Posts in Discovery

Chancery Curtails Discovery in Appraisal Action Instituted as a Substitute for Books and Records Demand

Wei v. Zoox, Inc, C.A. No. 2020-1036-KSJM (Del. Ch. Jan. 31, 2022)
Often, stockholders who suspect corporate wrongdoing in connection with M&A transactions demand to inspect the company’s books and records under Section 220. But if, through no fault of the stockholder, the timing of a closing makes Section 220 relief more difficult to obtain, may the stockholder use Section 262, the appraisal statute, and its broader available discovery, to accomplish the same goal? In this case, the Court concludes that the answer is a qualified yes. That is, the stockholders are entitled to discovery in the appraisal proceeding. But if it appears the proceeding is just a means to investigate a potential class action for breach of fiduciary duties, the stockholder is entitled to discovery only to the limited extent it would have been available under Section 220, and not to the broader extent typically available under Section 262. 

Share

Chancery Rules that Multiple Egregious Discovery Abuses Lead to the Ultimate Sanction

DG BF, LLC v. Ray, C.A. No. 2020-0459-MTZ (Del. Ch. Nov. 19, 2021)
Delaware courts may impose sanctions on parties that refuse to comply with court orders or neglect their own discovery obligations. Possible sanctions may include, among other things, monetary penalties, an instruction of adverse inference, or the ultimate sanction of default judgment against the offending party. These sanctions are imposed to remedy the wrongs at-issue and to deter abusive discovery conduct. More ›

Share

Chancery Finds Former Directors Bringing Wrongful Termination Claims Were Not Entitled to all Privileged Communications During Their Board Tenures, and Shifts Some Fees for Inadequate Privilege Logs

SerVaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Nov. 9, 2021)
With limited exceptions, directors normally have “unfettered” access to corporate information. This decision indicates, however, that the same may not hold true for former directors who do not challenge their removal as directors and who seek documents for reasons unrelated to their prior board service. Here, the Court of Chancery denied a motion to compel by two former directors who challenged the termination of their employment, and who sought in discovery all of the documents the corporation withheld as a privilege from their time as directors.  More ›

Share

Chancery Finds Adversity Between Directors and Formation of Special Committee Shields Against Production of Company-Privileged Information

In re: Howard Midstream Energy Partners, LLC, C.A. No. 2021-0487-LWW (Del. Ch. Sept. 22, 2021)
Issues of corporate privilege among directors entail a fact-specific analysis when a dispute arises among them. Here, the Court of Chancery considered a motion to compel brought by former directors and officers who claimed they were “ambushed” in a corporate “coup.” Because the directors should have considered themselves adverse to the corporation, and because a special committee was formed to deal with the petitioners’ potential separation from the company, the Court denied the petitioners’ motion to compel communications between the other directors and the company withheld as privileged.  More ›

Share

In Unusual Circumstances, Chancery Declines to Stay Discovery Pending Motion to Dismiss

Edward Deane, et al. v. Robert Maginn, Jr., C.A. No. 2017-0346-LWW (Del. Ch. Sept. 8, 2021)
Delaware courts often grant a motion to stay discovery pending the resolution of a potentially case-dispositive motion to dismiss. In “[t]he unique circumstances of this case,” however, the Court of Chancery denied a stay. The court focused on the parties’ responsibility to adhere to the discovery schedule to which they previously agreed. More ›

Share

Superior Court CCLD Awards Sanctions For Unprepared Rule 30(b)(6) Deponent

Fortis Advisors, LLC v. Dematic Corp., C.A. No. N18C-12-104 AML [CCLD] (Del. Super. Nov. 18, 2020)

As this decision illustrates, Delaware trial courts have a variety of sanction options available when it comes to violations of court orders or discovery rules, such as the failure to adequately prepare a Rule 30(b)(6) deponent. Any sanction must be “just and reasonable” and tailored to the breaching party’s culpability and the complaining party’s prejudice. More ›

