In re lululemon athletica inc. 220 Litigation

• Court: Court of Chancery of Delaware
• Decided: April 30, 2015
• Docket: CA 9039-VCP
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

) IN RE LULULEMON ATHLETICA INC. ) CONSOLIDATED 220 LITIGATION ) C.A. No. 9039-VCP ) )

MEMORANDUM OPINION

Date Submitted: December 1, 2014 Date Decided: April 30, 2015

Carmella Keener, Esq., Jessica Zelden, Esq., P. Bradford deLeeuw, Esq., ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware; Blake A. Bennett, Esq., COOCH & TAYLOR, P.A., Wilmington, Delaware; Joshua Littlejohn, Esq., Max Gruetzmacher, Esq., Mt. Pleasant, South Carolina; Gustavo Bruckner, Esq., Ofer Ganot, Esq., POMERANTZ LLP, New York, New York; Attorneys for Plaintiff Laborers’ District Council Construction Industry Pension Fund and Plaintiff Hallandale Beach Police Officers and Firefighters’ Personnel Retirement Fund.

John L. Reed, Esq., Scott B. Czerwonka, Esq., DLA PIPER LLP (US), Wilmington, Delaware; Stellman Keehnel, Esq., Andrew Escobar, Esq., DLA PIPER LLP (US), Seattle, Washington; Attorneys for Defendant lululemon athletica inc.

PARSONS, Vice Chancellor. In this books and records action under 8 Del C. § 220, I previously ordered the

defendant corporation to produce books and records relating to the plaintiffs‘

investigation of potential insider trading or Brophy claims against the company‘s founder

and then-chairman of the board of directors, as well as potential claims for

mismanagement against the other directors. The company produced documents pursuant

to that order, but the plaintiffs found the production inadequate and moved to enforce the

Court‘s order. Their motion presents several questions for resolution: (1) whether the

company must search its non-employee directors‘ personal email accounts for documents

responsive to my previous order; (2) whether certain documents properly were designated

as privileged; and (3) even if those documents are privileged, whether the plaintiffs have

shown ―good cause‖ under the circumstances to obtain them anyway.

For the reasons stated in this Memorandum Opinion, I deny in part and grant in

part the plaintiffs‘ motion to enforce. Specifically, I conclude that ordering the company

to search its non-employee directors‘ personal email accounts is not warranted, but I find

that the plaintiffs have demonstrated ―good cause‖ to access certain documents withheld

as privileged.

I. BACKGROUND

A. Parties

Defendant, lululemon athletica, inc. (the ―Company‖ or ―lululemon‖), is a

Delaware corporation with its principal place of business in Vancouver, British

Columbia, Canada. Lululemon is a designer and retailer of athletic apparel and operates

throughout North American and Australia. Its stock is traded on the NASDAQ.

1 Plaintiffs, Hallandale Beach Police Officers and Firefighters‘ Personnel

Retirement Fund (―Hallandale‖) and Laborers‘ District Council Construction Industry

Pension Fund (―LDC‖), are both lululemon stockholders.

B. Facts

On December 12, 2012, Dennis Wilson, lululemon‘s founder and then-Chairman

of the Board of Directors, entered into a trading plan pursuant to Securities and Exchange

Commission (―SEC‖) Rule 10b5-1 to sell up to 5.7 million of his shares of lululemon

common stock over a period of up to eighteen months (the ―Trading Plan‖). Wilson‘s

broker at Merrill Lynch had complete discretion to sell the shares during that period

consistent with the terms of the Trading Plan. Specifically, Merrill Lynch could sell

300,000 shares at market price beginning January 10, 2013. From that point through

June 30, 2014, the broker could sell up to 1 million shares per month at a minimum price

of $81.25 per share.1 Between January 10 and January 14, 2013, the broker sold 300,000

shares at an average price of $70.92. In May and June, 2013, Wilson‘s broker sold one

million shares each month, all at prices above $81.25. Whenever Merrill Lynch sold

shares under the Trading Plan, it sent an email notification to lululemon Controller David

1 Pls.‘ Opening Br. Ex. A [hereinafter, the ―Company Production‖], at lulu000118– 19.

2 Negus and Tina Swinton, among others.2 Swinton was the CFO of Wilson‘s ―Family

Office,‖ which operated as his personal investment company.

Of particular importance are the trades that occurred on June 4 and 7, 2013. On

June 5, Christine Day, lululemon‘s then-CEO, informed Wilson that she planned to

resign. She informed the Board to that effect on Friday, June 7. On that same day,

Wilson‘s broker sold 607,545 shares of Wilson‘s lululemon stock, over 200,000 shares

more than he had sold on any other day during the first six months of the Trading Plan.

By selling such a quantity, Wilson reached his one-million-share-per-month cap only

seven days into June. On June 10, 2013, the Company publicly announced Day‘s

resignation, and the per-share price for lululemon stock dropped roughly 22%. After

June 7, 2013, Wilson‘s broker did not make any additional sales under the Trading Plan,

and it expired at the end of June 2014.

On June 12, 2013, the Wall Street Journal (the ―WSJ‖) emailed the Company

about Wilson‘s June 2013 trades, which appeared incredibly well-timed. The WSJ

sought confirmation of certain facts for a story regarding Wilson‘s trades.3 As relevant to

the pending motion, individuals from lululemon and Wilson‘s Family Office, including

both Wilson‘s personal attorney and lululemon‘s attorney, corresponded by email about a

2 See Company Production at lulu000046–47 (authorizing Merrill Lynch to notify Swinton and Negus under the Trading Plan); see also Company Production at lulu000156 (example of the email notification). 3 Suzanne Kapner, Timing of Stock Sales Favors Lululemon Insider, WALL ST. J., (Jun. 12, 2013), http://www.wsj.com/articles/SB10001424127887324049504578541821613302146.

3 coordinated response to the WSJ‘s inquiry (the ―WSJ Email Chain‖). The participants in

the WSJ Email Chain included, among others, Wilson and Swinton.4 Some of the emails

in that chain were authored either by Wilson‘s personal attorney or by lululemon‘s

outside counsel. Wilson‘s Family Office ultimately released a statement regarding the

trades,5 but the Company did not comment on it. In addition, on July 2, 2013, Erin

Nicholas, lululemon‘s corporate secretary and one of its in-house counsel, responded to

an email from lululemon director Jerry Stritzke about whether Wilson‘s trades had

complied with the Trading Plan (the ―Nicholas Email‖).

C. Procedural History

On May 3, 2013, Hallandale commenced its 8 Del. C. § 220 (―Section 220‖)

action against lululemon. On October 25, 2013, LDC filed a separate Section 220 action.

I heard argument on the Company‘s motion to dismiss the Hallandale action on February

5, 2014, and held a trial in the LDC action on February 19, 2014. On April 2, 2014, I

issued an oral ruling regarding both actions (the ―April 2014 Order‖).6 I concluded that

Plaintiffs had a proper purpose under Section 220 to seek books and records regarding

Wilson‘s June 7, 2013 trades because there was a credible basis to infer wrongdoing by

Wilson and lululemon. Specifically, in addition to a possible Brophy claim against

4 Pls.‘ Opening Br. Ex. B [hereinafter, the ―Privilege Log‖]. 5 Company Production at lulu000037. 6 See In re lululemon athletica inc. 220 Litig., Consol. C.A. No. 9039-VCP (Del. Ch. April 2, 2014) (TRANSCRIPT) [hereinafter, the ―April 2014 Order‖].

