IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
) IN RE EXAMWORKS GROUP, INC. ) Consolidated STOCKHOLDER APPRAISAL ) C.A. No. 12688-VCL LITIGATION ) )
MEMORANDUM OPINION
Date Submitted: February 13, 2018 Date Decided: February 21, 2018
Stuart M. Grant, Michael J. Barry, Jeff A. Almeida, Kimberly A. Evans, Rebecca Musarra, GRANT & EISENHOFER, P.A., Wilmington, Delaware; Vincent R. Cappucci, Jordan A. Cortez, ENTWISTLE & CAPPUCCI, LLP, New York, New York; Co-Lead Counsel for Petitioners.
Raymond J. DiCamillo, Kevin M. Gallagher, Ryan P. Durkin, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michele D. Johnson, Kristin N. Murphy, LATHAM & WATKINS LLP, Costa Mesa, California; Blair Connelly, LATHAM & WATKINS LLP, New York, New York; Counsel for Respondent.
LASTER, Vice Chancellor. The petitioners in this appraisal proceeding seek a judicial determination of the fair
value of their proportionate interest in ExamWorks Group, Inc. (“ExamWorks” or the
“Company”). The Company has filed two motions for discovery sanctions.
The first motion seeks sanctions against five funds who retained the law firm of
Entwistle & Cappucci, LLC as their principal counsel.1 The Entwistle Petitioners failed to
produce any documents during the period allotted for fact discovery and said nothing about
any delays in production. Six weeks after the discovery cutoff, and four days after the
exchange of expert reports, the Entwistle Petitioners produced 68,052 pages of documents.
The second motion seeks sanctions against all petitioners.2 In their discovery
responses, the petitioners agreed to provide the Company with copies of documents
obtained from third parties. In March 2017, the petitioners obtained documents from
Barclays Bank PLC. The petitioners did not produce copies of the documents. Ten weeks
after the discovery cutoff, the petitioners produced over 60,000 pages of documents from
Barclays.
Both motions seek sanctions for the belated production of privilege logs. None of
the petitioners produced privilege logs during the discovery period. Almost two months
after the discovery cutoff, the Entwistle Petitioners produced sloppy and inadequate logs.
1 See Dkt. 72 (the “Entwistle Motion”). This decision refers to the five funds as the “Entwistle Petitioners.” The parties called them the “WI Petitioners,” a cryptic moniker that seemed to refer to “Water Island,” which is the name of one of the funds. 2 See Dkt. 81 (the “Barclays Motion”).
1 Five other petitioners had retained the law firm of Grant & Eisenhofer P.A. as their
principal counsel.3 Ten weeks after the discovery cutoff, the G&E Petitioners produced
their logs. Although the G&E Petitioners did a better job than the Entwistle Petitioners, the
logs arrived too late to be of any use for discovery.
This decision grants the motions and imposes sanctions for the petitioners’ failures
to comply with their discovery obligations.
I. FACTUAL BACKGROUND
The facts are drawn from the submissions made in connection with the motions. The
parties devoted much more attention to argument and invective than to the underlying facts,
making it more difficult than necessary to derive the applicable timeline. The following
discussion does not comprise findings of fact in the post-trial sense, but rather represents
how the record appears at this preliminary stage.
3 This decision calls them the “G&E Petitioners,” which is a term the parties used. Unfortunately, it is not entirely clear which petitioners are included in that term. The Barclays Motion identified the five petitioners who produced logs on December 12, 2017, as “Pivot Point Capital, Hudson Bay, Lord Abbett, Paloma, and Weiss Asset.” The opposition introduced the term “G&E Petitioners” and cited this passage in the Barclays Motion. The opposition did not otherwise identify who comprises the G&E Petitioners, and I cannot find any reference on the docket to “Paloma” or “Weiss Asset” being petitioners. Because the rationale for this decision turns on the production of documents and privilege logs months after the discovery cutoff, I can leave this detail to the parties.
2 A. The ExamWorks Merger
ExamWorks is a Delaware corporation with its principal place of business in
Atlanta, Georgia. ExamWorks completed an initial public offering in 2010, and its stock
traded on NASDAQ under the symbol “EXAM.”
On April 27, 2016, ExamWorks announced that it had entered into a merger
agreement with affiliates of Leonard Green & Partners, L.P. The merger closed on July 27,
2016. Pursuant to the merger agreement, ExamWorks’ publicly traded common stock was
converted into the right to receive $35.05 per share, subject to the holder’s statutory right
to eschew the merger consideration and seek appraisal.
B. This Appraisal Proceeding
After the announcement of the merger, the following investment funds perfected
their appraisal rights and filed appraisal petitions in this court:
Hudson Bay Master Fund Ltd. and Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd. (together, “Hudson Bay”).
