Submitted October 14, 2014
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Stuart M. Grant, Geoffrey C. Jarvis, Kimberly A. Evans, GRANT & EISENHOFER, P.A., Wilmington, Delaware; Attorneys for Petitioners Hudson Bay Master Fund Ltd., Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd., and Ripe Holdings LLC.
Bruce Silverstein, Elena C. Norman, James M. Yoch, Jr., Nicholas J. Rohrer, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Attorneys for Respondent Dole Food Company, Inc.
LASTER, Vice Chancellor.
Petitioners Hudson Bay Master Fund Ltd. and Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd. (together, " Hudson Bay" ) and Ripe Holdings LLC (" Ripe" ) have pursued their statutory right to an appraisal of their shares of common stock of Dole Food Company, Inc. (" Dole" ). In discovery, Dole sought information regarding valuations of Dole common stock that the petitioners prepared, reviewed, or otherwise considered when deciding whether to purchase or sell Dole common stock or seek appraisal. The petitioners objected to producing the information. Dole then noticed Rule 30(b)(6) depositions of the petitioners and identified the valuations as a topic of questioning. During the depositions, petitioners' counsel instructed the Rule 30(b)(6) witnesses not to testify about the valuations, citing a lack of relevance.
Dole has moved to compel production of the valuation-related materials and for supplemental depositions of the Rule 30(b)(6) witnesses. The motion is granted.
I. FACTUAL BACKGROUND
On June 11, 2013, Dole announced that its board of directors had received an un
solicited proposal from David H. Murdock, Dole's CEO, Chairman, and controlling stockholder, to acquire all of the shares of Dole common stock that he did not already own for $12.00 per share in cash. On August 12, Dole and Murdock announced their agreement on a take-private merger at $13.50 per share in cash (the " Merger" ).
On October 31, 2013, Dole held a special meeting of stockholders to consider the Merger. The record date for the Merger was September 27. Dole's stockholders approved the Merger, which closed on November 1.
After the Merger closed, Hudson Bay filed a petition seeking appraisal for more than 3.6 million shares of Dole common stock. Hudson Bay purchased all of the shares after Murdock announced his take-private proposal on June 11, 2013. Hudson Bay purchased 1.1 million of its shares after the record date for the special meeting. Also during June and July, Hudson Bay sold at least 156,280 shares of Dole common stock for prices ranging from $12.69 to $12.90 per share. During the days before the Merger closed, Hudson Bay purchased nearly 4.6 million shares of Dole common stock for which it received the Merger consideration.
Ripe filed a petition seeking appraisal for approximately 2.8 million shares of Dole common stock. Ripe is a special-purpose investment vehicle jointly owned by different funds managed by affiliates of Fortress Investment Group (" Fortress" ). Ripe purchased all of its shares after Murdock announced his take-private proposal. It acquired 250,000 of the shares after the record date for the special meeting.
During discovery, Dole served document requests and interrogatories seeking information about any valuations or similar analyses of Dole that Hudson Bay or Ripe prepared, reviewed, or considered when buying or selling Dole stock or when seeking appraisal. Dole only sought pre-litigation materials. The petitioners objected to the document requests on the grounds that the information was irrelevant and that it was premature to provide discovery on valuation before the expert discovery phase. The petitioners objected to the interrogatories as " seek[ing] an opinion on areas where an expert will be opining, not the Petitioners." Dole sent the petitioners a deficiency letter that cited authority supporting production of the information. The petitioners responded by letter in which they maintained their objections. Counsel met and conferred by telephone and email, but they were unable to resolve their disagreements.
Dole then served notices of deposition for each of the petitioners pursuant to Court of Chancery Rule 30(b)(6). The noticed topics included any valuations of Dole performed, reviewed, or considered by the petitioners when purchasing Dole stock or seeking appraisal. The petitioners objected to the deposition notices, contending that the valuation information was neither relevant nor reasonably calculated to lead to the discovery of admissible evidence and that it was protected by the attorney-client privilege. Dole sent a deficiency letter insisting on the production of witnesses to testify about valuation. The petitioners maintained their objection.
Hudson Bay designated Henry Choi, a portfolio manager, as its Rule 30(b)(6) witness. Hudson Bay maintained its objection to producing a witness on (i) Hudson Bay's reasons for purchasing or selling Dole shares, (ii) its business models, and (iii) its pre-litigation internal valuations of Dole. At the outset of the deposition, Choi stated that he was not prepared to testify about the topics to which Hudson Bay objected. During the deposition, Hudson Bay's counsel consistently objected to questions about valuation and instructed
Choi not to answer on the basis of relevance. Choi followed his counsel's instructions. Dole learned from the deposition that, before the Merger, Hudson Bay created an Excel file that valued Dole that using three standard methodologies: (i) discounted cash flows (" DCF" ), (ii) comparable companies, and (iii) sum of the parts.