Share

Chancery Holds That Management Does Not Have Unilateral Authority to Preclude a Director From Obtaining the Company’s Privileged Information

In Re WeWork Litig., Consol. C.A. No. 2020-0258-AGB (Del. Ch. Aug. 21, 2020)

In October 2019, The We Company’s (the “Company”) board of directors established a special committee (the “Special Committee”) to evaluate a potential transaction wherein SoftBank, the controlling shareholder, would acquire majority economic ownership and voting control of the Company. When SoftBank terminated the transaction, the Special Committee filed this action on behalf of the Company alleging that they had breached their contractual obligations to use reasonable best efforts to purchase $3 billion of the Company’s stock in a tender offer. More ›

Share

Chancery Denies Derivative Plaintiff’s Motion to Compel Work Product Prepared by Oracle’s Special Litigation Committee

In re Oracle Corp. Derivative Litig., C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020)

After investigating certain potential derivative claims arising out of Oracle Corporation’s acquisition of NetSuite, Inc., and after trying unsuccessfully to settle those claims, Oracle’s Special Litigation Committee (“SLC”) agreed that permitting a derivative plaintiff to pursue those claims was in Oracle’s best interests. This opinion concerns the lead derivative plaintiff’s subsequent motion to compel, which sought the production of forty-two documents the SLC withheld on work product grounds. The documents at issue were the SLC’s counsel’s notes and memoranda of witness interviews, factual summaries prepared by the SLC’s counsel, counsel’s draft report to the SLC, and financial analyses and damages models prepared by or at the direction of the SLC’s counsel. The Court found that all forty-two documents were protected work product because they were created in anticipation of litigation in order to aid the SLC in connection with this action. In addition, the documents were afforded a higher degree of protection as opinion work product because they also reflected attorney thoughts and impressions. More ›

Share

Chancery Finds Party Waived Privilege When Documents Were Produced to FCC

In re Straight Path Communications Inc. Consol. S’holder Litig., C.A. No. 2017-0486-SG (Del. Ch. June 15, 2020)

Plaintiffs brought a Motion to Compel seeking thirty-one documents withheld by Defendant on attorney-client privilege grounds. The documents had previously been disclosed by Defendant to the Federal Communications Commission (“FCC”) in 2016 during an investigation related to the current litigation. Plaintiffs did not argue that the documents were not privileged at the time of creation, but rather that the privilege was waived when the Defendant provided those documents to the government. More ›

Share

Chancery Finds Pre-Closing Privilege Did Not Transfer to Buyer Under Asset Purchase Agreement

DLO Enterprises, Inc. v. Innovative Chemical Products Group, LLC, C.A. No. 2019-0276-MTZ (Del. Ch. June 1, 2020).

Defendants/Counterclaim Plaintiffs (“Buyers”) acquired substantially all of the assets of Arizona Polymer Flooring, Inc., later renamed DLO Enterprises, Inc. (“Sellers”). Sellers filed this action disputing who was financially responsible for certain defective products. During discovery, Sellers produced several pre-closing communications with their counsel that were redacted in part to protect the privilege. Buyers filed a motion to compel unredacted copies of the documents. More ›

Share

Delaware Superior Court CCLD Addresses Claim of Common Interest Privilege over Merger Agreement Parties’ Post-Signing, Pre-Closing Communications

The American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. May 12, 2020)

Delaware courts will apply the common interest doctrine when two parties, represented by counsel, exchange privileged information with one another concerning a legal matter in which they have a shared interest. To maintain the privilege, the common interest must involve predominantly legal issues, rather than a common economic interest in a commercial venture. If there is no common interest, a party who shares privileged materials with a third-party will generally waive the privilege.  More ›

Share

Chancery Holds Plaintiffs’ Emails with Counsel on Defendants’ Server Are Privileged Due to Application of Argentine Law

Lynch v. Gonzalez, C.A. No. 2019-0356-MTZ (Del. Ch. Nov. 18, 2019).