4 Wilson,7 I concluded that Plaintiffs had demonstrated a credible basis to infer possible

mismanagement by the Company in connection with their oversight as to the

questionable trading.8

Based on those findings, I ordered the Company to produce, among other

documents: (1) the Trading Plan; (2) any emails from Wilson to lululemon‘s compliance

office regarding the Trading Plan; (3) any changes to the Trading Plan; (4) all documents

concerning Wilson‘s June trades; and (5) all documents concerning any inquiry by the

board or any member of the board regarding Wilson‘s trades between June 1 and June 30,

2013.9 On April 18, 2014, lululemon produced 195 pages of documents. The next day, it

produced a privilege log referencing sixteen documents it had withheld under the

7 Kahn v. Kolberg Kravis Roberts & Co., 23 A.3d 831, 838 (Del. 2011) (For a Brophy claim, ―The plaintiff must show that: 1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because she was motivated, in whole or in part, by the substance of that information‖) (footnotes and internal quotation marks omitted); Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949). 8 April 2014 Order 30; see also id. at 29-30 (―Based on the nature of the June 7th trade and the absence of any evidence of public statements or other indications that the Company‘s board examined the trade or Wilson‘s conduct, Plaintiffs have established a credible basis for inferring that the Company‘s board may have mismanaged this situation, in terms of its monitoring.‖). 9 April 2014 Order 38–42. In the April 2014 Order, I ordered the Company to produce any documents related to any inquiry by the directors or the board regarding Wilson‘s trading plan from July 1, 2012 to April 2014. At argument on the pending motion to enforce, however, I limited any subsequent search by the Company to any inquiry that occurred between June 1 and June 30, 2013. Arg. Tr. 61.

5 attorney-client privilege. The Nicholas Email and the WSJ Email Chain comprise five of

the documents identified on that log.

On June 11, 2014, I consolidated the Hallandale and LDC actions to facilitate

enforcement of the April 2014 Order, and two days later, Plaintiffs filed this motion to

enforce the April 2014 Order. On July 23, before briefing in connection with this motion

had concluded, the Delaware Supreme Court decided Wal-Mart Stores, Inc. v. Indiana

Electrical Workers Pension Trust Fund IBEW.10 In Wal-Mart II, the Supreme Court held

for the first time that the so-called fiduciary exception to attorney-client privilege based

on the Garner v. Wolfinbarger11 decision applied to Section 220 actions.12 Because

Plaintiffs relied extensively on Wal-Mart II in their August 26, 2014 reply brief, I

accepted as a sur-reply Defendant‘s November 24, 2014 letter addressing the implications

of the Wal-Mart II decision. This Memorandum Opinion represents my ruling on

Plaintiffs‘ motion to enforce.

D. Parties’ Contentions

Plaintiffs assert that the dearth of certain documents in lululemon‘s production

indicates that the Company has not complied with the April 2014 Order. In particular,

Plaintiffs seek: (1) ―all communications authored or received by any Board member

(including e-mails located in non-Company e-mail accounts) in June 2013 concerning

10 95 A.3d 1264 (Del. 2014) [hereinafter ―Walmart II‖]. 11 430 F.2d 1093 (5th Cir. 1970). 12 Wal-Mart II, 95 A.3d at 1278. I note that prior Court of Chancery cases had found that exception applicable in the context of Section 220. See infra note 65.

6 Wilson‘s June 2013 stock sales‖; (2) ―all communications authored or received by any

Board member (including e-mails located in non-Company e-mail accounts) concerning

any inquiry or investigation into Wilson‘s June 2013 trade‖; and (3) information

―concerning the ‗disagreement‘ between Wilson and Day that culminated into [sic] Day‘s

resignation on June 5, 2013.‖13 At argument, Plaintiffs waived their request as to item

(3), but they persisted in seeking to compel production of additional documents under

items (1) and (2), if any exist.14

In that regard, Plaintiffs argue that lululemon must search the personal email

accounts of the Board members who are not Company employees (the ―Non-Employee

Directors‖),15 and produce any documents contained therein that fall within the relevant

categories of the April 2014 Order. Plaintiffs contend that it is immaterial that the email

accounts are not Company accounts, because the directors use them to conduct lululemon

business. Lululemon counters that there is no precedent to support requiring such a

search in the context of a Section 220 action, and that, under the circumstances of this

13 Pls.‘ Opening Br. 8. 14 Arg. Tr. 5. 15 From the record currently before this Court, it is not apparent how many of lululemon‘s directors are non-employees, or, for that matter, how many directors lululemon has on its board. For purposes of this Memorandum Opinion, neither of those facts makes a difference. As discussed in more detail infra, the distinction between employee directors and non-employee directors is significant only because of the issue of what emails would have been included in the Company‘s production, by virtue of the location of the email account, i.e., on the Company‘s server, or not.

7 case, any documents that might come up in a search of the directors‘ personal emails are

not necessary and essential to the purpose of Plaintiffs‘ demand, making a costly and

time-consuming search unwarranted.

Additionally, Plaintiffs seek production of the Nicolas Email and the WSJ Email

Chain, contending that they were improperly designated as privileged. Plaintiffs dispute

the privilege claim as to the Nicholas Email because they maintain that Nicholas was not

acting as an attorney when she responded to an inquiry about the trading plan. They

similarly contend that the WSJ Email Chain is not privileged because any privilege was

waived by the inclusion of third-parties Wilson and Swinton on the emails. In the

alternative, Plaintiffs assert that, under Garner and Wal-Mart II, the five withheld

documents are not privileged as to them.

As to the privilege issues, lululemon responds that the Nicholas Email was

properly withheld because Nicholas, as one of lululemon‘s in-house counsel, was giving

legal advice. With respect to the WSJ Email Chain, lululemon argues that it did not

waive privilege through disclosure because it shared a common interest with Wilson and

Wilson‘s representatives in connection with responding to the WSJ inquiry. Finally,

lululemon contends that Plaintiffs waived any argument regarding the Garner exception

because they failed to raise the argument in their opening brief. Furthermore, even if

Garner does apply, lululemon asserts that Plaintiffs have not satisfied their burden of

showing ―good cause‖ as required under that line of cases.

8 II. THE NON-EMPLOYEE DIRECTORS’ EMAILS

As relevant here, in the April 2014 Order, I ruled that Plaintiffs‘ request for ―All

documents concerning any investigation or inquiry by any member of Lululemon‘s board

of directors . . . or any Company employee, or any representative on behalf of any Board

member of the Company, concerning Mr. Wilson‘s trades in Lululemon stock during the

Relevant Time Period‖ was necessary and essential to Plaintiffs‘ proper purpose of

investigating whether the Board adequately monitored insider trading activity. 16 I also

held that Plaintiffs‘ request for ―All documents concerning Mr. Wilson‘s trades in

Lululemon stock during the Relevant Time Period‖ was necessary and essential, but

limited the scope of the Company‘s required production to documents from the month of

June 2013.17

As to the first category of documents, Plaintiffs complain about the ―dearth‖ of

documents produced by the Company, asserting that they ―expected to see some e-mail

correspondence . . . to or from Wilson and/or e-mails among Board members‖ regarding

Wilson‘s trades, but none appeared in the Company‘s 195 page production.18 Similarly,

