IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MECHEL BLUESTONE, INC., and MECHEL ) MINING OAO, ) ) Plaintiffs and Counterclaim Defendants, ) ) v. ) C.A. No. 9218-VCL ) JAMES C. JUSTICE COMPANIES, INC.; JAMES ) C. JUSTICE, II; JAMES C. JUSTICE, III; ) JILLEAN L. JUSTICE; and JAMES C. JUSTICE ) II, as Trustee of the JAMES C. JUSTICE II GRAT ) NO. 1, and of the JAMES C. JUSTICE II GRAT ) NO. 2, ) ) Defendants and Counterclaimants. )
MEMORANDUM OPINION
Date Submitted: December 8, 2014 Date Decided: December 12, 2014
Jay N. Moffitt, Lauren K. Neal, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Mark R. Robeck, Stephen R. Freeland, Matthew P. Larson, KELLEY DRYE & WARREN, LLP, Washington, D.C.; Emil J. Barth, BAKER BOTTS, L.L.P., Washington, D.C.; Brian A. Glasser, BAILEY & GLASSER, LLP, Charleston, West Virginia; Attorneys for Plaintiffs.
Raymond J. DiCamillo, Susan M. Hannigan, Rachel E. Horn, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; David B. Tulchin, William H. Wagener, SULLIVAN & CROMWELL LLP, New York, New York; Attorneys for Defendants.
LASTER, Vice Chancellor. The defendants have moved to compel the production of documents identified on
the plaintiffs‟ privilege log. The defendants contend that the plaintiffs‟ initial log was so
flawed, and the plaintiffs‟ four subsequent efforts to provide an adequate log so feckless,
that the appropriate remedy is to deem the privilege waived as to all documents listed on
the log. This decision deems the privilege waived as to the items where the plaintiffs fell
substantially short of the well-documented and easily identified requirements for
supporting a claim of privilege.
I. FACTUAL BACKGROUND
The factual background is drawn from the pleadings and submissions made in
connection with the current motion to compel. The discussion does not comprise findings
of fact in the post-trial sense, but rather represents how the record appears at this
preliminary stage.
A. The Merger
In 2009, plaintiffs Mechel Bluestone, Inc., and Mechel Mining OAO (jointly,
“Mechel”) acquired entities that owned certain coal properties and associated assets in
West Virginia (the “Bluestone Properties”) from defendants James C. Justice Companies,
Inc., James C. Justice II, James C. Justice III, Jillean L. Justice, and James C. Justice II,
as Trustee of the trusts James C. Justice II GRAT No. 1 and James C. Justice II GRAT
No. 2 (collectively “Justice”). Mechel acquired the properties pursuant to an Agreement
and Plan of Merger dated as of March 16, 2009 (the “Merger Agreement”).
Before the acquisition, to assist in determining the purchase price, Weir
International, Inc. (“Weir”) prepared a report estimating the base volume of coal reserves
1 on the Bluestone Properties. Justice believed that the report understated the amount of
coal reserves and argued in favor of a greater volume. To resolve the disagreement, the
parties provided in the Merger Agreement that if additional coal was discovered on the
Bluestone Properties within two years (the “Contingent Reserves”), then Mechel would
pay Justice additional amounts (the “Contingent Payment”). The Merger Agreement
called for Weir to assess the volume of any Contingent Reserves in accordance with
applicable professional standards and using the methods employed in its initial report.
By letter dated September 7, 2011, Weir identified approximately 60 million tons
of Contingent Reserves on the Bluestone Properties (the “Weir Letter”). Under the
Merger Agreement, this volume of Contingent Reserves would equate to a Continent
Payment of approximately $165 million. Mechel disputed the determination made in the
Weir Letter, contending that it failed to satisfy the relevant provisions in the Merger
Agreement.
On January 2, 2014, Mechel filed this action. Count I of the complaint seeks a
declaratory judgment that (i) Justice failed to satisfy its obligations under the Merger
Agreement, (ii) the Weir Letter did not satisfy the Contingent Payment provisions under
the Merger Agreement, and (iii) Mechel does not owe Justice any Contingent Payment.
Count II asserts that Justice breached the Merger Agreement by not acting in accordance
with the declarations demanded in Count I. Count III seeks a decree of specific
performance compelling Justice to act in accordance with the declarations demanded in
Count I. Count IV alleges that Justice committed fraud because it knew or should have
known that Weir Letter provided false information about the Contingent Reserves.
