McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc.

This case involves a novel securities fraud claim brought under state law. Essentially, McKesson HBOC is suing its own shareholders for unjust enrichment arising from a merger between McKesson and HBO & Company (“HBOC”). McKes-son claims that, the former HBOC shareholders are the beneficiaries of a windfall triggered by alleged accounting improprieties by HBOC. The shareholders, according to McKesson, exchanged artificially inflated shares of HBOC for fully-valued McKesson shares in the merger transaction. McKesson now wants to recover the excess value from the shareholders.

The parties’ respective characterizations of their claims give a flavor of their polarization in this suit. McKesson asserts that it “was badly victimized”; that in an era of corporate fraud, “upstanding corporate citizens” can themselves be defrauded; and that the “HBOC shareholders received a windfall” as a result of the merger. The shareholders claim in their defense that they, too, were “victims of one of the largest corporate frauds in history.” Rhetoric aside, the central issue is the ability of a surviving corporation to sue shareholders who benefitted from alleged pre-merger fraud by the…