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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LAUREN GLASSMAN, :
:
Plaintiff, :
:
vs. : Civil Action
: No. 7717-VCG
CROSSFIT, INC., a Delaware :
corporation, and GREG :
GLASSMAN, :
:
Defendants. :
- - -
Chancery Court Chambers
Court of Chancery Courthouse
34 The Circle
Georgetown, Delaware
Wednesday, September 5, 2012
10:00 a.m.
- - -
BEFORE: HON. SAM GLASSCOCK, III, Vice Chancellor.
- - -
TELEPHONIC ORAL ARGUMENT AND THE COURT'S RULING
------------------------------------------------------
CHANCERY COURT REPORTERS
34 The Circle
Georgetown, Delaware 19947
(302) 856-5645
2
1 APPEARANCES: (via telephone)
2 PHILIP TRAINER, JR., ESQ.
Ashby & Geddes, P.A.
3 -and-
GRACE Y. PARK, ESQ.
4 of the California Bar
Bergeson, LLP
5 for Plaintiff
6 RAYMOND J. DICAMILLO, ESQ.
KEVIN M. GALLAGHER, ESQ.
7 Richards, Layton & Finger, P.A.
-and-
8 BLAIR G. CONNELLY, ESQ.
KYLE L. WALLACE, ESQ.
9 of the New York Bar
Latham & Watkins LLP
10 for Defendants
11
12 - - -
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24
CHANCERY COURT REPORTERS
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1 THE COURT: Good morning, counsel.
2 This is Sam Glasscock. Who do I have on the line,
3 please?
4 MR. TRAINER: Good morning, Your
5 Honor. Lee Trainer from Ashby & Geddes for plaintiff,
6 Lauren Glassman. I also have Grace Park from
7 Bergeson, LLP on the line.
8 THE COURT: All right. Welcome.
9 MR. DiCAMILLO: Good morning, Your
10 Honor. Ray DiCamillo for the defendants. Also with
11 me on the line from my office is Kevin Gallagher.
12 Also on the line are Blair Connelly and Kyle Wallace
13 from Latham & Watkins.
14 THE COURT: All right. Welcome.
15 Counsel. I don't know if you have
16 discussed how you want to present the motions that are
17 outstanding. If you have, I am happy to hear you in
18 any order you've decided on. Otherwise, I guess, I
19 would prefer to start with the temporary restraining
20 order request.
21 MR. DiCAMILLO: Your Honor, this is
22 Mr. DiCamillo. We have not discussed how to proceed.
23 We are happy to go in any fashion that Your Honor
24 wishes. With respect to the motion for temporary
CHANCERY COURT REPORTERS
4
1 restraining order, Mr. Connelly is going to argue that
2 on behalf of the defendants, and I will handle the
3 motion to compel and motion to quash.
4 THE COURT: All right. Well, then,
5 Mr. Connelly, would you like to proceed?
6 MR. CONNELLY: Thank you very much
7 Your Honor. Can the Court hear me? I ask because I
8 am talking on a hotel conference room phone.
9 THE COURT: You are coming through
10 loud and clear.
11 MR. CONNELLY: Okay. Terrific. Thank
12 you, Your Honor.
13 May it please the Court, this is Blair
14 Connelly for the defendants, and our motion seeks to
15 preserve the status quo pending a hearing on our
16 motion for preliminary injunction. And the basis for
17 our motion is that Miss Glassman, who is a director of
18 CrossFit, provided confidential company information to
19 a third party for her personal financial benefit,
20 without even telling the company or its board of
21 directors, let alone getting permission.
22 And on the first element we think we
23 have easily shown a colorable claim. I know the other
24 side is arguing there is a higher standard. We
CHANCERY COURT REPORTERS
5
1 disagree with them, but candidly, we don't think it
2 really matters because the legal principles that are
3 at issue here are so clear and so broad.
4 In particular, I point the Court to
5 just last year the Supreme Court reaffirmed the
6 principle that it is inequitable to permit a fiduciary
7 to profit from using confidential company information.
8 That's from the Kahn v. KKR case, 23 A.3d at 838. And
9 that principle holds even if the corporation can't
10 show that it has actually suffered any harm at all
11 because it's based on the rule that the Court called
12 inveterate and unflinching in its rigidity. It's a
13 rule that's based on public policy, and here I am
14 quoting from Guth v. Loft that extinguishes all
15 possibility of profit flowing from a breach of the
16 confidence imposed by the fiduciary relationship.
