Matthew M. Bruckel, MD v. TAUC Holdings, LLC

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MATTHEW M. BRUCKEL, MD, )

)

Plaintiff, )

)

v. ) C.A. No. 2021-0579-MTZ )

TAUC HOLDINGS, LLC, )

)

Defendant. )

MEMORANDUM OPINION Date Submitted: April 11, 2023 Date Decided: July 17, 2023

Ethan H. Townsend, Kevin M. Regan, MCDERMOTT WILL & EMORY LLP, Wilmington, Delaware; Jennifer Aronoff, MCDERMOTT WILL & EMORY LLP, Chicago, Illinois; Megan E. Thibert-Ind, MANATT, PHELPS & PHILLIPS, LLP, Chicago, Illinois, Attorneys for Plaintiff.

Ronald N. Brown, III, Kelly L. Freund, DLA PIPER LLP (US), Wilmington, Delaware; James C. Bookhout, Mallory Biblo, DLA PIPER LLP (US), Dallas, Texas, Attorneys for Defendant.

ZURN, Vice Chancellor

A manager of a limited liability company sued to obtain the books and records

to which he is entitled. The company resisted through and after trial, including by

withholding books and records to which the manager had unfettered rights; failing

to identify whether formal board materials exist; altering the way the board functions

in an attempt to duck the company’s production obligations; manufacturing weeks-

long delays in conveying books and records; and overdesignating documents and

communications as privileged.

The company is in contempt of orders issued in this case. Because the board

appears incapable of satisfying the plaintiff’s entitlement to company documents, a

receiver has been appointed to carry out that task. The company’s privilege

overdesignations result in a limited privilege waiver. This opinion concludes the

company’s conduct justifies the application of a narrow exception to the rule that

each side in litigation bears its own fees: the manager’s fees incurred in this action

are shifted to the company.

I. BACKGROUND

Plaintiff Matthew M. Bruckel, MD is a “Founder Member” and manager of

Defendant TAUC Holdings, LLC (“Defendant,” the “Company,” or “TAUC”),

which is managed by a board of managers (the “Board”).1 He holds information

1 Docket Item (“D.I.”) 38 at III ¶¶ 1, 9; Joint Exhibit (“JX”) 1 [hereinafter “LLC Agr.”] §§ 1.1, 5.1(a)–(b)(i).

2

rights under Defendant’s operating agreement.2 As a “Founder Member,” Plaintiff

may designate a representative eligible “upon reasonable notice and during normal

business hours, to inspect the books and records of [Defendant] or any of its

Operating Companies and make copies thereof or extracts therefrom.”3 On June 18,

2021, Plaintiff served a demand on Defendant under 6 Del. C. § 18-305 and Section

11.1(c) of Defendant’s operating agreement seeking six categories of documents.4

On July 6, Plaintiff filed a Verified Complaint for Inspection of Books and Records

seeking the same six categories of documents.5

A. The Court Orders Documents To Be Produced And Suggests Fee-Shifting May Be Appropriate.

On December 14, 2021, I held a one-day trial.6 The trial revealed extreme

disdain between Plaintiff and the other managers has impeded necessary information

between the two managerial factions.7 At trial, Defendant asserted Plaintiff

“lack[ed] a proper purpose,” “Plaintiff’s stated purposes [were] not his primary

2 LLC Agr. § 11.1(c).

3 Id. §§ 1.1, 11.1(c).

4 JX 4.

5 D.I. 3; id. ¶ 18.

6 D.I. 44; D.I. 59 [hereinafter “Trial Tr.”].

7 D.I. 90 [hereinafter “Contempt Hr’g Tr.”] at 45 (“I think, as I reflected, it seemed to me that most of the time spent at trial was on these interpersonal issues. It, frankly, wasn’t a very helpful trial to me in that regard.”); see also, e.g., id. at 45–46; Trial Tr. 59, 65, 99, 135, 155, 195, 197, 234, 240–45.

3

purposes,” and Plaintiff’s demand was “deficient” under 6 Del. C. § 18-305(e).8

Defendant also asserted it could not produce documents that “do not exist,” such as

records of “board conversations.”9

At the end of trial, I made partial rulings in Plaintiff’s favor (“Post-Trial

Rulings”) and concluded: “Dr. Bruckel is a manager of a Delaware LLC with

unfettered access . . . to everything in Section 18-305(a) that is reasonably related to

his status as a manager;” the best proxy for what is reasonably related to his status

as a manager “is what the other managers are being given and documents that reflect

how the other managers meet and act collectively to do their jobs in that capacity;”

and “he also has a contractual right that doesn’t have that proper-purpose

restriction.”10

Because trial focused more on interpersonal grievances than the documents

Plaintiff sought, the parties had work to do. Defendant made a limited production

on January 25, 2022.11 I instructed the parties to review Defendant’s production

with an eye toward categorizing the documents by demand category and evaluating

8 D.I. 34 at 12–13, 23, 25–28 (capitalization altered); id. at 13 (“Thus, Dr. Bruckel’s demand was deficient, and he did not send the power of attorney until twenty days after he filed the instant suit.”). 9 Id. at 28 (internal quotation marks omitted).

10 Trial Tr. 318–19.

11 See D.I. 64 at 10 (citing Exhibit P to Defendant TAUC Holdings, LLC’s Written Submission Regarding Attorneys’ Fees).

4

what was missing and what did not exist, and to create a joint document I called a

“Crib Sheet” memorializing their conclusions. In particular, Defendant was to

certify if any missing demanded documents did not exist.12

The parties requested assistance, and I held a post-trial status conference on

March 11.13 It became clear that Defendant had not been forthcoming about what

documents did not exist; I indicated Plaintiff could take a Rule 30(b)(6) deposition

on “how do the managers do their managing, and what documents reflect the

managing that the managers do.”14 On June 23, Plaintiff deposed a TAUC

representative.15

That deposition revealed that, after my Post-Trial Rulings indicating Plaintiff

had an unfettered right to managerial materials, Defendant’s other managers took

evasive action. They stopped meeting as a full group, and instead began holding

“weekly group update[s]” in which the CEO and other managers would meet as a

subgroup to manage TAUC, but rotate out one participant to avoid the appearance

12 Bruckel v. TAUC Hldgs., LLC, 2023 WL 116483, at *2 (Del. Ch. Jan. 6, 2023) (citing Trial Tr. 321). 13 D.I. 47; D.I. 48; D.I. 49; D.I. 50; D.I. 51.

14 D.I. 51 at 14–15; see also Bruckel, 2023 WL 116483, at *2 (quoting D.I. 51 at 6–7, 13– 15). 15 D.I. 52; D.I. 63, Ex. A [hereinafter “TAUC Tr.”].

5

they were holding Board meetings without Plaintiff.16 The partial Board met over

sixty times in this manner between the December 14, 2021 trial and defendant’s June

2022 Rule 30(b)(6) deposition.17

On July 29, Plaintiff filed letters attaching the parties’ attempt at the Crib

Sheet and requesting a second post-trial teleconference, which was held on

November 1.18

On December 1, 2022, the parties filed a letter confirming Defendant declined

to produce the remaining documents and communications Plaintiff sought (the

“Outstanding Requests”) and seeking a ruling on those requests.19 Defendant also

insisted it had no obligation to produce any documents dated after trial, pressing that

“there is no basis, almost a year after trial, for Plaintiff to request to expand the

16 D.I. 53, Ex. A [hereinafter “Crib Sheet”] at 10 (“To circumvent the Court’s [trial] ruling while continuing to conduct informal meetings, TAUC now ensures that [non-Bruckel] managers ‘rotate in’ so not all managers are present at a given meeting, as is now the practice with respect to TAUC’s ‘weekly group update’ attended by Dr. Dinkel, the CEO, [Board Chair Ira] Moreland and other rotating managers, excluding Dr. Bruckel.” (citing TAUC Tr. 39)); see also id. (citing TAUC Tr. 18–19); D.I. 58 at 2. 17 Crib Sheet at 8–10, 14 (citing TAUC Tr. 18–20, 39).

18 D.I. 53; Crib Sheet; D.I. 54; D.I. 55; D.I. 56; D.I. 57.

19 D.I. 58.

6

time period at issue by nearly twelve months.”20 Defendant “request[ed] a final

order stating that production is complete.”21

On January 6, 2023, I responded to the parties’ December 1 letter with a letter

opinion and order (the “Post-Trial Opinion”).22 I concluded:

Plaintiff is entitled to non-privileged communications responsive to the Outstanding Requests to or by a manager communicating in his capacity as a manager relating to TAUC business, TAUC management meetings (formal or informal), or the bolt-on acquisition. . . . [And] Defendant must provide all formal Board materials to all of its managers, and to the extent Defendant continues to conduct business informally, it must provide all informal Board materials to all of its managers. Defendant also has an obligation to permit Plaintiff to inspect all TAUC books and records.23

The Outstanding Requests required Defendant to produce documents “on or since

February 12, 2021” through present.24

The Post-Trial Opinion also addressed Defendant’s position that its

production obligations ended with its January 25, 2022 production.25 I emphasized

20 D.I. 58 at 5 (emphasis in original); D.I. 58, Ex. A at 3 (emailing Plaintiff’s counsel on November 7, 2022, “Finally, there is no basis, almost a year after the trial in this matter, for your request to expand the time period at issue”); see D.I. 58 at 3 (explaining Defendant only produced pre-trial documents). 21 Bruckel, 2023 WL 116483, at *4 (internal quotation marks omitted) (quoting D.I. 58 at 6). 22 See generally id. The Post-Trial Opinion is also available at D.I. 60.

