Lim v. The PowerWise Group, Inc., C.A. No. 5529-CC (Del. Ch. Sept. 7, 2010), read letter ruling here.
This overview is presented by Kevin F. Brady of the Connolly Bove firm.
This short letter ruling addressed discovery issues in a Section 220 matter. The discovery issues addressed were the following: (1) Whether documents connected to correspondence between the attorneys for the parties in a separate dispute not raised by the Section 220 lawsuit, and relating to disclosure issues in connection with a stock issuance, were discoverable in the Section 220 case; (2) Whether privileged documents described on a privilege log were indeed privileged, and whether the privilege was waived because they were shared with a third-party who was assisting the plaintiff in the litigation; and, (3) Whether the plaintiff was obligated to produce documents that were in the possession of that same third-party with whom she collaborated in the litigation but which documents were not in her control or possession.
Summary of Background Facts
Some of the background facts that were not included in the short letter ruling are available from public filings in this case, such as the cross motions to compel and the related pleadings. The background of this Section 220 action involved a founding shareholder who sought information regarding the valuation of her shares and related purposes. It is well settled that in a Section 220 summary proceeding, the very limited focus of the lawsuit and thus, the limited focus of discovery, is three-fold: (1) Whether the plaintiff is a shareholder; (2) Whether there is a proper purpose for the books and records requested; and (3) Whether the books and records requested are reasonably related to the proper purpose.
The background to this letter ruling involved the arguments by defendant that the plaintiff should be obligated to produce documents that were in the possession and control of someone who has served as her spokesman in communications with the company and her counsel. The plaintiff has a primary residence outside the U.S. The defendant claimed that any attorney/client privileged communications between the plaintiff and the plaintiff’s attorney were waived to the extent that they were shared with that same third-party. Moreover, the defendant argued that the plaintiff was obligated to produce documents that were in the possession of the third-party who served as the plaintiff’s spokesman.
Summary of Court’s Decision
After reviewing the privileged documents on the privilege log, in camera, the Court found that the documents on the privilege log were indeed privileged; and that privilege was not waived. Moreover, the Court determined that in any event the privileged documents were irrelevant to the proceeding, and therefore, one can extrapolate from that finding that even if the documents were not privileged, because they were not likely to lead to the introduction of relevant evidence, they were not discoverable.
The Court also ruled that documents relating to a separate issue between plaintiff and the company relating to disclosures in a stock sale were not discoverable. Finally, defendant’s request for “phone records” of plaintiff was rejected by the Court.
In sum, the Court denied defendant’s motion to compel (before defendant’s reply brief was filed). Within the limited confines of a Section 220 action, although the letter ruling was very brief, the decision supports the position of a plaintiff that the relevancy of documents for which privilege is claimed can be an equally important basis to limit discovery of those documents. Moreover, whether a plaintiff in a Section 220 action collaborates with other parties, the documents in the possession of those other parties may also be of limited or no relevance – – whether or not the plaintiff would be obligated to produce those documents in the possession of a third-party. Lastly, other correspondence regarding other issues between the plaintiff and the defendant company in a Section 220 case are likewise to be circumscribed in terms of their discoverability in a Section 220 case.
Supplement: There are 91 other posts summarizing other Section 220 cases, and/or providing commentary, on this blog, available here.