Plaintiffs express dismay that the Company produced ―only a single document related to

any investigation or inquiry conducted by the Company, its Board, or anyone else

16 April 2014 Order 41-42. 17 Id. at 40-41. 18 Pls.‘ Opening Br. 9-10.

9 regarding Wilson‘s trades.‖19 Plaintiffs infer that there must be ―gaps‖ in the Company‘s

production, and ask the Court to order ―Lululemon to search for the following: all

communications authored or received by any Board member (including e-mails located in

non-Company e-mail accounts) concerning any inquiry or investigation into Wilson‘s

June 2013 trades.‖20

Lululemon‘s Non-Employee Directors apparently do not have company email

accounts and instead conduct any Company-related business through email accounts of

their own.21 The Company searched its servers for responsive documents in connection

with their production under the April 2014 Order, but it did not inquire about, or

otherwise search, the directors‘ personal email accounts.22 Thus, the main documents

19 Id. at 12. That lone document apparently is an email sent to lululemon‘s regional managers the same day that the article questioning Wilson‘s trades appeared in the WSJ. In it, Jessica Price, an employee in ―ops solutions,‖ instructed the email recipients not to respond to media requests in that regard, but to forward them to a specified email address. Price also briefly explained the Company‘s position, stating that, ―In short, Chip‘s stock sales under his 10b5-1 plan are in alignment with the SEC guidelines for these types of stock sales.‖ Company Production at lulu000141. 20 Pls.‘s Opening Br. 13. 21 Def.‘s Answering Br. 21; Arg. Tr. 43–44. 22 Presumably, when producing emails in response to discovery requests or a Section 220 demand, a company first images its computer servers, if necessary, and then searches that copy for responsive emails. See, e.g., Cenveo Corp. v. Slater, 2007 WL 442387, at *2–3 (E.D. Pa. Jan. 31, 2007) (ordering the plaintiff to select a computer forensic expert to image the defendants‘ computers without substantially interrupting the defendants‘ business or removing the computers from the premises); see also In re Info. Mgmt. Servs., Inc. Deriv. Litig., 81 A.3d 278, 286– 87 (Del. Ch. 2013). The servers, however, capture only those emails sent through 10 Plaintiffs seek in this regard are email communications between or among the Non-

Employee Directors, if any exist, because those would not have been captured by the

Company‘s earlier production effort.

A. Legal Standard

In the context of a Section 220 action, stockholders with a proper purpose ―should

be given access to all of the documents in the corporation‘s possession, custody or

control, that are necessary to satisfy that proper purpose.‖23 The rationale for allowing

inspection of corporate books and records is to provide the stockholder with ―enough

information to effectively address the problem‖ through derivative litigation or other

means.24 Nevertheless, even if a stockholder‘s purpose is proper, Section 220 ―does not

open the door to the wide ranging discovery that would be available in support of

litigation,‖25 because ―the stockholder‘s inspection right is a ‗qualified‘ one.‖26

Determining the appropriate scope of inspection under Section 220 is ―fact specific and

them—that is, emails sent over the company‘s network using company email accounts. Correspondence between the Non-Employee Directors that were not also sent or copied to an employee director or officer, if any existed, would not appear on that network, and thus would not be retrieved by any search of the Company‘s servers. 23 Saito v. McKesson HBOC, Inc., 806 A.2d 113, 115 (Del. 2002). 24 Id. 25 Id. at 114. 26 United Techs. Corp. v. Treppel, 109 A.3d 553, 559 (Del. 2014).

11 will necessarily depend on the context.‖27 This Court ―must circumscribe orders granting

inspection ‗with rifled precision,‘‖28 and the relevant inquiry in confining the scope of

such an order is ―[w]hether or not a particular document is essential to a given inspection

purpose.‖29

B. The Scope of the April 2014 Order

For the reasons that I will discuss shortly, I conclude that in the circumstances of

this case, an order requiring the Company to search the independent directors‘ non-

Company or personal email accounts is unwarranted, because any such emails are not

―necessary and essential,‖ and Plaintiffs‘ request goes beyond the scope of the April 2014

Order. As a threshold matter, however, I note that even if Plaintiffs could establish that

those documents were necessary for their proper purposes, it is not clear that the Court

could require that Plaintiffs receive access to those documents under Section 220. The

statute recognizes a stockholder‘s right to inspect ―[t]he corporation‘s stock ledger, a list

of its stockholders, and its other books and records.‖30 That right extends, for example,

to the books and records of a corporation‘s subsidiary, but only to the extent the

corporation has ―actual custody and control of such records,‖ or ―could obtain such

27 Espinoza v. Hewlett-Packard Co., 32 A.3d 365, 372 (Del. 2011) [hereinafter ―Espinoza II‖]; see also United Techs. Corp., 109 A.3d at 558. 28 Espinoza II, 32 A.3d at 372 (quoting Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 570 (Del. 1997)). 29 Id. at 372 (emphasis added). 30 8 Del. C. § 220(b)(1).

12 records through the exercise of control over‖ the subsidiary.31 The statute is silent as to

the books and records of the corporation‘s directors, and Delaware courts have not read

Section 220 so broadly as to include, as a general matter, books and records in a

director‘s personal possession.32 If anything, the prevailing rule appears to cut against

the inclusion of such documents.33 Plaintiffs therefore overstate the extent to which Wal-

Mart34 and Wal-Mart II aid their cause on this point.35 If, following those cases, I were to

31 8 Del. C. § 220(b)(2); see also Weinstein Enters., Inc. v. Orloff, 870 A.2d 499, 508-11 (Del. 2005). 32 See Clark Enters., Inc. v. Hollywell Corp., 1982 WL 17855, at *2 (Del. Ch. Apr. 13, 1982) (granting plaintiff stockholder inspection of Hollywell‘s books and records under Section 220, but noting that ―[t]he personal records and documents of [Hollywell‘s director and 80% stockholder], copies of which are not found among Hollywell‘s records and files, are not subject to inspection as a part of this proceeding. If discovery is sought of [those] personal records, it must be obtained through other means.‖); see also Dobler v. Montgomery Cellular Hldg. Co., 2001 WL 1334182, at *10 (Del. Ch. Oct. 19, 2001). 33 See 1 EDWARD P. WELCH, ET AL., FOLK ON THE DELAWARE GENERAL CORPORATION LAW § 220.04[D], at 7-221 (6th ed. 2015). 34 Ind. Electr. Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., 7779-CS, at 97-98 (Del. Ch. May 20, 2013) (TRANSCRIPT) [hereinafter ―Wal-Mart I‖]. 35 In Wal-Mart I, this Court ordered that certain officers and directors who were designated as custodians in the Section 220 discovery had to search their personal devices and computers for responsive documents. Id.; see also Ind. Electr. Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., 7779-CS (Del. Ch. Oct. 15, 2013) (ORDER) (―Defendant shall: . . . Collect and review data from the personal computers and devices of all Custodians.‖). Then-Chancellor Strine‘s ruling in Wal-Mart I did not announce a per se rule that directors‘ personal emails always are subject to discovery under Section 220; rather, it left open the possibility that, depending on Wal-Mart‘s policy for use of company information and documents on non-company devices, information residing in the directors‘ personal computers may or may not have to be produced. Wal-Mart I, at 97-98. Furthermore, while the Delaware Supreme Court affirmed then-Chancellor 13 conclude that personal documents of the Non-Employee Directors were within the scope

of Plaintiffs‘ Section 220 inspection right, I would have to do so based on a careful

review of the circumstances of the case, and in particular the facts relating to whether the

sought-after documents are within lululemon‘s ―possession, custody, or control.‖36 But,

the factual record as to that issue contains no evidence on which this Court could rely in

ordering the type of discovery Plaintiffs seek. I decline, in light of the incomplete record

before me, to address this issue further, except to note that I reject Plaintiffs‘ suggestion

that Delaware law requires me to order the search that they seek by this motion.37

The issue of whether the Non-Employee Directors‘ personal emails are within the

―control‖ of the Company for purposes of Section 220 ultimately is immaterial to my

decision, however, because I deny that aspect of Plaintiffs‘ motion on two other grounds.