17 THE COURT: Why wouldn't the remedy be
18 disgorgement of profits rather than preventing the
19 sale of the assets?
20 MR. CONNELLY: Well because I think
21 that the principle that equity will not allow the
22 director to profit from this -- I think as in
23 Hollinger militates -- I think the cases that talks
24 about disgorgement are cases where, frankly, it came
CHANCERY COURT REPORTERS
6
1 to late to do anything about it. But we think that if
2 equity doesn't allow it, the proper remedy is if it
3 can be prevented at the front end, it ought to be
4 prevented at the front end rather than trying to
5 unscramble the egg afterwards.
6 That's what happened in Hollinger. In
7 Hollinger, they were able to prevent it at the front
8 end and Chancellor Strine -- then-Vice Chancellor
9 Strine, I think, did exactly that. And here, I know
10 there were other issues going on, and Hollinger was
11 certainly a case rich with misconduct, but two of the
12 breaches that were cited by Vice Chancellor Strine are
13 certainly true here. Confidential company information
14 was used for the personal financial benefit of a
15 director, and there was also importantly a breach of
16 the duty of candor because the director didn't tell
17 anybody that this was going on. He didn't tell the
18 company. He didn't tell the board. He didn't tell
19 the shareholders that he was doing this. And that's
20 exactly what's going on here. And we think that
21 rather than allowing the transaction to go forward,
22 which I will talk about later, will impose some
23 significant harms on the company, the proper remedy
24 would be to prevent it from going forward in the first
CHANCERY COURT REPORTERS
7
1 instance.
2 THE COURT: A shareholder in this
3 situation has the right to financial information to
4 provide for a due diligence review upon the potential
5 sale of her shares, correct?
6 MR. CONNELLY: Has the right to do
7 that if the court -- you mean if the court in Arizona
8 gives her the right to alienate her interests?
9 THE COURT: Yes. Obviously, that has
10 to happen, or there is no issue.
11 MR. CONNELLY: That's correct. That's
12 correct.
13 THE COURT: I am just talking about in
14 general.
15 MR. CONNELLY: As a general matter --
16 and they cite the Schoon case for this principle. A
17 shareholder can make a 220 demand and say that I want
18 to get this information because I want to try to sell
19 my shares. That's -- they rely on the Schoon case for
20 that principle. But there is a couple of very
21 important distinctions between that case and this
22 case.
23 First, in Schoon, the shareholder
24 actually said in his 220 demand this is what I am
CHANCERY COURT REPORTERS
8
1 looking -- this is why I want this information. This
2 is my proper purpose.
3 THE COURT: Let me stop you for just a
4 second, Mr. Connelly. I understand those differences.
5 My question is: What information was released to a
6 third party that would not have been released if there
7 had been a proper disclosure and request to the
8 corporation for those documents that the stockholder
9 was entitled to provide to a potential purchaser?
10 MR. CONNELLY: I think our point here,
11 Your Honor, is -- by the way, it may well be that at
12 least some of that information, if a proper process
13 had been gone through, might have ultimately been
14 disclosed, but it would have been done pursuant to a
15 process where the company would have had an
16 opportunity to protect its interests. And you know,
17 if you look at the information that went across the
18 transom, we are talking about financial statements,
19 confidential contracts with commercial partners,
20 payroll information, basically the whole kit and
21 caboodle of the company's internal documents.
22 Now, if a proper process had happened,
23 and if she had gone to the company and said, "Hey, I
24 want to do this," then there would have been a back
CHANCERY COURT REPORTERS
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1 and forth. And at a minimum, the company would have
2 had an opportunity to protect itself in some manner by
3 insisting on appropriate confidentiality restrictions.
4 That didn't happen here. The company got ambushed by
5 this.
6 THE COURT: So your real contention is
7 not with the information being provided but the lack
8 of the confidentiality order?
9 MR. CONNELLY: I think it's both. I
10 think it's hard to separate the two. If an
11 appropriate process had been gone through, you know,
12 and she had gone and actually told the company this is
13 what I am doing here, then there could have been a
14 dialogue about it. And it may well be that some of
15 that confidential information would not have gone
16 across the transom because there have would been a
17 back and forth and an agreement or perhaps even a
18 litigation about whether that was actually needed.
19 THE COURT: Well, that's what I am
20 asking you. What information could the company have
21 legally prevented her from providing to a third party
22 potential buyer that was actually disclosed here?
