PLI hosted a seminar in New York yesterday on recent developments in Delaware law pertaining to M & A litigation. An excerpt from PLI’s description of the seminar follows:
What better way to learn about M&A litigation than from the attorneys that litigate the nation’s most important M&A disputes and the judges who preside over them? We have assembled judges from the Delaware Supreme Court and the Court of Chancery (the most experienced and respected courts on M&A matters) and distinguished M&A litigators to give you their perspectives on the best ways to handle corporate M&A disputes.
Whether you are just embarking on a litigation career or are a veteran of fast-paced, high-stakes merger disputes, this course will give you unique insights into M&A litigation. Our stellar faculty will provide you with proven strategies and tips to successfully handle every phase of a merger dispute.
What you will learn (according to the PLI description):
Join the masters of M&A litigation to learn about:
-Litigating poison pills in the wake of Selectica, Newmark and Yucaipa
-Erecting or dismantling a “Just Say No” defense to a hostile takeover
-Tackling the vagaries of business-strategy immunity
-Settling merger lawsuits through disclosure-only settlements
-Coordinating the race to the courthouse after a merger announcement
-Managing discovery in the Delaware Court of Chancery
In this short post we will provide a few bullet points about a few selected parts of the presentation.
The panel that discussed expedited discovery in M & A litigation, included the following Delaware luminaries: Vice Chancellor J. Travis Laster, Anne Foster and A. Thompson Bayliss. One of the topics they discussed was the appropriate basis to withhold documents as well as the adequacy of a privilege log.
The Business Strategy Immunity (BSI) was discussed and defined as follows from materials prepared by Mr. Bayliss: "BSI is a “qualified immunity” from civil discovery which allows litigants to withhold potentially relevant information about its “business strategies” from discovery if the risk of non-litigation injury from disclosure outweighs the justice system’s countervailing interest in the discovery of all relevant, non-privileged information. See, e.g., Computervision Corp. v. Prime Computer, Inc., C.A. No. 9513, 1988 WL 909326, at *1 (Del. Ch. Jan. 26 1988); Grand Metropolitan PLC v. Pillsbury Co., C.A. No. 10319, 10323, 1988 WL 130637, at*2 (Del. Ch. Nov. 22, 1988); Vitro, Sociedad Anonima, C. Holdings Corp. v. Anchor Glass Container Corp., C.A. No. 11016, 1989 WL 108406, at *1 (Del. Ch. Sept. 20, 1989)."
VC Laster commented that unlike the "attorney/client privilege" the business strategy immunity can expire after the date that the strategy is no longer sensitive (such as the name of the bidder after the deal is closed), at which time His Honor suggested that a motion to compel may be appropriate. His Honor observed that the immunity is based on a "balancing test". For example, one issue is whether a party really needs the information in order to present its case.
The Bayliss materials support the position that a conventional "confidentiality stipulation" may not cover materials subject to the "business strategy immunity", perhaps in light of the origin of the immunity that he describes as follows: "Delaware courts officially recognized the need for BSI protection in hostile takeover litigation in the 1980s, when target corporations sought to withhold otherwise discoverable information from potential acquirers who sought civil discovery regarding their opponent’s defensive activities. See Newell Co. v. William E. Wright Co., C.A. No. 8161, at 22 (Del. Ch. Sept. 26, 1985) (Transcript); Wickes Companies, Inc. v. Owens-Corning Fiberglass Corp., C.A. No. 8572, at 59 (Del. Ch. Aug. 29, 1986) (Transcript). Delaware courts grounded their BSI rulings on Delaware Court of Chancery Rule 26(c), which authorizes courts to enter protective orders as “justice requires” to protect parties from undue prejudice. Del. Ct. Ch. R. 26(c); see, e.g., Grand Metro. 1988 WL 130637 at *2 (Del. Ch. Nov. 22, 1988); Pfizer Inc. v. Warner-Lambert Co., C.A. No. 17524, 1999 WL 33236240, at *2 (Del. Ch. Dec. 8, 1999); NiSource Capital Markets, Inc. v. Columbia Energy Group, C.A. No. 17341, 1999 WL 959183, at *1 (Del. Ch. Sept. 24, 1999)."
Confidentiality of Court Documents and Proceedings in General
VC Laster said that efforts to keep data and court proceedings confidential, must overcome the presumption in the Delaware state constitution that court proceedings are open to the public. See, e.g., recent Espinoza decision highlighted here that addresses the issue in the context of Court of Chancery Rule 5(g).
Practice point: If a lawyer wants the "courtroom closed to the public" that will only be done if adequate arguments supporting that request are successfully made in advance.
Famed M & A litigator Ted Mirvis noted that in the recent Airgas case, some documents were limited by court order to "Delaware attorneys’ eyes only". He and Gary Bornstein both said how difficult it was in the Airgas case working with a "Delaware lawyers eyes only" standard. Briefing was fractured and extremely difficult.There were portions of the trial where non-Delaware lawyers had to leave the courtroom for certain testimony and then return to cross-examine that same witness who had testified while they were out of the room. In reply, VC Laster said that before the next trial that involved this tyype of protection, that the five judges on the Delaware Court of Chancery would get together and see if there were better solutions available to address that problem.
When Documents in Deal Litigation May Not be Discoverable Regardless of Immunity
VC Laster separately commented that in a controlling stockholder situation, based on the unified standard (which is premised on a majority of minority stockholders deciding if they want the price offered), if one has an effective committee and a vote of a majority of minority shareholders, then that will be treated by the court as the equivalent of an arms length negotiation; and therefore His Honor said that in a pre–closing suit there would be no duty to disclose internal data about the deal regardless of the business strategy immunity. That is so, because in part, typically, the issue would be focused on what the directors knew or said at the time of their decision, if that decision is at issue.
Adequacy of Privilege Log’s Description. A recent Chancery decision by VC Laster in Klig v. Deloitte, LLP, summarized here on this blog, is must reading on this topic.
VC Laster remarked at the seminar that conceivably parties can agree on the content/format of the log. Also he said if there is an asymmetric situation where a stockholder has nothing and the corporation has much, he suggests that the defendant "build a record" that he is trying to do his best. One point he made is that the description "of what was being talked about" in the document is needed. Also, just because a lawyer was "cc’d" does not make it privileged, especially if the document relates to business issues and not legal advice.
The illustrious Delaware corporate litigator, Pam Tikellis, discussed the research done by Professor Black and others regarding a measurable decline in the number of "deal cases" that are filed in Delaware compared to the last two decades. See, e.g., one of the professor’s articles on the topic highlighted in a post here. She observed that it was not a problem if weak cases were filed elsewhere, but that we should not discourage the meritorious cases from being filed in Delaware.
Ed Micheletti, a Delaware M & A litigator in the upper echelon of his field, noted that despite disfavor expressed about them in some recent Delaware decisions, "disclosure cases are still viable" and listed 4 injunctions granted in the last year based on disclosure claims in deal cases: Atheros (2011); Art Tech Group; Maric Capital Master Fund, and Steinhard v. Howard Anderson. Ed was kind enough to share his PowerPoint presentation, available here, which has a more complete explanation, including cites.