On December 15, 2014, the Court of Chancery released a press release announcing rule changes and adopting operating procedures.  According to the press release:

The Court of Chancery recently completed the process of updating several rule and converting numerous standing orders into rules. The revisions to the rules will go into effect on January 1, 2015. This process, which the Court began in September 2012, involved the collaborative effort of the judicial officers and experienced practitioners on the Court’s Rules Committee. The Delaware Supreme Court approved the rules on November 13, 2014.

To review a summary of the rule changes, click here.  In addition, a link to the new operating procedures can be found here.

The revisions to the rules will go into effect on January 1, 2015.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Tomorrow, April 1, 2014, the Court’s amendments to Rule 171 and Rule 10 will go effective.  Through these amendments, the Court has required that all pleadings, papers, letters and other submissions be typed in 14 point font, Times New Roman, to increase their readability.  The amendments additionally require that all pleadings be double-spaced (with the exception of quotations and footnotes), and have margins of not less than 1 inch on all sides.  In addition, amended Rule 171 sets a limitation on opening or answering briefs at 14,000 words, and limits reply briefs to 8,000 words.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Earlier this year, the Court of Chancery enacted Rule 5.1, which raised the bar in terms of what information could remain confidential before the Court.  Pursuant to sub-section (b) of the rule, “good cause” is required for information to remain confidential.  According to the rule, “good cause … shall exist only if the public interest in access to Court proceedings is outweighed by the harm that public disclosure of sensitive, non-public information would cause.”  Court of Chancery Rule 5.1(b)(2).  To view a previous post summarizing Rule 5.1, click here.

Through Rule 5.1, the Court has provided examples of categories that may qualify as confidential information, such as “trade secrets, sensitive proprietary information; sensitive financial, business, or personnel information; sensitive personal information such as medical records; and personally indentifying information such as social security numbers, financial account numbers, and the names of minor children.”  Court of Chancery Rule 5.1(b)(2).

Recent Interpretation of “Good Cause” Under Rule 5.1

Recently, the Court adjudicated a dispute between two litigants which impacts upon this very rule: whether certain information contained in pleadings met the heightened standard under Rule 5.1 which would warrant designating such information as confidential.  This issue was squarely addressed by Vice Chancellor Laster in the case of Horres v. Chick-fil-A, C.A. No. 5530-VCL (Del. Ch. Mar. 27, 2013)

In this case, Chick-fil-A terminated its franchise agreement with an individual named Joseph A. Horres, Jr., who was an operator of a franchise in Camden, Delaware, as a result of allegations of misconduct.  Horres responded by filing suit alleging bad faith and failure to provide adequate notice of the termination, along with filing a temporary restraining order against the injunction.

Chick-fil-A opposed the temporary retaining order and filed an affidavit and exhibits in support of its position. The Affidavit described allegations of sexual harassment that certain employees had made against Horres. The exhibits consisted of (i) the franchise agreement and related documentation and (ii) the letter terminating the franchise agreement.  Chick-fil-A then moved to maintain the confidentiality of the affidavit and exhibits thereto.

Chick-fil-A argued that that the affidavit contains confidential information that, if disclosed, will cause harm to alleged victims and witnesses, and Chick-fil-A itself. The Affidavit describes allegations of sexual harassment that were made against Horres and Chick-fil-A’s response to the allegations, along with the names of individuals making such allegations, and witnesses.

The Court denied Chick-fil-A’s motion to maintain the confidentiality of the affidavit and exhibits, with the exception that the names of the victims and witnesses could remain confidential.  The Court found that other than the names, nothing else rose to the level of sensitive information warranting continued confidential treatment of the pleadings.  The Court further noted that while it may be “embarrassing” for Chick-fil-A to have one of its franchises identified as the location of misconduct, “that type of embarrassment will not suffice for continued Confidential Treatment.”  

Moreover, the Court rejected Chick-fil-A’s request to maintain the confidentiality of the exhibits to the affidavit.  The exhibits consisted of a franchise agreement and termination letter.  Chick-fil-A argued that they contained “proprietary information that is not readily available to the general public.”  The Court disagreed that they should remain confidential, stating: “[t]hat information is nonpublic does not automatically make it sensitive or entitle it to Confidential Treatment.”

Conclusion

This case is noteworthy in that it constitutes one of the earliest decisions to analyze the heightened “good cause” requirement set forth in Rule 5.1 for the designation of confidential information. As a result of this decision, parties appearing before the Court should not automatically assume that pleadings will remain confidential simply because they contain “embarrassing” or “nonpublic” information, and should proceed cautiously in terms of filing pleadings and exhibits with the Court that they would prefer not to be exposed to public scrutiny.

