Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

08/13/90 MARILYN ZIRN v. VLI CORPORATION

August 13, 1990

MARILYN ZIRN, PLAINTIFF,
v.
VLI CORPORATION, A DELAWARE CORPORATION, ROBERT A. ELLIOTT, BRUCE VORHAUER, LAWRENCE A. BROWN, JR., BARBARA BEST NORTH AND AMERICAN HOME PRODUCTS CORPORATION, A DELAWARE CORPORATION, DEFENDANTS



Hartnett, Vice Chancellor.

The opinion of the court was delivered by: Hartnett

MEMORANDUM OPINION

The plaintiff in this purported class action seeks to compel the production of documents and deposition testimony which have been withheld by the defendants because they claim the lawyer-client privilege and work product immunity. The Court finds that plaintiff is entitled to discover some, but not all, of the information she seeks.

I

According to the pleadings and accompanying exhibits, the facts are: the plaintiff, Marilyn zirn, was a minority shareholder of defendant VLI Corporation who was cashed out as a stockholder as the result of a merger following a successful tender offer. The defendants are American Home Products Corporation ("American Home"), VLI Corporation, and four individuals who were directors of VLI Corporation prior to its acquisition by American Home. Plaintiff filed this action seeking rescissory and compensatory damages arising from the successful tender offer by American Home for all the shares of VLI Corporation, which was followed by a cash-out merger.

The disputed transaction originated in the fall of 1986, when American Home and VLI Corporation began negotiations regarding the possible acquisition of VLI Corporation by American Home. The two corporations entered into a merger agreement on August 30, 1987 (the "Original Merger Agreement"), which provided that a wholly-owned subsidiary of American Home would merge with VLI Corporation.

The Original Merger Agreement provided that each share of VLI Corporation would be converted into a right to receive $7 in cash. The Original Merger Agreement also stated, however, that if the merger was not consummated before March 1, 1988, either party could terminate the agreement. Another condition of the Original Merger Agreement required that a patent on VLI Corporation's primary product, a spermicide-carrying contraceptive sponge ("the Patent"), which allegedly had expired due to the failure of VLI Corporation to pay the requisite maintenance fee, had to be reinstated prior to the merger.

In September 1987, VLI Corporation petitioned the United States Patent and Trademark Office ("Patent Office"), to reinstate the Patent. Although that petition was dismissed, a Petition for Reconsideration was filed with the Patent Office on October 21, 1987. The Petition for Reconsideration was eventually granted in May 1988, and the Patent was reinstated.

Shortly after the October 19, 1987 stock market decline, VLI Corporation and American Home renegotiated the Original Merger Agreement, which was ultimately revised and restated as of November 3, 1987 (the "Revised Merger Agreement"). The Revised Merger Agreement provided that, instead of a merger, American Home would make a tender offer for all of the common stock of VLI Corporation at $6.25 per share, which was 75 cents less than the original merger price. If American Home acquired at least 50.1% of the common shares, VLI Corporation would then be merged into an American Home subsidiary with the remaining shares being converted into rights to receive $6.25 in cash. The Revised Merger Agreement eliminated the critical precondition of patent reinstatement, but added a provision that VLI Corporation would pay American Home a termination fee of up to $2.5 million in the event of a third-party acquisition of VLI Corporation within 18 months of the termination of the Revised Agreement.

On November 10, 1987, American Home commenced its Tender Offer to purchase the common shares of VLI Corporation at $6.25 per share and distributed an offering circular (the "Offer to Purchase") to the stockholders of VLI Corporation. On November 9, 1987, VLI Corporation filed a Schedule 14D-9 with the Federal Securities and Exchange Commission, which was later sent to VLI Corporation's shareholders. In the Schedule 14D-9, the directors of VLI Corporation recommended the acceptance of the Tender Offer. At the close of the Tender Offer on December 9, 1987, American Home owned approximately 94% of the outstanding shares of VLI Corporation. On December 31, 1987 (two weeks after the initial complaint was filed in this action), American Home completed the statutory short-form merger of VLI Corporation into a wholly-owned acquisition subsidiary of American Home. On January 8, 1988, a Notice of Merger was sent to the non-tendering shareholders of VLI Corporation informing them of the December 31, 1987 short-form merger and their right to seek an appraisal of their shares.