Lord Abbett Series Fund Inc.—Value Opportunities Portfolio; Lord Abbett Securities Trust—Lord Abbett Value Opportunities Fund; and Lord Abbett Research Fund, Inc.—Small Cap Value Series (collectively, the “Lord Abbett Funds”).
Water Island Global Master LP, The Arbitrage Fund, The Arbitrage Event- Driven Fund, Columbia Active Portfolio Multi-Manager Alternative Strategies Fund, and Litman Gregory Masters Alternative Strategies Fund (collectively, the “Entwistle Petitioners”).
Brookdale International Partners, L.P. and Brookdale Global Opportunity Fund (together, the “Brookdale Funds”).
Sunrise Partners Limited Partnership (“Sunrise”).
Pivot Point Capital Master LP (“Pivot Point”).
3 Magnetar Capital Master Fund, Ltd. and Third Motion Equities Master Fund Ltd. (together, the “Magnetar Petitioners”).
Certain petitioners moved to consolidate the appraisal proceedings and for the
appointment of lead counsel. By order dated September 1, 2016, the court consolidated the
actions and appointed as Co-Lead Counsel the law firms of Grant & Eisenhofer, P.A. and
Entwistle & Cappucci, LLC.4 The order placed Co-Lead Counsel in charge of the
consolidated action, stating:
10. Petitioners’ Co-Lead Counsel shall set policies for the prosecution of the Consolidated Action, shall delegate and monitor the work performed by petitioners’ attorneys to avoid duplication of effort or unnecessary expense, shall coordinate on behalf of petitioners the initiation and conduct of discovery proceedings, shall have responsibility for all Court filings and appearances (except with respect to any Entitlement Hearing), and shall have the authority to negotiate a settlement of the Consolidated Action subject to approval of petitioners and the Court.
11. Co-Lead Counsel shall be available and responsible for communications to and from this Court, including distributing orders and other directions from the Court to counsel.
12. No motion, request for discovery or other pre-trial or trial proceedings shall be initiated or filed by any petitioner except through Co- Lead Counsel. Respondent’s counsel ay rely upon all agreements made with Co-Lead Counsel, or other duly authorized representative of Co-Lead Counsel, and such agreements shall be binding on all petitioners.5
4 Dkt. 5 (the “Consolidation Order”). 5 Id. ¶¶ 10-12 (emphasis added).
4 The Consolidation Order provided that “[a]ny disputes among Co-Lead Counsel which
cannot be resolved after consultation shall be decided based on a vote of the Petitioners in
the Constituent Actions.”6
C. The Scheduling Orders
The parties agreed on a schedule for the action, which the court approved by order
dated September 26, 2016.7 Paragraphs 1(a)-(d) of the Initial Scheduling Order stated:
(a) The parties shall produce documents on a rolling basis and shall substantially complete document production on or before December 2, 2016, in response to any document requests that are served on or before October 3, 2016;
(b) The parties shall produce documents on a rolling basis in response to any document requests served after October 3, 2016, and shall substantially complete document production in response to such requests by the later of February 24, 2017, or eight weeks after service;
(c) The parties shall produce an initial privilege log on or before January 31, 2017, and shall promptly provide supplemental privilege logs if productions made subsequent to this date withhold privileged materials;
(d) All fact discovery shall be completed by July 26, 2017, including any party and third-party depositions but excluding any fact discovery subject to a motion to compel or motion for protective order pending on July 26, 2017.8
6 Id. ¶ 7. 7 Dkt. 9 (the “Initial Scheduling Order”). 8 Id. ¶ 1(a)-(d).
5 The petitioners had already served their first set of requests for production of
documents on August 25, 2016. On January 24, 2017, they served subpoenas on Barclays;
Leonard Green & Partners, L.P.; Bank of America Corporation; Deutsche Bank Securities,
Inc.; Evercore Partners LLC; Goldman Sachs Group, Inc.; and Merrill Lynch, Pierce,
Fenner & Smith, Inc.9 Barclays was one of the banks that provided debt financing for the
merger. The petitioners served a second set of requests for production of documents on
February 24, 2017.
D. The Amended Scheduling Order
On April 25, 2017, the parties submitted an amended schedule for the action, which
the court entered the same day.10 Paragraphs 1(a)-(c) of the Amended Scheduling Order
stated:
(a) The parties shall produce documents on a rolling basis and shall substantially complete document production on or before May 31, 2017;
(b) The parties shall produce an initial privilege log on or before June 30, 2017, and shall promptly provide supplemental privilege logs if productions made subsequent to this date withhold privileged materials;
(c) All fact discovery shall be completed by October 2, 2017, including any party and third-party depositions but excluding any fact discovery subject to a motion to compel or motion for protective order pending on October 2, 2017.11
9 See Dkt 24. 10 Dkt. 31 (the “Amended Scheduling Order”). 11 Id. ¶ 1(a)-(c).
6 The Company did not serve any requests for production of documents until May 31, 2017,
which was the date for substantial completion of production under the Amended
Scheduling Order.