First, in the portions of the April 2014 Order that Plaintiffs invoke as supporting their

argument in this regard, I explicitly ordered the Company to produce documents

responsive to the specified requests to the extent they fell within a prescribed time

Strine‘s judgment en toto, the specific issue of whether Section 220 reaches directors‘ personal documents was not briefed or argued by the parties on appeal. 36 Saito, 806 A.2d at 115; see also Weinstein Enters., Inc., 870 A.2d at 507-12 (discussing ―control‖ for purposes of Section 220); id. at 510 (―[T]he inquiry in each specific case is not whether the parent has the power to control the affairs of the subsidiary, but whether by exercising actual control, the parent corporation alone can cause the subsidiary to produce its documents.‖); accord Wal-Mart I, at 97-98. 37 Pls.‘ Reply Br. 1-4.

14 period.38 I observed that ―I would not be surprised that there are no documents in this

category,‖ and did not suggest that Plaintiffs would be entitled to another, broader search

for documents if that turned out to be true.39

By requesting production of ―all communications authored or received by any

Board member (including e-mails located in non-Company e-mail accounts) concerning

any inquiry or investigation into Wilson‘s June 2013 trades,‖ Plaintiffs ask the Court to

go considerably beyond the scope of relief granted in the April 2014 Order. In that

regard I note that the Section 220 demands that I considered in issuing the April 2014

Order required that the Company produce ―All documents concerning Mr. Wilson‘s

trades . . .‖ and ―All documents concerning any investigation or inquiry‖ by any Board

member into Wilson‘s trading.40 The term ―documents‖ was defined vaguely, at least

with respect to the source of the documents sought.41 Plaintiffs did not address squarely

38 April 2014 Order 41 (―The Company, however, need only produce documents from June, 2013 . . .‖); id. at 42 (―I . . . order it to be produced by the Company.‖) (emphases added). 39 Id. at 42. The Company in fact did produce at least a few documents in this category, including, for example, an email from Nicholas, in-house counsel for lululemon, to Director Michael Casey. Company Production at lulu000037. That email, copying Chief Compliance Officer John Currie, provided Casey with information about Wilson‘s June 2013 trades, the Trading Plan, and the impending WSJ article. Id. 40 Pls.‘ Opening Br. Ex. F. (―LDC‘s Demand Letter‖); see also April 2014 Order 40- 42. 41 LDC‘s Demand Letter 1 n.1 (―The term ‗documents‘ as used herein is to be construed as broadly as possible under the Rules of the Delaware Court of Chancery, and includes, without limitation, any and all correspondence concerning 15 the issue of ordering the Company to search the Non-Employee Directors‘ non-Company

email accounts, if in fact they contemplated such a search at that time. Nor was that issue

squarely raised in Plaintiffs‘ pre-trial papers,42 or during the trial and related arguments in

February 2014.43 Thus, when the Court granted Plaintiffs‘ demands in the April 2014

Order, it did so only with respect to the issue of what documents, if any, the Company

must produce. Plaintiffs now ask the Court to expand the scope of the April 2014 Order

to include documents, if any exist, that the Non-Employee Directors must produce. In the

circumstances of this case, I find such a retroactive expansion to be unwarranted.

Because it was Plaintiffs‘ burden to establish by a preponderance of the evidence that

each book or record sought was essential to their proper purpose,44 I decline at this late

stage to resolve any remaining ambiguity in Plaintiffs‘ favor.

Second, and more importantly, even if Plaintiffs properly had framed the issue of

whether the Non-Employee Directors‘ personal emails should be within the scope of

relief ordered under Section 220, Plaintiffs likely would have failed to establish that those

communications were ―essential‖ to their proper purposes of investigating potential

Brophy claims against Wilson and potential mismanagement claims against the Board. In

finding the latter purpose ―proper‖ under Section 220, I stated that ―it is legitimate for

the demanded categories, whether sent via mail, facsimile, electronic communication, or otherwise.‖). 42 Pls.‘ Opening Pre-Trial Br. 13-16. 43 Trial Tr. 22-23. 44 Espinoza II, 32 A.3d at 374; see also id. at 374 n.19.

16 Plaintiffs to want to understand what, if [any], steps the company‘s board took to

determine whether the sales were made in accordance [with] the Trading Plan or

otherwise consistent with the Company‘s policies regarding insider trading.‖45

―Documents are ‗necessary and essential‘ pursuant to a Section 220 demand if

they address the ‗crux of the shareholder‘s purpose‘ and if that information ‗is

unavailable from another source.‘‖46 As noted above, a copy of the Trading Plan was in

the possession of the Company, and each time stock was sold pursuant to the Plan, a

notification was sent to lululemon and to Wilson‘s Family Office. I deem the ―crux‖ of

Plaintiffs‘ proper purpose, therefore, to be whether any Director contacted someone at the

Company to investigate possible insider trading by Wilson. To the extent a director

communicated by email or otherwise with lululemon employees, those communications

would have been produced by the Company. Indeed, as noted above, at least some such

communications were produced.

Apparently finding those documents insufficient, Plaintiffs seek by this motion to

obtain email communications solely between or among Non-Employee Directors,

occurring on non-Company accounts. While such discussions among members of the

Board might be interesting to Plaintiffs, and may be helpful in a later action against those

Board members, they are not ―necessary‖ for Plaintiffs‘ proper purpose here. It is not

enough for Plaintiffs to voice their dissatisfaction with the responsive documents located

45 April 2014 Order 29. 46 Wal-Mart II, 95 A.3d at 1271 (quoting Espinoza II, 32 A.3d at 371-72).

17 and produced by the Company in this regard. Rather, their burden under Section 220 is

to show that the intra-Board communications occurring exclusively on non-Company

email accounts would be necessary and essential to their investigation of potential claims

against Wilson or other Board members; that is, Plaintiffs must show that they cannot

accomplish their investigatory purpose without access to those emails.

Even setting aside that Plaintiffs failed to create a record sufficient to satisfy their

burden as to that issue at trial, the results of the Company‘s production demonstrates the

opposite of what Plaintiffs needed to show: that the Non-Employee Directors‘ personal

emails are not necessary and essential to accomplish their proper purpose. The books and

records related to the crux of Plaintiffs‘ proper purpose consisted of the Trading Plan, and

any inquiries by members of the Board relating to an investigation of possible insider

trading. On the facts of this case, an email exchange solely between Non-Employee

Directors would not constitute an ―investigation,‖ if that communication never

progressed to the further step, for example, of contacting someone at the Company, such

as an employee responsible for compliance or legal affairs at the Company. But, any

director communication rising to the level of an ―investigation‖ in that sense presumably

would have found its way to the inbox of a Company email account and onto its server.