Under the recently enacted Court of Chancery Rule 5.1, the Court of Chancery has set forth a new procedure for the filing of complaints under seal.  For a previous post concerning Rule 5.1, click here.  Under the previous rule, a party seeking to file a complaint under seal was required to contemporaneously file a motion to seal to accompany such pleading.  

Now, under Rule 5.1(e), such a motion is no longer required.  Instead, the filing party can file the complaint under seal, provided that a confidential cover page is included, along with a confidential footer.  Moreover, the filing party is required to provide a notice to “each person who could have a legitimate interest in designating information” as confidential information on the same day as the filing of the complaint.  Such notice must also include a proposed redacted version of the complaint, a copy of Rule 5.1, and a statement that if no redactions are provided by 3:00 p.m. on the third day after the filing, plaintiff’s proposed redacted version of the complaint will be filed with the Court.  See Court of Chancery Rule 5.1(e)(2).  This notice should not be filed with the Court.  

In addition to providing notice to any interested parties, plaintiff must file a cover letter with the Court certifying compliance with Rule 5.1.  See Court of Chancery Rule 5.1(e)(1).  In addition, when filing the complaint, plaintiff must publicly file the supplemental information sheet referenced in Rule 3(a)(2), and such cover sheet “shall summarize the claims asserted in the complaint in sufficient detail to inform the public of the nature of the dispute.”  See Court of Chancery Rule 5.1(e)(1).

If no party designates redactions by 3:00 p.m. on the third day after notice has been given, then the public version filed will be plaintiff’s proposed redacted version of the complaint.  Plaintiff must file a redacted version of the complaint within three days after initially filing the complaint under seal.

Henceforth, parties who ignore or extend scheduling deadlines without promptly consulting the trial court, will do so at their own risk.

 The Delaware Supreme Court in the recent case of Joann F. Christian et al. v. Counseling Resource Associates, Inc., et al., No. 460, 2011 (Del. Supr. Jan. 2, 2013), set forth practice guidelines to be followed by counsel when deciding to grant courtesy extensions to opposing counsel, outside of an existing scheduling order.  The Delaware Supreme Court held that the trial court abused its discretion when it precluded appellant’s expert report for failure to timely meet the expert discovery deadline.  The parties had dealt with discovery issues on their own through informal extensions, until the appellees abruptly filed a motion to preclude the appellants’ expert testimony.  Despite the fact that the appellants had written to the trial court requesting a teleconference to discuss the discovery schedule five months before the scheduled trial date, the trial court refused to schedule a conference and advised that the trial date would not be changed.  At the time that the appellees’ moved to preclude the expert report of the appellants, there was only 5 weeks remaining before trial.  Thus, because the trial court was unwilling to reschedule the trial date, dismissal was the only remaining choice.  The Delaware Supreme Court agreed that dismissal was the only logical choice by the trial court at that time, however, it found that the trial court should have addressed the appellant’s concerns over the discovery schedule five months earlier when there would have been time to avoid dismissal.  See also Encite v. Soni et al., C.A. No. 2476-CC (Del. Ch. Apr. 15, 2011) (precluding expert report and testimony where plaintiff failed to meet expert discovery deadline based on alleged informal extension by opposing counsel).

Not willing to eliminate the cherished value of civility among attorneys in Delaware, the Delaware Supreme Court set forth the following guidelines designed to afford greater predictability to litigants and the trial courts, as follows:

1.         If one party misses a discovery deadline, opposing counsel may resolve the matter informally or promptly notify the court.  If counsel contacts the court, that contact can take the form of a motion to compel, a proposal to amend the scheduling order, or a request for a conference.  Any one of these approaches will alert the trial court to the fact that discovery is not proceeding smoothly thereby allowing the court to take necessary steps to resolve the matter in timely fashion.

2.         If the party chooses not to involve the court, the party will be deemed to have waived the right to contest any late filings by opposing counsel from that time forward.  There will be no motions to compel, motions for sanctions, motions to preclude evidence, or motions to continue the trial.  Under such a scenario, it is likely that vital discovery will not be produced until the day before trial, thus, the party prejudiced by the delay accepts that risk by failing to promptly alert the trial court when the discovery deadline passes.

The Delaware Supreme Court made clear that it was not eliminating the past practice of parties agreeing to reasonable extension requests.  However, they must promptly file a proposed amended scheduling order for the trial court’s signature.  By agreeing to the new scheduling order, both sides represent to the trial court that they can meet the new deadlines and be ready for trial.  If the trial court thinks that the new schedule is too ambitious, then a conference with the court should resolve those concerns. 