2 The parties agreed to a schedule that would bring the case to trial in May 2015.
The schedule called for the parties to substantially complete their document production
by August 15, 2014, to exchange privilege logs on September 12, and to take fact
depositions between September 1 and December 5. Mechel advised Justice that it could
not meet the August 15 deadline, and Justice agreed that Mechel could complete its
production by September 12.
B. The Initial Privilege Log
On September 12, 2014, Mechel produced its initial privilege log. The 672-page
document contained 6,125 entries. At the time, Mechel had produced 11,201 documents,
meaning that it was withholding more than one-third of its responsive documents on
grounds of privilege. Mechel did not serve a redaction log.
Mechel provided with its privilege log a list of ten organizations with thirty-nine
people whom Mechel identified as attorneys or individuals otherwise involved in
providing legal advice (the “Players List”). Despite the number of organizations, the
Players List did not identify the clients that the organizations represented or the purposes
for which they were engaged. The Players List did not distinguish attorneys from non-
attorneys, except that it listed certain individuals under the names of organizations
identifiable as law firms. The Players List did not identify all of the individuals on
Mechel‟s initial privilege log, which contained approximately 830 unique names and e-
mail addresses. The Players List did not even identify all of the law firms or lawyers that
appeared on the log.
3 By letter dated September 18, 2014, Justice‟s counsel pointed out deficiencies in
the log and asked Mechel‟s counsel to address them. On September 23, having not
received any response, Justice moved to compel.
C. The Amended Privilege Log
After receiving the motion to compel, Mechel responded indignantly, protesting
that the motion was “both premature and, at best, specious.” Undercutting the sincerity of
Mechel‟s indignation was a concession that the initial privilege log and Players List were
inadequate. Mechel‟s counsel undertook to fix the deficiencies.
On September 26, 2014, Mechel provided Justice with an amended privilege log,
an amended Players List, and a redaction log. Mechel also produced an additional 6,739
documents for a total of 32,008 pages. Because Mechel should have completed its
production by September 12, the production should have consisted of entries previously
identified on Mechel‟s privilege log. But the number of documents produced exceeded
the number of documents on the initial log. Something was amiss. Yet Mechel‟s amended
log did not cross-reference any of the produced documents by Bates number, so it was
impossible to tell which documents came from where.
After reviewing Mechel‟s revised logs and document production, Justice
concluded that there were still serious problems. By letter dated October 1, 2014, Justice
identified a non-exclusive list of deficiencies, supporting each with examples:
Mechel‟s privilege log continued to contain entries that lacked information about the author and recipients or did not identify the attorney whose advice was reflected in the document.
4 Mechel‟s privilege log continued to contain entries for documents shared with third parties who were not listed on the Players List and whose role in providing legal advice was not explained.
Many entries on the privilege log identified e-mails with attachments where it did not appear that Mechel had produced the attachments or explained why the attachments were privileged.
Mechel‟s newly produced redaction log did not list the Bates number for entries produced in redacted form, making it impossible to tie Mechel‟s production of redacted documents to the entries on its redaction log.
Mechel produced certain documents in “redacted” form where the documents were redacted in their entirety, except for their Bates numbers. As a practical matter, Mechel was still withholding these documents in their entirety, despite purportedly producing them in “redacted” form.
Justice asked Mechel to correct the deficiencies before Justice deposed several key
witnesses during the week of October 6.
D. The Second And Third Amended Privilege Logs
On October 4, 2014, Mechel produced a second amended privilege log, a first
amended redaction log, and a second amended Players List. From October 4-7, Mechel
produced another 1,084 documents for a total of 25,006 additional pages. Justice received
the vast majority of them on the night before the scheduled depositions. Many of the
documents exhibited defects like those identified in Justice‟s October 1 letter.
Mechel also sought to claw back a document produced on September 26, 2014.
Justice had marked the document as an exhibit during the deposition of Stanislav
Ploschenko, Mechel Mining OAO‟s former CFO. Although Justice destroyed the
document, Justice found no record of it on Mechel‟s original privilege log, the first
amended privilege log, or the second amended privilege log. Justice asked Mechel to
5 identify the entry that corresponded to the document. Instead, Mechel produced a third
amended privilege log that added an entry for the document. Mechel did not fix any of
the other deficiencies.