23 Id. at *4–5.

24 Id. at *3.

25 Id. at *4; id. (citing D.I. 58 at 6); id. at *5 (citing D.I. 58 at 5).

7

Defendant’s “ongoing [statutory] obligation to provide [Plaintiff] equal access to

books and records related to [his] status as manager,” and its “omnipresent

contractual . . . obligation to permit Plaintiff to inspect all TAUC books and

records.”26 I reiterated that “[t]he best proxy for what is reasonably related to his

status as a manager ‘is what the other managers are being given and documents that

reflect how the other managers meet and act collectively do their jobs.’”27

In the Post-Trial Opinion, I invited Plaintiff to bring a contempt motion should

Defendant violate its obligations.28 The Post-Trial Opinion also served as a rule to

show cause as to why fees should not be shifted to Defendant in this matter.29 On

January 26, Defendant filed its response opposing fee shifting, and Plaintiff filed his

reply on February 9 in support of shifting fees.30

B. Defendant Fails To Provide And Produce Documents To Plaintiff, And The Court Appoints A Receiver As A Sanction For Defendant’s Contempt.

The day the Court issued the Post-Trial Opinion, Plaintiff’s counsel reached

out to Defendant’s counsel to facilitate production encompassing the full date range

26 Id. at *4.

27 Id. at *2 (quoting Trial Tr. 319).

28 Id. at *5.

29 Id.

30 D.I. 64; D.I. 74.

8

ordered by the Court.31 Defendant’s counsel did not respond, and Plaintiff’s counsel

followed up on January 10.32 Defendant’s counsel replied, refusing to collect

materials reflecting the full date range.33 Defendant asserted its January 2022

production included any responsive documents from February 12, 2021 through

December 22, 2021 or January 1, 2022.34 Plaintiff’s counsel repeatedly requested a

hit report from February 12, 2021 through January and into February 2023.35

On February 26, in preparation for a Board meeting originally scheduled for

February 28, all the managers but Plaintiff received an email providing Board

materials and soliciting the other managers’ comments about a potential joint

31 D.I. 76, Transmittal Affidavit of Kevin M. Regan, Esquire in Support of Plaintiff’s Motion for Civil Contempt and Sanctions, Ex. 1 at 9. Attorney Regan’s transmittal affidavits do not repeat exhibit numbers. D.I. 76 (attaching exhibits 1 through 5); D.I. 82 (attaching exhibits 6 through 14). For simplicity, I will refer to both affidavits collectively as “Regan Aff.” 32 Regan Aff., Ex. 1 at 9.

33 Id. at 8.

34 Id. at 2; D.I. 78 at Certification of Ronald N. Brown, III, Esq. in Support of Defendant TAUC Holdings, LLC’s Written Submission Opposing Plaintiff’s Motion for Civil Contempt and Sanctions [hereinafter “Mar. Brown Cert.”] ¶¶ 3–5 (certifying after the Post- Trial Opinion, Defendant only collected documents from “Dr. Dinkel from December 22, 2021 through January 6, 2023 and the accounts for the other Managers from January 1, 2022 through January 6, 2023. . . . because TAUC previously collected, reviewed, and produced the documents through December 22, 2021 and January 1, 2022, respectively, ordered by the Court in its bench ruling following trial on December 14, 2021.”). I read attorney Brown’s certification to say that Defendant did not search for the Outstanding Requests to the extent they pre-dated December 22, 2023 and January 1, 2022. 35 Regan Aff., Ex. 1 at 2, 5.

9

venture.36 The meeting was ultimately scheduled for March 10; Plaintiff received

the Board packet on March 9.37 Plaintiff sought more information from the Board

chair, including whether the proposed transaction would be subject to Board

approval, how long the transaction had been planned, and whether the other

managers had been informed of the transaction before March 9. 38 The chair waited

until less than half an hour before the March 10 meeting to reply to Plaintiff’s email,

yet declined to respond to his questions.39 At the Board meeting, Plaintiff objected

that he was insufficiently informed to vote.40 The other managers did not answer his

questions about the transaction.41 The other managers voted to approve the

transaction.42

That day, Plaintiff filed his Motion for Civil Contempt and Sanctions (the

“Contempt Motion”) alleging Defendant failed to produce any of the additional

36 D.I. 76 at 7–9; Regan Aff., Ex. 2; Contempt Hr’g Tr. 11; see also id. 46–47 (“THE COURT: And the other details about that transaction that were circulated before the March 10th meeting? ATTORNEY BOOKHOUT: The – there are a handful, five to ten documents, relating to that transaction that other managers received very far in advance, none of which are as detailed as what was in this board presentation.”). 37 D.I. 82 at 6.

38 Regan Aff., Ex. 3 at 2–3.

39 Id. at 1.

40 D.I. 76 at 8.

41 Id.

42 Id.

10

Court-ordered documents and failed to produce a compliant protocol for facilitating

Plaintiff’s access to information going forward.43

On March 13, Defendant made its first production of documents following the

January 6 Post-Trial Opinion, and provided a privilege log.44 This production did

not reflect the February 12, 2021-to-present date range ordered in the Post-Trial

Opinion, but rather began December 22, 2021 or January 1, 2022, depending on the

custodian, and ended January 6, 2023.45

On March 14, Defendant sent a proposed protocol for how it would provide

manager-level Board materials to Plaintiff going forward (a “Go-Forward

Protocol”).46 Defendant proposed granting Plaintiff the equal access ordered by this

Court by routing managerial books and records to counsel for review, who would

then produce them to Plaintiff fourteen business days after the other managers

received them.47 On March 20, Defendant filed a certification in support of its

opposition to the Contempt Motion asserting its production was complete as of

January 6.48

43 D.I. 76.

44 D.I. 78 at 2, 6, 13; Regan Aff., Ex. 6 at 7.

45 D.I. 76 at 6–7, 12–13; Bruckel, 2023 WL 116483, at *3; Mar. Brown Cert. ¶¶ 3–5.

46 D.I. 78 at 2, 6; Regan Aff., Ex. 6 at 6.

47 Regan Aff., Ex. 6 at 2, 6; Contempt Hr’g Tr. 16, 30–31.

48 Mar. Brown Cert. ¶ 15.

11

On March 22, Plaintiff sent Defendant a letter asserting Defendant’s privilege

log was deficient.49 Defendant did not respond.50 On April 3, Defendant’s counsel

filed a certification asserting its production was compliant and complete.51

The parties briefed the Contempt Motion, and I held argument on April 11

(the “Contempt Hearing”).52 At the conclusion of the Contempt Hearing, I instructed

Defendant to provide an amended Go-Forward Protocol consistent with the Post-

Trial Opinion’s directive to provide equal access, and to produce the books and

records in compliance with the time period ordered in the Post-Trial Opinion.53 I

also asked that Defendant respond to Plaintiff’s concerns about its privilege log.54

Finally, I asked the parties to confer and submit names of three Delaware attorneys

who could serve as possible receivers to facilitate the production of documents to

Plaintiff.55 They did that on April 17.56

On April 20 and 21, the parties submitted dueling letters reflecting they were

at an impasse over a Go-Forward Protocol, the burden of producing existing

49 Regan Aff., Ex. 9; Contempt Hr’g Tr. 18.

50 Contempt Hr’g Tr. 37.

51 D.I. 81, Ex. A, Certification of Ronald N. Brown, III, Esq. in Compliance with the Court’s Order of January 6, 2023 [hereinafter “Apr. Brown Cert.”]. 52 D.I. 78; D.I. 82; D.I. 85; Contempt Hr’g Tr.

53 Contempt Hr’g Tr. 56.

54 Id.

55 Id. 55.

56 D.I. 86.

12

documents, and Defendant’s privilege log.57 I concluded appointment of a receiver

to carry out Defendant’s obligations could not wait for an omnibus opinion resolving

all of the parties’ outstanding issues, and on April 24 I issued an order (the

“Contempt Order”) granting in part Plaintiff’s Contempt Motion and appointing

Rolin P. Bissell, Esq. as the receiver (the “Receiver”).58 The Receiver accepted his

appointment on April 27.59

C. The Receiver Files His First Report.

The Receiver filed his first report on June 26, 2023.60 He summarized his

efforts over the preceding month to ensure Defendant is in compliance with the

Court’s orders. The Receiver observed that TAUC “has been slow to embrace” the

Receiver’s efforts.61 “In particular, the Defendant seemed to continue to harbor the

belief that the Plaintiff’s right to information was inferior to the right held by other

Managers.”62 “It also appeared that any information that was being circulated to the

Plaintiff was not being circulated contemporaneously and often after some delay.”63

“Some progress has been made” and “[a]s a result, the Defendant is now providing

57 D.I. 87; D.I. 88.

58 D.I. 89 [hereinafter “Contempt Ord.”] ¶¶ 1–2, 4.

59 D.I. 91.

60 D.I. 96 [hereinafter “Rpt.”].

61 Id. at 3.

62 Id.

63 Id. at 4.

13

more information and providing some of it more promptly.”64 For example,

Defendant invited Plaintiff and the Receiver “to attend five, bi-weekly, half-hour

long Management Presentations. The first was held on Monday, June 26.”65

Nevertheless, the Company “still has substantial work to do to bring itself in

compliance with the Court’s orders.”66 I have reproduced below the Receiver’s

findings on the Company’s production of historical documents.

