Case Spotlight: In Re ExamWorks Group, Inc. Stockholder Appraisal Litig.

Case Spotlight: In Re ExamWorks Group, Inc. Stockholder Appraisal Litig., 2018 WL 1008439 (Del. Ch. Feb. 21, 2018) (Laster, V.C.)

ExamWorks Group, Inc. (the “Company”) is a Delaware corporation with its principal place of business in Atlanta, Georgia.  In 2010, the Company completed an initial public offering.  In 2016, it entered into a merger agreement with affiliates of Leonard Green & Partners, L.P.  After the announcement of the merger, petitioners perfected their appraisal rights seeking a judicial determination of the fair value of their interest in the Company.  During the proceedings, the Court of Chancery appointed two firms as Co-Lead Counsel.  The parties agreed on a schedule for the action, which included discovery, and the Court approved the schedule by order.

The Company served requests for production of documents on petitioners on May 31, 2017.  It was not until November 14, 2017, six weeks after the fact discovery cutoff date and four days after the parties exchanged initial expert reports, that the petitioners represented by Entwistle & Cappucci, LLC (the “Entwistle Petitioners”) produced their documents.  A couple weeks later, they produced a privilege log, which showed that the majority of the documents on their log had been redacted on confidentiality and relevance grounds.

Similarly, the petitioners represented by Grant & Eisenhofer, P.A. (the “G&E Petitioners”) did not produce their privilege log until December 12, 2017, ten weeks after the fact discovery cutoff date.  A few days later, they also made a production of documents that had come off their log.  These documents were produced after the depositions of the petitioners’ representatives had already taken place.

The Company filed two motions for discovery sanctions against both the Entwistle and G&E Petitioners.

The Court began by explaining that if a party cannot meet a deadline, including a discovery deadline, the burden is on that party to be transparent about the situation and to explain the reasons for it.  They must either deploy the resources necessary to meet the deadline, meet and confer with the other side, or seek a modification of the schedule.  When parties communicate with either other, they can address problems without judicial involvement, which is, of course, the Court’s preference.  Scheduling orders and discovery cutoff dates further the important purposes of candor and fair-dealing by avoiding “trial by surprise” and the prejudice that can result.

When a party engages in discovery abuses, the Court will look to Court of Chancery Rule 37(b)(2) to determine what sanction would be appropriately tailored to the culpability of that party and the harm suffered by the complaining party.  Default judgment is the ultimate sanction for discovery violations and is used sparingly for cases where there was a willful and conscious disregard of an order.  Other potential sanctions are adverse inferences, shifting the burden of proof, increasing or decreasing the relevant standard, allowing additional discovery, or precluding the use of the belatedly produced material.  The Rule also allows for a presumptive award of fees and expenses.

The Court of Chancery granted the Company’s motions for discovery sanctions for the petitioners’ failures to produce documents, including documents received from third parties, and privilege logs until after the discovery cutoff.  In determining the appropriate sanctions, the Court considered both the actual prejudice in this specific case and the broader degradation of the litigation process.  As the Entwistle Petitioners had already produced their documents without the relevancy redactions, the Court instructed them to produce additional documents off their log and to again produce witnesses for deposition.  The Court also ordered that they would bear all expenses associated with their late production.  Because petitioners had inadvertently failed to produce some third party documents, the Court gave the Company the choice of either both sides being able to use the documents and produce rebuttal expert reports or neither party being permitted to use the documents.

Finally, the Court held that the G&E Petitioners had waived privilege on most of the documents listed in their untimely log.  The Court reasoned that producing a post-cutoff log was akin to not producing one at all, which in turn is the same as not providing any support for a claim of privilege.  The G&E Petitioners were only permitted to hold back documents that post-dated the filing of the appraisal proceeding and that had been sent directly to or from counsel.

While perfection is not expected in the discovery process and the Court understands that humans are fallible, parties must be candid and transparent throughout the process in order to get any leniency from the Court.  The Court of Chancery takes scheduling orders as seriously as any other order and will not hesitate to order serious sanctions against a party who abuses the process and disobeys such an order.