In that case, the document should have been located by lululemon or its counsel and

either produced or included on a privilege log. Plaintiffs already obtained documents of

that nature from the Company, so I consider it neither necessary nor essential to broaden

the scope of relief granted by re-writing the April 2014 Order to include a substantially

new and different search for books and records.

18 III. THE WSJ EMAIL AND THE NICHOLAS EMAIL

Plaintiffs contend that they are entitled to review the WSJ Email Chain and

Nicholas Email because either: (1) they were improperly designated as privileged; or (2)

under Garner, they should have access to those documents regardless of privilege. For

the reasons that follow, I conclude that the WSJ Email Chain and the Nicholas Email

were properly designated as privileged, and that privilege was not waived as to either.

After considering the relevant factors, however, I conclude that Plaintiffs have shown

good cause to access those documents under the fiduciary exception as articulated in

Garner and Wal-Mart.

A. Whether the Nicholas Email and the WSJ Email Chain Were Properly Designated as Privileged

1. Legal Standard

Before analyzing whether Plaintiffs may review the privileged documents under

Garner, I must decide whether the WSJ Email Chain and the Nicholas Email were

properly designated as privileged.47 Delaware Rule of Evidence 502(b), which governs

the attorney-client privilege, provides:

A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client (1) between the client or the client‘s representative and the client‘s lawyer or the lawyer‘s representative, (2) between the lawyer and the lawyer‘s representative, (3) by the client or the

47 See Khanna v. Covad Commc’ns Gp., Inc., 2004 WL 187274, at *7 (Del. Ch. Jan. 23, 2004) (making privilege determination before deciding whether the plaintiffs had a proper purpose under Section 220 to review the document).

19 client‘s representative or the client‘s lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest, (4) between representatives of the client or between the client and a representative of the client, or (5) among lawyers and their representatives representing the same client. 48

2. The Nicholas Email is protected by attorney-client privilege.

Plaintiffs argue that the Nicholas Email is not privileged because Nicholas, who is

both the company‘s in-house counsel and its corporate secretary, was not acting as an

attorney when she sent it. In her email, Nicholas apparently answered an inquiry from

Director Stritzke regarding whether Wilson‘s trades complied with Wilson‘s Trading

Plan. Generally, when an attorney has more than a legal role with the company, her

communications will be privileged only if the legal aspects of the communication

predominate.49

Based on the description in the privilege log,50 I conclude that the Nicholas Email

is privileged. Stritzke emailed Nicholas asking her to review a legal document (the

Trading Plan) and tell him whether certain acts complied with it. No non-attorney

employees of the Company were involved in the email chain, nor is there any reason

based on the log‘s description to think that Stritzke or Nicholas were discussing anything

48 D.R.E. 502(b). 49 MPEG LA, L.L.C. v. Dell Global B.V., 2013 WL 6628782, at *2 (Del. Ch. Dec. 9, 2013). 50 Privilege Log (―Email reflecting legal advice regarding inquiry relating to Rule 10b5-1 plans and trade made by Mr. Wilson‘s broker pursuant to his Rule 10b5-1 plan.‖).

20 other than predominately legal issues. Such a communication is protected by attorney-

client privilege.51

3. The Company did not waive privilege as to the WSJ Email Chain.

Plaintiffs also argue that the WSJ Email Chain improperly was withheld as

privileged. The participants in the WSJ Email Chain included, among others, Wilson and

Tina Swinton, the CFO of the Wilson Family Office. At argument, lululemon

represented that the communications were related to ensuring that the coordinated

statement to the WSJ was ―legally accurate.‖52 Plaintiffs do not dispute that the WSJ

Email Chain contains legal advice, which generally is protected by attorney-client

privilege. Instead, they contend that lululemon waived the privilege when it included

Wilson and Swinton on the WSJ Email Chain. Lululemon responds that privilege was

not waived because Wilson and lululemon had a common legal interest in responding to

the WSJ inquiry. Lululemon further argues that because it and Wilson, the Chairman of

its Board, had a common interest in these communications, sharing privileged materials

with Wilson‘s agent, Swinton, also did not waive privilege.

a. Wilson and lululemon had a common interest.

As a general rule, disclosing privileged communications to a third party will waive

privilege. One exception to that rule involves situations where a lawyer represents more

51 Plaintiffs urge me to review the Nicholas Email in camera. In camera review, however, is unnecessary here because the nature of the Nicholas Email and the related privilege log description of it do not give me a reason to doubt the privileged nature of that communication. 52 Arg. Tr. 56.

21 than one client, or two lawyers represent different clients in a ―matter of common

interest.‖53 Delaware Rule of Evidence 502 extends the privilege to confidential

communications made for the purpose of ―facilitating the rendition of professional legal

services to the client . . . by the client or the client‘s representative or the client‘s lawyer

or a representative of the lawyer to a lawyer or a representative of a lawyer representing

another in a matter of common interest.‖54 The so-called common interest doctrine,

however, does not require that the relevant advice be relayed through attorneys; instead,

privilege will survive when persons with a common interest share the privileged

information.55 For the parties to have a ―common interest,‖ the ―interest must involve

primarily legal issues, rather than relate to a common interest in a commercial venture.‖56

In addition, the disclosure must have been made ―to facilitate the rendition of legal

services.‖57 The party claiming privilege has the burden of demonstrating a common

legal interest.58

53 D.R.E. 510(a); see also In re Quest Software Inc. S’holders Litig., 2013 WL 3356034, at *4 (Del. Ch. July 3, 2013). 54 D.R.E. 502(b). 55 Rembrandt Techs., L.P. v. Harris Corp., 2009 WL 402332, at *8 ( Del. Ch. Feb. 12, 2009) (―The Court finds that separately represented clients sharing a common legal interest may, at least in certain situations and under close supervision of counsel, communicate directly with one another regarding that shared interest.‖). 56 In re Quest Software Inc., 2013 WL 3356034, at *4. 57 Id. (internal quotation marks omitted). 58 Id. (footnote omitted).

22 In arguing against application of the common interest doctrine, Plaintiffs rely

primarily on Titan Investment Fund II, LP v. Freedom Mortgage Corp.59 and argue that

lululemon and Wilson did not share a common legal strategy.60 The Titan decision

involved two parties negotiating at arm‘s length over the terms of a potential agreement

to provide joint financing to a third party. During the negotiations, privileged

communications were shared between the two parties. When the third party sought

discovery of the shared communications, the court examined whether the

communications were saved from waiver because of the common-interest doctrine. The

court concluded that the two parties did not have a common interest because: (1) their

interests were adverse for purposes of negotiating a commercial transaction; (2) they

failed to assert any ―clear legal interest that is inherently related to [the] commercial

objective‖;61 and (3) nothing in the record suggested they anticipated becoming parties to

litigation at the time they were sharing legal advice.

In this case, lululemon and Wilson were not adversaries negotiating an arm‘s-

length transaction. Rather, they were attempting to coordinate a statement after the Wall

Street Journal raised questions about the propriety of Wilson‘s trades. Faced with

questions of potential wrongdoing, lululemon and Wilson shared privileged

59 2011 WL 532011 (Del. Super. Feb. 2, 2011). 60 Pls.‘ Reply Br. 12 (quoting Titan, 2011 WL 532011, at *5). 61 Titan, 2011 WL 532011, at *5 (―In other words, [any shared interest] was designed to further a commercial transaction and did not further a common legal strategy.‖).