E. The Fourth Amended Privilege Log
On October 23, 2014, Justice‟s counsel filed a supplemental affidavit in support of
its motion to compel (the “Wagener Affidavit” or “Wagener Supp.”). Using the
documents that Mechel had produced, Justice had checked the accuracy of the
descriptions on its Mechel‟s log and evaluated whether Mechel appeared to be making
valid claims of privilege. For many of the documents that Mechel had produced from the
privilege log, the descriptions on the log were misleading or wrong. Many documents
that Mechel produced after September 12 did not correspond to entries on the logs; they
were simply produced late. Other entries where Justice had challenged Mechel‟s privilege
claims had been re-characterized as “Non-Responsive.”
On October 29, 2014, in response to the Wagener Affidavit, Mechel produced a
fourth amended privilege log, a third amended redaction log, and a third amended Players
List. The parties completed briefing on Justice‟s motion to compel, and the court held a
hearing on December 8. During oral argument, Mechel‟s counsel conceded that the
original privilege log contained errors but argued that the errors did not result from any
bad faith. Justice sought a waiver of privilege as to all entries on Mechel‟s logs.
II. LEGAL ANALYSIS
Rule 26(b)(1) frames the scope of permissible discovery:
6 Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any documents, electronically stored information, or tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
Ct. Ch. R. 26(b)(1). “[P]retrial discovery rules are to be afforded broad and liberal
treatment.” Levy v. Stern, 687 A.2d 573 (Del. 1996) (TABLE). “Discovery is called that
for a reason. It is not called hide the ball.” Klig v. Deloitte LLP, 2010 WL 3489735, at *7
(Del. Ch. Sept. 7, 2010).
The burden of establishing that otherwise discoverable information is privileged
rests “on the party asserting the privilege.”1
[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
1 Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992); accord Sokol Hldgs, Inc. v. Dorsey & Whitney, LLP, 2009 WL 2501542, at *6 n.28 (Del. Ch. Aug. 5, 2009) (Strine, V.C.); PharmAthen, Inc. v. SIGA Techs., Inc., 2009 WL 2031793, at *4 n.13 (Del. Ch. July 10, 2009); Rembrandt Techs., L.P. v. Harris Corp., 2009 WL 402332, at *5 n.43 (Del. Super. Feb. 12, 2009); SICPA Hldgs., S.A. v. Optical Coating Lab., Inc., 1996 WL 636161, at *7 (Del. Ch. Oct. 10, 1996); Emerald P’rs v. Berlin, 1994 WL 125047, at *1 (Del. Ch. Mar. 30, 1994); Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co., 623 A.2d 1118, 1122 (Del. Super. 1992); In re Fuqua Indus., Inc. S’holders Litig., 1992 WL 296448, at *3 (Del. Ch. Oct. 8, 1992); Deutsch v. Cogan, 580 A.2d 100, 107 (Del. Ch. 1990). See generally Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 7.04 (2010).
7 designation and description of the documents within its scope as well as precise and certain reasons for preserving their confidentiality.2
A party must provide “sufficient facts as to bring the identified and described document
within the narrow confines of the privilege.” Int’l Paper, 63 F.R.D. at 94 (emphasis in
original); accord Reese, 1985 WL 21127, at *5 (“The documents must be precisely
enough described to bring them within the rule . . . .”). To meet its burden to establish the
requirements of privilege, a party typically prepares a privilege log. The log must identify
(a) the date of the communication, (b) the parties to the communication (including their names and corporate positions), (c) the names of the attorneys who were parties to the communication, and (d) [a description of] the subject of the communication sufficient to show why the privilege applies, as well as [the issue to which] it pertains . . . . With regard to this last requirement, the privilege log must show sufficient facts as to bring the identified and described document within the narrow confines of the privilege.
Unisuper Ltd. v. News Corp., C.A. No. 1699-N, slip op. at 2 (Del. Ch. Mar. 9, 2006)
(internal quotations and footnotes omitted). Experienced counsel know these
requirements, and any junior associate could find a case reciting them with minimal
effort.3
2 Int’l Paper Co. v. Fibreboard Corp., 63 F.R.D. 88, 93-94 (D. Del. 1974); accord Sokol Hldgs., 2009 WL 2501542, at *8; Deutsch, 580 A.2d at 107; Reese v. Klair, 1985 WL 21127, at *5 (Del. Ch. Feb. 20, 1985). 3 See, e.g., Union Pac. Res. Grp., Inc. v. Pennzoil Co., 1997 WL 34655410, at *1 (D. Del. Aug. 12, 1997); Cont’l Grp., Inc. v. Justice, 536 F. Supp. 658, 664 (D. Del. 1982); Coastal Corp. v. Duncan, 86 F.R.D. 514, 520 (D. Del. 1980); Int’l Paper, 63 F.R.D. 93-94; see also Wolfe & Pittenger § 7.04, at 7-57 to -58.
