Melzer v. CNET Networks, Inc., 2007 WL 2593065 (Del. Ch., Sept. 6, 2007), read opinion here. This is a Chancery Court decision addressing a discovery dispute in the context of 8 Del. C. Section 220. Many cases interpreting DGCL Section 220, regarding a shareholder’s right to demand books and records, have been summarized on this blog. (E.g., one could simply type the numbers "220" in the "search box" to the right.) Due to the limited scope and summary nature of the proceeding, and the restricted discovery allowed, however, there are not quite as many published decisions on discovery disputes related to Section 220. The court compelled the plaintiff stockholder to produce two things pursuant to Rule 37, and in turn, discussed the allowable scope of discovery under Rule 26 in the context of a 220 case.
First, the court ordered the production of a "solicitation letter" that the plaintiff argued was privileged as an attorney/client communication. Explaining the "at issue" doctrine, as an exception to the privileged nature of attorney/client communications when the plaintiff raises an issue that relates to such privileged data, and in order to prevent the plaintiff from using the privilege as a shield to prevent inquiry into matters that they allege, the court applied the doctrine to compel the disputed data. The court reasoned that the compelled data would be relevant to the purpose of the demand under 220. For example, did the letter suggest to the plaintiff the purchase of shares so as to bring the lawsuit, contrary to public policy in Delaware that opposes the "purchase of grievances". See, e.g., recent Chancery Court Polygon decision addressing that policy, and summarized here.
Second, the court compelled plaintiff to produce: " information regarding the credible basis for plaintiffs’ belief that there was wrongdoing (i.e., alleged backdating of stock option grants)…." This was consistent with established caselaw that requires a "credible basis" for alleging wrongdoing as a basis for demanding books and records under Section 220.
In the process of dispensing with this discovery issue, the court summarized many of the key aspects of a Section 220 case, in terms of the prerequisites for bringing such an action and the factors that the court considers in reviewing such claims.