In In re Interstate General Media Holdings, LLC, the managing members of Interstate General Media Holdings, LLC, a Delaware limited liability company (the “Company”), sought judicial dissolution of the Company. Both managing members agreed that the Company was deadlocked and judicial dissolution was necessary, but they disagreed about whether the Company should be sold at a private auction or a public auction. The limited liability company agreement of the Company (the “LLC Agreement”) did not explicitly address how the Company was to be dissolved and liquidated. Nonetheless, one of the managing members argued that the Court of Chancery should look to the intent and provisions of the LLC Agreement for guidance in fashioning an appropriate remedy. The court rejected this argument holding that because the LLC Agreement did not explicitly address the procedures for dissolution and liquidation, it was essentially irrelevant in determining the issue. Further, because the managing members sought judicial dissolution, which was not proscribed by the LLC Agreement, the Company submitted itself to the discretion of the court to determine how the Company was to be dissolved and liquidated. The court ultimately ordered the dissolution of the Company and a sale of the Company via a private auction, finding that this method would maximize the value of the members’ limited liability company interests in the Company.
This is a dispute about whether attorney-client privilege applies to certain draft documents, and whether a waiver of privilege was made with respect to certain other communications, in connection with an appraisal action. The petitioners are a number of venture capital funds seeking a determination of the fair value of their shares in ISN Software Corp. (“ISN”) following a freeze-outmerger in early 2013.
The petitioners contend that ISN has improperly claimed attorney-client privilege over certain draft documents, including draft board minutes, created by management but sent to legal counsel for review. The draft minutes in question were authored by management for meetings that legal counsel did not attend. ISN claimed privilege over the draft minutes because they were forwarded to counsel for review prior to finalization and are, according to ISN, therefore per se not discoverable. Citing its decision in Jedwab v. MGM Grand Hotels, Inc., 1986 WL 3426 (Del. Ch. Mar. 20, 1986), the Court held that this was incorrect–where drafts were not prepared by a lawyer in a setting in which they were intended to remain confidential and where attorneys did not gather the information contained therein, work-product doctrine does not shield documents from production.
The petitioners also sought to compel the production of documents reflecting otherwise-privileged communications evidencing how the ISN board arrived at its merger price. The petitioners sought to rely on the “at-issue” exception to privilege–that is, that the privileged communications are required in order to arrive at the truthful resolution of an issue injected into the litigation by a party–contending that ISN placed the merger price “at issue.” However, the Court disagreed and noted that the petitioners had adequate information sources to establish whether the merger price was indicative of fair value (including depositions of ISN managers and directors, board resolutions approving the merger agreement, and a valuation opinion obtained by the ISN board).
In Chen v. Howard-Anderson, Vice Chancellor Laster considered a motion for summary judgment brought by certain officers and the Board of Directors of Occam Networks, Inc., (“Occam”), a public Delaware corporation seeking a determination by the Court that they did not breach their fiduciary duties. The plaintiffs (former stockholders of Occam) claim that the defendants breached their fiduciary duties “by (i) making decisions during Occam’s sale process that fell outside the range of reasonableness (the “Sale Process Claim”) and (ii) issuing a proxy statement for Occam’s stockholder vote on the Merger that contained materially misleading disclosures and material omissions” (the “Disclosure Claim”).
In 2009, Calix, Inc. and Occam (competitors in the broadband market) began discussing a potential business combination. In response, the Board of Occam determined that formal discussions with Calix were not appropriate at that time and retained Jeffries & Company for advice on strategic alternatives. By June 2010, Occam proposed to acquire Keymile International GmbH (“Keymile”) for $80 million, and Calix submitted a term sheet proposing to purchase Occam for $156 million (in a mix of cash and stock). Another suitor, Adtran, presented a third option by offering a slightly higher cash offer price to acquire Occam as compared with the Calix offer. Occam had a cool reaction to Adtran. Occam prepared April and June financial projections for 2010, 2011, and 2012 which were more positive than the estimates of the two public analysts who followed Occam. The projections were not shared with Adtran, and were materially higher than Adtran’s internal projections for Occam, and later projections that Adtran would create. Occam did not provide Calix with the June financial projections. On June 23, 2010 Calix submitted a revised term sheet increasing its offer to purchase Occam to $171.1 million (to be paid in a mix of cash and stock). Adtran confirmed its interest in acquiring Occam and on June 24, 2010 proposed an all cash offer at a premium of approximately 11% over Calix’s bid. On June 24, 2010 the Board met to consider the various alternatives – the cash and stock merger with Calix, the cash sale to Adtran, or remaining independent and acquiring Keymile. It was not clear that the Board was aware that Adtran’s bid was 11% higher than Calix’s offer. The Board directed Jeffries to conduct a 24 hour “market check.”