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In re Info. Mgmt. Servs., Inc. Derivative Litig.

Court of Chancery of Delaware

August 22, 2013, Submitted; September 5, 2013, Decided

Consol. C.A. No. 8168-VCL

Opinion

 [*282]  LASTER, Vice Chancellor.

Trusts that own fifty percent of the common stock of nominal defendant Information Management Services, Inc. ("IMS" or the "Company") allege that two of the Company's three most senior officers mismanaged the Company in breach of their fiduciary duties. The executives consulted with their personal lawyers and advisors about the alleged mismanagement using their work email accounts. IMS gathered the emails but took no position on whether they  [**2] should be produced. The executives invoked the attorney-client privilege. They did not rely on the work product doctrine. The trusts moved to compel, arguing that the attorney-client privilege does not apply because the Company reserved the right to monitor all email communications on IMS accounts, thereby eliminating any reasonable expectation of confidentiality. The motion is granted.

I. FACTUAL BACKGROUND

The facts for purposes of the motion to compel are drawn from the allegations in the pleadings and the exhibits and affidavits submitted in connection with the briefing on the motion. What follows are not formal factual findings, but rather how the court views the record for purposes of a discovery ruling. At this stage of the case, the court cannot resolve conflicting factual contentions.

A. Information Management Services, Inc.

IMS is a Delaware corporation with its principal place of business in Rockville, Maryland. The Company provides analytical software tools and other products used primarily to evaluate clinical trials for biomedical research.

The Burton family and the Lake family each beneficially own fifty percent of the Company's common stock. The Burton family owns its half  [**3] through two trusts, the EB Trust and the IMS Trust. Evelyn Burton is the sole trustee of the EB Trust; Michael Burton is the sole trustee of the IMS Trust. The Lake family owns the  [*283]  other half through the William H. Lake Grantor Trust. Brothers William Lake, Jr. and Andrew Lake are co-trustees of the Lake trust. Their mother, Jean Lake, is a beneficiary of the Lake trust. To differentiate among the individuals, this decision uses their first names.

The Company's board of directors (the "Board") has four members, two from the Burton family and two from the Lake family. The Burton family representatives are Evelyn and Michael. The Lake family representatives are Jean and Andrew.

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81 A.3d 278 *; 2013 Del. Ch. LEXIS 220 **; 2013 WL 5426157

IN RE INFORMATION MANAGEMENT SERVICES, INC. DERIVATIVE LITIGATION

CORE TERMS

email, monitoring, communications, employees, reasonable expectation of privacy, intercept, privacy, Global, electronic communication, Federal Wiretap Act, stockholder, confidential, attorney-client, no reasonable expectation, accessed, webmail, files, personal use, Advisors, policies, senior, Maryland Wiretap Act, reserved, wire, derivative action, motion to compel, factors, courts, stored, Internet

Evidence, Privileges, Attorney-Client Privilege, Elements, Scope, Burdens of Proof, Allocation, General Overview, Business & Corporate Compliance, Computer & Internet Law, Privacy & Security, Company Communications, Business & Corporate Law, Directors & Officers, Management Duties & Liabilities, Corporate Governance, Communications Law, Federal Acts, Wiretap Acts, Governments, Courts, Common Law, Communications Law, Stored Communications Act, Computer & Internet Law, Electronic Communications Privacy Act