Plaintiff's initial Complaint, which was filed on December 17, 1987 (prior to the short-form merger), alleged seven causes of action. However, on July 17, 1989, this Court dismissed a number of plaintiff's original allegations. Zirn v. VLI Corporation, Del. Ch., C.A. No. 9488-NC, Hartnett, V.C. (July 17, 1989), slip op. at 2-3.

Plaintiff's Amended Complaint now alleges, as its primary claim, that American Home became the majority shareholder of VLI Corporation at the time the Tender Offer was consummated, and that it thereafter owed fiduciary duties to VLI Corporation's non-tendering, minority shareholders (including plaintiff), which it breached by virtue of asserted deficiencies in the Notice of Merger. The Amended Complaint also seeks to redefine and thereby enlarge the putative class to include all VLI Corporation shareholders at the commencement of the Tender Offer, rather than just those who were still stockholders after the close thereof. The essential thrust of the Amended Complaint is that the materials sent to VLI Corporation's shareholders in connection with the Tender Offer and subsequent merger misrepresented or failed to disclose certain material facts.

On January 17, 1988, plaintiff requested the production of certain documents, and American Home and VLI Corporation eventually produced a number of documents in response. On August 4, 1988, however, American Home and VLI Corporation provided plaintiff with a detailed list specifying 395 documents being withheld under claim of attorney-client privilege and work product immunity. Approximately 18 months later, in February 1990, plaintiff filed the present motion to compel the production of 79 of these documents. 14 of the 79 documents sought by plaintiffs were subsequently produced. In addition to documents withheld on the bases of attorney-client or work product privileges, the plaintiff also seeks to compel answers to certain questions posed at depositions (taken on July 19, 1988) which, pursuant to defense counsel's claims of attorney-client privilege, were not provided.

I I

Defendants first assert that plaintiff's motion to compel should be denied as untimely because plaintiff filed this motion more than 18 months after defendants provided her a detailed listing of documents withheld under the claim of privilege. Defendants argue that such a delay is inexcusable and unreasonable.

While plaintiff's 18-month delay in filing a motion to compel discovery is regrettable, defendants have not sustained their burden of showing that under all the facts and circumstances this is sufficient grounds to deny the motion to compel discovery. Defendants cite no persuasive authority, and the Court is unaware of any, that supports their position. In Rosenblatt v. Getty Oil Co., Del. Ch., C.A. No. 5278-NC, Brown, C. (Oct. 8, 1982), the lone case cited by defendants, this Court denied the plaintiff's motion to compel the production of documents withheld under claims of attorney-client privilege, because the motion was filed only three weeks prior to trial and because plaintiff had agreed to a discovery cut-off date that had already passed. Such circumstances are not present here. No trial date has been set, nor has a discovery cut-off date been agreed to by the parties. And, discovery is actually just beginning in earnest at the present time. Consequently, it would be inappropriate for this Court to deny plaintiff's motion to compel solely because of her delay.

I I I

Next to be considered are defendants' claims of lawyer-client privilege. As this Court recently stated in Deutsch v. Cogan, Del. Ch., C.A. No. 8808-NC, Hartnett, V.C. (Feb. 26, 1990), slip op. at 7-8, the current scope of the lawyer-client privilege in Delaware is set forth in Rule 502 of the Delaware Uniform Rules of Evidence. Rule 502(b) states:

"A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client (1) between himself or his representative and his lawyer or his lawyer's representative, (2) between his lawyer and the lawyer's representative, (3) by him or his representative or his lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest, (4) between representatives of the client or between the client and a representative of the client, or (5) among lawyers and their representatives representing the same client."

The lawyer-client privilege shields from disclosure confidential communications between a client and its attorney that were made for the purpose of facilitating the rendition of professional legal services to the client. Ramada Inns, Inc. v. Dow Jones & Company, Del. Super., 523 A.2d 968, 970 (1986) (paraphrasing Delaware Uniform Rule of Evidence 502(b)). See also Deutsch v. Cogan, supra, slip op. at 8.

The purpose of the lawyer-client privilege

"is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of Justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client."

Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). The Delaware courts recognize the importance of the lawyer-client privilege and "the need to carefully limit any invasion of it." In re Heizer Corp., Del. Ch., C.A. No. 7949-NC, Berger, V.C. (Nov. 9, 1987), slip op. at 4. See also Deutsch v. Cogan, supra, slip op. at 13 ("a court should be reluctant to erode the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.