MECHEL BLUESTONE, INC., and MECHEL MINING OAO, Plaintiffs and Counterclaim Defendants,
JAMES C. JUSTICE COMPANIES, INC.; JAMES C. JUSTICE, II; JAMES C. JUSTICE, III; JILLEAN L. JUSTICE; and JAMES C. JUSTICE II, as Trustee of the JAMES C. JUSTICE II GRAT NO. 1, and of the JAMES C. JUSTICE II GRAT NO. 2, Defendants and Counterclaimants.
Submitted: December 8, 2014
Jay N. Moffitt, Lauren K. Neal, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Mark R. Robeck, Stephen R. Freeland, Matthew P. Larson, KELLEY DRYE & WARREN, LLP, Washington, D.C.; Emil J. Barth, BAKER BOTTS, L.L.P., Washington, D.C.; Brian A. Glasser, BAILEY & GLASSER, LLP, Charleston, West Virginia; Attorneys for Plaintiffs.
Raymond J. DiCamillo, Susan M. Hannigan, Rachel E. Horn, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; David B. Tulchin, William H. Wagener, SULLIVAN & CROMWELL LLP, New York, New York; Attorneys for Defendants.
LASTER, Vice Chancellor.
The defendants have moved to compel the production of documents identified on the plaintiffs' privilege log. The defendants contend that the plaintiffs' initial log was so flawed, and the plaintiffs' four subsequent efforts to provide an adequate log so feckless, that the appropriate remedy is to deem the privilege waived as to all documents listed on the log. This decision deems the privilege waived as to the items where the plaintiffs fell substantially short of the well-documented and easily identified requirements for supporting a claim of privilege.
I. FACTUAL BACKGROUND
The factual background is drawn from the pleadings and submissions made in connection with the current motion to compel. The discussion does not comprise findings of fact in the post-trial sense, but rather represents how the record appears at this preliminary stage.
A. The Merger
In 2009, plaintiffs Mechel Bluestone, Inc., and Mechel Mining OAO (jointly, "Mechel") acquired entities that owned certain coal properties and associated assets in West Virginia (the "Bluestone Properties") from defendants James C. Justice Companies, Inc., James C. Justice II, James C. Justice III, Jillean L. Justice, and James C. Justice II, as Trustee of the trusts James C. Justice II GRAT No. 1 and James C. Justice II GRAT No. 2 (collectively "Justice"). Mechel acquired the properties pursuant to an Agreement and Plan of Merger dated as of March 16, 2009 (the "Merger Agreement").
Before the acquisition, to assist in determining the purchase price, Weir International, Inc. ("Weir") prepared a report estimating the base volume of coal reserves on the Bluestone Properties. Justice believed that the report understated the amount of coal reserves and argued in favor of a greater volume. To resolve the disagreement, the parties provided in the Merger Agreement that if additional coal was discovered on the Bluestone Properties within two years (the "Contingent Reserves"), then Mechel would pay Justice additional amounts (the "Contingent Payment"). The Merger Agreement called for Weir to assess the volume of any Contingent Reserves in accordance with applicable professional standards and using the methods employed in its initial report.
By letter dated September 7, 2011, Weir identified approximately 60 million tons of Contingent Reserves on the Bluestone Properties (the "Weir Letter"). Under the Merger Agreement, this volume of Contingent Reserves would equate to a Continent Payment of approximately $165 million. Mechel disputed the determination made in the Weir Letter, contending that it failed to satisfy the relevant provisions in the Merger Agreement.
On January 2, 2014, Mechel filed this action. Count I of the complaint seeks a declaratory judgment that (i) Justice failed to satisfy its obligations under the Merger Agreement, (ii) the Weir Letter did not satisfy the Contingent Payment provisions under the Merger Agreement, and (iii) Mechel does not owe Justice any Contingent Payment. Count II asserts that Justice breached the Merger Agreement by not acting in accordance with the declarations demanded in Count I. Count III seeks a decree of specific performance compelling Justice to act in accordance with the declarations demanded in Count I. Count IV alleges that Justice committed fraud because it knew or should have known that Weir Letter provided false information about the Contingent Reserves.
