In In re Oracle Corporation Derivative Litigation, Consolidated C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020), the Delaware Court of Chancery (the “Court”) determined that a special litigation committee (the “SLC”) of the board of directors (the “Board”) of Oracle Corporation (“Oracle”) had properly asserted work production protection and denied lead plaintiff’s motion to compel production on the basis of (i) sufficient need and unavailability of information, (ii) waiver, or (iii) breach of fiduciary duty by the SLC.
Lead plaintiff Firemen’s Retirement System of St. Louis (the “Lead Plaintiff”) brought derivative litigation on behalf of Oracle in July 2017, alleging Oracle’s fiduciaries faithlessly caused Oracle to overpay in its purchase of NetSuite, Inc. (“NetSuite”). Among the Defendants was Lawrence J. Ellison, co-founder of Oracle who owned 35.4% of its stock at the time of Oracle acquired NetSuite (the “Acquisition”), and who beneficially owned 44.8% of NetSuite shortly before the Acquisition. Other defendants included Safra A. Catz, Oracle’s CEO, two other senior executives, and the Oracle director who served as SLC Chair.
In March 2018, the Court ruled that Lead Plaintiff was excused from making a demand on the Board, and had adequately plead claims to survive a motion to dismiss by Ellison and Catz. Shortly after, the Board established the SLC and empowered it to take all actions necessary to investigate, analyze and evaluate the lawsuit and any actions the SLC deemed to be interests of Oracle in connection with the lawsuit. The SLC moved to stay the case in order to complete its investigation, and the motion was granted. The stay was extended, including to accommodate an ultimately fruitless non-binding mediation between the SLC, Ellison and Catz. In an August 2019 letter from SLC counsel to the Court, the SLC stated that a settlement was unlikely in the near future, and Lead Plaintiff should be allowed to proceed with the derivative lawsuit on Oracle’s behalf.
Shortly thereafter, Lead Plaintiff served subpoenas on the SLC and SLC’s counsel with broad requests for documents and communications produced to, obtained, reviewed, considered, created or prepared by or for the SLC, and any draft or final report produced by the SLC (the “Subpoenas”). The Board later removed the SLC’s power to investigate or otherwise act for Oracle with respect to the litigation, but empowered the SLC to manage responses to information and disclosure requests, including the assertion of work product protection or attorney-client privilege.
Ruling on the Subpoenas in December 2019, the Court ordered that the SLC produce non-privileged parts of the record upon which the SLC based its determination that Lead Plaintiff was the appropriate corporate agent to pursue the derivative claims. The SLC produced the record and a privilege log listing 57 total items withheld on attorney-client privilege and/or work product protection grounds. Lead Plaintiff moved to compel production of 42 of the documents including: 37 SLC interview memoranda containing notes from interviews with various individuals, including the defendants and other Oracle Board members (the “Interview Memoranda”), and other materials prepared by or at the direction of SLC counsel, including internal summaries of evidence, tables analyzing NetSuite’s performance, damages models, and a draft report to the SLC (collectively with the Interview Memoranda, the “Requested Materials”).
The Court concluded that all 42 items Lead Plaintiff sought to compel are protected work product. With respect to the Interview Memoranda, the Court noted the defendants’ representations that the documents were not verbatim transcripts, but instead reflected notes and impressions of SLC counsel which were appropriate for work product protection. Because the Interview Memoranda and other Requested Materials were inarguably “prepared in anticipation or litigation or for trial,” the Court held that work product protection applied to these.
The Court determined that Lead Plaintiff did not meet its burden of demonstrating that the Requested Materials should be produced despite their protected work product status. To meet this burden, the Court indicated, Lead Plaintiff generally was required to show a “substantial need” for the work product and an inability to obtain the substantial equivalent through other means without undue hardship. In the case of opinion work product – containing the mental impressions, opinions, and conclusions of counsel – the Court imposed on Lead Plaintiff the higher burden of showing that the work product was directed to the pivotal issue in the litigation and that Lead Plaintiff’s need for the information was compelling. The Court reasoned that Lead Plaintiff would have an opportunity to obtain the substantial equivalent of information contained in the Interview Memoranda by deposing the relevant individuals under oath and ruled that Lead Plaintiff’s assertion that it would be deprived of impeachment material from the Interview Memoranda was insufficient “need” to compel disclosure. The Court also noted that since the factual information and documents underlying the Requested Materials other than the Interview Memoranda had already been provided, Lead Plaintiff already had the ability to obtain any non-opinion work product contained therein.
The Court next considered and rejected Lead Plaintiff’s contention that the SLC had waived work product protection. Lead Plaintiff argued that the exchange of mediation statements between the SLC, Ellison, and Catz resulted in a waiver of work product doctrine with respect to certain privileged information contained in the statements. The Court noted waiver of work product protected materials is rarely ordered in Delaware and is limited to cases involving “egregious conduct by the holder of the privilege.” The Court stated that there is no waiver of privileged information if the disclosing party had a reasonable expectancy of privacy when it made the disclosure and that Delaware public policy supports confidentiality of mediation materials to facilitate negotiations. Because the SLC had a strong and reasonable expectation of privacy with respect to the mediation statements, the Court held, work product protection of privileged information contained in the statements was not waived by their exchange between the SLC, Ellison, and Catz.
Finally, The Court considered Lead Plaintiff’s assertion that compelled disclosure was appropriate as a remedy because the SLC’s determination to assert work product privilege lacked any “reasoned, good-faith rationale” and was in breach of SLC members’ fiduciary duties to Oracle. Lead Plaintiff sought to rely on the Delaware Supreme Court’s ruling in Zapata Corp. v. Maldonado. The Zapata decision held that a special committee’s decision to recommend dismissal of derivative litigation is not entitled to a presumption of business judgment, but should instead be subject to the following two-step analysis: (i) whether committee members were independent and conducted a good-faith, reasonable scope investigation that supported their decision; and (ii) whether, in the reviewing court’s business judgment, dismissal should be granted.
The Court held that the SLC retained a presumption of business judgment with respect to its decision not to turn over protected materials and found Zapata inapplicable to review of this decision because the SLC did not move to dismiss the derivative action. The Court acknowledged that if the SLC had moved to dismiss the derivative action, Zapata’s standard of reviewwould apply. The Court further concluded that Lead Plaintiff failed to plead any breach of fiduciary duty by SLC members or any basis to rebut this presumption and therefore declined to sustain Lead Plaintiff’s collateral attack on the SLC’s business judgment.
For these reasons, the Court denied Lead Plaintiff’s motion to compel disclosure of the work-product protected materials by the SLC.