Request Number 25 in the Company’s requests for production of documents asked
the petitioners to produce “all Documents received [by petitioners] from third parties in
connection with this Action, including all Documents received in response to a subpoena
or other request.”12 On June 30, 2017, the petitioners served their responses and objections.
They agreed to “produce documents pursuant to document productions received from third
parties subpoenaed in connection with the Action.”13
E. The Petitioners’ Motion For A Protective Order
On July 31, 2017, the Company moved for a commission to serve a subpoena on
Berkshire Partners LLC.14 On August 10, 2017, the Company gave notice that it had served
a subpoena on Berkshire seeking documents and testimony.15 Berkshire had been a
potential co-investor in the merger and participated in the negotiations before dropping out.
On September 26, 2017, during a meet-and-confer session, the petitioners asked
about the status of documents produced by Berkshire. The Company produced the
12 Dkt. 73 Ex. 2, at 14. 13 Id. Ex. 3, at 23. 14 Dkt. 48. 15 Dkt. 50.
7 Berkshire documents on September 27, five days before the fact discovery cutoff of
October 2.16
During the meet-and-confer session, the Company mentioned that it was
considering a deposition of a Berkshire representative. The Company subsequently notified
the petitioners that it intended to depose a Berkshire witness on November 9, 2017, after
the discovery cutoff of October 2, 2017.17
The petitioners moved for a protective order, describing the post-cutoff deposition
as “an abuse of the discovery process” that “completely disregards this Court’s Amended
Scheduling Order.”18 After briefing and argument, I granted the motion.19 I explained that
I was not granting the motion based on any finding of “conscious sandbagging or some
type of intentional discovery misconduct.”20 Rather, I described the situation as one where
“not enough was done to coordinate with the petitioners to provide documents on time, to
be transparent about what was going on, and then ultimately it simply happened that the
deposition did not get done within the discovery time frame.”21 I ruled that in light of the
16 Dkt. 81 ¶ 9. 17 Id. Ex. 6, at 18. 18 Dkt. 60 ¶ 5. 19 Dkt. 70 (the “Berkshire Ruling”). 20 Dkt. 79 at 26-27. 21 Id. at 27.
8 timeline, “there needs to be a consequence,” and “[a] fitting consequence is not to permit
an exception to the discovery cutoff.”22
F. The Entwistle Petitioners’ Post-Discovery-Cutoff Production
On November 14, 2017, the Entwistle Petitioners produced 6,058 documents.23 The
documents arrived six weeks after the fact discovery cutoff of October 2 and four days
after the parties exchanged initial expert reports. The Entwistle Petitioners had not
produced any documents before the discovery cutoff.
The Company determined that 4,020 of the 6,058 documents contained redactions.24
On November 24, 2017, the Company emailed Co-Lead Counsel to ask for an
explanation.25 On November 28, the Entwistle Petitioners produced a log indicating that,
for 4,073 of the 4,546 documents containing redactions, the reason for the redaction was
“Confidential/Not Relevant.” The log shows that many of the redacted documents were
copies of press releases, news articles, or other publicly available information.26
22 Id. 23 Dkt. 72 ¶ 19 & Ex. 15. 24 Id. ¶ 20. 25 Dkt. 74 Ex. 17. 26 Id. Ex. 19.
9 The Entwistle Petitioner’s production included a discounted cash flow analysis that
appears to value ExamWorks in the range of $39.84 to $41.72 per share. By contrast, the
petitioners’ expert valued ExamWorks at $50.14 per share.27
G. The Petitioners’ Post-Discovery Production Of The Barclays Documents
On December 6, 2017, the petitioners produced their valuation expert’s rebuttal
report. The report cited two documents that the petitioners had obtained from Barclays. 28
The petitioners had never provided the Company with any documents from Barclays. On
December 13, the Company asked about the documents and demanded immediate
production of all documents produced by Barclays or by any other party in response to a
subpoena.29
On December 14, 2017, the petitioners produced over 60,000 pages of documents
that they had obtained from Barclays (the “Barclays Documents”). Since then, the parties
have analyzed the documents and determined that approximately 90% were documents that
the Company placed in a data room for Barclays and its other lenders. Forty-six documents
were not in the data room and not otherwise found in the production.30
27 Id. Ex 24. 28 Dkt. 81 Ex. 10, App’x C. 29 Id. Ex. 13, at 1. 30 Id. ¶ 15-16.
10 H. The G&E Petitioners’ Privilege Logs
Meanwhile, on December 12, 2017, the G&E Petitioners produced their privilege
logs.31 They arrived ten weeks after the discovery cutoff.