23 MR. CONNELLY: Well, I think
24 without -- candidly, I haven't thought about that
CHANCERY COURT REPORTERS
10
1 point because we have been focused on the broader one.
2 But I think payroll information would have arguably
3 been one that I don't think they would have needed,
4 individual names of people and what their individual
5 salaries were, confidential contracts with third
6 parties that by their terms are supposed to be kept
7 confidential from other people. If the buyer in this
8 case, you know, has relationships with companies who
9 are direct competitors with some of our commercial
10 partners, we would not have wanted that information to
11 be shared with them. There are probably other
12 examples. Those are the only ones I can come up with
13 off the top of my head.
14 THE COURT: All right. How do you
15 respond to the laches argument that the plaintiffs
16 made?
17 MR. CONNELLY: I have to say at the
18 front end I find it somewhat ironic, given their own
19 delays, they're making this argument. But one point I
20 think I should make for the Court's benefit is they
21 note in their papers that, you know, well you should
22 have known at this point and you should have known at
23 that point, but what they don't tell you in their
24 papers is we have been asking them about Anthos. We
CHANCERY COURT REPORTERS
11
1 want to know exactly what the information is that you
2 sent to Anthos. We asked it repeatedly, and it wasn't
3 until August 10 that counsel for Miss Glassman
4 actually sent us a disc containing the information
5 that was actually sent over. It was sent, you know,
6 on a Friday by FedEx. So we didn't actually get it
7 until a few days later and have an opportunity to
8 review it. So I think that's the sort of time frame
9 we ought to be measuring it by.
10 But more fundamentally, Your Honor, I
11 think the main point is she hasn't shown any prejudice
12 that she's suffered here in terms of how she's been
13 harmed in her ability to defend certainly our motion
14 for preliminary injunction but even this motion. The
15 only prejudice that is articulated in her papers is
16 that she had to respond to this over a period of four
17 days. You know, we found that hard to swallow just
18 because we had to respond to her TRO motion in 24
19 hours. So we don't think that's a sufficient ground
20 of prejudice for a laches argument in this context,
21 particularly when we are talking about here is a
22 director secretly disclosing confidential company
23 information without giving the company an opportunity
24 to protect itself. We think the duty of loyalty there
CHANCERY COURT REPORTERS
12
1 is a very important consideration and the duty of
2 candor is as well.
3 THE COURT: All right. Anything else,
4 Mr. Connelly?
5 MR. CONNELLY: Thank you very much.
6 What I wanted to respond to here, I
7 think as in Hollinger, the appropriate remedy is to
8 restrain the transaction, but I also want to talk
9 about what their response is because they're not
10 denying that the information is confidential and
11 they're not denying that she did this secretly. But
12 the argument is that because she made a 220 demand in
13 both her director capacity and her shareholder
14 capacity and because the company didn't make her sign
15 a confidentiality agreement because, you know, they
16 for some reason thought that they were actually
17 entitled to rely upon her loyalty and her candor, that
18 she then had carte blanche to do whatever she wanted
19 to do with these documents. And we just don't think
20 it's the law that a director can play gotcha with the
21 corporation to which she owes fiduciary duties. I
22 mean, a director always has a duty of loyalty and
23 always has a duty of candor, and at a minimum, if she
24 wants to do that, she at least has to tell the company
CHANCERY COURT REPORTERS
13
1 so that the company can assert its own rights. We
2 don't see how her fiduciary duties as a director can
3 get past that.
4 THE COURT: What would the ultimate
5 result be of entering a restraining order here? Is it
6 your position that she can never consummate a
7 transaction with Anthos? What is the ultimate remedy
8 that you are seeking?
9 MR. CONNELLY: Well, obviously, at
10 this point, all we are seeking is that the status quo
11 be preserved pending our preliminary injunction motion
12 and the ultimate remedy, if there is a final award, we
13 would ask for her to be restrained from selling it to
14 Anthos, and of course, if the court -- if the Arizona
15 court gives her the right to sell her interests, she
16 would be free to sell it to anybody else at that
17 point. But in our view, the fact that, you know,
18 there is an irreparable taint here by virtue of her
19 conduct that's an issue we think for another day. She
20 could, of course, sell it to anybody else. She could
21 sell it to her husband. You know, at this point, you
22 know, the harm to be considered at this point, we
23 think, is merely the harm of being temporarily
24 restrained during the brief interim period until our
CHANCERY COURT REPORTERS
14
1 preliminary injunction motion can be heard.