The Receiver had hoped initially that any inadequacies in the Defendant’s document production could be remedied by applying supplemental procedures to the work the Defendant had already done and that the document production would not need to be redone from scratch. Regrettably, it is proving very hard to retrace the Defendant’s steps. There are no memos of custodial interviews, written questionnaires, or other writings that the Receiver can review to understand what instructions custodians were given and what answers the custodians gave as to where to search for and collect potentially responsive documents. Although search terms were used for five of seven custodians’ email accounts, “targeted searches,” rather than search terms, were used for two of the custodians. Reconstructing afterthe -fact how the “targeting” was done will be a difficult task, and would likely require the undesirable task of interviewing the Defendant’s attorneys on their recollection of how they did the targeting. In addition, understanding hit reports and how search terms could be adjusted to develop more targeted and productive searches has been elusive.67

64 Id.

65 Id. at 5.

66 Id.

67 Id. at 6.

14

These subpar collection practices might explain some of the holes in Defendant’s

production and why it resisted Plaintiff’s requests to produce hit reports.68

The Receiver also reported that Defendant’s other managers were still

withholding important managerial information from Plaintiff and failing to provide

equal access. TAUC neglected to provide Plaintiff and the Receiver what amounts

to a notice of default from its lender for nearly a month.69 “According to the Plaintiff,

rather than providing email communications contemporaneously, the Defendant’s

68 Defendant’s counsel’s explanation of their collection methods to the Court gave the impression that search terms were used across the board, and made no mention of “targeted searches.” E.g., D.I. 51 at 11 (representing at the March 11, 2022 post-trial status conference, “We did run search terms specifically for information related to the bolt-on acquisition.”); D.I. 57 at 10 (representing at the November 1, 2022 post-trial status conference, “We have done a fulsome search. We used numerous search terms. We provided those search terms to Dr. Bruckel’s attorneys for their input. They declined to give any. But nevertheless, based on their comments, we added additional search terms to our search. We looked at all documents that were returned, and we produced everything Your Honor ordered us to produce. It was not limited.”); Mar. Brown Cert. ¶¶ 7–11 (indicating Defendant’s counsel used search terms to collect documents); Apr. Brown Cert. ¶ 5 (“Counsel for TAUC used the same search terms that were used for the prior collection . . . .”); Contempt Hr’g Tr. 24 (“We have looked at the entire date range that was ordered. A production from February 12, 2021, to approximately the end of December 2021 was made in January of 2022, pursuant to your post-trial order, Your Honor, using search terms that Dr. Bruckel or his team were invited to participate in. They declined to provide any search terms, but they did make comments, and we incorporated additional search terms in response to those comments, including a search term to search for documents related to the bolt-on acquisition. That did, in fact happen, Your Honor. That statement was not accurate.”); id. 26 (“We collected documents in December of 2021, ran search terms against those, and produced those in compliance with your order.”); id. 44 (“We also had to involve Dr. Bruckel’s counsel in the process, and that took time. They gave us new search terms. We ran them. We had to include them in the search scope.”). 69 Rpt. at 7 (“The Defendant received reservations of right (in essence a notice of technical default) from its lender, NXT, on May 3 and May 24, 2023. This was not reported to the Plaintiff or the Receiver until the June 1, 2023 Board meeting.”).

15

counsel is withholding the majority of email communications and making any

productions weeks to months later.”70

Finally, the Receiver explained “[t]he parties have differing views on what the

Receiver’s role should be in the Defendant’s determination and assertion of the

attorney-client privilege and considering the Plaintiff’s objections to the assertion of

privilege.”71 The Receiver “request[ed] direction from the Court about what role, if

any, the Receiver should have concerning Defendant’s control and assertion of

privilege, including whether the parties should raise the issue with the Court directly

or whether the Court would like the Receiver to form a recommendation in the first

instance that would be subject to Court review.”72

II. ANALYSIS

In the Contempt Order, I stated “[a] memorandum opinion will follow as to:

(i) Defendant’s contempt and any further sanctions; (ii) whether Defendant waived

privilege, and (iii) whether Defendant carried its burden “to show cause as to why

fees should not be shifted to Defendant in this matter.”73 This is that opinion.

70 Id. at 9.

71 Id. at 8.

72 Id. at 9.

73 Contempt Ord. ¶ 2 (citing Contempt Hr’g Tr. 54, 56, and Bruckel, 2023 WL 116483, at *5).

16

A. Defendant Is In Contempt And Is Sanctioned For Such Contempt.

Court of Chancery Rule 70(b) authorizes the Court to make a contempt finding

“[f]or failure . . . to obey or perform any order.”74 “When an asserted violation of a

court order is the basis for contempt, the party to be sanctioned must be bound by

the order, have clear notice of it, and nevertheless violate it in a meaningful way.”75

“Courts have inherent authority to enforce their own orders and judgments.”76 “The

remedy of civil contempt serves two purposes: to coerce compliance with the order

being violated, and to remedy injury suffered by other parties as a result of the

contumacious behavior.”77 The Delaware Supreme Court has held that “[a] trial

court has broad discretion to impose sanctions for failure to abide by [Court] orders,”

as long as the “decision to impose sanctions [is] just and reasonable.”78

The Contempt Order found Defendant in contempt of the Post-Trial

Opinion.79 Defendant contemptuously failed to “produce to Plaintiff all books and

74 Ct. Ch. R. 70(b).

75 TransPerfect Glob., Inc. v. Pincus, 278 A.3d 630, 644 (Del. 2022) (collecting cases), cert. denied, 143 S. Ct. 574 (2023). 76 Aveta Inc. v. Bengoa, 986 A.2d 1166, 1183 (Del. Ch. 2009) (citing Forsythe v. CIBC Empl. Private Equity Fund (U.S.) I, L.P., 2006 WL 846007, at *2 (Del. Ch. Mar. 22, 2006), and Cebenka v. Upjohn Co., 559 A.2d 1219, 1225 (Del. 1989)). 77 Id. at 1181 (citing Del. State Bar Ass’n v. Alexander, 386 A.2d 652, 665 (Del. 1978)).

78 Gallagher v. Long, 940 A.2d 945, 2007 WL 3262150, at *2 (Del. 2007) (TABLE) (citing Lehman Cap. v. Lofland, 906 A.2d 122, 131 (Del. 2006)). 79 Contempt Ord. ¶ 2 (citing Contempt Hr’g Tr. 54, 56).

17

records reasonably related to his status as a manager” including “non-privileged

communications responsive to the Outstanding Requests to or by a manager

communicating in his capacity as a manager relating to TAUC business, TAUC

management meetings (formal or informal), or the bolt-on acquisition.”80

At the December 2021 trial, the Court granted a partial inspection of:

“communications establishing, preparing for, transmitting information for the

purpose of, or documenting the weekly meetings of the four favored managers that

have been occurring by Zoom;” “all materials transmitted in such communications

and/or shares at the Zoom meetings,” documents and communications reflecting

“any action taken over email by those four managers in a managerial capacity not

over Zoom,” and “any communications or emails following up on or executing on

tasks or decisions that were assigned or taken at those meetings.” 81 In the January

6, 2023 Post-Trial Opinion, the Court ordered Defendant to produce documents in

response to the Outstanding Requests. Defendant failed to make any production

until March 13, 2023: three days after Plaintiff filed the Contempt Motion.82 On

December 2021 at the end of trial, the Court ordered Defendant to provide Plaintiff

with equal access to managerial documents.83 In response, Defendant’s other

80 Bruckel, 2023 WL 116483, at *4.

81 Trial Tr. 319–20.

82 Mar. Brown Cert. ¶ 12.

83 Trial Tr. 318–19; accord Bruckel, 2023 WL 116483, at *2, *4.

18

managers changed the way they conducted business in order to evade their

production responsibilities, by holding meetings with revolving missing managers.84

Defendant took the position that it had no obligation to produce managerial

documents to Plaintiff on a go-forward basis.85 The Post-Trial Opinion clarified that

Defendant had ongoing obligations to provide Plaintiff “equal access to books and

records related to [his] status as a manager.”86 Defendant failed to comply. For

example, Defendant provided all the managers except for Plaintiff information about

the proposed joint venture weeks before Plaintiff, who only received it one day

before the Board met to vote on the venture.87 At the Contempt Hearing,

Defendant’s counsel indicated this might have been an accident, and began to assure

the Court that it wouldn’t happen again.88 It did happen again: after the Receiver

84 Bruckel, 2023 WL 116483, at *4 (“Defendant’s corporate representative Board Chair Ira Moreland testified that, following the Court’s ruling at trial, Defendant’s managers stopped meeting as an entire group, but instead began holding ‘weekly group update[s]’ in which the CEO and managers, to the exclusion of Plaintiff, would ‘rotate in’ to discuss TAUC business.” (quoting Crib Sheet at 10)). 85 Id. (“Remarkably, Defendant takes the position that it does not owe Plaintiff any documents dated after the trial in this matter, and seeks a ‘final order stating that production is complete.’ This position ignores Plaintiff’s ongoing statutory inspection rights as a manager and contractual inspection rights as a Founder Member.” (quoting D.I. 58 at 6)). 86 Id.

