s


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assets, business, and future prospects, there exists an imbalance and disparity of knowledge and

economic power between them and the minority shareholders of MedImpact.

86. By reason of the foregoing acts, practices, and course of conduct, the Individual

Defendants have failed to exercise ordinary care and diligence in the exercise of their fiduciary

obligations toward Plaintiff and the other members of the Class.

87. As a result of the Individual Defendants’ actions, Plaintiff and the Class have been and

will be damaged in that they have not received promised dividends, have not received similar liquidity

opportunities for their stock as has Howe, and will not receive fair value for their MedImpact stock in

the Company’s stock repurchase offers and will be prevented from obtaining appropriate consideration

for their shares of MedImpact common stock.

88. Unless enjoined by this Court, the Individual Defendants will continue to breach their

fiduciary duties owed to Plaintiff and the other members of the Class, and will continue to withhold

annual reports and financial information from minority shareholders and continue to engage in coercive

and uninformed repurchase offers, which will exclude the Class from its fair proportionate share of

MedImpact’s valuable assets and businesses, and/or benefit them in the unfair manner complained of

herein, all to the irreparable harm of the Class.

89. The Individual Defendants are engaging in self-dealing, are not acting in good faith

toward Plaintiff and the other members of the Class, and have breached and are breaching their

fiduciary duties to the members of the Class.

90. Plaintiff and the Class have no adequate remedy at law. Only through the exercise of this

Court’s equitable powers can Plaintiff and the Class be fully protected from the immediate and

irreparable injury caused by Defendants’ actions.

SECOND CAUSE OF ACTION

Direct Class Claim for Aiding and Abetting Breaches of Fiduciary Duties Against the Individual Defendants

91. Plaintiff incorporates by reference and realleges each and every allegation contained

above, as though fully set forth herein.

92. In committing the wrongful acts alleged herein, Defendants have pursued, or joined in the

pursuit of, a common course of conduct, and have acted in concert with and conspired with one another


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in furtherance of their common plan or design. In addition to the wrongful conduct herein alleged as

giving rise to primary liability, Defendants further aided and abetted and/or assisted each other in

breach of their respective duties as alleged herein.

93. The purpose and effect of Defendants’ conspiracy, common enterprise, and/or common

course of conduct is, among other things, to permit violations of law and breaches of fiduciary duties.

94. Defendants have accomplished their conspiracy, common enterprise and/or common

course of conduct by authorizing and/or ratifying personal loans and other improper payments to Howe

which serve no corporate purpose and bear commercially unreasonable terms, by refusing to hold

annual meetings of the shareholders (and/or by refusing to make such meetings open to the minority

shareholders), by withholding any information about the Company from minority shareholders, and by

refusing to check Howe’s self-interested conduct.

95. Defendants each aided and abetted and rendered substantial assistance in the wrongs

complained of herein. In taking such actions to substantially assist the commission of the wrongdoing

described of herein, they acted with knowledge of the primary wrongdoing, substantially assisted the

accomplishment of that wrongdoing, and were aware of their overall contribution to and furtherance of

the wrongdoing. This wrongdoing facilitated Howe’s self-interested conduct and has harmed

MedImpact’s minority shareholders. The Individual Defendants have failed to ensure an adequate

procedural and substantive process is in place to evaluate and approve transactions between the

Company and minority shareholders such as the stock purchase solicitations.

96. Plaintiff and the members of the Class will be irreparably injured as a direct and

proximate result of the aforementioned acts, and have no adequate remedy at law.

THIRD CAUSE OF ACTION

Direct Class Claim For an Accounting, and for Declaratory and Injunctive Relief



98. Defendants have breached their fiduciary duties of good faith, candor, and loyalty by

failing to hold annual meetings of shareholders, failing to provide Plaintiff and the Company’s other

minority shareholders with annual reports and other financial information about the Company necessary


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for Plaintiff and the Class to determine the financial condition of the Company and fair value of their

shares, and other wrongful conduct, as alleged herein.

99. Plaintiff seeks injunctive relief in the form of an order enjoining MedImpact and the

Defendants from taking any further action with respect to stock repurchases until MedImpact and the

Board provide Plaintiff and the Class with all information to which they are entitled as shareholders of

the Company, an order requiring the Company to hold annual shareholder meetings and allow

shareholders to attend such meetings, an order requiring the Company to issue annual reports to the

shareholders, and other appropriate relief.

100. Plaintiff also seeks a declaratory judgment that Defendants have breached their fiduciary

duties to the Company and its minority shareholders.

FOURTH CAUSE OF ACTION

Direct Individual Cause of Action for Violation of California Corporations Code § 1601 et seq. Against Defendant MedImpact

101. Plaintiff is a shareholder of record of MedImpact.

102. By lawful means, Plaintiff requested to inspect the books and records of the corporation,

but the corporation has wrongfully refused the request. Plaintiff noted a proper purpose for his

inspection demand — to obtain information necessary to determine the value of his MedImpact stock

and to investigate breaches of fiduciary duty by Howe and the Board.

