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TCV Vi, L.P. v. Tradingscreen Inc.

Court of Chancery of Delaware

April 23, 2018

TCV VI, L.P., TCV MEMBER FUND, L.P., and CONTINENTAL INVESTORS FUND LLC, Plaintiffs,
v.
TRADINGSCREEN INC., PHILIPPE BUHANNIC, PIERO GRANDI, PIERRE SCHROEDER, and PATRICK BUHANNIC, Defendants.

          Date Submitted: February 23, 2018

          Gregory V. Varallo, Richard P. Rollo, Kevin M. Gallagher, Sarah A. Galetta, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for Plaintiffs TCV VI, L.P. and TCV Member Fund, L.P.

          Kevin G. Abrams, April M. Kirby, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Attorneys for Plaintiff Continental Investors Fund LLC.

          Philippe Buhannic, New York, New York; Pro Se Defendant.

         Patrick Buhannic, New York, New York; Pro Se Defendant.

          Colm F. Connolly, MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware; Attorney for Defendants TradingScreen Inc., Piero Grandi, and Pierre Schroeder.

          Kenneth J. Nachbar, Megan Ward Cascio, Richard Li, Thomas P. Will, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Former Attorneys for Defendants.

          MEMORANDUM OPINION

          LASTER, V.C.

          Defendants Philippe and Patrick Buhannic previously moved for an order compelling their former counsel-Morris, Nichols, Arsht & Tunnell LLP ("Morris Nichols")-to provide them with a copy of their litigation file. I granted the motion, and Morris Nichols produced what the firm believed it was obligated to provide. The Buhannics have now moved to compel production of Morris Nichols' entire litigation file and to penalize the firm for not producing the entire file previously. In passing, the Buhannics ask to lift the stay currently governing the case. This decision orders additional production and otherwise denies the motion.

         I. FACTUAL BACKGROUND

         The facts are drawn from the pleadings, prior decisions in this case, the motions under consideration, and the documents submitted in connection with those motions. The factual background in this decision does not represent findings of fact in the traditional sense, but rather how the relevant record appears at this stage.

         A. The Parties

         Defendant Philippe Buhannic is a founder of TradingScreen Inc. (the "Company"). He previously served as its CEO and Chairman of the Board. His brother, defendant Patrick Buhannic, also previously served as a director of the Company. Because the Buhannics share the same last name, this decision refers to them by their first names to avoid confusion. No disrespect is intended.

         The two other defendants are Piero Grandi and Pierre Schroeder. They remain directors of the Company. They have not taken any position on the Buhannics' request to compel Morris Nichols to produce its entire litigation file.

         Plaintiffs TCV VI, L.P., TCV Member Fund, L.P., and Continental Investors Fund LLC own shares of preferred stock in the Company. They have not taken any position on the Buhannics' request to compel Morris Nichols to produce its entire litigation file. They oppose the Buhannics' request to lift the stay.

         B. The Underlying Litigation

         The plaintiffs filed this action in 2014. They contended that the Company had breached its obligation to redeem their preferred stock and that the Buhannics, Schroeder, and Grandi had not acted in good faith when determining that the Company only had sufficient funds legally available to redeem a small amount of their preferred stock. In the alternative, the plaintiffs contended that the Buhannics, Schroeder, and Grandi had breached their fiduciary duties when determining how much of the preferred stock to redeem. The plaintiffs contended that Phillippe made a bad faith determination to preserve his control over the Company, that Patrick supported Phillippe out of loyalty to his brother, and that Grandi and Schroeder were beholden to Phillipe.

         The case proceeded through discovery, and trial was held in February 2016. Morris Nichols represented all of the defendants through trial.

         During post-trial briefing, a majority of the members of the Company's board of directors (the "Board") comprising Grandi, Schroeder, and two non-party directors, placed Philippe on leave from his position as CEO. Philippe refused to accept this decision, and the Buhannics attempted to take action as stockholders to reconstitute the Board. The four directors who had placed Buhannic on leave filed a separate lawsuit in this court pursuant to Section 225 of the Delaware General Corporation Law to determine the proper composition of the Board and whether Philippe remained CEO.[1]

         The action taken by a majority of the Board to place Philippe on leave had implications for this case. The complaint challenged decisions taken by a Board majority comprising the Buhannics, Schroeder, and Grandi, and the plaintiffs contended that Schroeder and Grandi were beholden to Phillippe. Now, a new Board majority that included Schroeder and Grandi had taken employment-related action against Phillipe. Schroeder and Grandi's participation in that decision had implications for the evidence presented at trial to demonstrate that they were beholden to Phillippe. It also seemed possible that a majority of directors might be in a position to negotiate a settlement with the plaintiffs.

         On May 23, 2016, the plaintiffs moved to stay this action so that the parties could work towards a settlement.[2] Grandi and Schroeder supported the motion, and I granted it.[3]

         The parties subsequently began negotiating a potential settlement. During the negotiations, the Buhannics took positions adverse to Schroeder and Grandi.

         Because of the conflict between their clients, Morris Nichols withdrew as counsel to the Buhannics.[4] Morris Nichols advised the remaining defendants that it could not participate in any communications about the settlement.

         After Morris Nichols withdrew, the parties other than the Buhannics reached an agreement in principle to settle the case. The Buhannics objected to the settlement and contended that it could not be implemented over their objection.