On December 15, 2017, the G&E Petitioners produced an additional 231
documents, consisting of over 1,300 pages of information.32 The G&E Petitioners
previously had asserted privilege for the documents, but after further consideration they
removed them from their logs.
If the G&E Petitioners had taken this step earlier, it would have been a good thing.
Instead, the documents arrived after the Company had completed the depositions of the
petitioners’ representatives. The late documents included a Hudson Bay email containing
valuation parameters and a Lord Abbett email referring to communications with other
stockholders about the merger. By themselves, the two documents do not appear
momentous, but they should have been produced earlier so that the Company could have
questioned the petitioners’ witnesses about them. One can never predict what memories a
document can unlock or refresh, nor the types of testimony that resulting lines of inquiry
can elicit.
31 Id. ¶ 11. 32 Id. ¶ 12.
11 I. The Meet-and-Confer Sessions
The parties held meet-and-confer sessions on December 8, 11, and 12, 2017.33
Under the consolidation order, Co-Lead Counsel were supposed to handle the case together
and take joint responsibility for the litigation. But once the Company raised the Entwistle
Petitioners’ late production, Grant & Eisenhofer tried to go its own way, leaving Entwistle
and its Delaware counsel, Rosenthal Monhait & Goddess, to clean up their clients’ mess.
They offered to re-produce the documents without redactions for relevance. They also
offered to produce a witness for deposition, provide a privilege log, and allow the Company
to propound additional discovery on the Entwistle Petitioners. They even offered to re-
open expert discovery so that the Company’s expert could take into account information
learned from the production and deposition. On December 11, the Entwistle Petitions re-
produced the belatedly produced documents without relevancy redactions.34
Grant & Eisenhofer sought to deal with the Barclays Documents. They proposed to
strike the references to the two Barclays Documents from their expert’s rebuttal report and
to not rely on any of the other Barclays Documents at trial.
No one offered to do anything about the belated privilege logs.
33 Dkt. 72 ¶ 26. 34 Dkt. 74 Ex. 18.
12 II. LEGAL ANALYSIS
“[T]he purpose[s] of discovery [are] to advance issue formulation, to assist in fact
revelation, and to reduce the element of surprise at trial.”35 These instrumental purposes in
turn serve the overarching and “well established policy” underlying pretrial disclosure,
which is that “a trial decision should result from a disinterested search for truth from all
the available evidence rather than tactical maneuvers based on the calculated manipulation
of evidence and its production.”36 “Candor and fair-dealing are, or should be, the hallmark
of litigation and required attributes of those who resort to the judicial process. The rules of
discovery demand no less.”37
“Scheduling orders and discovery cutoffs further these important purposes and
policies by ensuring that parties provide discovery in a timely fashion, thereby avoiding
trial by surprise and the prejudice that results from belated disclosure.”38 “Parties must be
mindful that scheduling orders are not merely guidelines but have the same full force and
35 Levy v. Stern, 687 A.2d 573 (Del. 1996) (TABLE). 36 Hoey v. Hawkins, 332 A.2d 403, 405 (Del. 1975) (internal quotation marks and citation omitted). 37 E.I. DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 461 (Del. 1999). 38 IQ Hldgs. Inc. v. Am. Commercial Lines, Inc., 2012 WL 3877790, at *2 (Del. Ch. Aug. 30, 2012).
13 effect as any other court order.”39 “Generally speaking, Delaware courts strictly adhere to
discovery cut-off dates.”40
A party that disregards the provisions in a scheduling order that govern discovery is
engaging in discovery abuse. If a party cannot meet a deadline, the onus is on that party to
be forthcoming and transparent about the situation and the reasons for it. Humans are not
psychic. The other side does not know that the production may be late, much less how late
or why. When parties are transparent, they can cooperate to address problems without
judicial involvement. Acting as officers of the court, attorneys can find solutions to keep a
case on track and prepare the matter for decision. Attorneys shirk their obligations to the
court and make matters worse when they fail to communicate with the other side, allow
problems to escalate, and miss critical deadlines. Then they impair their credibility when
they try to make excuses that do not hold up.
“Discovery abuse has no place in [Delaware] courts, and the protection of litigants,
the public, and the bar demands nothing less than that [Delaware] trial courts be diligent in
promptly and effectively taking corrective action to ‘secure the just, speedy and
39 Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1238 (Del. 2012) (alterations omitted) (internal quotation marks and citation omitted); accord Sammons v. Doctors for Emergency Servs., P.A., 913 A.2d 519, 528 (Del. 2006). 40 Orloff v. Shulman, C.A. No. 852-VCL (Del. Ch. April 10, 2007) (citation omitted).