87 Supra note 36.

88 Contempt Hr’g Tr. 34–35 (“[ATTORNEY BOOKHOUT:] I grant you, in this particular case of this one email, that there may have been an accident with respect to not getting it to Dr. Bruckel. And it won’t happen -- THE COURT: I don’t have an affidavit from your client saying it was an accident. ATTORNEY BOOKHOUT: I understand, Your Honor. What I can tell you is, with respect to the copying idea you just stated, I would be happy to

19

was appointed, “The Defendant received reservations of right (in essence a notice of

technical default) from its lender, NXT, on May 3 and May 24, 2023. This was not

reported to the Plaintiff or the Receiver until the June 1, 2023 Board meeting.”89

From the Receiver’s frustration at this lack of information sharing, I infer a failure

to share managerial documents about this technical default.90 Defendant’s failure to

promptly share such documents with Plaintiff is further contempt. Defendant “has

expressed regret that it failed to provide the [lender’s] notices on a timely basis and

indicated it will do better.”91 The regret rings hollow, and Defendant is out of

runway to “do better” to comply with the Court’s orders.92

Defendant also contemptuously ignored the Post-Trial Opinion ordering equal

access when it proposed a Go-Forward Protocol that would produce books and

records on a fourteen-business-day lag.93 At the Contempt Hearing, I made clear

amend our go-forward protocol to make sure that what -- the email – the February 26th email does not happen again. I am sure -- I can guarantee -- THE COURT: And that was your responsibility after [the Post-Trial] opinion.”). 89 Rpt. at 7.

90 See Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, 2014 WL 897223, at *31 n.184 (Del. Ch. Mar. 5, 2014) (“White also is in contempt for violating the Preliminary Injunction because the evidence, such as Cinquanto’s testimony and his June 12, 2013 report, supports the inference that White continued to use Wayman’s property after the order was put in place.”). 91 Rpt. at 7.

92 See Contempt Hr’g Tr. 35, 55.

93 Regan Aff., Ex. 6 at 2, 6; Contempt Hr’g Tr. 30–31.

20

this was unacceptable, and that Defendant had to provide equal access.94 The

Contempt Order appointed the Receiver to facilitate this exact task and ordered

“Defendant’s managers, officers, employees, and agents [to] cooperate with the

Receiver in the performance of his duties.”95 Defendant has contemptuously

continued to produce documents only after a substantial delay.96

As a first sanction for Defendant’s contempt, I appointed a receiver for three

months to

take all appropriate action to ensure Defendant’s compliance with: (i) its obligation to respond to all Outstanding Requests for the entire date range articulated in the [Post-Trial] Opinion, including resolving issues related to search terms; and (ii) its ongoing obligation to produce all formal manager-level books and records to Plaintiff, and to the extent Defendant continues to conduct business informally, all informal Board materials, including resolving issues regarding the Go-Forward Protocol.97

94 Compare Bruckel, 2023 WL 116483, at *2, *4 (ordering Defendant provide Plaintiff equal access to Board materials Defendant provided to other managers), with Regan Aff., Ex. 6 at 6 (“All documents shown, distributed, or used at formal or informal meetings of Board members will be provided to Dr. Bruckel within 14 business days of the meeting.”), and id. (“The document will be provided to Dr. Bruckel within 14 business days of sharing with and/or viewing by, or meeting of, as applicable, the other Managers.”), and id. at 2 (same), and Contempt Hr’g Tr. 16 (“Their go-forward protocol that they proposed after the motion was filed proposes that they should be able to withhold that information, the same information it’s sharing with its other managers, from Dr. Bruckel for up to 14 business days, which is almost three weeks.”). 95 Contempt Ord. ¶ 7.

96 E.g., Rpt. at 6, 9.

97 Contempt Ord. ¶¶ 5–6.

21

In connection with appointing the Receiver, I ordered that “Defendant shall pay the

compensation and expenses of the Receiver at his customary hourly rate.” 98 As the

Contempt Order explained, the Receiver was appointed to coerce compliance with

Defendant’s obligations to Plaintiff, given the difficulty in achieving that

compliance to date.

The Receiver’s report indicates his appointment was not enough. Defendant’s

continued recalcitrance in producing documents to Plaintiff, manifested in delays in

producing documents to Plaintiff and withholding information about the technical

default from not only Plaintiff, but also the Receiver, compels the conclusion that

stronger coercive measures are necessary. If upon the Receiver’s August monthly

report, Defendant has still ignored its obligations to provide Plaintiff equal access to

Board materials, I will impose a per diem monetary sanction of $10,000 per day,

payable to the Register in Chancery, for every day that Defendant is in contempt of

the Post-Trial Opinion.99

98 Id. ¶ 9.

99 Aveta, 986 A.2d at 1188 (ordering a $20,000 per day sanction for every day beyond thirty days that defendant failed to comply with order); State of Del. v. Indem. Ins. Corp, RRG, C.A. No. 8601-VCL, D.I. 161 ¶ 5 (Del. Ch. Sept. 25, 2013) (ORDER) (imposing $10,000 per day sanction until party complied with the Court’s order); State of Del. v. Indem. Ins. Corp, RRG, C.A. No. 8601-VCL, D.I. 217 ¶ 7 (Del. Ch. Nov. 1, 2013) (ORDER) (imposing $10,000 per day sanction payable to the Register in Chancery until party complied with the Court’s order).

22

B. Where Defendant’s Amended Log Is Deficient, Defendant Must Produce Those Documents.

At the Contempt Hearing, I was prepared to ask Defendant’s Delaware

counsel about Plaintiff’s concerns with Defendant’s privilege log.100 Defendant’s

Delaware counsel was not prepared to respond to the Court’s questions.101 I asked

the parties to update the Court on the privilege log issues.102

On April 17, Defendant provided an amended privilege log (the “Amended

Log”) and produced 265 documents it had dropped from the original log. 103

According to Plaintiff, the Amended Log “reflects hundreds of additions to the

privilege log” and “reflects 786 total entries.”104 Plaintiff contends “[t]he primary

global issue as articulated in the deficiency letter, and during [the Contempt

Hearing], is that [Defendant] has not established the existence of a cognizable legal

adversity between it and Dr. Bruckel with respect to broad categories of withheld

documents.”105 Plaintiff argues Defendant “has not explained, either in its response

to the deficiency letter or at the meet and confer, its basis for asserting that a far-

reaching legal adversity exists between Dr. Bruckel and [Defendant] enabling it to

100 Contempt Hr’g Tr. 35.

101 Id. 36.

102 Id. 57.

103 D.I. 87 at 4; D.I. 87, Ex. 2 [hereinafter “Am. Log”]; D.I. 87, Ex. 4.

104 D.I. 87 at 4 & n.6 (emphasis omitted).

105 Id. at 4.

23

deprive him, a sitting manager, of the documents—relating to TAUC business—that

it has withheld notwithstanding their provision to other managers and other non-

managers.”106

Defendant responded that “[t]he overwhelming majority of the remaining

entries on the [Amended Log] relate to this litigation and/or [other litigation between

the parties in Missouri].”107 Defendant asserts entries on the Amended Log fall into

the following categories in which Plaintiff is adverse to Defendant:

1. “Directly concerning this DE Lawsuit primarily including communications between attorney(s) and client regarding same”; 2. “Directly concerning the DE Lawsuit, but includes other privileged communications in which Dr. Bruckel is also adverse to TAUC”;

3. “Related to the DE Lawsuit, as described in the log, because counsel is providing legal advice related to responding to requests for documents and/or information from Dr. Bruckel, which is the heart of the dispute before the DE Court. These documents were sent during [the] DE Lawsuit and concerned the same subject matter”;

4. “Related to the DE Lawsuit because counsel is providing legal advice concerning emails from Dr. Bruckel regarding same issues in dispute in DE before the Court”;

5. “Directly concerning the MO Lawsuit, primarily including communications between attorney(s) and client regarding same”;

6. “Related to MO Lawsuit, as described in the log, including advice related to continuation of business with TAUC Properties, LLC, which is a company owned and controlled by Dr. Bruckel and is another plaintiff in the MO Lawsuit”;

106 Id. at 5.

107 D.I. 88 at 4.

24

7. “Directly related to the investigation by the Federal Government, of which Dr. Bruckel was a subject”; 8. “Directly related to dispute between TAUC and Dr. Bruckel regarding physician identification numbers and DEA and BNDD registration”; 9. “Related to insurance claims for which coverage matters in which Dr. Bruckel is adverse to TAUC, including disclosures of information as needed to insurers regarding the DE and MO Lawsuits”; and

10.“Related to matters where Dr. Bruckel is and/or is potentially a direct adversary, which include his potential involvement in lawsuits against the Company, his demand for direct distributions, and his request for approval to transfer his shares to his trust[.]”108

“The attorney-client privilege promotes justice by encouraging candor

between clients and their attorneys.”109 The attorney-client privilege is codified in

Delaware Rule of Evidence 502.110 “The burden of establishing that otherwise

discoverable information is privileged rests on the party asserting the privilege.”111

108 D.I. 88, Ex. A.

109 Buttonwood Tree Value P’rs, L.P. v. R.L. Polk & Co., 2018 WL 346036, at *2 (Del. Ch. Jan. 10, 2018) (citing Wal–Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264, 1278 (Del. 2014), and Zirn v. VLI Corp., 621 A.2d 773, 781 (Del. 1993)). 110 D.R.E. 502.

