250 A.3d 901
Del. Ch.2020Background
- In October 2019 the board formed a Special Committee to negotiate a Master Transaction Agreement (MTA) with SoftBank, which contemplated governance changes and a $3 billion tender offer.
- SoftBank terminated the Tender Offer on April 1, 2020; the Special Committee filed suit on April 7, 2020 alleging SoftBank breached the MTA and breached fiduciary duties as a controlling stockholder.
- SoftBank challenged the Special Committee’s authority in a competing letter; the Special Committee replied. Management (via counsel Skadden) then pursued appointment of two temporary directors and a New Committee to determine whether the Special Committee had authority.
- The New Committee concluded the Special Committee lacked authority and directed Management to move to dismiss the litigation; Management filed a Rule 41(a) motion to dismiss.
- The Special Committee seeks discovery of privileged communications among Management, in-house counsel, and outside counsel (Skadden) about the formation of the New Committee and related decision-making; Management refused, asserting privilege and that the Special Committee is adverse to the Company.
- Chancellor Bouchard held that management may not unilaterally withhold the corporation’s privileged information from directors and directed production and depositions of specified individuals (excluding New Committee–counsel privileged communications).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May management unilaterally deny a director access to the corporation’s privileged communications? | Directors are presumptive joint clients of corporate counsel and entitled to board privileged information. | Management must be able to receive counsel confidentially when board factions conflict; it can withhold to avoid disclosure to adverse directors. | No. Management cannot unilaterally curtail directors’ access; board—not management—controls corporate oversight and privilege sharing. |
| Does director adversity to the corporation strip access to privileged materials here? | Special Committee is not adverse to the Company; it acted to protect the Company’s interests and sought access to test the New Committee process. | The Special Committee became adverse after the Competing Letters and by retaining separate counsel and threatening liability. | Adversity was not formally determined by the board; unilateral management assertion of adversity insufficient to block access. |
| Are communications about formation/influence of the New Committee discoverable despite privilege? | Such privileged communications among Management, in‑house counsel, and Company outside counsel are discoverable by the Special Committee for opposing the Rule 41 motion. | Management withheld those documents as privileged and work product. | The Court ordered production of the requested Company privileged communications (excluding New Committee’s communications with its own counsel). |
| Should depositions of CEO, Chief Legal Officer, and Company outside counsel be permitted? | Yes; depositions are needed to probe the New Committee’s formation and influence. | No; those witnesses and communications are privileged. | The Court ordered Management to make Mathrani, Berrent, and Robinson available for deposition. |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (reaffirms that the board, not management, manages corporate affairs under Delaware law)