14 inexpensive determination of every proceeding’ before them.”41 “Trial courts should be
diligent in the imposition of sanctions upon a party who refuses to comply with discovery
orders, not just to penalize those whose conduct warrants such sanctions, but to deter those
who may be tempted to abuse the legal system by their irresponsible conduct.”42
“In the event this Court determines that sanctions for discovery abuses are
appropriate, the sanction must be tailored to the culpability of the wrongdoer and the harm
suffered by the complaining party.”43 Sanctions may serve one or more of three proper
purposes: “punishment, deterrence[,] or coercion.”44 Court of Chancery Rule 37(b)(2)
identifies possible sanctions that a trial court can impose for violating a discovery order,
including but not limited to:
(A) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;
(B) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence; [or]
(C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or
41 Holt v. Holt, 472 A.2d 820, 824 (Del. 1984) (emphasis in original; quoting Delaware Superior Court Civil Rule 1). 42 Hoag v. Amex Assurance Co., 953 A.2d 713, 717 (Del. 2008) (internal quotation marks and footnote omitted). 43 Cartanza v. Cartanza, 2013 WL 1615767, at *2 (Del. Ch. Apr. 16, 2013), reargument denied, 2013 WL 3376964 (Del. Ch. July 8, 2013). 44 In re Rinehardt, 575 A.2d 1079, 1082 (Del. 1990).
15 proceeding or any part thereof, or rendering a judgment by default against the disobedient party[.]45
A trial court also “has the power to issue sanctions for discovery abuses under its inherent
equitable powers, as well as the Court’s inherent power to manage its own affairs.”46
Delaware Supreme Court decisions teach that the entry of a default judgment under
Rule 37(b)(2)(C) is “the ultimate sanction for discovery violations and should be used
sparingly.”47 “Judgment by default is, of course, the extreme remedy and generally
speaking the Rule has been interpreted to require some element of willfulness or conscious
disregard of the order before such a sanction is imposed.”48
“A less final but still serious discovery sanction is the entry of an order under Rule
37(b)(2)(A) that deems designated facts to be established or which draws an inference as
to a particular issue that is adverse to the party that failed to comply with its discovery
obligations.”49 “A more moderate but still significant discovery sanction is to alter the
45 Ct. Ch. R. 37(b)(2)(A)-(C). 46 Beard Research, Inc. v. Kates, 981 A.2d 1175, 1189 (Del. Ch. 2009) (internal quotation marks and citation omitted); see Hoag, 953 A.2d at 716-17 (noting court’s authority to impose sanctions for discovery abuse under Rule 37 or pursuant to its “inherent authority”). 47 Lehman Capital v. Lofland ex rel Estate of Monroe, 906 A.2d 122, 131 (Del. 2006) (emphasis in original; internal quotation marks and citation omitted). 48 Sundor Elec., Inc. v. E.J.T. Constr. Co., Inc., 337 A.2d 651, 652 (Del. 1975) (internal quotation marks and citation omitted). 49 James v. Nat’l Fin. LLC, 2014 WL 6845560, at *9 (Del. Ch. Dec. 5, 2014).
16 burden of proof on a particular issue, either by shifting it to the party that failed to comply
with its discovery obligations or by increasing or decreasing the relevant standard.”50
More typical remedies for late production are to allow additional discovery or to
preclude the use of the belatedly produced material. Rule 37(b)(2) further provides that if
a defendant has violated a discovery order, the court “shall require the party failing to obey
the order or the attorney advising that party or both to pay the reasonable expenses,
including attorney’s fees, caused by the failure.”51 Under this rule, expenses should be
awarded “unless the Court finds that the failure was substantially justified or that other
circumstances made an award of expenses unjust.”52 The Delaware Supreme Court has
explained that under Rule 37, “when a party fails to comply with discovery orders of the
Court or otherwise engages in discovery abuses, the award of attorneys’ fees and expenses
to the opposing party is mandatory, absent a showing by the wrongdoer that his actions
were substantially justified or that other circumstances make the award unjust.”53 The
current framing of the rule with its presumptive award of fees represented a change from
prior practice.54 It was adopted “in order to encourage such sanction under such
circumstances, and to that end the Rule places a burden on the disobedient party to show
50 Id. 51 Ct. Ch. R. 37(b)(2) (emphasis added). 52 Id. 53 Bader v. Fisher, 504 A.2d 1091, 1096 (Del. 1986); accord Holt, 472 A.2d at 823. 54 Bader, 504 A.2d at 1096.
17 that his failure was justified or that the other circumstances exist making an award
unjust.”55
A. The Entwistle Petitioners’ Late Production
The Entwistle Petitioners violated a court order by failing to comply with the
discovery cutoff in the Amended Scheduling Order. They did not produce any documents
before the discovery cutoff. They did not communicate with the Company about any delay
in production. They did not move to modify the discovery cutoff or seek leave to produce
documents late. Six weeks after the discovery cutoff, they produced 6,058 documents
consisting of 68,052 pages.
