In Re Lululemon Athletica Inc. 220 Litigation, Cons. C.A. No. 9039-VCP (Del. Ch. Apr. 30, 2015). This Delaware Court of Chancery opinion addresses important issues regarding the scope of documents (including emails) that a company must search for and produce after an order is granted pursuant to DGCL Section 220.
Discovery of Non-Employee Directors
Most noteworthy about this opinion is the court’s discussion of the scope of a search that is required – – or not, for emails of non-employee directors. The court focused on documents that were in the possession and control of the company – – which was not likely to include non-employee director emails. At footnote 22, the court provided a practical and useful description of the process used to search a company server for emails, which is not likely to include emails between non-employee directors because those emails would not ordinarily pass through the company server. Footnotes 32 and 33 also discuss, without deciding, the presumption that production of company records does not necessarily or automatically include the records of directors.
Importantly, the court declined at least by implication the opportunity to address the scope of a search for ESI that a company must perform in connection with production in a Section 220 case. My inference was based in part on the fact that the court relied on the definition of “document” that was used by the plaintiff, as compared to the definition in the court rules of the word document.
ESI and Section 220
To my knowledge, neither the Court of Chancery nor the Supreme Court has directly addressed this issue of the scope of ESI needed to be searched or produced in connection with a Section 220 demand. See law review article addressing this issue.
Garner Exception to Attorney-Client Privilege
Also noteworthy was the court’s discussion of the exception under the Garner and Wal-Mart cases for documents that are otherwise covered under the attorney-client privilege but still may be subject to production based on exceptions to that privilege, such as those situations when the data is not otherwise available in connection with breach of fiduciary duty claims – – under certain circumstances.
Commentary – Constant Refrain
A final note should be familiar to readers of these pages as a frequent refrain that I often include in commentary on Section 220 cases. This opinion requiring further production pursuant to a stockholder demand for books and records under DGCL Section 220 comes two years after the first demand was made.
To put a sharper point on it, this case is one of many highlighted on these pages that support the observation that Section 220 demands are neither for the fainthearted nor for those without financial stamina. The first Section 220 complaint in this consolidated matter was filed in May 2013. In April 2014, one year later, a post-trial order required a production of documents in light of a credible basis to infer possible insider trading and poor oversight by the board. In June 2014 a motion to enforce the order of April 2014 was filed due to deficiencies in production. Now, nearly a year after that motion to enforce, and nearly two years after the first complaint under Section 220 was filed, we have a 38-page decision by the court. I feel confident in predicting that additional time, money and effort will be required by the plaintiff to enforce the latest installment in this Section 220 saga. That observation is not intended as a negative comment on anyone involved in this case, but is merely my conclusion of how the process of Section 220 works after reviewing hundreds of cases after nearly three decades.