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Espinoza v. Hewlett Packard Co. (Espinoza II),
C.A. No. 6000-VCP (Del. Ch. March 25, 2011)(oral ruling).
Although this matter started out as a § 220 suit, the
prior 70-page decision in this case was limited to the disclosure (or not) of a
letter that former HP CEO Mark Hurd sought, unsuccessfully, to keep sealed.
That decision was highlighted on these pages here,
and is reported to be the subject of an appeal.
We write today however to focus on the Court of Chancery's ruling from the
bench (actually by phone after a hearing), that denied the request for books
and records under § 220 relating to the report after an investigation by
counsel for a committee of the board which analyzed the claims against Hurd,
the former HP CEO. The claims against Hurd were made in the letter that was the
focus of the 70-page decision. The report that was sought presumably addressed
whether Hurd should have been fired for cause, as opposed to the ultimate board
decision allowing him to resign with a $40 million severance package. The transcript
of the hearing that preceded the oral ruling is available here.
Bottom Line: The Court denied the § 220 request for the report of the
committee's counsel based on "attorney-client privilege" and the work product
doctrine. In sum, the twin barriers to the § 220 claim were imposed due to the
nature of the books and records being prepared in the context of existing
claims that were either threatened or had already been filed at the time the
counsel to the committee was preparing its report and conducting its
investigation - - and no exceptions applied based on the facts of this case.
Bloomberg reported on the ruling here.
In order to fully appreciate this oral decision, the background provided in the
70-page earlier ruling on the confidentiality of the letter that led to Hurd's
resignation, available at the above link, would be helpful to read. However,
the more important point to make, or more important question to ask, is how the
oral ruling in this can be reconciled with the recent § 220 decision in Lampers
v. Morgan Stanley, highlighted here,
in which the Court of Chancery ordered the production of the report of
counsel to the board that explained why the board refused a pre-suit demand to
pursue claims against certain officers and directors of the company. Based on
my reading of Lampers, a careful and nuanced analysis of the Lampers decision
does not support the view that Lampers should be confined to allowing a
committee report in a demand-refused context because in part, the Lampers
decision was animated by the concern of the Court that the Board did not
explain its decision. Due to the lack (at least for the time being) of a
comprehensive written opinion in Espinoza II, however, we may not
know for sure.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Fox Rothschild LLP.
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