8 When a log invokes the attorney-client privilege for items that have been shared
with a third party, the party asserting the privilege must explain the role played by the
third party that enables the privilege to be maintained. “In most instances, a party waives
the attorney-client privilege by communicating privileged information to a third party.”
In re Quest Software Inc. S’holders Litig., 2013 WL 3356034, at *4 (Del. Ch. July 3,
2013); accord Ryan v. Gifford, 2008 WL 43699, at *6 (Del. Ch. Jan. 2, 2008)
(“Disclosure to outsiders has never failed to waive privilege under Delaware law.”).
Delaware Rule of Evidence 510(a) states that
[a] person upon whom these rules confer a privilege against disclosure waives the privilege if he or his predecessor while holder of the privilege voluntarily discloses or consents to disclosure of any significant part of the privileged or protected matter. This rule does not apply if the disclosure itself is privileged.
D.R.E. 510(a).
Under Delaware Rule of Evidence 502(b), the privilege extends to
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 client‟s representative or the client‟s lawyer or a representative of the lawyer to a lawyer or 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.
D.R.E. 502(b). A communication is “confidential” for purposes of the privilege “if not
intended to be disclosed to third persons other than those to whom disclosure is made in
9 furtherance of the rendition of professional legal services to the client or those reasonably
necessary for the transmission of the communication.” D.R.E. 502(a)(2). To bring a
communication shared with a third party within the ambit of the rule and sustain a claim
of privilege, Mechel had to explain how the third party organization or individual was a
qualified representative for purposes of Rule 502(b) or otherwise within the scope of the
definition of confidentiality in Rule 502(a)(2).
If a party fails to provide an adequate description for a document, then the
privilege for that document may be deemed waived.4
The importance of providing an adequately descriptive and timely privilege log cannot be overlooked. Although the Delaware courts have sometimes allowed a party the opportunity to supplement an insufficient privilege log, at least where that party appears to have endeavored in good faith to provide an adequate description of the privileged information in the first instance, the failure to properly claim a privilege or immunity or failure to
4 E.g., Willemijn Houdstermaatschaapij BV v. Apollo Computer Inc., 707 F. Supp. 1429, 1443 (D. Del. 1989); Sokol Hldgs, 2009 WL 2501542, at *8 (“Sokol has waived the right to [assert privilege] by failing to update its privilege log to provide detailed enough descriptions . . . .”); accord Lee v. State Farm Mut. Auto. Ins. Co., 249 F.R.D. 662, 683 (D. Colo. 2008) (“The failure to [adequately describe any information withheld as privileged] results in a waiver of the claims of privilege.”); Aurora Loan Servs., Inc. v. Posner, Posner & Assocs., P.C., 499 F. Supp. 2d 475, 479 (S.D.N.Y. 2007) (“Failure to furnish an adequate privilege log is grounds for rejecting a claim of attorney client privilege.”); Rambus, Inc. v. Infineon Techs. AG, 220 F.R.D. 264, 274 (E.D. Va. 2004) (“The finding of inadequacy [of descriptions in Rambus‟ privilege log], particularly in light of Rambus‟ earlier discovery and litigation misconduct, conceptually is sufficient to warrant a finding that the privileges have been waived.”); Bowne of New York City v. AmBase Corp., 150 F.R.D. 465, 474 (S.D.N.Y. 1993) (“[I]f the party invoking the privilege does not provide sufficient detail to demonstrate fulfillment of all the legal requirements for application of the privilege, his claim will be rejected.”), quoted with approval in U.S. v. Constr. Prods. Research, Inc., 73 F.3d 464, 473 (2d Cir. 1996) (affirming order requiring disclosure of allegedly privileged documents because of an inadequate privilege log).
10 raise a privilege or immunity in a timely manner can, in appropriate circumstances, result in a waiver of the privilege.
