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Gilmore v. Turvo, Inc.

Court of Chancery of Delaware

August 19, 2019

Eric Gilmore
Turvo, Inc.

          Submitted Date: August 13, 2019

          Philip Trainer, Jr., Esquire, Marie M. Degnan, Esquire, Aaron P. Sayers, Esquire Ashby & Geddes

          Brock E. Czeschin, Esquire Susan M. Hannigan, Esquire John M. O'Toole, Esquire Tyre L. Tindall, Esquire Richards, Layton & Finger, P.A.

         Dear Counsel:

         This letter opinion resolves Plaintiff's Motion to Compel in which Plaintiff seeks to compel Defendant, Turvo, Inc. ("Defendant" or "Turvo"), to produce attorney-client privileged communications between Latham & Watkins, LLP ("Latham") and Turvo's Preferred Directors, [1] officers or employees that occurred any time prior to a May 21, 2019 meeting where the Turvo board of directors (the "Board") purported to remove Plaintiff as Turvo's CEO.[2] For the reasons stated below, the motion is denied.

         I. BACKGROUND

         Plaintiff, Eric Gilmore, is the co-founder and majority shareholder of Turvo and has served as Chief Executive Officer of the company since its inception.[3]During the relevant time period, Turvo's Board consisted of four members- Gilmore, Ajami, Chan and Sarracino.[4]

         In May 2019, during a review of expenses charged to company credit cards, Turvo's Chief Financial Officer discovered that Mr. Gilmore had used his card to expense at least $125, 000 in entertainment charges, including (allegedly) $76, 120 paid to adult entertainment venues.[5] The CFO alerted Chan to the charges, who then notified Ajami and Sarracino.[6]

         Seeking advice on how to proceed in light of the alleged misconduct of one of their fellow Board members, the Preferred Directors turned to Latham instead of the Board's long-time counsel, Gunderson Dettmer Stough Villeneuve Franklin & Hachigan, LLP.[7] Latham had previously served as counsel for Activant, a Turvo preferred stockholder, and had never represented Turvo or the Board.[8] In the following weeks, with Latham's guidance, the Preferred Directors reviewed the information relating to Mr. Gilmore's alleged misconduct, assessed the impact the misconduct had or would have on Turvo's business and considered how to respond.[9]

         On May 21, 2019, the Preferred Directors, Mr. Gilmore, counsel for Mubadala Ventures (a preferred stockholder) and four Latham attorneys attended a meeting at Ajami's office in San Francisco.[10] After explaining that the purpose of the meeting was to address Mr. Gilmore's alleged misconduct, it is alleged that Sarracino asked Mr. Gilmore to recuse himself from the meeting.[11] In Mr. Gilmore's absence, the Preferred Directors removed Mr. Gilmore as CEO and adopted a resolution retaining Latham as counsel for the Board "effective as of May 10, 2019."[12] According to Defendant, the resolution's retroactive language was intended to allow Turvo to pay the legal fees incurred by the Preferred Directors prior to the May 21 meeting.

         Mr. Gilmore contends that, as a member of the Board during Latham's engagement by other members of the Board, he is entitled to access Latham's privileged communications with the Preferred Directors and any Turvo officers or employees.[13] While he acknowledges the Board did not formally engage Latham prior to the May 21 meeting, Mr. Gilmore asserts that Latham functionally served as counsel to the Board by advising the Preferred Directors.

         In support of his position, Mr. Gilmore points out that the plain language of the May 21 resolution makes clear that Latham's service to the Board began on May 10 and gives no indication that the purpose of backdating the resolution was to clarify billing protocols as Defendant now suggests.[14] He maintains that contemporaneous email communications as well as deposition testimony indicate that the Preferred Directors believed Latham was acting as counsel to the Board. Specifically, Mr. Gilmore cites an email dated May 22, 2019, in which Sarracino told a Turvo investor, "The board worked around the clock for the last two weeks to fix what was an extremely unfortunate situation."[15] Chan's recent deposition testimony also purportedly reveals that the Preferred Directors did not retain counsel prior to the May 21 meeting, that Latham did not represent Chan personally and that Chan and Ajami each had their own counsel.[16]

         Finally, Mr. Gilmore argues that Latham made certain representations that reveal its role as counsel to Turvo and the Board. For example, in the minutes from the May 21 meeting, which Latham drafted, Latham characterized its work as conducting an "internal investigation."[17] Additionally, in an email to Mr. Gilmore dated May 22, 2019, Latham's Joseph B. Farrell referred to himself "as counsel to the Special Committee of the Board of Directors," even though that committee was not formed until May 23, 2019.[18]

         II. ANALYSIS

         Having carefully reviewed Mr. Gilmore's proffered evidence, I see no basis to conclude that Latham served as counsel to the Board before the May 21 Board meeting such that Mr. Gilmore should be given access to the privileged communications between the Preferred Directors, the preferred stockholders and their chosen counsel. Without this predicate attorney-client relationship between Latham and the Board, Mr. Gilmore is an outsider to the relationship and has no right to pierce or otherwise enter it.

         As a general matter, a Delaware corporation "cannot assert the privilege to deny a director access to legal advice furnished to the board during the director's tenure."[19] Mr. Gilmore correctly acknowledges three exceptions to the rule, and argues that because none of them applies, he is entitled to discover the disputed communications.[20] But there is an important condition to Mr. Gilmore's purported entitlement: that Latham's legal advice be "furnished to the ...

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