Chancery Court Rejects Request for Fees and Costs Despite Granting Second Motion to Compel Discovery Against eBay

eBay Domestic Holdings, Inc. v. Newmark, No. 3705-CC (Del. Ch. Oct. 29, 2009), read opinion here. See prior Chancery Court decisions in this case summarized here and here.  This letter decision rules on a Motion to Compel discovery responses and continuations of depositions.

Background and Prior Order

There were six separate aspects of the Motion to Compel, only a few of which will be highlighted. The first involved the request by the defendants to order plaintiff to produce complete, unredacted versions of all board minutes and related materials for the years 2004 through 2008. Previously, on September 16, 2009, the Court ruled that eBay was required to produce unredacted versions of its board minutes, and although it produced board minutes that referred to craigslist as required, eBay redacted information that was not related to craigslist. Defendants contend that the redacted versions are relevant because they relate to eBay’s strategy regarding classified ads and were improperly redacted.

The parties disputed the scope and meaning of the prior Order of the Court on this issue. The Court emphasized that the plaintiff’s competitive conduct in the classifieds business is “conditionally relevant to this case” and therefore the "discovery of board minutes and materials dealing with that conduct is appropriate.” However, the Court also underscored that it would not be appropriate to order all board minutes as discoverable without regard to their content, citing the parameters that are contained in Chancery Court Rule 26, which limits discoverability in connection with claims or defenses in a particular case. Thus, board minutes or materials that contain “absolutely no mention of plaintiff’s classified business are not relevant to a claim or a defense and are not discoverable.”

The Court ordered in camera review of four specific documents in order to determine whether those documents are covered under the prior Order of September 16, 2009 that compelled the production of certain minutes.

Required Continuation of Certain Depositions

Defendants argued that because certain passages of board minutes were redacted at the time that particular individuals were deposed, they did not have a fair opportunity to question those individuals about the discussions in the board meetings that were redacted, and therefore should be permitted to continue those depositions. Plaintiff argued that the additional redacted portions do not reveal any information that the defendants were not already aware of when they conducted the depositions.

Nonetheless, the Court ruled that the defendants should be permitted to continue the depositions of certain board members. However, the defendants were limited in the scope of the depositions to that which relates to the business discussions that were identified by the defendants upon review of the unredacted board minutes. The Court reasoned that the defendants may have been “generally aware” of the information in the board minutes but they did not have the opportunity to explore the specific discussions involved.

Deposition of CFO Compelled and Order to Produce Relevant, Non-Privileged Materials from the Files of the CFO

In addition to compelling the deposition of the CFO, the Court required a search of the files of the CFO for all relevant, responsive, non-privileged materials because the defendants were not previously aware of his role in the board meetings that were redacted. The defendants were generally aware of the CFO attending board meetings, but did not previously know that his files were likely to contain information about relevant issues in the case. They only came to know when they read previously unavailable minutes.

Court Rejects Request for Attorneys’ Fees Incurred in Motion to Compel

The Court denied the request for fees and expenses incurred in connection with the Motion to Compel filed on May 21 (the current Motion to Compel), and with respect to any additional depositions ordered by the Court.

The Chancery Court firmly rejected the request for shifting of  the fees in connection with both Motions to Compel, and similarly denied the request for fees associated with the additional depositions that were ordered by the Court in response to the latest Motion to Compel. The Court relied on Chancery Court Rule 37(a)(4) which, despite some mandatory language, still allows the Court discretion to deny a request for fees regarding a Motion to Compel when “other circumstances make an award of expenses unjust.” The Court also agreed with the reasoning of the plaintiff that an award of fees would be unjust because the redaction of the minutes was an “inadvertent oversight” and not the result of “grossly negligent conduct.” (See footnote 7, citing Dow Chem. Canada, Inc. v. HRD Corp., 2009 WL 2355742, at * 6-7 (D.Del. July 30, 2009)).

The Court reasoned that the defendants were not entitled to be reimbursed for fees or expenses associated with the motions because the redactions determined to be wrongly made were not intentional. The further reasoning of the Court is eminently quotable, as follows:

This Court has never required perfection in document production. Absent clear evidence that the failure to produce relevant documents was something other than an mistake, it would be unjust to require plaintiff to pay the fees associated with the motion. It is not clear from the evidence that plaintiff intentionally concealed information from defendants.

In modern litigation mistakes and oversights in document production often occur. Parties face significant challenges in their attempts to comply with appropriate discovery requests. They often sift through large quantities of documentation for relevant and responsive material, all-the-while screening out irrelevant, privileged or otherwise undiscoverable information. In such an environment mistakes are inevitable and fees should not be awarded unless it is clear information was intentionally withheld.

Regrettably, motions to compel are a subjective enterprise and depending on the jurist reviewing the matter, the exercise of predicting the outcome of such motions is rarely easy. However, it is helpful to know for future reference that the author of this decision demonstrates understanding in terms of not being Draconian or Procrustean in ruling on requests for fee-shifting in connection with motions to compel.

Regarding the requests for fees in connection with the additional continued depositions that were ordered, the Court reasoned that Rule 37 deals with costs in connection with “obtaining the Order” on a motion to compel, and does not provide for costs relating to additional discovery that is later taken as a result of the Order.

Lastly, the Court rejected a request that an attorney be present during the in camera review because at that point the review would no longer be “in camera,” and moreover the Court observed (in an understatement) that it was “competent enough to evaluate the relevance of the eight presentations [submitted for review] on its own.”

This eight-page letter decision is of substantial practical value, and one that should be considered for inclusion in the “toolbox of every Delaware litigator"–at least those that practice in the Court of Chancery.
 

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