Wolfe & Pittenger, § 7.04, at 7-51 to -52 (citation omitted). This is because “[a]n
improperly asserted claim of privilege is no claim of privilege at all.”5
Whether to deem the privilege waived or allow the party to provide a
supplemental log is a matter for case-by-case adjudication. Emerald P’rs v. Berlin, 1994
WL 125047, at *2 (“Discovery is subject to the exercise of this Court‟s sound
discretion.”) (citing Dann v. Chrysler Corp., 166 A.2d 431, 439 (Del. Ch. 1960)). If a
party falls substantially short of the well-established requirements, then waiver is an
appropriate consequence that helps dissuade parties from engaging in dilatory tactics. See
Willemijn Houdstermaatschaapij, 707 F. Supp. at 1443; Klig, 2010 WL 3489735, at *5.
A. The Deficiencies
Mechel produced its initial privilege log on September 12, 2014. “Mechel
candidly admit[ed] that there were issues with its original privilege log.” Opp. at 1. This
mea culpa is an understatement. The initial privilege log was strikingly bad.
The most glaring deficiency was 590 entries that contained no information other
than the document date, the privilege asserted, and a description of the grounds for
asserting the privilege. The entries lacked information identifying the parties to the
5 Int’l Paper, 63 F.R.D. at 94; accord M & G Polymers USA, LLC v. Carestream Health, Inc., 2010 WL 1611042, at *51 n.262 (Del. Super. Apr. 21, 2010); Williams Natural Gas Co. v. Amoco Prod. Co., 1991 WL 236919, at *2 (Del. Super. Nov. 8, 1991); Council of Unit Owners of Sea Colony East v. Carl M. Freeman Assocs., Inc., 1990 WL 161169, at *2 (Del. Super. Sept. 26, 1990); Playtex, Inc. v. Columbia Cas. Co., 1989 WL 5197, at *2 (Del. Super. Jan. 5, 1989); Reese, 1985 WL 21127, at *5.
11 communication or the attorney involved. Without this information, Justice had “no way
to assess the propriety of the assertion of privilege.” Klig, 2010 WL 3489735, at *2.
Anyone who glanced at the log would realize that the entries were deficient.
Another obvious problem was Mechel‟s failure to provide an adequate Players
List that identified the individuals who appeared on the log and their roles. The Players
List listed thirty-nine of the approximately 830 unique names and e-mail addresses that
appeared on Mechel‟s privilege log. It did not distinguish attorneys from non-attorneys,
except that it listed certain individuals under the names of organizations identifiable as
law firms. There were ten different organizations on the initial Players List, but Mechel
did not describe by whom they were retained or what they were doing. The Players List
did not explain how any of the other third parties who appeared on the log were involved
in the provision of legal advice or why communicating with those third parties did not
waive the privilege.
Another red flag was the massive scope of the log relative to the number of non-
privileged documents that Mechel had produced. The initial privilege log was 672 pages
long and contained 6,125 entries. As of September 12, 2014, Mechel had produced
11,201 documents, meaning that it had designated over one-third of the responsive
documents as privileged. The underlying transaction was a business deal. Yet Mechel
was claiming that one-third of the documents and communications relating to the
transaction were legal in nature. One wonders how Mechel could ever get anything done
if its personnel spend one-third of their time obtaining legal advice. Compounding the
problem of the initial privilege log‟s sheer size was its incomprehensible structure. The
12 6,125 entries were not organized in chronological order. They did not appear to have
been arranged in any particular order at all.
Unwittingly, Mechel may have revealed the reasons for the size of its log and the
glaring omissions of basic information from nearly 600 entries. Entry number 227
contained an editorial note that stated: “[T]he signature was cut-off from the email and so
the author is unknown. To be safe, I assumed this was from an attorney.” Wagener Supp.
Ex. A (emphasis added). Mechel obviously did not intend to produce this telling
comment, which confirms what one can infer about how Mechel approached its log.
Mechel inverted the law of privilege. Rather than believing that Mechel needed to justify
its privilege assertions, Mechel assumed that any document an attorney might have
touched would be privileged.
As a first cut when asserting privilege, a party might well set aside any document
where an attorney appears as an author or recipient, or which come from an attorney‟s
file. But that is only the starting point for privilege analysis. Once those documents have
been collected, lawyers must make judgments. In the first instance, more junior lawyers
typically make initial calls about which documents might be subject to a claim of
privilege. Counsel disclosed that Mechel outsourced that task to contract attorneys
provided by PriceWaterhouseCoopers LLC and Huron Consulting Group.