23 communications for the purpose of furthering the common legal strategy of responding to

the inquiry within the parameters of the securities laws and in the reasonable anticipation

that litigation might ensue in which the content of their responses might be subject to

scrutiny. Thus, to the extent their objectives overlapped, it was due primarily to their

common legal, as opposed to commercial, interest. I conclude, therefore, that lululemon

has satisfied its burden of showing a common interest sufficient to support its claim of

privilege as to the WSJ Email Chain.

b. The Company did not waive privilege by including Swinton on the WSJ Email Chain.

Because Wilson and lululemon had a common legal interest, any disclosure of the

communication to Swinton would not be a waiver of privilege because Swinton was

Wilson‘s representative. By its terms, Delaware Rule of Evidence Rule 502(b) extends

the protections of attorney-client privilege to confidential communications made for the

purpose of facilitating the rendition of professional legal services to the client that are

sent to or from the client‘s representative. Rather than defining the term ―client‘s

representative,‖ the drafters of the Delaware Rules of Evidence instead elected to let the

case law develop its definition.62 Courts have held that a ―privileged communication

should not lose its protection if an executive relays legal advice to another who shares

responsibility for the subject matter underlying the consultation.‖63 Here, under the

62 D.R.E. 502 cmts. (―U.R.E. 502(a)(4) was not adopted in Delaware. It was believed that a definition of a representative of a client should be left to case law.‖). 63 Rembrandt, 2009 WL 402332, at *8 (internal quotations omitted).

24 Trading Plan, Swinton received notifications from Merrill Lynch every time there was a

trade.64 Moreover, even though Merrill Lynch apparently had sole discretion to sell

Wilson‘s lululemon stock under the Plan, Swinton, as one of the agents in charge of

Wilson‘s Family Office, had responsibility over matters relating to Wilson‘s trading

activity generally. In that respect, the subject matter of the WSJ Email Chain, Wilson‘s

Trading Plan and whether the sales complied with it, generally falls within Swinton‘s

area of responsibility. As Wilson‘s agent for the Trading Plan, Swinton received

privileged advice regarding the Plan and the particular trades in question that appears to

have been directed toward crafting a coordinated response to the Wall Street Journal

inquiry. Thus, I conclude that inclusion of Swinton on the WSJ Email Chain did not

waive privilege as to that document.

B. Whether the Privileged Documents Must Be Produced Under Garner

Although both the Nicholas Email and the WSJ Email Chain are privileged,

Plaintiffs still may be able to compel production of those documents under the fiduciary

exception to privilege as articulated in cases like Garner and Wal-Mart II.65

64 See Company Production at lulu 000046 (authorizing Merrill Lynch to notify Swinton under the Trading Plan). 65 Plaintiffs failed to argue in their opening brief that they were entitled to access the Nicholas Email and the WSJ Email Chain, even if they were privileged, under the Garner test. Instead, after the Supreme Court in Wal-Mart II adopted Garner for Section 220 actions, Plaintiffs raised the issue for the first time in their reply brief. As a general rule, the failure to raise an argument in an opening brief constitutes a waiver of that argument. E.g., Lewis v. AimCo Props., L.P., 2015 WL 557995, at *2 n.3 (Del. Ch. Feb. 10, 2015). As Defendants correctly point out, there were previous cases from the Court of Chancery that applied Garner to Section 220 25 1. Legal Standard

In Wal-Mart II, the Delaware Supreme Court for the first time applied the Garner

exception in a Section 220 action. Garner is a decision from the United States Court of

Appeals for the Fifth Circuit that elucidated the ―good cause‖ standard for determining

when a stockholder should have access to corporate communications protected by

attorney-client privilege under the fiduciary exception.66 Underlying the fiduciary

exception is the importance of ―balanc[ing] the legitimate assertion of the attorney-client

privilege by corporate fiduciaries in furtherance of full and frank communications with

counsel on the one hand, with the right of a [stockholder] to discover what advice was

given . . . when a breach of duty by those same fiduciaries is alleged.‖67 Garner itself

enumerated a number of factors that illustrate ―good cause‖ to set aside privilege. The

Supreme Court in Wal-Mart II adopted and applied that analysis, identifying the

following as relevant factors:68

actions, including Grimes v. DSC Communications Corp., 724 A.2d 561 (Del. Ch. 1998), which the Supreme Court in Wal-Mart II cited with approval. Nevertheless, because the Supreme Court adopted Garner for the first time before Plaintiffs filed their reply brief and lululemon had an opportunity to respond to the new argument at length by letter, I deem it appropriate to consider the Garner argument here. 66 See In re Fuqua Indus., Inc., 2002 WL 991666, at *3 (quoting Garner v. Wolfinbarger, 430 F.2d 1093, 1104 (5th Cir. 1970)). 67 In re Fuqua Indus., Inc., 2002 WL 991666, at *3. 68 See Wal-Mart II, 95 A.3d at 1278–80. In earlier cases, this Court had suggested that only a subset of Garner‘s nine factors were relevant in the Section 220 context. See Espinoza v. Hewlett-Packard Co., C.A. No. 6000-VCP, at 19 (Del. Ch. Mar. 25, 2011) (TRANSCRIPT) [hereinafter ―Espinoza I‖], aff’d on other 26 [1] the number of shareholders and the percentage of stock they represent; [2] the bona fides of the shareholders; [3] the nature of the shareholders‘ claim and whether it is obviously colorable; [4] the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; [5] whether, if the shareholders‘ claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; [6] whether the communication is of advice concerning the litigation itself; [7] the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and [8] the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.69

For purposes of applying the Wal-Mart and Garner analysis to this case, lululemon has

conceded that Plaintiffs have a large enough stake in the Company and are not ―blindly

fishing.‖70 In addition, lululemon does not argue that the privileged documents are trade

secrets or that Plaintiffs lack a proper purpose. Thus, I focus on the extent to which

Plaintiffs have shown that any of the remaining elements from the quoted excerpt—i.e.,

numbers (3) through (6)—apply here. In conducting that analysis, I note that the plaintiff

grounds, Espinoza II, 32 A.3d 365 (Del. 2011); Grimes, 724 A.2d at 568 (citing Sealy Mattress Co. of N.J. v. Sealy, Inc., 1987 WL 12500, at *4 (Del. Ch. June 19, 1987)). 69 Wal-Mart II, 95 A.3d at 1276 n.32 (citing Garner, 430 F.2d at 1104). 70 Def.‘s Sur-reply Ltr. 7 n.4.

27 stockholder has the burden of showing ―good cause,‖71 and that the fiduciary exception

―is narrow, exacting, and intended to be very difficult to satisfy.‖72

2. The Garner factors suggest Plaintiffs are entitled to the Nicholas Email and the WSJ Email Chain

Here, Plaintiffs argue that, even if the WSJ Email Chain and the Nicholas Email

are privileged, they are entitled to access those documents under the fiduciary exception

as recognized in Wal-Mart II and Garner. Based on the following analysis, I agree.

a. Are Plaintiffs’ claims “obviously colorable”?

In Wal-Mart II, the Supreme Court affirmed then-Chancellor Strine‘s order to

produce books and records related to the Wal-Mart board‘s investigation into alleged

bribery of Mexican officials by one of Wal-Mart‘s subsidiaries. In so doing, the Supreme

Court concluded that an ―obviously colorable‖ bribery allegation could support, in part, a

finding of ―good cause‖ under Garner, even though the Section 220 production related to

the subsequent investigation, rather than the alleged bribery itself.73 In this case, I

construe the ―obviously colorable‖ aspect of the analysis as requiring Plaintiffs to show

either that the underlying Brophy claim against Wilson is obviously colorable, or that the

mismanagement claim—relating to the Board‘s subsequent investigation, or lack thereof,

into possible insider trading—is obviously colorable.