The Entwistle Petitioners have argued that they should not be held accountable for
violating the Amended Scheduling Order because it took time for Co-Lead Counsel to
negotiate search terms, then it took additional time for the Entwistle firm to gather and
review documents from the Entwistle Petitioners. According to the Entwistle Petitioners,
this is the ordinary method of collecting and producing documents, so it should not have
been a problem for them to produce documents after the cutoff.
The fault lies not in the tasks that the Entwistle firm was performing but in the rate
at which the firm performed them. Parties must deploy the resources necessary to meet
55 Wileman v. Signal Fin. Corp., 385 A.2d 689, 690-91 (Del. 1978) (internal citation omitted). See generally 8B Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 2288 (3d ed. 2010).
18 12, and Pivot Point produced three additional documents on November 8. 56 These
documents should have been produced earlier, but humans are not perfect, and sometimes
documents come in late. No one else made the type of massive, post-discovery production
of their own documents that the Entwistle Petitioners made.
The Entwistle Petitioners have argued that the Company’s failure to request
documents until May 31, 2017, somehow excused their failure to comply with the
Amended Scheduling Order. The Entwistle Petitioners also have argued that because the
Company was not pressing them for documents in September and October, the Company
must not have wanted the documents. Both responses seek to blame the injured party and
deflect attention from the Entwistle Petitioners’ misconduct.
When the Company served its discovery requests, there were still four months in
the schedule. That was plenty of time for the Entwistle Petitioners to gather and produce
documents. If they needed more time, it was their obligation to seek it, either from the
Company or the court. Whether or not the Company nagged the Entwistle Petitioners about
producing documents has no effect on the locus of the obligation. The Entwistle Petitioners
had a duty to produce documents in a timely fashion. They cannot shift that obligation to
the Company.
The bottom line is that even though the Entwistle Petitioners chose to file and litigate
an appraisal claim, they shirked one of a litigant’s basic obligations: gathering and
56 Dkt. 72 ¶ 17-18.
20 producing responsive material in a timely fashion. They were happy to let the Company
bear the expense of litigation while giving themselves a pass. Even when they did produce
documents, the production was sloppy and haphazard.
This type of misconduct has consequences at two levels. One level involves actual
prejudice in the specific case. Here, the belated production contained documents that the
Company could have used in discovery, including a discounted cash flow analysis, a
leveraged buy-out analysis, and communications about the Entwistle Petitioners’ decision
to buy or sell ExamWorks’ stock and seek appraisal. The Company could have questioned
representatives of the Entwistle Petitioners about these documents and used them with
other witnesses as well.
A second level of prejudice involves the degradation of the litigation process. For
the litigation system to function, parties must follow the rules. If participants suspect that
others are not following the rules, then the process deteriorates. People who follow the
rules feel like chumps when others seem to be cutting corners or breaking rules and getting
ahead. People who otherwise might not think of pushing limits become more aggressive if
they think everyone else is doing it. It is this broader, systemic interest that the Delaware
Supreme Court seems to have had in mind when stressing that courts must address
discovery abuse not only to protect litigants, but also to protect the public and the bar.57
See Holt, 472 A.2d at 824 (“Discovery abuse has no place in [Delaware] courts, 57
and the protection of litigants, the public, and the bar demands nothing less than that [Delaware] trial courts be diligent in promptly and effectively taking corrective action . . . .”).
21 As a remedy for the Entwistle Petitioners’ discovery abuse, the Company seeks a
terminating sanction that would dismiss the Entwistle Petitioners from the case and leave
them with the deal price, without interest. They observe that, unlike in a traditional liability
case, this sanction would not leave the Entwistle Petitioners empty handed. They would
get $35.05 per share. They also would receive the per-share amount that was recovered in
a settlement in a companion case for breach of fiduciary duty. Ironically, this sanction
would let them avoid the downside risk of an appraisal award below the deal price.
Depending on how the case turns out, the sanction might be a blessing.
The Delaware Supreme Court has cautioned that “a default judgment should be
granted if no other sanction would be more appropriate under the circumstances.”58 Trial
in this case originally was scheduled to begin on February 13, 2018, which would have
limited my ability to craft an alternative sanction. After reviewing the parties’ submissions,
I postponed the trial so that I would have “greater flexibility in crafting a remedy, should
the court conclude that a remedy is warranted.”59 Trial has not yet been rescheduled.
With the time afforded by the continuance, a lesser sanction than a default judgment
becomes feasible and sufficient to remedy the Entwistle Petitioners’ misconduct. The
Entwistle Petitioners have already re-produced the documents without relevancy
redactions. They also shall produce additional documents called for by this court’s ruling
58 Hoag, 953 A.2d at 717. 59 Dkt. 107.
22 on their post-discovery-cutoff privilege logs.60 Once the Entwistle Petitioners have
completed this production, they shall produce witnesses for deposition as requested by the
Company. The Company is not limited to one witness, but the Company should be
responsible and only request additional witnesses if the contents of the documents and the
results of an initial deposition truly warrant questioning more than one witness.