Understandably, lawyers are concerned about making a mistake and producing a
privileged document, which often leads to overdesignation. Because of this risk, and
because disputes about privilege are common, the senior lawyers in the case, especially
the senior Delaware lawyers, must provide guidance about how the privilege assertion
13 process should unfold. As important, senior lawyers, including senior Delaware lawyers,
must ensure that the guidance provided was followed. Preparing a privilege log with
integrity requires the involvement and oversight of senior lawyers who know the
applicable standards, understand the roles of the individuals involved in the
communications, and can make textured judgment calls on a principled basis.
The involvement of senior practitioners appears to have been entirely lacking in
this case. Mechel‟s lead counsel was candid about his lack of involvement. He was away
when the log was produced and did not look at it until after the disputes arose. There is
no indication that Delaware counsel had any involvement in the preparation of the log.
Mechel seems to have forwarded to Justice as its initial log whatever
PriceWaterhouseCoopers and Huron gave Mechel.
Once Justice raised the obvious and extensive problems with Mechel‟s privilege
log, Mechel had an opportunity to make things right. Despite its initial combative
response, which asserted that Justice‟s motion to compel was “both premature and, at
best, specious,” Mechel‟s counsel conceded that there were problems with the log and
seemed willing to cooperate. But the reality of Mechel‟s response fell well short and
actually made things worse.
Unfortunately, Mechel‟s amended privilege log, amended Players List, redaction
log, and attendant document production did more to obfuscate than clarify. Mechel did
not explain whether the documents it was producing were from the log, nor did it cross
reference them to the log. Justice properly expected that, because Mechel should have
completed its document production by that point, the newly produced documents would
14 have been entries previously identified on Mechel‟s log. But the volume of the
documents was so large that Mechel had to be co-mingling late production with entries
from its log, which turned out to be the case. Mechel‟s new redaction log did not provide
any Bates numbers for documents produced in redacted form, so it was impossible to tie
the redacted documents definitively to its redaction log. Some of the documents that
Mechel claimed to be producing in redacted form were actually redacted in their entirety,
with only the Bates numbers showing. The “redaction” of these documents was a farce;
Mechel could just as well have continued to withhold them.
Nor did Mechel fix all of the problems with its initial privilege log. Mechel‟s
privilege log continued to contain entries that lacked information about the author and
recipients or did not identify the attorney‟s advice that was reflected in the document.
The amended log continued to contain entries for documents shared with third parties
who were not listed on the Players List and whose role in providing legal advice was not
explained. And many entries on the amended log were e-mails with attachments where it
did not appear that Mechel had produced the attachments or explained why the
attachments were privileged.
When providing its second, third, and fourth amended logs, Mechel seemed to
believe that its only obligation was to address the specific items that Justice raised. In
essence, Mechel‟s counsel tried to outsource their obligation to produce an adequate log
to Justice‟s counsel. The specific deficiencies that Justice identified illustrated broader
and systemic problems which Mechel‟s counsel should have addressed. Justice had no
way of knowing how widespread the problems were; Justice could only cite the examples
15 it found. Given that Mechel initially produced a facially inadequate log and subsequently
provided deficient amended logs, it was reasonable for Justice to believe that the
problems were endemic. That is the inference the court draws.
B. The Remedy
Mechel‟s approach to asserting privilege fell well short of what Rule 26 and this
court‟s precedents require. Justice urges the court to impose the type of sanction imposed
in Klig and order Mechel to produce all of the documents listed on its log. In Klig, the
defendants produced a privilege log where 97% of the entries employed one of five rote
descriptions and “afforded [the plaintiff] no way to assess the propriety of the assertion of
privilege.” 2010 WL 3489735, at *2. After the plaintiff pointed out the deficiencies, the
defendants refused to correct them. Id. at *3. The court held that the log had been
prepared in bad faith and deemed the privilege waived. Id. at *3-4.
Mechel‟s conduct could support the type of order entered in Klig. At the same
time, unlike defense counsel in Klig, Mechel‟s counsel did acknowledge that its initial
log was deficient and made some efforts to correct the situation. Because the initial log
was so strikingly bad, the court could hold that the offer to do what Mechel‟s counsel
should have done in the first place came too late, particularly when the subsequent
remedial measures were so flawed. Nevertheless, because Mechel‟s counsel made some
effort, this court will not impose the blanket waiver ordered in Klig. But Mechel‟s
approach to privilege does have consequences.
16 1. The 590 Unidentified Entries
Privilege is deemed waived as to the 590 entries on the initial privilege log for
which Mechel provided almost no pertinent information. “It takes conscious effort to
render a log so devoid of content.” Klig, 2010 WL 3489735, at *5. These entries were
obviously deficient, yet Mechel waited for Justice to discover and raise the lack of critical
information.
