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The Chancery Salvo - Thursday, July 24, 2014

Delaware Supreme Court Affirms Scope of Production Ordered in Wal-Mart Bribery Books and Records Action, Adopts Garner Doctrine as Exception to Attorney-Client Privilege
Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2014, opinion (Del. July 23, 2014)
Plaintiffs brought an 8 Del. C. Section 220 action for inspection of books and records related to bribery allegations involving procurement of construction permits by Wal-Mart's Mexican subsidiary.  The parties  cross appealed the Court of Chancery's final judgment ordering the production of certain documents for inspection.  

Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., C.A. No. 7779-CS, final order and j. (Del. Ch. Oct. 15, 2013)

Wal-Mart challenged the scope of inspection ordered by the Court of Chancery as significantly overbroad, arguing that the documents ordered produced were not necessary and essential to the purposed of establishing demand futility.  Wal-Mart maintained that because demand futility was a board-level inquiry, the only documents that were necessary and essential to that purpose were board level documents, which Wal-Mart had already produced.  Wal-Mart also challenged the date range of production, and production from disaster recovery tapes, among other things.  Wal-Mart also appealed the Court of Chancery's application of the Garner Doctrine, under A.L. Garner, et al. v. Rick Wolfinbarger, et al., Nos. 26168, 26266, opinion (5th Cir. Aug. 31, 1970), as a fiduciary exception to the attorney-client privilege and work-product doctrine.  

The Supreme Court affirmed the Court of Chancery's order as an appropriate exercise of discretion.  Justice Holland, writing for the en banc Court, clarified the meaning of one of the most frequently-cited descriptors of the scope of inspection permitted under 8 Del. C. Section 220 in Delaware case law:
 
"The term 'rifled precision' requires the Court of Chancery to make a qualitative analysis of documents demanded.  'Rifled precision' is not a quantitative limitation on the stockholder’s right to obtain all documents that are necessary and essential to a proper purpose."

The Supreme Court also adopted the Garner Doctrine, articulating more specifically its application in books and records actions:
 
"We hold that the Garner doctrine should be applied in plenary stockholder/corporation proceedings.  We also hold that the Garner doctrine is applicable in a Section 220 action.  However, in a Section 220 proceeding, the necessary and essential inquiry must precede any privilege inquiry because the necessary and essential inquiry is dispositive of the threshold question -- the scope of document production to which the plaintiff is entitled under Section 220."

The Chancery Daily will provide a comprehensive summary of the Supreme Court's Opinion as soon as practicable.