Chancery Denies Request for Books and Records about Departure of Former HP CEO

Chancery Denies Request for Books and Records about Departure of Former HP CEO

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.

Oral Ruling
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.

Court's Conclusion
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.

Takeaway
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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