2. Documents Re-Designated As Non-Responsive
Since providing its initial log, Mechel has re-designated certain documents as non-
responsive. Those documents will be produced. By listing the documents initially on the
log, Mechel‟s counsel represented that they were responsive. The re-designation of the
documents as non-responsive is too convenient.
Under different circumstances, it may be appropriate to permit re-designation, as
this court recently did in another case. See AM Gen. Hldgs LLC v. Renco Grp., Inc., 2013
WL 1668627, at *3 (Del. Ch. Apr. 18, 2013). Notably, the litigant challenging the re-
designation in AM General “offered no basis to suspect that [the party who re-designated
the documents] is not acting with integrity in this regard.” Id. Here, Justice has marshaled
ample facts that call into question Mechel‟s good faith efforts to prepare its privilege logs
and assert privilege claims with integrity.
3. Documents Produced With Everything Redacted
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
17 address only the privileged matter so that the non-privileged portion is produced. Mechel
did not assert privilege in good faith when it claimed to produce documents in redacted
form, but redacted the entire documents. Those documents will be produced.
4. The Operative Logs And Players List
For the remaining entries, Mechel‟s privilege claims must rise or fall based on the
information provided on the first amended privilege log, the first amended Players List,
and the initial redaction log that Mechel served on September 26, 2014. This decision
will refer to these documents, respectively, as the “Operative Privilege Log,” the
“Operative Redaction Log,” and the “Operative Players List.”
Mechel served additional supplemental logs after September 26, 2014, but
allowing serial supplementation only “reinforces problematic incentives that already
pervade the preparation of privilege logs.” Klig, 2010 WL 3489735, at *6. Because of the
obfuscatory manner in which Mechel provided its amended log and related production,
the court could limit Mechel to its initial log. Permitting Mechel to rely on its amended
log, Players List, and initial redaction log errs in favor of Mechel and the maintaining of
privilege.
Based on the Operative Privilege Log, the Operative Redaction Log, and the
Operative Players List, this decision can adjudicate the validity of the privilege claims for
certain categories of entries. Adjudicating other issues will require the appointment of a
special discovery master.
a. Entries Not On The Operative Logs
18 If an entry appears on a later log but not on the Operative Privilege Log or the
Operative Redaction Log (jointly, the “Operative Logs”), then Mechel failed to assert a
valid and timely claim of privilege for that document. Privilege is waived, and the
document will be produced.
b. Documents Lacking An Individual From The Players List
If an entry on the Operative Logs fails to identify or reference an individual or
organization from the Operative Players List, then Mechel failed to show how the entry
involved a communication made for the purpose of facilitating the rendition of
professional legal services to the client. Mechel failed to assert a valid and timely claim
of privilege for that document. Privilege is waived, and the document will be produced.
c. Documents Shared With Third Parties
If an entry on the Operative Logs discloses that the document was shared with a
third party, then Mechel had the burden of explaining the role played by the third parties
in order to maintain the privilege. Mechel was obligated to provide “precise and certain
reasons for preserving” the privilege as to these documents. Int’l Paper, 63 F.R.D at 94.
If the role of the third party was not explained on or before September 26, 2014, the date
when Mechel provided the Operative Logs, then Mechel failed to assert a valid and
timely claim of privilege. Privilege is waived, and the document will be produced.
d. Work Product
There are entries on the Operative Logs for which Mechel has claimed work
product protection. Court of Chancery Rule 26(b)(3) states that
19 a party may obtain discovery of documents, electronically stored information, and tangible things otherwise discoverable under paragraph (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party‟s representative (including the other party‟s attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party‟s case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means.
Del. Ch. Ct. R. 26(b)(3) (emphasis added). “The work product doctrine is intended to
protect „materials an attorney assembled and brought into being in anticipation of
litigation.‟” Grimes v. DSC Commc’ns Corp., 724 A.2d 561, 569-70 (Del. Ch. 1998)
(quoting Lee v. Engle, 1995 WL 761222, at *4 (Del. Ch. Dec. 15, 1995)). As with the
attorney-client privilege, “[t]he party asserting a claim of work product immunity has the
burden of proof to establish that the protection applies for a specific document.” Wolfe &
Pittenger, § 7.01 at 7-2; accord Wolhar v. Gen. Motors Corp., 712 A.2d 457, 459 (Del.