         C. Proceedings In New York

         In July 2016, the Buhannics filed a civil action against the Company and the other members of the Board in the New York State Supreme Court (the "New York Action"). The complaint in the New York Action asserted claims for breach of fiduciary duty against the other directors. It also challenged aspects of the Company's capital structure.

         The Buhannics also commenced an arbitration in New York against the Company and the other members of the Board (the "New York Arbitration"). The Buhannics contended in the New York Arbitration that the respondents had breached their obligations under a document that the parties referred to as the Founders' Agreement.

         In February 2017, the court in the New York Action issued a preliminary injunction enjoining the Company from issuing additional shares that could dilute the Buhannics' position. The New York Action remains pending.

         In July 2017, a panel in the New York Arbitration ruled against the Buhannics. The Buhannics promptly filed an action in the United States District Court for the Southern District of New York challenging the panel's decision. That action remains pending.

         D. The Buhannics Seek Their Litigation File.

         On March 2, 2017, I asked the parties for a status report.[5] The plaintiffs described the agreement in principle to settle this litigation, which included an amendment to the Company's certificate of incorporation. The plaintiffs expressed concern about implementing the settlement in light of the injunction in the New York Action, so they asked to continue the stay.[6] I entered an order granting this relief.[7]

         By letter filed April 24, 2017, Philippe objected to the stay.[8] He also asserted for the first time that Morris Nichols had refused to provide its litigation file. His letter asked me to compel Morris Nichols to produce the file. Morris Nichols filed a responsive letter explaining that the other defendants had asserted attorney-client privilege over the contents of the file.[9] Both Buhannics subsequently filed letters reiterating their demands.[10] By order dated May 30, 2017, I denied their request and required that they seek any relief by formal motion.[11]

         Six months later, on October 26, 2017, Philippe filed a motion styled "Philippe Buhannic and Patrick Buhannic's Motion for Court to Lift the Order Staying Action and Direct Former Counsel to Hand Over a Copy of Litigation File to Philippe Buhannic."[12]The parties briefed the motion. By order dated December 21, 2017, I denied the motion to lift the stay.[13] In a second order issued on the same day, I granted the motion to compel Morris Nichols to produce the litigation file (the "Litigation File Order").[14] The Litigation File Order directed Morris Nichols to "deliver a copy of the file to the Buhannics within10 days."[15]

         E. The Current Motion

         On December 27, 2017, Morris Nichols emailed the Buhannics a link to a secure website where they could access 5, 316 documents. That production included:

1. All pleadings in TCV VI, L.P. v. TradingScreen, Inc., Del. Ch. C.A. No. 10164-VCL.
2. All invoices submitted to TradingScreen in connection with the foregoing action.
3. All emails in the possession of Morris Nichols to, from or cc'd [sic] to any of the TradingScreen directors it represented: (Phillip [sic] Buhannic, Piero Grandi, Pierre Schroeder, Patrick Buhannic); any person with a TCV email address (i.e., Robert Trudeau, Ric Fenton), Frank Placenti (a TCV board designee); anyone with an rlf.com email address; anyone with an abramsbayliss.com email address; anyone with a kasowitz.com email address.[16]

         The emails included several iterations of a term sheet for the agreement in principle to settle the case.[17]

         The Buhannics were dissatisfied with that production. On January 8, 2018, they filed a motion styled "Philippe Buhannic and Patrick Buhannic's Motion for Court to Lift the Order Staying Action and Direct Former Counsel to Hand Over a Copy of Litigation File to Philippe Buhannic."[18] It largely repeated verbatim the contents of the previous motion to compel production of the litigation file. It added an assertion that Morris Nichols had failed to produce its entire litigation file and a specific request that Morris Nichols produce the "COMPLETE litigation [file]" including "all currently missing documents pertaining to this case, especially the agreement between the Board members, TradingScreen Inc. and TCV."[19] The motion asked "the court to penalize Morris Nicholls [sic] in a way that is appropriate."[20]

         The plaintiffs filed a response in which they opposed the motion to lift the stay.[21]Morris Nichols filed a response in which it opposed the request for production of its complete litigation file and the imposition of any penalty.[22] In its response, Morris Nichols argued that its production satisfied the Litigation File Order. It further argued that the Buhannics really only wanted a copy of the agreement in principle to settle this litigation. Morris Nichols submitted an email dated January 12, 2018, in which Philippe stated, "Please do not forget what we requested yet again which is the agreement you[] [r]eceived between TCV, [Grandi, Schroeder] and the company. Nothing else is important to us."[23]

         Morris Nichols subsequently provided the Buhannics with a CD-ROM containing its prior production. Morris Nichols also provided the Buhannics with an index of the materials on the CD-ROM. In the transmittal letter for the CD-ROM, Morris Nichols offered to provide printed copies of the documents at the Buhannics' expense. Morris Nichols also represented that it did not have a copy of the agreement in principle.[24]

         On February 19, 2018, the Buhannics filed what appears to have been intended as a reply in support of their motion. The document was titled "Philippe Buhannic and Patrick Buhannic's Motion for Court to Compell [sic] Former Counsel to Hand Over a Complete Copy of Litigation File to Philippe Buhannic."[25] Its contents were substantially identical to the earlier motion. It added as an exhibit a ...


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