Judge

*Image courtesy of FreeDigitalPhotos.net 

The Court of Chancery has recently expanded its Guidelines for Practitioners, to incorporate guidelines regarding discovery.  On January 13, 2012, this blog provided a summary review of the original Guidelines, which were originally issued in January 2012.  The new guidelines, issued by the Court on December 4, 2012, include (i) Court of Chancery Guidelines for the Collection and Review of Documents in Discovery; and (ii) Court of Chancery Guidelines for Expedited Discovery in Advance of a Preliminary Injunction Hearing.  These guidelines are a “must read” for any attorney practicing before the Court of Chancery.

According to the Court’s press release issued on December 4, 2012:

These guidelines explain the Court’s expectations regarding parties’ responsibility to confer early and often regarding discovery, including about electronic discovery procedures, the overall scope of discovery, preferred procedures for collection and review of discoverable material, including ESI, the privilege assertion process, and the role of Delaware counsel in the discovery process.  The Court also developed guidelines for expedited discovery in advance of a preliminary injunction hearing.  These new guidelines encourage communication among counsel and are intended to assist the Bar in developing reliable and transparent procedures for electronic discovery.  The Court and its Rules Committee are hopeful that use of these guidelines will help avoid unnecessary and expensive disputes regarding the discovery process.

Several highlights of these newly issued guidelines are as follows:

Court of Chancery Guidelines for the Collection and Review of Documents in Discovery

  • Encouragement of a “meet and confer” after the start of discovery to develop a discovery plan that includes electronic discovery.
  • Experienced outside counsel should be actively involved in establishing and monitoring the procedures used to collect and review documents to determine that reasonable, good faith efforts are undertaken to ensure that responsive, non-privileged documents are timely produced.
  • Counsel should be mindful of the obligation to take reasonable steps to preserve information, including electronically stored information, which is potentially relevant to the litigation. 
  • With respect to privilege logs, parties are not expected to log post-litigation communications, parties should attempt to agree on procedures that both sides will use with respect to email chains, and the parties are free to log documents by category instead of on a document by document basis.

Court of Chancery Guidelines for Expedited Discovery in Advance of a Preliminary Injunction Hearing

  • Written discovery typically is limited to document requests, as well as narrowly-tailored interrogatories intended primarily to identify persons with relevant knowledge.
  • The parties should agree upon a schedule so that initial written discovery and document production is completed before the start of depositions.
  • When responding to written discovery requests, the parties are obligated to conduct a reasonable search for relevant and responsive documents. 
  • After a request for a preliminary injunction is filed, the parties should collect and produce the “core documents” associated with that application promptly.
  • The parties should identify the key custodians and focus their document collection efforts on those custodians. 
  • Documents need not be produced in a particular format.  The parties are expected to cooperate to produce documents in a format that is usable to the parties. 
  • Parties are encouraged to make agreements that reduce the time, expense and burden associated with conducting a document-by-document privilege review and preparing privilege and redaction logs so that the merits of the application may be developed in the limited time available and fairly presented to the Court.

Notably, through these newly issued Guidelines, the Court of Chancery again stresses the importance of the role of Delaware counsel in all cases before the Court, even when non-Delaware counsel has significant involvement in the case.

Effective January 1, 2013, the Court of Chancery will amend its Rules regarding discovery.  According to the Court of Chancery’s Press Release issued December 4, 2012, Rules 26, 30, 34 and 45 will be amended to account for “modern discovery demands and will bring the Court’s rules in line with current practice.” Specifically, the amendments refer to discovery of “electronically stored information” (“ESI”) in addition to “documents” and “tangible things,” and explain how parties should respond to requests for ESI. These changes track recent amendments to the Federal Rules of Civil Procedure.  

Several highlights to these amendments are as follows:

  • Rule 26(c) was revised to clarify that an out-of-state non-party from whom discovery is sought may move for a protective order in the state of Delaware.   
  • Rule 34(d) was added to allow a party to request the form in which documents or ESI are to be produced, and also provides a responding party with the right to object to such request. 
  • Rule 45 was amended to provide that a party responding to a subpoena need not produce documents or ESI in more than one form, nor need to produce documents or ESI that such party identifies as being not reasonably accessible due to undue burden or cost.

Click here to view the amended rules. This blog will track the Court of Chancery’s interpretation and application of these amended rules moving forward.

In the matter of Manning v. Vellardita, C.A. No. 6812-VCG (Del. Ch. Mar. 28, 2012), a Section 225 action under the Delaware General Corporation Law, the Court of Chancery denied Defendants’ request to revoke the pro hac vice admission of Plaintiffs’ out of state attorney and to disqualify him from the case.  The motion was filed because the attorney failed to disclose his involvement with another firm which provided legal services to ValCom, Inc., a named defendant in this matter.