The Company’s expert may take into account information learned from the
Entwistle Petitioners’ production and any depositions. The Company’s expert may file a
sur-rebuttal report addressing these matters. The petitioners contend that this remedy is
disproportionate because it will prejudice all of the petitioners, not just the Entwistle
Petitioners. That claim is overblown. As a threshold matter, Co-Lead Counsel had
responsibility for conducting discovery on behalf of all petitioners, and depriving the
Company of the Entwistle Petitioners’ documents during discovery benefitted all
petitioners. Consequently, imposing a remedy that affects all petitioners is not
disproportionate. More importantly, the remedy is not excessive. The Company can file a
sur-rebuttal report limited to the new material. The Company is not getting a complete do-
over.
The Entwistle Petitioners shall bear all expenses associated with their late
production of documents and the remedy imposed by this decision. The Company is
awarded the expenses it has incurred and will incur, including attorneys’ fees, for
60 See Part II.C, infra.
23 reviewing the Entwistle Petitioners’ original production;
following up with the Entwistle Petitioners;
reviewing the unredacted production;
briefing and arguing the Entwistle Motion;
reviewing the additional documents produced in response to this decision;
conducting the depositions contemplated by this decision; and
working with the Company’s expert to prepare the sur-rebuttal report.
Once the remedial discovery process is complete, the Company shall prepare and provide
the Entwistle Petitioners with a Rule 88 affidavit documenting its fees and expenses. If the
Entwistle Petitioners dispute the amount due and the parties cannot reach agreement, then
the Company may file a motion to quantify the award, supported by the Rule 88 affidavit
it provided to the Entwistle Petitioners.
B. The Barclays Documents
The petitioners violated a court order by failing to comply with the discovery cutoff
in the Amended Scheduling Order. They agreed to produce documents from third parties,
but they did not produce the Barclays Documents before the discovery cutoff. Ten weeks
after the discovery cutoff, they produced the Barclays Documents.
A key difference between the Entwistle Petitioners’ production and Co-Lead
Counsel’s production of the Barclays Documents is that the latter appears to have been
inadvertent. Co-Lead Counsel explained that for all other third-party witnesses, the
Company obtained copies of documents directly from the third party, rather than from the
petitioners. It was no secret that the petitioners had subpoenaed documents from Barclays.
24 The petitioners filed their notice of service for the Barclays subpoena on the same day that
they gave notice of subpoenas served on six other third parties. Co-Lead Counsel
reasonably believed that the Company’s attorneys would handle Barclays the same way
they handled the other six third parties. The failure to produce the Barclays Documents
constituted excusable neglect.
The Company again seeks a terminating sanction because of the late production of
the Barclays Documents, this time for all petitioners. In my view, a terminating sanction is
too severe. Other, less drastic remedies are available and sufficient to address the discovery
issues in this case.
One option for leveling the playing field is to hold that no one can use the Barclays
Documents. Co-Lead Counsel has proposed that option, which includes striking the
references to the documents from the petitioners’ expert report and not using the documents
at trial.
Another option for leveling the playing field is to let everyone use the Barclays
Documents. Under this option, the parties would have leave to depose a Barclays witness.
Both sides could prepare supplemental expert reports addressing any information in the
Barclays Documents or obtained from the Barclays witness. Both sides would be able to
use the resulting discovery at trial.
Because the Company was harmed by the late production of the Barclays
Documents, the Company can choose which remedy it prefers. The Company has ten days
to notify Co-Lead Counsel of its election.
25 Having found that the failure to produce the Barclays Documents was inadvertent,
I will not require petitioners to reimburse the Company for the expenses incurred in
reviewing the Barclays Documents or pursuing any further Barclays-related discovery, if
they choose that option. I could require the petitioners to reimburse the Company for the
expenses incurred briefing and arguing the Barclays Motion, but I did not require the
Company to reimburse the petitioners for the expenses incurred briefing and arguing the
motion for a protective order involving Berkshire. This is a similar situation and should be
treated similarly.
C. The Privilege Logs
The Entwistle Petitioners and the G&E Petitioners violated a court order by failing
to produce their privilege logs until after the discovery cutoff. Privilege logs are part of
discovery. Producing a timely log is part of a party’s obligation when asserting privilege.