Ripe designated John Neumark as its Rule 30(b)(6) witness and made the same objections as Hudson Bay to topics in the deposition notice. Neumark is a managing director at FIG, LLC, the subsidiary that serves as the investment manager for all of the Fortress funds. Like Choi, Neumark stated at the outset of the deposition that he was not prepared to testify about the topics to which Ripe objected. During the deposition, Ripe's counsel objected to questions relating to valuation and instructed Neumark not to answer on the basis of relevance. Neumark followed his counsel's instructions. Dole learned from the deposition that, before the Merger, Neumark prepared a seven to ten page memorandum that was presented to Fortress' investment management committee with his recommendation about the investment strategy for Dole common stock (the " Fortress Memorandum" ). Neumark testified that the Fortress Memorandum set out a valuation of Dole based on a DCF analysis and included a downside case that valued Dole at less than the Merger consideration.
Dole moved to compel production of information regarding valuations or analyses of Dole's value that the petitioners prepared, reviewed, or considered in connection with their decision to purchase Dole stock or seek appraisal. Dole also sought supplemental Rule 30(b)(6) depositions to address the topics that were not covered during the original depositions.
II. LEGAL ANALYSIS
Rule 26(b)(1) frames the scope of permissible discovery:
Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any documents, electronically stored information, or tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
Ct. Ch. R. 26(b)(1). Under this rule, the essential characteristic of discoverable information is relevance, " for it is only relevant matter that may be the subject of discovery." 8 Charles A. Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice And Procedure § 2008 (3d ed. 2007).
The last sentence of Rule 26(b)(1) anticipates a potential objection that a responding party might raise to producing otherwise relevant material, namely that the material would not be admissible at trial. Rule 26(b)(1) rejects the potential objection, stating: " It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence."
The federal version of Rule 26(b)(1), on which this court's Rule 26(b)(1) was based, originally did not include a sentence on admissibility. In 1948, the United States Supreme Court added the following sentence
to the federal rule: " Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." The amendment responded to a few " early cases [that] misread the word 'relevant' in Rule 26(b) as meaning 'competent' under the rules of evidence." Wright, Miller & Marcus, supra, § 2008. The additional sentence clarified that " it is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence." Id. When Delaware adopted its new rules of procedure in 1948, they were modeled on the federal rules, and the Delaware version of Rule 26(b)(1) from the outset included the current language on admissibility. See Daniel L. Herrmann, The New Rules of Procedure in Delaware, 18 F.R.D. 327, 327 (1956) (" In 1948, the Courts of Delaware shook off the shackles of mediaeval scholasticism and adopted Rules governing civil procedure modeled upon the Federal Rules of Civil Procedure." (internal quotation marks omitted)).
Under Rule 26(b)(1), therefore, relevance is the touchstone for discoverability, and lack of admissibility is not an objection so long as the discovery is " reasonably calculated to lead to the discovery of admissible evidence." To be discoverable, the material must be both relevant and, at a minimum, " reasonably calculated to lead to the discovery of admissible evidence." As a shorthand, this decision refers to the latter aspect of Rule 26(b)(1) as potential admissibility.
In their discovery responses and during the Rule 30(b)(6) depositions, the petitioners objected to discovery into their valuations on grounds of relevance. In response to the motion to compel, they withdrew that implausible objection.
Information sought in discovery is considered relevant " if there is any possibility that the information sought may be relevant to the subject matter of the action. " Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Stauffer Chem. Co., 1990 WL 177572, at *3 (Del. Super. Nov. 9, 1990) (citation omitted).
[T]he requirement of relevancy must be construed liberally . . . . [T]he spirit of Rule 26(b) calls for all relevant information, however remote, to be brought out for inspection not only by the opposing party but also for the benefit of the Court . . . . Thus, discovery should ordinarily be allowed under the concept of relevancy unless it is clear that the information sought can have no possible bearing upon the subject matter of the action.
Boxer v. Husky Oil Co., 1981 WL 15479, at *2 (Del. Ch. Nov. 9, 1981) (citation omitted).
An appraisal is a " legislative remedy which is intended to provide shareholders, who dissent from a merger asserting the inadequacy of the offering price, with an independent judicial determination of the fair value of their shares." Ala. By-Products Corp. v. Neal, 588 A.2d 255, 256 (Del. 1991). The central " issue is the determination of the value of the appraisal petitioners' shares on the date of the merger[.]" Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1187 (Del. 1988). Even in a statutory appraisal proceeding, " the rules of discovery should  be construed liberally." Bershad v. Curtiss-Wright Corp., 1983 WL 10916, at *7 (Del. Ch. Mar. 21, 1983); see MacLane Gas ...