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Case Spotlight: TCV VI, L.P. v. TradingScreen Inc.
Case Spotlight: TCV VI, L.P. v. TradingScreen Inc., 2018 WL 1907212 (Del. Ch. Apr. 23, 2018) (Laster, V.C.)
Philippe Buhannic is a founder of TradingScreen Inc. (the “Company”) and was formerly its CEO and Chairman of the Board. His brother, Patrick Buhannic, was also formerly a director of the Company. In 2014, plaintiffs filed this action alleging that defendants had breached their fiduciary duties when determining how much of plaintiffs’ preferred stock to redeem. Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”) represented all defendants through trial, including Philippe and Patrick (together, the "Buhannics"); however, during settlement negotiations, it became clear that the Buhannics were adverse to the other defendants. In response, Morris Nichols withdrew as counsel to the Buhannics and advised the defendants that it could not participate further in the settlement negotiations.
The Buhannics moved to compel Morris Nichols to produce their litigation file and the Court granted the motion without getting into specifics about what was to be included as part of the production. Morris Nichols produced 5,316 documents, which included pleadings, invoices, all emails with any of the Company’s directors or counsel, and several iterations of the settlement term sheet; however, it did not produce its complete file.
The Buhannics moved to compel Morris Nichols to produce their complete litigation file and additionally asked the Court to penalize Morris Nichols for not doing so in the first instance.
Given that Delaware has not previously addressed the scope of the materials that former counsel must produce to a former client, the Court analyzed both the majority rule “entire file” approach and the minority rule “end product” approach. The entire file approach reflects a client’s property interests in its file and allows a client or former client to inspect any documents possessed by its counsel relating to the representation, with only very narrow exceptions. The end product approach, on the other hand, distinguishes between the lawyer’s external work product, which the client has a right to receive, and the firm’s internal work product, which the client does not have any rights to. When using this approach, a lawyer would not have to produce his or her internal memoranda or notes that reflect their mental impressions or theories of the case.
In 2015, the Standing Committee on Ethics and Professional Responsibility of the American Bar Association issued an opinion adopting a version of the end product approach (the “ABA Opinion”). Morris Nichols produced the materials called for by the ABA Opinion. Given that there was no applicable Delaware authority, the Court found that this approach was reasonable and, therefore, sanctions against Morris Nichols were not warranted. However, the Court held that the entire file approach is more consistent with Delaware’s attorney-client privilege law and “best comports with an attorney’s heightened duties to his or her clients and the candor and transparency that characterize the attorney-client relationship” and, therefore, the Court ordered Morris Nichols to make an additional production consisting of the previously unproduced documents from its litigation file.
Counsel in Delaware should be mindful that even internal documents such as research memoranda, drafts of documents, wholly internal communications, and case assessments are considered the client’s property and will need to be turned over at the client’s request.