Jefferson v. Dominion Holdings, Inc., C.A. No. 8663-VCN (Del. Ch. Dec. 13, 2013).

Issue Addressed:  Whether the Court would bar the use at trial of privileged documents that were produced but not noticed by producing counsel until they were made exhibits in a deposition. Short Answer:  Yes under the circumstances of this case.

Brief Overview:

The issues addressed in this case were in the context of production during discovery in the midst of an action for books and records under 8 Del. C. Section 220, (as opposed to production ordered after the trial of the Section 220 matter).

Procedurally this short letter ruling was based on an application captioned as “an emergency motion for a protective order.”  The motion was based on the argument that privileged documents were inadvertently produced but were first noticed by the producing counsel during the deposition in which they were used as an exhibit.  The parties previously entered into a stipulation governing the production and exchange of confidential information which established that the inadvertent production of privileged materials do not constitute a waiver, but the stipulation did not include a clawback provision.

The Court did not address whether the receiving party should have realized that they were privileged.  The producing party first noticed that the privileged documents were produced when they were used during a deposition of the CEO of the defendant in this 220 action.

The documents at issue contained communications from the company’s counsel and according to the Court “there is little doubt that they were – – at least initially – – properly subject to a claim of attorney-client privilege.”  Thus, the Court determined that the issue was whether the production of the privileged materials was inadvertent.  The Court explained that the matter was complicated by the fact that the counsel for the company allowed questions at the deposition about the privileged materials and only raised the issue at a break during the deposition.

The Court explained that the standard for inadvertence in this context is based on four factors:

“(1)  The reasonableness of the precautions taken to prevent inadvertent disclosure; (2)  The time taken to rectify the error; (3)  The scope of discovery and extent of disclosure; and (4)  The overall fairness, judged against the care or negligence with which the privilege is guarded.”  See footnote number 5.

The Court explained that in this Section 220 action, during which typical conventional discovery is very limited, only 330 pages of documents were produced prior to trial, and that they were reviewed by both company counsel and trial counsel before they were produced.  In addition to an application of the factors, the Court reasoned that even though the issue was not raised until a break in the deposition, the privilege was not waived.  However, the Court mentioned that if the issue was not raised until after completion of the deposition, the result might be different.

In sum, the Court granted the motion to prevent the use of the documents–and related deposition testimony, at trial.  The trial on the Section 220 matter proceeded the day after this decision.