111 Mechel Bluestone, Inc. v. James C. Just. Cos., Inc., 2014 WL 7011195, at *4 (Del. Ch. Dec. 12, 2014) (internal quotation marks omitted) (collecting cases).

25

[A] bare allegation that information and documents are protected from discovery by . . . privilege is insufficient without making more information available. . . . It is incumbent on one asserting the privilege to make a proper showing that each of the criteria [underlying the 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.112 “As a general rule, a corporation cannot assert attorney-client privilege ‘to deny a

director access to legal advice furnished to the board during the director’s

tenure.’”113 “Members of a board are charged with ‘the proper management of the

corporation’ and ‘treated as the “joint client” when legal advice is rendered to the

corporation through one of its officers or directors.’”114 “[P]rivileged information

can be withheld from a director ‘once sufficient adversity exists between the director

and the corporation such that the director could no longer have a reasonable

expectation that he was a client of the board’s counsel.’”115

112 Id. (formatting original) (quoting Int’l Paper Co. v. Fibreboard Corp., 63 F.R.D. 88, 93–94 (D. Del. 1974)). 113 SerVaas v. Ford Smart Mobility LLC, 2021 WL 5226487, at *2 (Del. Ch. Nov. 9, 2021) (quoting Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1996 WL 307444, at *4 (Del. Ch. June 4, 1996)). 114 Id. at *3 (Del. Ch. Nov. 9, 2021) (quoting Moore, 1996 WL 307444, at *4).

115 Id. at *2 (Del. Ch. Nov. 9, 2021) (quoting Kalisman v. Friedman, 2013 WL 1668205, at *5 (Del. Ch. Apr. 17, 2013)).

26

“An improperly asserted claim of privilege is no claim at all. It’s waived.”116

“[H]iding non-privileged information on a privilege log poses a risk of severe

prejudice to the party subjected to discovery abuse.”117 Where a privilege log is not

prepared in a good faith attempt to comply with Delaware law, in a “conscious effort

to render a log so devoid of content,” and the party responsible refuses to correct it,

this Court may find that party has waived its privilege.118 Where counsel makes

some effort, the Court will not impose a blanket waiver and instead only waive

privilege as to the deficient entries.119

Defendant’s Amended Log presents several issues. I take them in turn.

1. Redactions

Defendant did not produce a redaction log. It appears Defendant chose to

designate entire documents as privileged instead of redacting privileged information.

Documents that are only partially privileged should not be withheld in their

entirety.

116 Klig v. Deloitte LLP, 2010 WL 3489735, at *4 (Del. Ch. Sept. 7, 2010) (internal quotation marks and citation omitted); accord Int’l Paper, 63 F.R.D. at 94; Reese v. Klair, 1985 WL 21127, at *5 (Del. Ch. Feb.20, 1985). 117 Thermo Fisher Sci. PSG Corp. v. Arranta Bio MA, LLC, 2023 WL 300150, at *2 (Del. Ch. Jan. 18, 2023) (ORDER). 118 Klig, 2010 WL 3489735, at *5.

119 Mechel Bluestone, 2014 WL 7011195, at *8 (declining to waive the entire log because the defendant made some small effort to fix the log when plaintiff raised the deficiencies, so the court just found the remaining deficient entries waived).

27

A party that redacts the entirety of a document, except for their Bates numbers, is not using the redaction tool in good faith. Redaction enables a party to produce a document that partially contains privileged matter. Redactions must be targeted to address only the privileged matter so that the non-privileged portion is produced.120 “Not every communication where a lawyer is copied warrants the assertion of

privilege.”121 And even where documents “do properly contain privileged or work-

product information,” parties should not “with[o]ld the document entirely or grossly

over-redact[] it.”122

As an example, in Agar v. Judy, the Court instructed the parties regarding “a

situation where [the] document was withheld in its entirety, i.e. marked ‘privileged’

not marked ‘redacted.’”123

120 Id.

121 Thermo Fisher, 2023 WL 300150, at *3.

122 Id. at *7 (citing MPEG LA, L.L.C. v. Dell Glob. B.V., 2013 WL 6628782, at *2 (Del. Ch. Dec. 9, 2013)); accord MPEG LA, 2013 WL 6628782, at *2 (“[T]he communication will be considered privileged only if the legal aspects predominate.” (collecting cases)); In re R1 RCM Inc. S’holders Litig., Consol. C.A. No. 2021-0318-PAF, D.I. 327 at 13 (Del. Ch. June 16, 2023) (TRANSCRIPT) (“I also note that some redactions appear facially overbroad. For example, Exhibits 19, 20, and 27 redact documents in whole despite the concession that they contain input from nonlawyers.”). 123 C.A. No. 9541-VCL, D.I. 450 at 18 (Del. Ch. July 23, 2021) (TRANSCRIPT).

28

So when you’re redacting emails, you need to redact selectively. Which means, don’t redact that stuff because that stuff isn’t privileged. What I really want you to do is only redact the stuff that’s privileged. For example, in your hypothetical, one would not redact any of the email headers. One would start with the email text. And in the text section, one might see a part that says “Attached is the assignment agreement.” That’s not privileged. That’s a transmittal email. It’s not advice. It’s just “Here it is.” Then if they go in and say, “I recommend that you not sign this” -- insert legal rationale -- sure, redact that. But all the fullpage redactions do[] is make things hard.124

In Thermo Fischer Scientific PSG Corporation v. Arranta Bio MA, LLC, the Court

reviewed the plaintiff’s privilege log in camera, and granted in part a motion to

compel after finding the log “riddled with errors.”125 The Court gave dozens of

examples of deficiencies,126 including:

Entry 737 is a chain of seven emails that is entirely withheld on privilege grounds, with the generic description: “Email containing legal advice from counsel regarding negotiation of the supply agreement with Arranta to manufacture plasmids for Thermo Fisher.” Six of the seven emails in the chain are between Plaintiff and Defendant, and one line in the last email in the chain could have been redacted.127

124 Id. at 20.

125 2023 WL 300150, at *9; id. (“The problems with Plaintiff’s log are so pervasive that I could—and arguably should—grant Defendant’s request for relief as to the entirety of Plaintiff’s log.”). 126 Id. at *4–9; id. at *7–8 (summarizing email chains which were improperly withheld as privileged in their entirety where only certain lines needed to be redacted). 127 Id. at *7.

29

Here, Defendant made several attempts at a privilege log.128 The deficiencies

persist. For example, emails from Plaintiff’s counsel that were then forwarded to

Defendant’s counsel are better suited for redaction than withholding. 129 Of the 786

total entries on the Amended Log, only forty-two entries indicate they contain

redactions and the description for each reads: “[REDACTED] Attachment to email

among clients discussing invoices of vendor hired by outside counsel related to

investigation by the Federal Government regarding matters involving action by Dr.

Bruckel.”130 Where Defendant withheld documents that should have only been

partially redacted, including but not limited to email chains that contain emails sent

by Plaintiff or his counsel,131 I find it did so in bad faith. They should be produced

in full.

128 E.g., Regan Aff., Ex. 7; Regan Aff., Ex. 8; Am. Log.

129 E.g., Am. Log at PRIVTAUC0000776 (“Email from client to outside counsel in connection with legal advice being provided by outside counsel related to response to letter from counsel for Dr. Bruckel related to payment for the redemption of equity related to TAUC Properties, LLC”); see also PRIVTAUC0000778, PRIVTAUC0000801. 130 Am. Log at TAUC0010504–541, TAUC0011006–045; TAUC0011811–848, TAUC0011872–963, TAUC0011986–12025.

In the Court’s estimation, the following are examples of this phenomenon. E.g., Am. 131

Log at PRIVTAUC0000479–492, PRIVTAUC0000524–525, PRIVTAUC0000527–536, PRIVTAUC0000547–549, PRIVTAUC0000569, PRIVTAUC0000590–597, PRIVTAUC0000614–625, PRIVTAUC0000628–635, PRIVTAUC0000643–648, PRIVTAUC0000656–659, PRIVTAUC0000663–665, PRIVTAUC0000675–676, PRIVTAUC0000685, PRIVTAUC0000687, PRIVTAUC0000690–691, PRIVTAUC0000756–762, PRIVTAUC0000764–765, PRIVTAUC0000801, PRIVTAUC0000807, PRIVTAUC0000872, PRIVTAUC0000910–911, PRIVTAUC0000920–924, PRIVTAUC0000926–930.

