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By Michael Greene
May 4 — Lululemon Athletica Inc. does not have to search its non-employee directors' personal e-mail accounts to comply with a DGCL §220 books and record production order, according to an April 30 Delaware Chancery Court ruling.
Although Vice Chancellor Donald F. Parsons Jr. opined that it wasn't clear if the court could require production of the e-mails under 8 Del. C. §220, he held that the stockholders failed to establish that they were essential to their purpose of investigating potential insider trading claims against Lululemons's former chairman Dennis J. Wilson and potential mismanagement claims against the company's board.
However, Parsons found that the stockholders had demonstrated a “good cause” to access other documents there were withheld as privileged.
In an April 2014 oral ruling, Parsons found that two Lululemon stockholders—the Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund, and the Laborers' District Council Construction Industry Pension Fund—had established a proper purpose for a books and records inspection under §220 because there was a credible basis to infer wrongdoing by Wilson and Lululemon.
After the company produced 195 pages of documents, the stockholders filed a motion asserting that the “dearth” of certain documents in the production indicated that the company had not complied with the order. Moreover, they claimed that the production order required the company to search the personal e-mail accounts of board members who are not company employees; the stockholders also claimed that other e-mail correspondences designated as privileged should have been produced.
Parsons observed that for the court to conclude that the personal e-mail accounts of non-employee directors were within the stockholders' §220 inspection rights, the sought-after documents would have to fall within Lululemon's “possession, control, or custody.”
Even though Parsons found no evidence in the record to support such a conclusion, he determined that the issue was immaterial to his decision.
Instead, he rejected the plaintiffs' request on two separate grounds.
First, Parson noted that the court's earlier order only required “the Company to produce documents responsive to the specified requests to the extent they fell within a prescribed time period.”
“Plaintiffs now ask the Court to expand the scope of the April 2014 Order to include documents, if any exist, that the Non-Employee Directors must produce. In the circumstances of this case, I find such a retroactive expansion to be unwarranted,” he wrote.
The court additionally found that the stockholders failed to establish that access to the e-mails was essential their investigation.
“While such discussions among members of the Board might be interesting to Plaintiffs, and may be helpful in a later action against those Board members, they are not necessary for Plaintiffs' proper purpose here,” Parsons wrote. “It is not enough for Plaintiffs to voice their dissatisfaction with the responsive documents located and produced by the Company in this regard.”
However, the court found that the plaintiffs were entitled to review certain e-mails that were designated as privileged.
Applying an earlier Delaware Supreme Court decision finding that the Garner doctrine applies in plenary stockholder/corporation proceedings—Wal-Mart Stores Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, Del., No. 614, 2013—Parson found that the fiduciary exception to privilege applied.
Noting that “while Garner and Wal-Mart II enumerate a ‘panoply of factors' that courts should consider in determining whether stockholder plaintiffs have ‘good cause' to set aside attorney-client privilege under the fiduciary exception,” Parsons declined to apply those factors “mechanically.”
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The opinion is available at http://www.bloomberglaw.com/public/document/IN_RE_LULULEMON_ATHLETICA_ INC_220_LITIGATION_No_9039VCP _2015_BL_1.
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