The plaintiff brought suit seeking confirmation that it validly acquired from defendants a majority ownership interest and the concomitant right to manage Grupo Belleville Holdings, LLC (the “Company”), a Delaware limited liability company. The discovery motion at-issue addresses the confidentiality of emails between Plaintiff and his counsel – complicated by the fact that they are stored by a server owned and operated by the defendants. To explain, the defendants had provided the Argentina-based Company and its employees, including the plaintiff, with email addresses for the purpose of executing their job duties. The email addresses and the server on which the emails were stored were not owned by the Company, however; rather, it was known to all involved that they belonged to a separate company of the Defendants. The emails at issue were between plaintiff Lynch and two in-house Company attorneys who also provided legal advice to him on personal matters, distinct from advice they provided him in his capacity as the Company’s manager. In discovery, Lynch sought to vindicate the privilege. He moved to compel the defendants to turn over the emails, but the defendants refused. More ›

Share

Delaware Supreme Court Reminds Counsel of Obligation to Prevent Clients’ Abusive Deposition Misconduct

In re: Shorenstein Hays-Nederlander Theatres LLC Appeals, Consol. C.A. Nos. 596, 2018 and 620, 2018 (Del. Jun. 20, 2019).

 “Depositions are court proceedings, and counsel defending the deposition have an obligation to prevent their deponent from impeding or frustrating a fair examination.”  After reversing and remanding a contractual dispute involving  popular Broadway shows back to the Court of Chancery on unrelated grounds, the Delaware Supreme Court included an Addendum to its opinion reprimanding an out-of-state attorney for permitting his client to engage in abusive deposition misconduct.  During the deposition, Carole Shorenstein Hays, a prominent theater producer, repeatedly provided answers characterized by the Supreme Court as ridiculous, problematic, flagrantly evasive, nonresponsive, and flippant.   Among other things, Hays claimed not to know whether she earned a university degree, claimed not to measure time in hours, refused to answer myriad straightforward questions, and made unprompted speeches in which she likened herself to Judy Garland and the deposition to a “piece of theatre that’s being recorded.”  While no Delaware attorney for Hays attended the deposition, the two attorneys representing her were both admitted pro hac vice and made no attempt to stop her misconduct.  The Court of Chancery had previously awarded attorneys’ fees and costs for this bad faith misconduct, and that ruling was not challenged on appeal.  The Supreme Court felt compelled, however, to address the situation.  The Supreme Court reasoned that, faced with such conduct, the deponent’s counsel “cannot simply be a spectator and do nothing.”  In addition, “Delaware counsel moving the admission of out of state counsel pro hac vice also bear responsibility in such a situation.  They must ensure that the attorney being admitted reviews the Principles of Professionalism for Delaware Lawyers, but they must also ensure that the out-of-state counsel understands what is expected of them in managing deposition proceedings outside the courthouse so that the litigation process is not abused.”  In light of restrictions Delaware court rules and precedent impose on conferring with a client-deponent during the deposition, the Supreme Court advised that these points “should be addressed beforehand in the deposition preparation.”

Share

Court of Chancery Addresses Discovery Abuses

Terramar Retail Centers LLC v. Marion #2-Seaport Trust, C.A. No 12875-VCL (Del. Ch. Dec. 4, 2018)

The Court of Chancery has long demanded that litigants abide by the discovery rules and respect scheduling orders. This is an excellent summary of Delaware discovery obligations and a good list of many ways a litigant can go wrong in responding to discovery. More ›

Share

Court Of Chancery Explains Privilege Limits Involving Corporate Investigations

Akorn Inc. v. Fresemus Kabi A.G., C.A. 2018-0300-JTL (May 22, 2018) and Sandys v. Pincus, C.A. 9512-CB (July 2, 2018)

Corporate investigations present complicated issue surrounding what must later be produced in litigation. Context means everything in those disputes. Discovery into the decision by a SLC is much more limited than in other litigation, for example. But these two transcript rulings are useful for their insights into how the Court of Chancery handles disputes over discovery into the investigation process. More ›

Share