In their responses to the Company’s discovery requests, the Entwistle Petitioners
and the G&E Petitioners represented that they would produce documents subject to claims
of privilege. The burden of establishing privilege rests on the party asserting it.61
[A] bare allegation that information and documents are protected from discovery by the attorney-client privilege is insufficient without making more information available . . . . It is incumbent on one asserting the privilege
61 Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992); accord Sokol Hldgs., Inc. v. Dorsey & Whitney, LLP, 2009 WL 2501542, at *6 n.28 (Del. Ch. Aug. 5, 2009) (Strine, V.C.); SICPA Hldgs., S.A. v. Optical Coating Lab., Inc., 1996 WL 636161, at *7 (Del. Ch. Oct. 10, 1996); Emerald P’rs v. Berlin, 1994 WL 125047, at * 1 (Del. Ch. Mar. 30, 1994); Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co., 623 A.2d 1118, 1122 (Del. Super. 1992); In re Fuqua Indus., Inc. S’holders Litig., 1992 WL 296448, at *3 (Del. Ch. Oct. 8, 1992); Deutsch v. Cogan, 580 A.2d 100, 107 (Del. Ch. 1990).
26 to make a proper showing that each of the criteria [underlying the attorney- client privilege] exist[s] . . . . A proper claim of privilege requires a specific designation and description of the documents within its scope as well as precise and certain reasons for preserving their confidentiality.62
An insufficiently supported claim of privilege can result in waiver.63
The privilege log enables the party that requested documents to evaluate the
producing party’s claim of privilege. “The log is supposed to provide sufficient information
to enable the adversary to assess the privilege claim and decide whether to mount a
challenge . . . . Just as you can’t hit what you can’t see, you can’t challenge what the other
side hasn’t described.”64 Producing a privilege log after the discovery cutoff prevents the
opposing party from evaluating the log, making timely challenges, and using the resulting
documents in discovery. Producing a post-cutoff log has the same effect as not producing
62 Int’l Paper Co. v. Fibreboard Corp., 63 F.R.D. 88, 93–94 (D. Del. 1974); see also Sokol Hldgs., 2009 WL 2501542, at *8; Deutsch, 580 A.2d at 107; Reese v. Klair, 1985 WL 21127, at *5 (Del. Ch. Feb. 20, 1985). 63 See, e.g., Willemijn Houdstermaatschaapij BV v. Apollo Comput., Inc., 707 F. Supp. 1429, 1443 (D. Del. 1989) (ordering production of inadequately described documents); Mechel Bluestone, Inc. v. James C. Justice Cos., Inc., 2014 WL 701194, at *5 (Del. Ch. Dec. 12, 2014) (collecting authorities and ordering partial waiver on facts of case); Klig v. Deloitte LLP, 2010 WL 3489735, at *8 (Del. Ch. Sept. 7, 2010) (collecting authorities and finding waiver on facts of case); Sokol Hldgs., 2009 WL 2501542, at *8 (“Sokol has waived the right to [assert privilege] by failing to update its privilege log to contain detailed enough descriptions . . . .”). See generally 1 Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 7.04 (2012). 64 Klig, 2010 WL 3489735, at *6.
27 a log, which is the same thing as not providing any support for a claim of privilege. “An
improperly asserted claim of privilege is no claim of privilege at all.”65
The Entwistle Petitioners and the G&E Petitioners failed to produce their logs until
months after the discovery cutoff. On the facts of this case, waiver is an appropriate
consequence. The Entwistle Petitioners and G&E Petitioners need not produce entries
where (i) counsel was the author or a principal recipient (not simply a copy recipient) and
(ii) the item post-dates the filing of the appraisal proceeding on August 25, 2016.
The Company has leave to conduct supplemental depositions of the petitioners’
representatives to explore any materials produced after their depositions or as a result of
this decision. Each of the petitioners shall bear the cost of the supplemental depositions of
its own representatives. As with any supplemental depositions resulting from the Entwistle
Petitioners’ late production, the Company should not abuse this opportunity. It should only
take the depositions that are necessary.
III. CONCLUSION
The motions for sanctions are granted. The parties shall proceed as directed in this
decision.
65 Int’l Paper, 63 F.R.D. at 94; accord TCV VI, L.P. v. TradingScreen Inc., 2015 WL 5674874, at *8 (Del. Ch. Sept. 25, 2015); Mechel Bluestone, 2014 WL 701194, at *5; M & G Polymers USA, LLC v. Carestream Health, Inc., 2010 WL 1611042, at *51 n.262 (Del. Super. Apr. 21, 2010); Williams Nat. Gas Co. v. Amoco Prod. Co., 1991 WL 236919, at *2 (Del. Super. Nov. 8, 1991); Council of Unit Owners of Sea Colony E. v. Carl M. Freeman Assocs., Inc., 1990 WL 161169, at *2 (Del. Super. Sept. 26, 1990); Playtex, Inc. v. Columbia Cas. Co., 1989 WL 5197, at *2 (Del. Super. Jan. 5, 1989); Reese, 1985 WL 21127, at *5.