30

2. Attachments

Many entries on the Amended Log for attachments to emails concern

attachments to privileged emails that themselves do not appear privileged:

Defendant withheld attachments without logging why they were privileged, instead

only adding the prefix “Attachment to” to the logged email’s description.132

Many attachments appear to be .png, .jpg, or .jpeg files.133 The Amended Log

132 Mechel Bluestone, 2014 WL 7011195, at *7; E.g., compare Am. Log at PRIVTAUC0000406 (describing an email with the subject “RE: TAUC – Supplemental Claim Notice to Bruckel” as “Email from client to outside counsel in connection with legal advice being provided by outside counsel related to indemnification claim against Dr. Bruckel”), with id. at PRIVTAUC0000407 (describing an attachment with the file name “Doc – Feb 11 2022 – 3-33 PM.pdf” as “Attachment to email from client to outside counsel in connection with legal advice being provided by outside counsel related to indemnification claim against Dr. Bruckel”); compare id. at PRIVTAUC0000683 (describing an email with the subject “Fwd: Attorney Client Privilege” as “Email from client to outside counsel in connection with legal advice being provided by outside counsel related to potential involvement of Dr. Bruckel in a potential lawsuit”), with id. at PRIVTAUC0000684 (describing an attachment with the file name “DOC111422- 11142022180730.pdf” as “Attachment to email from client to outside counsel in connection with legal advice being provided by outside counsel related to potential involvement of Dr. Bruckel in a potential lawsuit”). 133 Am. Log at PRIVTAUC0000344, PRIVTAUC0000350–351, PRIVTAUC0000360– 361, PRIVTAUC0000366, PRIVTAUC0000371, PRIVTAUC0000386–387, PRIVTAUC0000399, PRIVTAUC0000409, PRIVTAUC0000427, PRIVTAUC0000439, PRIVTAUC0000443, PRIVTAUC0000445–446, PRIVTAUC0000505, PRIVTAUC0000539, PRIVTAUC0000541, PRIVTAUC0000543–544, PRIVTAUC0000560, PRIVTAUC0000572, PRIVTAUC0000576, PRIVTAUC0000578– 579, PRIVTAUC0000611–612, PRIVTAUC0000637–639, PRIVTAUC0000650–651, PRIVTAUC0000696, PRIVTAUC0000724–725, PRIVTAUC0000737, PRIVTAUC0000739, PRIVTAUC0000745, PRIVTAUC0000773, PRIVTAUC0000775, PRIVTAUC0000780, PRIVTAUC0000800, PRIVTAUC0000810, PRIVTAUC0000819– 820, PRIVTAUC0000824, PRIVTAUC0000827, PRIVTAUC0000835–36, PRIVTAUC0000841, PRIVTAUC0000851–852, PRIVTAUC0000857–864, PRIVTAUC0000885–890, PRIVTAUC0000913–916, PRIVTAUC0000937–938,

31

includes seventy-six entries with the file name “image001,” twenty with the file

name “image002,” three named “image003,” and one of both “image004” and

“image0.”134 None of these entries indicate those attachments are a screenshot or

scan of privileged or protected work.135 The Amended Log does not indicate they

are anything other than “[a]ttachment[s].” Other attachments are calendar

invitations and acceptances.136 The calendar invitations and acceptances are not

privileged.137 Other attachments are docketed litigation filings:138 these are not

PRIVTAUC0000942–943, PRIVTAUC0000957–958, PRIVTAUC0000964–965, PRIVTAUC0000967–968, PRIVTAUC0000970–973, PRIVTAUC0000987, PRIVTAUC0000989, PRIVTAUC0001002, PRIVTAUC0001004–005, PRIVTAUC0001032, PRIVTAUC0001048–049, PRIVTAUC0001054, PRIVTAUC0001057, PRIVTAUC0001060–061, PRIVTAUC0001063–064, PRIVTAUC0001066, PRIVTAUC0001068. 134 Supra note 133.

135 E.g., Am. Log at PRIVTAUC0000773 (designating an attachment with the file name “image001.png” as privileged and describing it as “Attachment to email from client to outside counsel in connection with legal advice being provided by outside counsel related to status of lawsuit with Dr. Bruckel”). 136 Am. Log at PRIVTAUC0000499–501, PRIVTAUC0000626–627, PRIVTAUC0000666–672, PRIVTAUC0000767–768. 137 Thermo Fisher, 2023 WL 300150, at *5 n.3 (“A similar improper example of Plaintiff’s assertion of privilege is entry 408, which is solely a non-privileged Webex meeting invitation.”). 138 E.g., Am. Log at PRIVTAUC0000412, PRIVTAUC0000694, PRIVTAUC0000698, PRIVTAUC0000704, PRIVTAUC0000729, PRIVTAUC0000747–750, PRIVTAUC0000939, PRIVTAUC0000945, PRIVTAUC0000954, PRIVTAUC0000962, PRIVTAUC0000966, PRIVTAUC0000974, PRIVTAUC0000981, PRIVTAUC0000983, PRIVTAUC0000985, PRIVTAUC0000988, PRIVTAUC0000991, PRIVTAUC0001015.

32

privileged, either.139

Defendant’s Amended Log also designated three sets of Board meeting

minutes, and Plaintiff’s “corporate proxy,” as privileged.140 Defendant’s initial log

had designated more minutes as privileged. Defendant does not assert how Plaintiff,

a member of the Board, is adverse as to meeting minutes in their entirety; indeed,

the other managers’ sustained and improper practice of not disclosing Board

materials to Plaintiff is at the heart of this case.141 Having failed to substantiate any

basis for withholding these documents as privileged, Defendant must produce these

documents to Plaintiff.

3. Documents From Plaintiff Or Plaintiff’s Counsel

Finally, Defendant logged as privileged documents either Plaintiff or his

139 Cf. Raley v. Stango, 1985 WL 165739, at *1 (Del. Ch. Sept. 13, 1985) (“[I]f the attorney’s communication is based solely on public documents or sources other than the client’s disclosures, the communication is not privileged.” (citing Sperti Prods., Inc. v. Coca Cola Co., 262 F.Supp. 148 (D. Del. 1966))). 140 Am. Log at PRIVTAUC0000518, PRIVTAUC0000558, PRIVTAUC0000562, PRIVTAUC0000763. 141 See id. at PRIVTAUC0000550 (designating an email with the subject “Fwd:

Management Agreement 3930074” between two TAUC employees, and no attorneys as attorney work product, and describing it as “Email among clients discussing insurance coverage related to lawsuit with Dr. Bruckel”); id. at PRIVTAUC0000555 (same, but also among TAUC’s Board Chair); id. at PRIVTAUC0000551 (designating an attachment with the file name “3930074_7_11_ror.doc” as attorney work product, and as “Attachment to email among clients discussing insurance coverage related to lawsuit with Dr. Bruckel”); id. at PRIVTAUC0000556 (same).

33

counsel had sent or emails on which his counsel was copied.142 Obviously,

communications and documents that were sent to or by either Plaintiff or his counsel

are not privileged as to him.143 Those documents must be produced.

4. Defendant And Its Counsel Maintain Control Over The Assertion Of TAUC’s Privilege.

As I stated in the Contempt Order, Defendant and its Delaware counsel

maintain ultimate responsibility over the assertion of TAUC’s privilege.144 I caution

Defendant and its counsel, particularly Delaware counsel, to use Delaware law and

this opinion as guidance for future assertions, and possible consequences for

misdesignations. They may not offload this duty to the Receiver. Should the parties

again dispute the propriety of Defendant’s privilege designations, I invite them to

file a motion. Future findings of waiver may be broader than this opinion’s lenient

document-by-document and issue-by-issue waivers.

142 E.g., id. at PRIVTAUC0000428, PRIVTAUC0000435–437, PRIVTAUC0000440–442, PRIVTAUC0000447–449, PRIVTAUC0000519, PRIVTAUC0000553–554, PRIVTAUC0000777, PRIVTAUC0000802, PRIVTAUC0000808, PRIVTAUC0000832, PRIVTAUC0000925, PRIVTAUC0001036–046. 143 Alaska Elec. Pension Fund v. Brown, 988 A.2d 412, 419 (Del. 2010) (“Generally, the ‘attorney-client privilege generally protects the communications between a client and an attorney acting in his professional capacity . . . [.]’” (quoting Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992))); D.R.E. 502(b). 144 Contempt Ord. ¶ 6.