103. Plaintiff requests declaratory and injunctive relief ordering the Company to comply with

its obligations under Cal. Corp. Code § 1601 et seq.

104. Plaintiff also requests that, pursuant to Cal. Corp. Code § 1603, the Court “appoint one or

more competent inspectors or accountants to audit the books and records kept in this state and

investigate the property, funds and affairs of any domestic corporation or any foreign corporation

keeping records in this state.”

105. Plaintiff has no adequate remedy at law.

/ / /

/ / /

/ / /


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FIFTH CAUSE OF ACTION

Derivative Claim For Corporate Waste Against All Defendants



107. The Individual Defendants caused MedImpact to provide Defendant Howe with at least

$275 million in loans at below market interest rates, and with no obligation that Howe repay the loans

according to the terms of the loans. Upon information and belief, Defendant Howe has not repaid the

loans and has professed that he will not do so unless and until the Company experiences a “liquidity”

event such as an IPO or buyout. The Board also allowed Howe to receive $63 million from a $230

million bond transaction and allowed MedImpact to pay for millions of dollars of personal expenses

incurred by Howe, including those for his personal residence in Rancho Santa Fe and use of yachts and

airplanes.

108. There was no business purpose or advantage to MedImpact of providing the loans to

Howe and of paying Howe’s personal expenses. Howe already is paid millions of dollars a year for

serving as the CEO and Chairman of the Company. Further, during his marital dissolution proceedings,

Howe evidently testified that he is basically an absentee CEO, that he provides no substantial

contribution to the success of the Company, and that it is other executives at the Company who do the

“real” work. Indeed, during his divorce proceeding, Howe apparently testified that he worked

approximately 10 hours per week yet received $3.0 million in annual W-2 income (not including

bonuses).

109. In the Final Divorce Decision from Howe’s divorce case, the Court noted that “Husband

[Howe] has claimed from the beginning of this case that any increase in value of MI [MedImpact

Holdings] during the marital period was due to growth in the PBM industry and the natural growth of

MI, not Husband’s individual efforts.”

110. As such, there was no need or purpose for MedImpact to provide hundreds of millions of

dollars of personal loans to Howe, which served no corporate purpose and were used for personal

expenses such as paying Howe’s attorneys’ fees in his divorce. Instead, the loans constitute disguised


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dividends that benefit Howe to the detriment of minority shareholders, who are being denied any

equivalent liquidity opportunity for their shares.

111. Because the loans and other improper payments to Howe serve absolutely no corporate

purpose and are saddled with terms that demonstrate they were not negotiated at arms-length, and

instead that Howe dictated the terms through his domination and control of the Company, the loans and

other payments constitute corporate waste.

112. Defendants Gollaher, Howe, Shulman, and Goldstein approved the loans and personal

payments despite the fact that the loans serve no corporate purpose. In doing so, they breached their

fiduciary duties.

113. MedImpact has been harmed and damaged.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf of himself and the Class, prays for the following judgment

and relief:

A. Certifying this action as a class action and certifying Plaintiff as the Class representative

and his counsel as Class counsel;

B. Enjoining, preliminarily and permanently, the MedImpact Board from approving any

further transactions with Defendant Howe until such time as the Company ensures a fair and adequate

procedural and substantive process;

C. Enjoining, preliminary and permanently, MedImpact and the Board from any further

efforts to repurchase shares from MedImpact’s minority shareholders until all material information is

provided to such shareholders regarding the fair value of MedImpact stock;

D. Directing that Defendants account to Plaintiff and the other members of the Class for all

damages caused to them and account for all profits and any special benefits obtained as a result of their

unlawful conduct;

E. Awarding Plaintiff the costs and disbursements of this action, including a reasonable

allowance for the fees and expenses of attorneys and experts; and

F. Granting Plaintiff and the other members of the Class such other and further relief as

may be just and proper.


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JURY TRIAL DEMAND

Plaintiff demands a trial by jury on all claims and issues so triable.

Dated: August 16, 2018 Respectfully submitted, BOTTINI & BOTTINI, INC.

Francis A. Bottini, Jr. (175783) Yury A. Kolesnikov (271173)

s/ Francis A. Bottini, Jr.

Francis A. Bottini, Jr. 7817 Ivanhoe Avenue, Suite 102 La Jolla, California 92037 Telephone: (858) 914-2001 Facsimile: (858) 914-2002 Counsel for Plaintiff Gregory N. Gehrich

BOTTINI BOTTINI INC - courthousenews.com · Francis A. Bottini, Jr. (SBN: 175783) Yury A. Kolesnikov (SBN: 271173) 7817 Ivanhoe Avenue, Suite 102 La Jolla, California 92037 Telephone:

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