71 E.g., Khanna v. Covad Commc’ns Gp., Inc., 2004 WL 187274, at *7 (Del. Ch. Jan. 23, 2004). 72 Wal-Mart II, 95 A.3d at 1278. 73 See Wal-Mart II, 95 A.3d at 1279.

28 Under Section 220, the Court looks to whether the stockholder has a proper

purpose; that is, when investigating corporate wrongdoing, whether there is a credible

basis to infer that wrongdoing may have occurred.74 While not an inconsequential

standard, a ―credible basis‖ is ―the lowest possible burden of proof.‖75 The facts relating

to Wilson‘s trading support an obviously colorable Brophy claim, at least at this

procedural stage. As I noted in connection with the April 2014 Order: (1) Wilson was

one of the few people who knew that lululemon‘s CEO was going to resign; (2) the

magnitude and the timing of Wilson‘s June 7, 2013 trades were highly suspicious; and (3)

Wilson hit his one-million-share-per-month cap only seven days into June.76 Plaintiffs‘

mismanagement claim similarly was obviously colorable in the sense that they had

reasonable suspicion about the trades, and were justified in seeking books and records

relating to what, if anything, the lululemon directors did to ensure that those trades were

74 Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 122-23 (Del. 2006). 75 Id. at 123. Plaintiffs initially contended that showing a credible basis was sufficient for Garner‘s ―obviously colorable‖ element. Pls.‘ Reply Br. 6 (―In light of the fact that in its [April 2014] Order this Court determined that Plaintiffs have stated a proper purpose and that the categories of documents sought in the demand (and limited slightly by the Court) are ‗necessary and essential‘ to that purpose, there can be little doubt that Plaintiffs have stated a colorable claim.‖). At the Argument, however, they conceded that ―credible basis‖ and ―obviously colorable‖ likely were two different standards. Arg. Tr. 20–23. I need not determine the congruence or difference between those standards, however, because I find Plaintiffs‘ claims to be ―obviously colorable.‖ 76 Arg. Tr. 21–23.

29 lawful and in accordance with Company policy. Thus, Plaintiffs have alleged obviously

colorable claims for Garner purposes.

b. Are the communications necessary and unavailable from other sources?

As previously discussed, courts in a Section 220 action order the production only

of books and records that are necessary and essential to the stockholder‘s proper purpose.

The Supreme Court articulated this aspect of the Garner inquiry as whether ―[the

documents] address the ‗crux of the shareholder‘s purpose‘ and if that information ‗is

unavailable from another source.‘‖77 In determining whether the fiduciary exception to

privilege applies, courts look to ―the apparent necessity or desirability of the shareholders

having the information and the availability of it from other sources.‖78 I consider the

necessary and essential prong for Section 220 to be similar, if not identical, to this aspect

of the Garner analysis.

Under Garner, courts have found that privileged documents are not necessary and

essential if the stockholder has the underlying information.79 For example, in Saito v.

McKesson, the company announced shortly after a merger that it had to make certain

77 Wal-Mart II, 95 A.3d at 1271 (quoting Espinoza II, 32 A.3d at 371–72). 78 Garner, 430 F.2d at 1104. 79 Espinoza I, at 25 (finding that the stockholder had failed to show that the information from the investigative report detailing the CEO‘s sexual harassment was unavailable from another source when he already had the documents and information underlying the report); Saito v. McKesson HBOC, Inc., 2002 WL 31657622, at *13 (Del. Ch. Oct. 25, 2002) (finding plaintiff had failed to demonstrate the documents were necessary when he had the information underlying the legal analysis).

30 accounting restatements as a result of irregularities discovered in the target‘s books.80

The stockholder sought, among other things, books and records related to legal advice

given to the company‘s board pre- and post-merger. The Court first found that, under

Garner, the stockholder was entitled to pre-merger legal advice to determine the

information that the board had at the time it was considering the merger. 81 The Court

denied, however, the plaintiff‘s requests for post-merger legal advice because the

stockholder had the information underlying that advice.82

With those principles in mind, I first consider the Nicholas Email. In this regard,

Plaintiffs sought documents related to their investigation of possible Brophy claims

against Wilson and possible claims of mismanagement against the Board regarding their

inquiry into the propriety of Wilson‘s trades. The Nicholas Email was identified on the

privilege log as a responsive document, likely because it relates to an inquiry from a

director regarding Wilson‘s trades. The Company contends, however, that because it

already has produced the Trading Plan, as well as numerous related documents and

communications, production of the Nicholas Email is unnecessary. In addition, counsel

80 Saito, 2002 WL 31657622, at *1–2. 81 Id. at *13 (―Plaintiff‘s purpose, however, is to determine what the board knew when approving the merger. The legal advice given to the board in conjunction with the merger is relevant and necessary in determining what information the board relied upon.‖). 82 Id. at *14 (―Plaintiff has obtained the necessary underlying information through documents previously provided to him by defendant during discovery. Plaintiff does not have a right to defendant‘s legal analysis of that same information.‖).

31 for the Company has stated that Plaintiffs have all of the information underlying the

Nicholas Email.83

The content of Director Stritzke‘s communication to the individuals at the

Company who would be in charge of compliance and other legal issues, however, goes

directly to the crux of Plaintiffs‘ proper purpose, especially as it relates to the Board‘s

investigation into Wilson‘s trading. Indeed, part of my determination as to whether

Plaintiffs should have access to the Non-Employee Directors‘ private email accounts was

that any communication between or among Board members that reasonably could be

called an ―investigation‖ would have touched at some point the Company‘s network,

insofar as Company employees‘ email data is stored and searchable by the Company.

The Nicholas Email is just that sort of communication, and I find it necessary for

Plaintiffs‘ investigatory purpose. Based in part on my ruling as to the Non-Employees‘

personal email accounts, the Nicholas Email almost certainly is unavailable to Plaintiffs

by any other means. Thus, this aspect of Garner cuts in favor of setting aside privilege as

to the Nicholas Email.

Second, I find that the WSJ Email Chain also is necessary for purposes of this

element of the Garner analysis, although it presents a much closer question than the

Nicholas Email. In this regard, Plaintiffs seek communications, including legal advice,

underlying the coordinated response of Wilson and the Company to the Wall Street

Journal article. Based on the production already made by the Company, Plaintiffs

83 Arg. Tr. 41.

32 evidently have at least some of the information underlying WSJ Email Chain—i.e., the

Trading Plan, the statement reflecting the June 7 trade itself, and related documents and

communications. On the other hand, lululemon did not make a statement in response to

the WSJ inquiry, and Plaintiffs do not know what, if anything, lululemon‘s counsel told

Wilson, his representatives, or his attorneys in this regard, or what other information

Nicholas may have had regarding the Wilson June 7 trades.

Having considered these circumstances, I consider the WSJ Email Chain,

including the legal advice contained in it, to be directly related to Plaintiffs‘ proper

purpose of investigating their potential Brophy claim against Wilson and their potential

claim of mismanagement against the Directors. As to whether Plaintiffs already have all

the underlying information pertaining to the WSJ Email, the record is less clear. To the

extent they do not, it is unlikely the missing information would available from any other

source. Thus, while this element of the Garner analysis does not cut as strongly in favor

of lifting the privilege as it did in the case of the Nicholas Email, I conclude that it

weighs slightly in favor of production.

c. Does the alleged wrongdoing constitute a criminal act?