The parties agreed to a schedule that would bring the case to trial in May 2015. The schedule called for the parties to substantially complete their document production by August 15, 2014, to exchange privilege logs on September 12, and to take fact depositions between September 1 and December 5. Mechel advised Justice that it could not meet the August 15 deadline, and Justice agreed that Mechel could complete its production by September 12.
B. The Initial Privilege Log
On September 12, 2014, Mechel produced its initial privilege log. The 672-page document contained 6, 125 entries. At the time, Mechel had produced 11, 201 documents, meaning that it was withholding more than one-third of its responsive documents on grounds of privilege. Mechel did not serve a redaction log.
Mechel provided with its privilege log a list of ten organizations with thirty-nine people whom Mechel identified as attorneys or individuals otherwise involved in providing legal advice (the "Players List"). Despite the number of organizations, the Players List did not identify the clients that the organizations represented or the purposes for which they were engaged. The Players List did not distinguish attorneys from non-attorneys, except that it listed certain individuals under the names of organizations identifiable as law firms. The Players List did not identify all of the individuals on Mechel's initial privilege log, which contained approximately 830 unique names and e-mail addresses. The Players List did not even identify all of the law firms or lawyers that appeared on the log.
By letter dated September 18, 2014, Justice's counsel pointed out deficiencies in the log and asked Mechel's counsel to address them. On September 23, having not received any response, Justice moved to compel.
C. The Amended Privilege Log
After receiving the motion to compel, Mechel responded indignantly, protesting that the motion was "both premature and, at best, specious." Undercutting the sincerity of Mechel's indignation was a concession that the initial privilege log and Players List were inadequate. Mechel's counsel undertook to fix the deficiencies.
On September 26, 2014, Mechel provided Justice with an amended privilege log, an amended Players List, and a redaction log. Mechel also produced an additional 6, 739 documents for a total of 32, 008 pages. Because Mechel should have completed its production by September 12, the production should have consisted of entries previously identified on Mechel's privilege log. But the number of documents produced exceeded the number of documents on the initial log. Something was amiss. Yet Mechel's amended log did not cross-reference any of the produced documents by Bates number, so it was impossible to tell which documents came from where.
After reviewing Mechel's revised logs and document production, Justice concluded that there were still serious problems. By letter dated October 1, 2014, Justice identified a non-exclusive list of deficiencies, supporting each with examples:
• Mechel's privilege log continued to contain entries that lacked information about the author and recipients or did not identify the attorney whose advice was reflected in the document.
• Mechel's privilege log continued to contain entries for documents shared with third parties who were not listed on the Players List and whose role in providing legal advice was not explained.
• Many entries on the privilege log identified e-mails with attachments where it did not appear that Mechel had produced the attachments or explained why the attachments were privileged.
• Mechel's newly produced redaction log did not list the Bates number for entries produced in redacted form, making it impossible to tie Mechel's production of redacted documents to the entries on its redaction log.
• Mechel produced certain documents in "redacted" form where the documents were redacted in their entirety, except for their Bates numbers. As a practical matter, Mechel was still withholding these documents in their entirety, despite purportedly producing them in "redacted" form.
Justice asked Mechel to correct the deficiencies before Justice deposed several key witnesses during the week of October 6.
D. The Second And Third Amended Privilege Logs
On October 4, 2014, Mechel produced a second amended privilege log, a first amended redaction log, and a second amended Players List. From October 4-7, Mechel produced another 1, 084 documents for a total of 25, 006 additional pages. Justice received the vast majority of them on the night before the scheduled depositions. Many of the documents exhibited defects like those identified in Justice's October 1 letter.
Mechel also sought to claw back a document produced on September 26, 2014. Justice had marked the document as an exhibit during the deposition of Stanislav Ploschenko, Mechel Mining OAO's former CFO. Although Justice destroyed the document, Justice found no record of it on Mechel's original privilege log, the first amended privilege log, or the second amended privilege log. Justice asked Mechel to identify the entry that corresponded to the document. Instead, Mechel ...