Super. 1997) (noting that the “initial burden of proving the existence of the work product
privilege” lies with the asserting party).
During oral argument, the court asked Mechel‟s counsel when Mechel began
anticipating litigation. Mechel‟s counsel represented that September 7, 2011, the date of
the Weir Letter, was when Mechel began anticipating litigation. This date makes sense
because Mechel‟s challenges to the Weir Letter form the basis for this case.
Because Mechel began anticipating litigation on September 7, 2011, Mechel
cannot claim work product protection for documents prepared before that date. Any
assertions of work product protection for earlier documents are overruled. If work
20 product protection was the only basis for withholding any document dated before
September 7, 2011, then those documents will be produced.
5. The Special Discovery Master
Justice has raised other credible challenges to Mechel‟s privilege assertions,
including challenges about the accuracy of the descriptions on the Operative Logs,
whether particular entries on the logs contain business advice as opposed to legal advice,
and whether certain organizations were retained to provide legal advice. The well-
supported inference of over-designation and Justice‟s illustrative examples of erroneous
entries warrant the appointment of a special discovery master to adjudicate these
challenges. Retired Superior Court Judge Charles H. Toliver, IV, has agreed to serve as
special discovery master for this case (the “Special Discovery Master”).
Within one week after the date of this decision, Mechel shall produce the
documents called for by this decision. Mechel shall serve contemporaneously on Justice a
combined privilege log and redaction log (the “Corrected Log”) that (i) lists all entries in
chronological order, (ii) identifies entries that have been produced in redacted form with
the word “REDACTED,” and the Bates number of the produced document, and the date
of production, (iii) identifies each entry produced with the word “PRODUCED,” the
Bates number of the produced document, and the date of production, and (iv) highlights
the names of individuals on the Corrected Log who are attorneys identified on the
Operative Players List in one color and those who are non-attorneys identified on the
Operative Players List in a different color.
21 If Justice wishes to pursue further challenges to the Operative Privilege Log, then,
within two weeks after the date of this decision, Justice shall submit an opening brief
making those challenges to the Special Discovery Master. Justice may identify up to 10%
of the entries on the Corrected Log for review by the Special Discovery Master, who
shall examine the underlying documents in camera and determine whether the
descriptions on the privilege log were accurate and whether privilege was properly
asserted. If the description was not accurate, or if privilege was not otherwise properly
asserted, then the document shall be produced. If the document contains business advice,
then the document will be produced. If the document contains a mix of business and legal
advice, and the legal advice can be redacted, then the document will be produced in
redacted form. Justice may seek leave from the Special Discovery Master to challenge
additional entries on the log beyond the 10%. The Special Discovery Master may, in his
discretion, review as many of the entries beyond 10% as he deems appropriate.
Justice may present to the Special Discovery Master any argument that a particular
advisor, such as International Mining Consultants, was not engaged to assist in providing
legal advice or in creating work product, or only was doing so after a certain point in
time. Justice make seek leave from the Special Discovery Master to present other issues
or arguments.
The Special Discovery Master will determine the briefing schedule for further
submissions from the parties and for any hearing. The Special Discovery Master may
provide instructions to the parties regarding the content of their submissions and the
nature and scope of the hearing. Ideally, the Special Discovery Master will be able to
22 provide his report and recommendation to the court on or before February 27, 2015. The
Special Discovery Master may receive assistance from attorneys at his law firm, Morris
James LLP. The Special Discovery Master and attorneys at his firm will be compensated
at their customary hourly rates.
Mechel shall bear the expenses of the Special Discovery Master. Pursuant to Rule
37, Mechel shall bear the reasonable expenses, including attorneys‟ fees, that Justice
incurred in connection with its review of Mechel‟s privilege logs, the efforts to meet and
confer with Mechel, the motion to compel, and the proceedings before the Special
Discovery Master.
Justice may re-depose any Mechel witness it has previously deposed who is an
author or recipient of a document produced in response to this decision. The scope of the
renewed deposition shall be limited to the newly produced documents and the subject
matter they cover. Justice may re-depose each witness only once, at a time of its choosing
that is convenient to the witness and Mechel‟s counsel. If Justice chooses to re-depose a
witness before the proceedings before the Special Discovery Master are complete, Justice
may not re-depose the witness if Mechel produces additional documents as a result of the
Special Discovery Master process.
III. CONCLUSION
The motion to compel is granted in part. The parties shall proceed as directed in
this decision.