34

C. Plaintiff’s Fees And Expenses In This Action Are Shifted To Defendant.

As I explained in the Post-Trial Opinion, this Court retains discretion to shift

fees for bad faith conduct “to deter abusive litigation and protect the integrity of the

judicial process.”145 I instructed Defendant to show cause why fees should not be

shifted under the bad faith exception.146 On January 26, Defendant filed its written

submission attaching thirty-two exhibits.147 On February 9, Plaintiff responded.148

The bad faith exception to the American Rule applies in cases where the court finds litigation to have been brought in bad faith or finds that a party conducted the litigation process itself in bad faith, thereby unjustifiably increasing the costs of litigation. There is no single standard of bad faith that warrants an award of attorneys’ fees in such situations; rather, bad faith is assessed on the basis of the facts presented in the case. Courts have found bad faith conduct where parties have unnecessarily prolonged or delayed litigation, falsified records, or knowingly asserted frivolous claims.149

In Pettry v. Gilead Sciences, Inc., this Court granted the Section 220 plaintiffs

leave to move for fee-shifting where the defendant “exemplified the trend of overly

145 Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 227 (Del. 2005) (citing Johnston v. Arbitrium (Cayman Islands) Handels AG (Johnson II), 720 A.2d 542, 546 (Del. 1998)). 146 See Bruckel, 2023 WL 116483, at *5.

147 D.I. 64; D.I. 65; D.I. 66; D.I. 67; D.I. 68; D.I. 69; D.I. 70; D.I. 71.

148 D.I. 74.

149 Beck v. Atl. Coast PLC, 868 A.2d 840, 850–51 (Del. Ch. 2005) (footnotes omitted)

(citing Arbitrium (Cayman Is.) Handels v. Johnston (Johnson I), 705 A.2d 225, 231 (Del. Ch. 1997), aff’d (Johnson II), 720 A.2d 542, and Jacobson v. Dryson Acceptance Corp., 2002 WL 31521109, at *16 (Del. Ch. Nov. 1, 2002), and Johnston II, 720 A.2d 542).

35

aggressive litigation strategies by blocking legitimate discovery, misrepresenting the

record, and taking positions for no apparent purpose other than obstructing the

exercise of Plaintiff’s statutory rights” to books and records.150 The Court then

granted the plaintiffs’ motion to shift fees “infer[ing] bad faith based on the litigation

conduct alone.”151 Where a plaintiff has “a clearly established legal right to inspect

[the defendant company’s] books and records, and [the company’s] conduct forced

him to bring [an] action to secure that right, then the defendant can be found to have

acted in bad faith and be ordered to pay the plaintiff’s legal fees and expenses.”152

Defendant forced Plaintiff to file suit to vindicate his rights and then

persistently defied those rights.153 Defendant asserted at trial that it could refuse to

produce books and records because Plaintiff “was not motivated by a proper

purpose.”154 This contention ignores Plaintiff’s contractual rights under the

150 (Gilead I), 2020 WL 6870461, at *30 (Del. Ch. Nov. 24, 2020).

151 Pettry v. Gilead Scis., Inc. (Gilead II), Consol. C.A. No. 2020-0132-KSJM, D.I. 132 at 6 (Del. Ch. July 22, 2021). 152 McGowan v. Empress Ent., Inc., 791 A.2d 1, 4 (Del. Ch. 2000); id. (holding that the defendant “acted in subjective bad faith by failing to honor its promises to produce its books and records, and later by opposing [the plaintiff’s] § 220 action to enforce his legal right to inspect those books and records,” despite there being no record of the defendant’s state of mind). 153 See id.

154 D.I. 64 at 19–23.

36

operating agreement and broad rights as a manager.155 In the Post-Trial Opinion, I

found Plaintiff has “essentially unfettered” statutory rights as a manager and

“unbounded contractual rights” to Defendant’s books and records.156

Defendant was not forthcoming with information about its documents that

Plaintiff was entitled to understand. First, Defendant failed to identify manager-

level books and records that existed, suggesting that TAUC business conducted by

the other managers to Plaintiff’s exclusion were not Board materials.157 In an effort

to resolve the issue, the Court endorsed a Rule 30(b)(6) deposition so that Plaintiff

could identify what managerial documents existed.158

Defendant also refused to respond to Plaintiff’s valid request for a hit report

encompassing the full date range ordered in the Post-Trial Opinion. The Receiver’s

report has given some insight into why.159 The “Outstanding Requests” ordered in

that Post-Trial Opinion sought communications dating back to February 12, 2021,

and remained outstanding even after Defendant’s initial January 25, 2022

155 LLC Agr. § 11.1(c); Trial Tr. 318 (“He also has a contractual right that doesn’t have that proper-purpose restriction.”); Obeid v. Gemini Real Estate Advisors, LLC, 2018 WL 2714784, at *4 (Del. Ch. June 5, 2018) (“A director’s right of access is ‘essentially unfettered in nature.’” (quoting Kalisman, 2013 WL 1668205, at *3, and citing Intrieri v. Avatex Corp., 1998 WL 326608, at *1 (Del. Ch. June 12, 1998))). 156 Bruckel, 2023 WL 116483, at *5 (internal quotation marks omitted) (quoting Kalisman, 2013 WL 1668205, at *3, and citing LLC Agr. § 11.1(c)). 157 See D.I. 51 at 10–11.

158 Id. at 14–15.

159 See Rpt. at 6.

37

production.160 In pursuing the Outstanding Requests, Plaintiff requested a hit report

reflecting the full date range ordered in the Post-Trial Opinion; Defendant refused,

asserting it already produced any responsive documents in the early days of that date

range in its initial production.161 But Defendant had not yet certified its initial

production was complete, so Plaintiff could not know whether that production

complied with the Post-Trial Opinion’s order.162 Indeed, Defendant did not certify

any of its production until March 20, 2023: nearly fourteen months after its initial

production, ten days after Plaintiff’s Contempt Motion, and seven days after its first

production following the Post-Trial Opinion.163

Once ordered to produce documents to Plaintiff, Defendant went to

extraordinary lengths to avoid its ongoing obligations.164 The Rule 30(b)(6)

160 Bruckel, 2023 WL 116483, at *3.

161 Regan Aff., Ex. 1 at 2–3, 5; Mar. Brown Cert. ¶¶ 3–5; see also Contempt Hr’g Tr. 24– 26. 162 Compare Regan Aff., Ex. 1 at 2, 5, 7–8 (requesting in January and February 2023 that Defendant provide hit reports from February 12, 2021 to date), with Apr. Brown Cert. (certifying Defendant’s March 13, 2023 production was “complete as of January 6, 2023” on March 20, 2023). 163 Mar. Brown Cert. ¶ 15 (“Based on the collection, review, and production described above, production is complete as of January 6, 2023); see also id. ¶ 16 (“Counsel for TAUC will submit an additional certification when the collection, review, and production of documents dated January 7, 2023 through March 3, 2023 is complete.”); Apr. Brown Cert. ¶ 7 (“Based on the collection, review, and production described above and in the previous certification, production is complete as of March 3, 2023.”). 164 Bruckel, 2023 WL 116483, at *5 (“In spite of these rights, Defendant has not been forthcoming with its production. Its defenses at trial bordered on specious: maligning Plaintiff’s purpose for seeking documents when that is not a requirement under Section

38

deposition revealed Defendant’s other managers met to perform their managerial

duties without Plaintiff, and without one additional manager on a rotating basis, over

sixty times since trial.165 I find they did so in a bad faith attempt to manage TAUC

without generating official Board materials, in order to represent to Plaintiff that no

Board meetings were held or no Board materials existed.166 And even after being

told to provide equal access, Defendant took the remarkable position that it did not

owe Plaintiff any documents dated after the trial.167

18-305 or the LLC Agreement; maligning the format of his demand letter and demanding a power of attorney; and feigning ambiguity in Plaintiff’s document requests. Nor has Defendant been forthcoming with information about how the managers conduct business or what documents exist. Defendant has reportedly gone so far as to change how its managers conduct business to duck the Court’s suggested parameters for identifying books and records that had to be produced. And Defendant has taken an astonishing position that it need only produce books and records through trial in this matter, even though Plaintiff’s inspection rights are ongoing.” (footnotes omitted)). 165 Supra notes 16 and 17.

166 See Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 639 (Del. Ch. 2011) (recognizing a party “cannot avoid its contractual obligations by creating, in bad faith, an outcome that technically satisfies the express terms of the [contract], but deprives plaintiffs of their legitimate expectations” (internal quotation marks and citations omitted)), aff’d, 76 A.3d 808 (Del. 2013); In re Grupo Dos Chiles, LLC, 2006 WL 2507044, at *1 (Del. Ch. Aug. 17, 2006) (“An exception [to the American Rule] exists in equity . . . when it appears that a party or its counsel has proceeded in bad faith, has acted vexatiously, or has relied on misrepresentations of fact or law in connection with advancing a claim in litigation.” (emphasis added) (internal quotation marks omitted) (quoting Rice v. Herrigan–Ferro, 2004 WL 1587563, at *1 (Del. Ch. July 12, 2004))). 167 D.I. 58 at 6.

39

Under Gilead, McGowan, and Marilyn Abrams Living Trust, Defendant’s

litigation conduct is sufficient to infer subjective bad faith.168 In spite of Plaintiff’s

“clearly established legal right” to inspect TAUC’s books and records, Defendant

“forced him to bring [an] action to secure that right,”169 then argued that Plaintiff

lacked a proper purpose as a “pretext” to deny his inspection rights when no proper

purpose was necessary.170 Defendant then took the “glaring[ly] egregious[]”

position that its obligations ended at trial.171 It also modified how it conducted

business in an effort to “misrepresent[]” the universe of Board materials and

“obstruct[] the exercise of Plaintiff’s statutory [and contractual] rights.”172

Defendant relies on Zheng v. San Yang Asia Supermarket, LLC to argue even

“hostile” and “bullying” responses to a books and records demand, and insisting on

formal litigation,173 does not warrant fee shifting as long as the defendant’s position

168 Gilead II, Consol. C.A. No. 2020-0132-KSJM, D.I. 132 at 6; McGowan, 791 A.2d at 4; The Marilyn Abrams Living Tr. v. Pope Invs. LLC, C.A. No. 12829-VCL, D.I. 38 at 14–16 (Del. Ch. Mar. 21, 2017) (ORDER). 169 McGowan, 791 A.2d at 4.