Lululemon argues that in light of the existence of the Trading Plan, which now has

been produced, ―Plaintiffs cannot credibly allege that any criminal or illegal acts

occurred.‖84 While lululemon repeatedly avers that the Trading Plan conclusively

demonstrates that no insider trading took place, such a conclusion would be premature

84 Def.‘s Sur-reply Ltr. at 16.

33 based on the truncated record before me. While the Trading Plan may weigh against a

finding that insider trading occurred, and, indeed, ultimately might absolve Wilson of

liability, its mere existence and the fact that its mechanics literally may have been

adhered to do not, in and of themselves, preclude insider trading. It remains conceivable

that Wilson or someone else associated with Wilson or the Company may have tipped off

the broker handling the Trading Plan and thereby engaged in wrongful trading. The

suspicious nature of the timing and size of the June 7, 2013 trade still remains. In sum,

the claims that provided the foundation of Plaintiffs‘ proper purpose in this case stem

from an underlying allegation of criminal conduct, namely insider trading; therefore, this

element of Garner is satisfied.

d. Do the communications relate to advice concerning this litigation?

Under Garner the courts look to whether the evidence sought relates to advice

about the present litigation itself, or instead to the underlying events and conduct that

gave rise to the plaintiffs‘ proper purpose. According to Wal-Mart II, setting aside

privilege is more justified in the latter situation than the former.85 This aspect of the

analysis is not applied rigidly, however, and depends on the specific facts of the case.86

For example, in Espinoza v. Hewlett-Packard Co., after the CEO was investigated for

85 Wal-Mart II, 95 A.3d at 1280 (―‗[As to] whether the communication is advice concerning the litigation itself, no, this is not after those litigations. So I don‘t think it‘s trying to get into [advice about] how to defend against what the plaintiffs are doing. This is during the real-time of Wal-Mart dealing with this thing.‘‖) (quoting Wal-Mart I, at 86.). 86 Espinoza I, at 21.

34 possible sexual harassment, he resigned with severance pay rather than risk being fired

for cause. A stockholder then sought the company‘s books and records to investigate

whether the severance package the company paid to the exiting CEO constituted waste.

In analyzing the Garner factors to determine if good cause existed to set aside privilege

as to an interim report by the company‘s outside counsel investigating the alleged sexual

harassment, this Court considered the document to be related to legal advice about the

litigation itself, even though aspects of the report obviously dealt with the underlying

facts and events that preceded the litigation.87 Similarly, in Saito, this Court denied the

stockholder‘s request for post-merger advice based in part on finding that it related to the

litigation itself.88 In that regard, the Court concluded that ―[the company‘s] legal analysis

is also related to the litigation at hand. The improprieties at issue were discovered post-

merger. At that point, defendant obtained legal advice to prepare for the ensuing

litigation. To grant plaintiff access to this information, in my opinion, would be

improper.‖89

In this case, it does not appear that this factor weighs against application of the

fiduciary exception. Plaintiffs seek privileged communications relating to legal advice

87 Id. I note that this element of the Garner analysis was not emphasized in the circumstances of the Espinoza case, which relied more heavily on the ―necessity‖ element of Garner in determining that the privilege should be protected there. Id. at 21-24. 88 Saito, 2002 WL 31657622, at *14. 89 Id.

35 given to the Company almost immediately after the suspicious trading was discovered.

The legal advice contained in the Nicholas Email and the WSJ Email Chain was given to

help the Company determine the appropriate legal response to that revelation. It is

possible that the participants in the privileged communications at issue contemplated the

potential of litigation; indeed as I noted above, that is part of the reason these

communications are privileged. But, I consider these two sets of documents to be more

analogous to the ―real-time‖ evidence that the Court in Wal-Mart II found to be subject to

the Garner exception than to either the Espinoza or the Saito situations.90 I therefore

conclude that this part of the Garner test weighs at least slightly in favor of allowing

Plaintiffs to view the documents notwithstanding the privilege.91

e. On balance, the Garner factors weigh in favor of allowing Plaintiffs to view the challenged documents.

The Garner decision focused on the equitable concerns implicated in a situation

―where the client asserting the privilege is an entity which in the performance of its

functions acts wholly or partly in the interests of others, and those others, or some of

them, seek access to the subject matter of the communications.‖92 In so doing, Garner

90 Wal-Mart II, 95 A.3d at 1280. 91 I consider this factor of the analysis to distinguish between: (1) communications about the ―present litigation itself‖ (Espinoza I, at 21), or advice about ―how to defend against what the plaintiffs are doing‖ (Wal-Mart II, 95 A.3d at 1280); and (2) communications that might relate to a non-specific contemplation of future litigation. The Nicholas Email and the WSJ Email Chain fall more in the latter category and, therefore, are more likely to be subject to the fiduciary exception. 92 Garner, 430 F.2d at 1101.

36 was respectful of the importance of protecting the attorney-client privilege, but also

cognizant of an important precept of corporate law, which is that ―when all is said and

done management is not managing for itself.‖93

Thus, while Garner and Wal-Mart II enumerate a ―panoply of factors‖94 that

courts should consider in determining whether stockholder plaintiffs have ―good cause‖

to set aside attorney-client privilege under the fiduciary exception, I decline to apply

those factors mechanically. Instead, I have reviewed all of the factors and, cognizant of

the principles on which the fiduciary exception is founded, considered whether or not

their cumulative weight tends toward a showing of ―good cause‖ to access the withheld

documents.

The Company conceded that the documents sought are identifiable and limited in

number; that Plaintiffs are substantial stockholders; that Plaintiffs have a proper purpose

under Garner; and that the communications did not involve trade secrets. In the

preceding analysis, I found that Plaintiffs‘ claims of alleged wrongdoing are obviously

colorable. Moreover, the documents Plaintiffs seek in this regard do not relate to the

present litigation, but rather to the real-time events underlying the action that gave rise to

Plaintiffs‘ proper purpose. I also found that the Nicholas Email and to a lesser extent the

93 Id.; see also Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (―[C]orporate directors have a fiduciary duty to act in the best interests of the corporation‘s stockholders.‖) (citing Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939)). 94 Wal-Mart II, 95 A.3d at 1279.

37 WSJ Email Chain are necessary to Plaintiffs and unavailable from another source.

Furthermore, no one factor predominates under the Garner analysis. Rather, the various

elements are ―indicia that may contribute to a decision of presence or absence of good

cause.‖95 Taking into consideration all the Garner factors, the particular circumstances

of this case, and the relevant case law, I conclude that Plaintiffs have met their burden of

showing good cause. I hold, therefore, that Plaintiffs are entitled to review the Nicholas

Email and the WSJ Email Chain under Garner‘s fiduciary exception to privilege.

IV. CONCLUSION

For the reasons stated in this Memorandum Opinion, I deny Plaintiffs‘ motion in

part and grant it in part. I decline to order lululemon to search its directors‘ non-

Company email accounts. I grant Plaintiffs‘ request to review the WSJ Email Chain and

the Nicholas Email, because they have demonstrated good cause under Garner and Wal-

Mart II. Those documents shall be produced within five business days of the date of this

Memorandum Opinion.

IT IS SO ORDERED.

95 Garner, 430 F.2d at 1104.