Delaware Business Litigation Report

Chancery Addresses Discovery and Privilege Implications of Oracle Special Litigation Committee’s Decision to Defer to Stockholder-Plaintiff’s Prosecution of Derivative Claims

In re Oracle Corp. Deriv. Litig., C.A. No. 2017-0337-SG (Del. Ch. Dec. 4, 2019). 

In this decision, the Delaware Court of Chancery considered the implications of a decision by a special litigation committee of Oracle Corporation to cede control of derivative claims to a stockholder-plaintiff – including whether that decision required the production of Oracle’s privileged documents that were provided to the committee and its counsel.

Oracle stockholders brought derivative claims challenging Oracle’s acquisition of NetSuite Inc. – a company more than 40% owned by Oracle’s largest stockholder and board Chairman, Lawrence J. Ellison, and his family members.  After the lead stockholder-plaintiff overcame a motion to dismiss, Oracle formed a special litigation committee (the “SLC”) of putatively independent directors to consider, pursuant to Zapata v. Maldanado and its progeny, whether prosecuting the derivative claims was in Oracle’s best interests.  The SLC concluded that it was in Oracle’s best interests to allow the lead plaintiff to continue to prosecute the action on Oracle’s behalf.  To help it do so, the plaintiff subpoenaed the SLC for the documents and information it received in its investigation, as well as its work product.  The SLC, Oracle and the individual defendant directors and officers objected.  They indicated that, because the SLC members were Oracle directors, the SLC received greater access than a stockholder-plaintiff normally would have in discovery.  For example, they claimed to have provided broad access to Oracle’s documents without having done a responsiveness review, much less a privilege review.  They argued that a ruling requiring that a stockholder-plaintiff be provided the same access may chill future information exchanges with special litigation committees. 

Vice Chancellor Sam Glasscock III noted the lack of precedent addressing the discovery implications of a special committee’s decision to cede control of derivative litigation to a particular stockholder-plaintiff.  The Court emphasized “it would be, at least in part, against Oracle’s best interests to allow the Lead Plaintiff to proceed with the litigation asset” without the benefit of the added value created by the SLC’s efforts.  To address the concern over chilling candor, the Court focused on what documents would be most relevant, and held the production should include the “documents and communications actually reviewed and relied upon by the SLC or its counsel in forming its conclusions that (i) it would not be in Oracle’s best interests to seek to dismiss the derivative claims and (ii) it was in Oracle’s best interests to allow the Lead Plaintiff (rather than the SLC) to proceed with the litigation on behalf of Oracle.”  The Court also ruled that, to the extent the SLC actually reviewed and relied upon Oracle’s privileged information, it must also be produced.  The Court explained that Oracle had not explained “why, in its business judgment, the corporate interest in non-disclosure” of potentially privileged information to the plaintiff of documents already disclosed to the SLC “outweighs [Oracle’s] interest in vindication of the [litigation] asset.”  The Court, however, permitted the SLC to assert its own attorney-client privilege and work product claims, reasoning that the SLC was distinct from Oracle.   

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