170 See Marilyn Abrams, C.A. No. 12829-VCL, D.I. 38 at 14–15.

171 Gilead II, Consol. C.A. No. 2020-0132-KSJM, D.I. 132 at 2 (collecting cases).

172 Gilead I, 2020 WL 6870461, at *30.

173 C.A. No. 2020-0447-MTZ, D.I. 38 at 11 (Del. Ch. Jan. 27, 2021) (TRANSCRIPT). But see McGowan, 791 A.2d at 4 (“If McGowan had a clearly established legal right to inspect Empress’s books and records, and Empress’s conduct forced him to bring this action to secure that right, then the defendant can be found to have acted in bad faith and be ordered to pay the plaintiff’s legal fees and expenses.” (internal quotation marks omitted)); Gilead II Consol. C.A. No. 2020-0132-KSJM, D.I. 132 at 3 n.7 (same) (quoting McGowan, 791 A.2d at 4).

40

was not “held or wielded insincerely or in bad faith,” and that the defendant “resisted

[production] based on a tenuous, but genuinely held and consistently applied,

basis.”174 Defendant asserts the Court should decline to shift fees because it behaved

better than the Zheng defendant, whose behavior went unpunished.175

Zheng is distinguishable because “[t]he plaintiff [wa]s not a director of a

corporation entitled to unfettered access.”176 Here, not only is Plaintiff entitled to

statutory unfettered access to documents related to his position as manager, like the

plaintiff in McGowan, but he also has contractual rights that are not tied to a proper

purpose requirement.177 As in Marilyn Abrams, Defendant could not meaningfully

use a supposed lack of a proper purpose to deny Plaintiff’s information rights.

Defendant also argued fee shifting is inappropriate because “there is no

evidence of bad faith in defense of this action, let alone the required clear evidence

of subjective bad faith.”178 In support of this assertion, Defendant points to the books

and records they slowly and eventually produced, the lack of motion practice, and

174 D.I. 64 at 24–26 (internal quotation marks omitted) (quoting Zheng, C.A. No. 2020- 0447-MTZ, D.I. 38 at 7–9, 10–12). 175 Id. at 25–26.

Zheng, C.A. No. 2020-0447-MTZ, D.I. 38 at 9; id. (“This case resembles Mickman [v. 176

American International Processing, C.A. No. 4368-VCP, D.I. 55 (Del. Ch. Oct. 28, 2010)] more than McGowan and Marilyn Abrams.”). 177 McGowan, 791 A.2d at 5; Bruckel, 2023 WL 116483, at *2 (quoting Trial Tr. 318); LLC Agr. § 11.1(c). 178 D.I. 64 at 1.

41

the fact that “[t]o the best of TAUC’s knowledge,” Plaintiff has never asked to

inspect books and records on site or requested to copy documents. 179 These

arguments are unavailing. That Defendant produced some—but not all—of the

documents to which Plaintiff had a right, does not outweigh Defendant’s conduct.

After the December 14, 2021 trial, Defendant produced an incomplete tranche of

documents on January 25, 2022.180 In spite of its obligations, it refused to produce

any additional documents until March 13, 2023.181 And the lack of formal motions

is an illusory fact that belies the intensity with which Defendant litigated this matter:

in what is supposed to be a summary proceeding, the docket is littered with letters,

and the Court has had a trial, three subsequent hearings, and issued now five

rulings.182 Finally, Defendant misstates the record: Plaintiff did request to inspect

documents on site.183

179 Id. at 3–11, 14.

Id. at 10 (citing Exhibit P to Defendant TAUC Holdings, LLC’s Written Submission 180

Regarding Attorneys’ Fees). 181 D.I. 58 at 3, 5; D.I. 58, Ex. 1 at 3 (emailing Plaintiff’s counsel on November 7, 2022 “Finally, there is no basis, almost a year after the trial in this matter, for your request to expand the time period at issue”); Mar. Brown Cert. ¶ 12. 182 D.I. 44; Trial Tr.; D.I. 50; D.I. 51; D.I. 56; D.I. 57; D.I. 60; D.I. 85; Contempt Ord.; Hr’g Tr. 183 JX 4 at TAUC0000596 (asking TAUC to respond to the demand “by either providing these records or indicating a time and place at which my representatives and I can access these records”); see also D.I. 43, Ex., Deposition Transcript of Matthew M. Bruckel, M.D., at 49 (testifying: “[I]f you give me a company computer with access to the files, I can -- I can do it all on my own. I -- I don’t need anyone to do any work for me.”); Trial Tr. 67 (testifying: “[G]ive me access to the computer files[,] I’ll do the work myself”).

42

Defendant has failed to show cause to prevent fees from being shifted.

Plaintiff is awarded his reasonable fees and expenses in bringing this action.

Plaintiff’s counsel should submit affidavits attaching detailed invoices in support of

their fees within ten days of this opinion.

D. The Court Will Assess The Reasonableness Of Plaintiff’s Fees Incurred In Bringing The Contempt Motion When It Assesses Plaintiff’s Fees In The Action As A Whole.

In the Contempt Order, I awarded Plaintiff his reasonable fees and expenses

bringing the Contempt Motion, “without prejudice to any other right Plaintiff may

have to recover fee-shifting from Defendant,” and instructed Plaintiff’s counsel to

submit affidavits in support of their fees on the Contempt Motion.184 Plaintiff’s

Application, supported by the necessary Court of Chancery Rule 88 affidavits,

requests $218,989.15 in fees and expenses incurred by counsel for Plaintiff in

bringing the Contempt Motion.185 Defendant did not challenge the reasonableness

of these fees and expenses.186 The Rule 88 affidavits did not attach invoices or any

other exhibits.

184 Contempt Ord. ¶ 16.

185 D.I. 95 at Affidavit of Ethan H. Townsend, Esquire, Pursuant to Rule 88 and the Court’s Order Granting in Part Plaintiff’s Motion for Civil Contempt and Sanctions [hereinafter “Townsend Aff.], and Affidavit of Megan Thibert-Ind, Esquire, Pursuant to Rule 88 and the Court’s Order Granting in Part Plaintiff’s Motion for Civil Contempt and Sanctions [hereinafter “Thibert-Ind Aff.”].

To be clear: the time for Defendant to do so was in connection with Plaintiff’s 186

Application.

43

“Delaware law dictates that, in fee shifting cases, a judge determine whether

the fees requested are reasonable.”187 The Court “has broad discretion in

determining the amount of fees and expenses to award.”188 In assessing the

reasonableness of Plaintiff’s requested fees, “[t]he Court of Chancery has discretion

in determining the level of submission required.”189 Counsel indicated that they

“would be happy to provide additional detail regarding [counsel’s] fees and expenses

should the Court request it.”190 While the Court does not examine each time entry

or litigation tactic, invoices will give the Court some indication as to the rates

charged or how counsel chose to staff this matter.191 I therefore request that

Plaintiff’s counsel include billing statements that pertain to the Contempt Motion

when they submit affidavits in support of the fees and expenses incurred for the

entire litigation. Given my finding that fees should be shifted for the whole action,

Plaintiff’s counsel need not break out the fees for the Contempt Motion.

187 Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245 (Del. 2007) (citing Del. Lawyers’ R. Prof’l Conduct 1.5(a)(1)(a)); see also Aveta v. Bengoa, 2010 WL 3221823, at *4 (Del. Ch. Aug. 13, 2010) (noting that the Court assess fee awards for reasonableness). 188 Black v. Staffieri, 2014 WL 814122, at *4 (Del. Feb. 27, 2014) (TABLE) (citing Kaung v. Cole Nat’l Corp., 884 A.2d 500, 506 (Del. 2005)). 189 Danenberg v. Fitracks, Inc., 58 A.3d 991, 995 (Del. Ch. 2012) (citing Cohen v. Cohen, 269 A.2d 205, 207 (Del. 1970)). 190 Townsend Aff. ¶ 9; Thibert-Ind Aff. ¶ 8.

191 E.g., Lynch v. Gonzalez, 2020 WL 5587716, at *3 (Del. Ch. Sept. 18, 2020) (examining the rates, staffing, and discounts to determine the reasonableness of the fees requested), aff’d, 253 A.3d 556 (Del. 2021).

44

III. CONCLUSION

For the foregoing reasons, Plaintiff’s Motion for Civil Contempt and

Sanctions is GRANTED, and Plaintiff’s fees are shifted to Defendant. Plaintiff’s

counsel should submit affidavits and exhibits in support of their fees for this action,

including the Contempt Motion within ten days of this opinion.