In Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, the Delaware Supreme Court formally recognized the “Garner doctrine,” an exception to the attorney-client privilege, in connection with a stockholder’s demand for records under Section 220 of the Delaware General Corporation Law, and confirmed that the exception also applies to other stockholder claims. The decision may allow derivative plaintiffs to obtain certain sensitive privileged communications and attorney work-product in cases involving substantial allegations of serious fiduciary misconduct.
Posts Tagged ‘Discovery’
Gabelli v. Sec. & Exch. Comm’n, No. 11-1274 (U.S. Feb. 27, 2013)
In a unanimous opinion authored by Chief Justice Roberts, the U.S. Supreme Court held that the five-year limitations period that governs SEC enforcement actions begins to run when the alleged fraud is complete. The Court reversed the Second Circuit on the issue, which had held that the discovery rule applied in cases where the defendant allegedly committed fraud. The SEC alleged that two mutual fund managers allowed one of the fund’s investors to engage in market timing in the fund in exchange for an investment in a separate hedge fund, but the SEC filed the action more than five years after the conduct was alleged to have taken place. The Court explained that limitations periods ordinarily begin to run upon a party’s injury, but in cases of fraud — when the injury itself is concealed — courts have developed the discovery rule to protect individuals, who are after all not required to be in a constant state of investigation. That rationale however does not apply to the SEC, whose mission is to investigate (and prevent) fraud and which has statutory authority to demand detailed records, including those extra-judicial subpoenas. Therefore, the Court concluded the discovery rule does not apply to the SEC.
Click here to view the opinion.
A large corporation is sued over the alleged breach of a substantial contract. Due to the complex nature of the contract, the corporation’s business executives frequently sought advice from in-house counsel when entering into, and performing under, the agreement. The corporation’s in-house counsel has concerns that sensitive documents reflecting attorney-client communications—or even in-house counsel’s own work product—may be produced by mistake, given the volume of email and electronic documents that must be reviewed quickly.
Clawback Provisions Provide Protections and Cost Savings
Even when a party to a litigation employs precautions to prevent the inadvertent disclosure of privileged documents, some privileged materials are likely to slip through. Recognizing this likelihood, litigants commonly enter into “clawback agreements” at the start of discovery. Typically, a clawback agreement permits either party to demand the return of (that is, to “claw back”) mistakenly produced attorney-client privileged documents or protected attorney work product without waiving any privilege or protection over those materials.
Clawback agreements allow parties to specifically tailor their obligations (if any) to review and separate privileged or protected materials in a manner that suits their needs. For example, before discovery begins, the parties can agree on how they will search for and separate privileged or protected materials from their document productions. So long as the parties abide by the agreement, they will be permitted to take back any privileged or protected material inadvertently produced. Thus, parties can reduce their exposure to costly and time-consuming discovery disputes over whether the protection of privileged material was waived by its production.
It would be natural to start this 2011 Foreword with a précis of the many dramatic regulatory developments newly affecting directors of publicly traded corporations beginning in 2011. Those changes, are, in fact, important to review and are summarized below. But with so much attention understandably focused on external requirements and pressures, it might be better to start first with a less highlighted and yet more central topic — namely, you, the director.
At the end of the day, the recent reforms deservedly catch headlines because they shift or channel some of the regulatory tides buffeting governance activity. But at the beginning of each day, the ability of the board to address those issues while running a successful business depends on you and your fellow directors. This suggests that we begin with recent developments concerning how you inform yourself as a director, how you deal with hidden burdens of the directorship, and how, as this Handbook describes in detail, you undertake the collectivity of tasks and human interactions, practices and rituals that together comprise what I call the anthropology of the boardroom.
On January 18, 2011, the Delaware Court of Chancery became one of the first state courts to issue a guideline for the preservation of electronically stored information (“ESI”) (the “Guideline”). The stated purpose of the Guideline is a reminder to litigants and their counsel (inside and outside counsel) of their common law duty to preserve potentially relevant information to the litigation. The reason for the focus on preservation is that based on the Court’s experience, proper preservation can remedy many discovery ills that arise later in the litigation. Indeed, most courts would agree that glitches in preservation are often difficult to remedy after the fact.
In an important new decision, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York has expanded upon her well-known Zubulake V opinion (229 F.R.D. 422 (S.D.N.Y. 2004)), setting forth crucial guidance for all parties to litigation as to their obligations to preserve and collect all potentially relevant records – whether paper or electronic – once litigation is reasonably anticipated, and providing an important example of the extremely serious consequences of failing to do so.
Pension Committee of the University of Montreal Pension Plan v. Bank of America Securities, Case No. 05 Civ. 9016 (SAS), involves an action under both the federal securities and New York State laws by a group of investors seeking to recover more than a half billion dollars in losses alleged to have resulted from the liquidation of two hedge funds in which they were investors. In her opinion, Judge Scheindlin closely reviews the discovery efforts of 13 plaintiffs and finds their failure to institute timely, written litigation hold notices, and their careless and indifferent collection efforts, resulted in the loss or destruction of evidence. Finding their conduct to be negligent or grossly negligent, Judge Scheindlin imposed sanctions, including a rebuttable adverse inference instruction, monetary fines, and, for two plaintiffs, limited additional discovery involving the search of their backup tapes.