Lake Treasure Holdings Ltd. v. Foundry Hill GP, No. 6546-VCL (Del. Ch. Sept. 11, 2012).

Why this case is noteworthy: This ruling provides practical insight into the logistical realities of discovery practice in the Delaware Court of Chancery and the gravitas required from out-of-state attorneys who may not be familiar with the seriousness with which the court treats this aspect of litigation that in some states is not given great importance.

Procedural Background: The procedural context of this case is a motion to compel discovery. The case involves a failed business relationship and a plaintiff who is trying to salvage his investment or determine if anything is salvageable from it.

Practical Insights

Regular readers will know that transcript rulings are often cited in this court as valid authority. This ruling provides several reminders why non-Delaware lawyers who practice in Chancery need to be prepared to justify objections to discovery requests, and explain to the court their failure to reply fully and promptly to discovery requests. Attorney’s fees are routinely shifted to the party losing the motion to compel. It is not uncommon or unprecedented for the fees incurred, and awarded, after full briefing and oral argument, on a motion to compel, to exceed $25,000 to $40,000. See, e.g., cases highlighted here and here.

The court referred to the Chancery decision in the Aveta, Inc. v. Bengoa case, highlighted here, for guidance if a dispute arose about the amount of fees. The Aveta case was one of three cases in as many months that, by coincidence, each separately imposed fees of $700,000 as penalties, (one of which, highlighted here, was for discovery deficiencies.) Recent Chancery cases have explained the Delaware “pizza principle”, regarding disputes over the exact amount of fees awarded, as noted in cases reviewed here and here.

Highlights of Ruling

  • The court will make Delaware counsel responsible for the failures of non-Delaware counsel who are admitted pro hac vice. This is a well-settled principle in Delaware. See Transcript (linked above) at 23.
  • The court specifically reviewed several common objections to the discovery requested, which the court referred to as mere “noise” and not valid objections. For example:
  •  (i) An objection was made alleging that the discovery requests were unduly burdensome as “they seek information already in the custody or control” of the requesting party. Among the reasons the court rejected this objection is that it would require the objector to be a psychic to know everything the other party had.  Tr. at 20-21.
  • (ii) An objection was made to requests “to the extent they purport to impose obligations beyond those established by the Rules of Civil Procedure”.  Among other reasons the court rejected this objection is because it does not explain what, if any, documents are being withheld on this basis. Tr. at 21-22
  • (iii) The court expressed displeasure with “general objections, all of which were meaningless”, followed by: “Notwithstanding the foregoing specific objections”, of which the only one was relevance. The court explained that the refusal to provide information on this basis was not appropriate. Tr. at 26
  • (iv) If an objection to production is based on the assertion that something is a “public record” it is necessary to specify exactly what is not being produced. Tr. 28-29
  • (v) Likewise, if an objection is made based on a document “being equally available” to the other side, one must specify what those documents are, which are not being produced. Tr. 29-30.
  • Finally, in the case of documents that are confidential, that is no excuse for non-production. Even for those documents that may be true trade secrets, the routine procedure in Chancery is for both a protective order to be entered and a restriction for “attorneys’ eyes only”. Tr. at 42

SUPPLEMENT: By way of comparison, and perhaps as an indication of how unpredictable the outcome of motions to compel can sometimes be, the same member of the court in another unrelated case did not shift fees in connection with ruling on a motion to compel, in World Market Center Venture, LLC v. NAMA Holdings, LLC, C.A. No. 5131 (Del. Ch.  Sept. 4, 2012). In the NAMA case, the court was displeased with both parties and perhaps because both parties were equally at fault, the court did not assess attorneys’ fees. The transcript linked above is helpful for gaining an insight into what the court regards as meaningless and obfuscating discovery objections.  See, e.g., transcript at 16 and 21-22. The court instructed the parties to: spend more time doing meet and confer, avoid gamesmanship with evasive objections, and refrain from what the court referred to as “urinary escalations” in the context of discovery instransigence. Id. at 51. Prior Chancery decisions in the NAMA case that provide background are available on these pages here.