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Chancery Addresses Common Interest and Privilege Log Issues in Matter Involving Special Discovery Master

Buttonwood Tree Value Partner, L.P. v. R.L. Polk & Co., Inc., et al., C.A. No. 9250-VCG (Del Ch. Jul. 30, 2021)

With increasing frequency, the Court of Chancery is appointing Special Discovery Masters and Discovery Facilitators as discovery issues continue becoming more complex and time-intensive. With those appointments also comes the opportunity for litigants to challenge the findings of those Special Masters and Facilitators and force the Court’s de novo review. This is just such a case.

The matter involved a self-tender transaction in which plaintiff minority stockholders alleged that majority stockholders, including officers, breached their fiduciary duties by inducing the minority to sell while failing to disclose material facts that affected the stock value. Defendants withheld internal documents as privileged pertaining to discussions surrounding the self-tender transaction and the company’s sale.

After in camera review, the Special Master was skeptical of both the privilege claims themselves as well as the log, ultimately recommending that 343 of the 402 withheld documents be produced in full. The Special Master concluded that: 1) withheld board meeting draft minutes should be produced if final minutes are unavailable; 2) privilege log entries should identify that documents, markups, and comments were prepared by an attorney and not circulated externally; and 3) the presence of a certain defendant on communications regarding the stock repurchase mechanism generally defeated a claim of common interest privilege, as the defendant, a shareholder in addition to an officer, stood on both sides of the transaction. The Special Master recommended that defendants revise their privilege log to reflect situations in which attorneys were involved in comment or drafting. Defendants did not argue the quality of their log but also did not remedy the log in advance of the Court’s review. 

Upon review, the Court of Chancery agreed with almost all of the Special Discovery Master’s recommendations but found that defendants’ defective claims did not constitute waiver of privilege and declined to re-allocate the cost of Special Master review solely to defendants. While warning that a waiver, as recommended by the Special Master, would be defensible given the defendant’s approach in waiting to provide revisions to the deficient log until the de novo review was completed, the Court ruled that this action (and the defendants’ previous efforts in logging documents) did not rise to level of waiver. Thus, while defendants were required to produce most of the withheld documents as common-interest privilege was found to not apply, they were afforded the opportunity to correct their log, and privilege was not waived.

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