In examining a motion to disqualify, the Court provided as follows:

“A motion to disqualify must contain clear and convincing evidence establishing a violation of the [Delaware Lawyers’ Rules of Professional Conduct] so extreme that it calls into question the fairness or the efficiency of the administration of justice.” Additionally, “the Scope of the Rules . . . [does] not contemplate a non-client third party’s enforcement of conflict matters. . . . [unless] that party proves a personal detriment or misconduct which taints the fairness of the proceeding.”

Ultimately, the Court denied the motion based upon its finding that the out of state attorney’s representation of the Plaintiffs did not confer an advantage on the Plaintiffs in such a way that Defendants were unfairly prejudiced in their ability to mount a defense in this case.  However, the Court referred the attorney to the disciplinary authority of the attorney’s home state bar association, and to the Delaware Disciplinary Counsel. 

Accordingly, this case serves as a strong reminder that non-Delaware attorneys must fully disclose all related representations and affiliations when seeking pro hac vice admission before the Court of Chancery, in order to avoid potential disciplinary action.

On January 13, 2012, the Delaware Court of Chancery released Guidelines to Help Lawyers Practicing in the Court of Chancery.  The guidelines, which were jointly developed by the Court of Chancery and the Rules Committee, provide help to practitioners with topics ranging from contacting chambers and expert reports to scheduling practices in expedited and summary proceedings.  The guidelines also contain sample forms such as scheduling and expert discovery stipulations.  These guidelines, while non-binding, were designed to “reduce conflicts among counsel and parties over non-merit issues and allow them to more efficiently and less contentiously handle their disputes in [the Court of Chancery]”.

Of note, for those practicing attorneys bringing a case in the Court of Chancery and relying upon Delaware Counsel solely for filing purposes, the Court emphatically stated:  

  • The concept of “local counsel” whose role is limited to administrative or ministerial matters has no place in the Court of Chancery.  The Delaware lawyers who appear in a case are responsible to the Court for the case and its presentation.
  • If a Delaware lawyer signs a pleading, submits a brief, or signs a discovery request or response, it is the Delaware lawyer who is taking the positions set forth therein and making the representations to the Court.  It does not matter whether the paper was initially or substantially drafted by a firm serving as “Of Counsel.”
  • The members of the Court recognize that Delaware counsel and forwarding counsel frequently allocate responsibility for work and that, in some cases, the allocation will be heavily weighted to forwarding counsel.  The members of the Court recognize that forwarding counsel may have primary responsibility for a matter from the client’s perspective.  This does not alter the Delaware lawyer’s responsibility for the positions taken and the presentation of the case.
  • Non-Delaware counsel shall not directly make filings or initiate contact with the Court, absent extraordinary circumstances.  Such contact must be conducted by Delaware counsel.  
  • It is not acceptable for a Delaware lawyer to submit a letter from forwarding counsel under a cover letter saying, in substance, “Here is a letter from my forwarding counsel.”

This admonition should be specifically heeded because the Court has previously made it clear that it will look to Delaware Counsel to stand behind the pleadings that he or she has signed and submitted to the Court.  See State Line Ventures, LLC v. RBS Citizens, N.A., C.A. No. 4705 – VCL, (Del. Ch. Dec. 2, 2009).

In Encite LLC v. Soni, et al., Del. Ch., C.A. No. 2476-VCG (Dec. 13, 2011), Plaintiff Encite LLC moved to allow expert testimony, while also requesting that the Court set aside prior rulings by then-Chancellor Chandler, the presiding judicial officer, that precluded Plaintiff’s use of an expert to testify at trial. 

Previously, this Court denied Plaintiff’s request to extend an already expired deadline to produce expert testimony, and to allow expert evidence on damages when the expert report submitted was months late.  The Court based its prior ruling on the fact that Plaintiff failed to request an extension of the expert deadline until after the deadline had lapsed.  To view this blog’s review of the Court’s prior decision, click here

In Plaintiff’s recent motion, Plaintiff sought to modify the prior decisions of the Court, based on the fact that since the trial date had moved, Defendants would no longer be prejudiced by allowing Plaintiff to submit expert testimony.

In this ruling, now-presiding Vice Chancellor Glasscock found that the prior decisions of the Court were the “law of the case”, which are controlling of subsequent litigation of the matter.  Exceptions to this doctrine will only be allowed if: “(1) the prior ruling was clearly wrong; (2) there has been an important change of circumstances; or (3) equitable concerns render application of the law of the case doctrine inappropriate.”

The Court found that Plaintiff could not demonstrate that these exceptions existed, and accordingly denied Plaintiff’s motion to allow expert testimony based upon the “law of the case” doctrine.