2 THE COURT: Well her harm -- and I am
3 sure I will hear argument to this effect -- is that
4 she may lose the deal. I am struggling a little bit
5 to see -- I understand the breach of fiduciary duty
6 argument, and I understand that there is some
7 documents that have been provided that may not have
8 been provided if a proper procedure had been followed
9 in your view, but I am struggling a little bit to see
10 what the harm is to the corporation if this deal is
11 consummated. And once again, I guess my question is:
12 Why isn't the remedy to let the deal go forward and
13 simply -- I am not even clear about what benefit she
14 has received from this disclosure because she had the
15 right to, if she had gone through a proper procedure,
16 to disclose sufficient financials that the deal could
17 have been consummated. So I am just struggling a
18 little bit to see what the ill gotten gain is here.
19 MR. CONNELLY: Well, I think that the
20 answer to two points you raise is one, on the harm,
21 again, our point is that the harm to the company --
22 and the cases, the Brophy line of cases and Kahn, all
23 say this, is that that's the harm. The harm is in the
24 mere fact that the fiduciary has done this and cannot
CHANCERY COURT REPORTERS
15
1 be allowed to profit from it. We have also
2 articulated some other harms that will happen if this
3 particular deal goes through, because among other
4 things the company's tax status could be changed,
5 which would impose additional administrative burdens
6 on the company and certainly impose financial
7 consequences on Mr. Glassman.
8 THE COURT: That would happen no
9 matter to whom these shares were sold unless it was
10 sold to Mr. Glassman, correct?
11 MR. CONNELLY: No, I don't think
12 that's right. I think if it was sold to another
13 individual investor I don't think that's true.
14 Certainly, there are other investors that would also
15 happen with.
16 THE COURT: All right. You are not
17 arguing that -- well, maybe you are -- is it your
18 position that as a director she cannot sell her shares
19 to any individual if it would have an adverse tax
20 impact on the corporation?
21 MR. CONNELLY: That's not our
22 position.
23 THE COURT: All right.
24 MR. CONNELLY: Our position is on the
CHANCERY COURT REPORTERS
16
1 harm point what we are saying is we think that the
2 harm -- that under Kahn the fact of the breach is
3 itself sufficient to satisfy the Kahn prong, but we've
4 also pointed out in this particular deal because of
5 Anthos and because of what they're planning to do with
6 the company, you know, the affidavit of Mr. Saran
7 explains how this is already causing problems with
8 important business initiatives, relationships with
9 commercial partners, and relationships with affiliates
10 because this is really going to fundamentally alter
11 the entire -- how the company is perceived and how it
12 does business and what it's model is.
13 THE COURT: But that's not a harm that
14 arises from the provision -- the wrongful provision of
15 documents. That's a harm that arises from a
16 50 percent interest being sold to a third party who
17 may disagree with current management's ideas of how to
18 run the corporation, correct?
19 MR. CONNELLY: I think it's hard to
20 separate the two. I see your point, and I think that
21 there is a valid point there. But I think it's
22 frankly hard to separate the harm of the breach and,
23 you know, from the consequences of this sale.
24 Candidly, we don't think that a director should get
CHANCERY COURT REPORTERS
17
1 the benefit of the doubt from her own breach of
2 fiduciary duty of saying, "Gotcha. It would have
3 happened anyway." We can't know that. You know,
4 because the company, which was entitled to loyalty and
5 which was entitled to candor, never had the
6 opportunity to go through that. We don't know if
7 Anthos would have done this deal if they hadn't got
8 all of those documents. We just don't know. And we
9 don't think that the company -- that is really a
10 speculation. We don't think she's entitled to the
11 benefit of that doubt.
12 THE COURT: Tell me what's before the
13 Family Court of Arizona today.
14 MR. CONNELLY: Sure. And I wanted to
15 address that. That was another point they raised that
16 we think is not well taken. There is a motion before
17 the Arizona Family Court, which is Miss Glassman's
18 motion basically to lift the injunction and allow her
19 to proceed with this sale. And we are certainly not
20 asking the Arizona Family Court to decide the Delaware
21 fiduciary duty issues that we placed before Your
22 Honor.
23 The company has moved to intervene in
24 that proceeding so that it can assert its own
CHANCERY COURT REPORTERS
18
1 interests and speak for itself on the harm that would
2 befall the company in that proceeding if the judge
3 goes Miss Glassman's way. But, you know, we are
4 certainly asking this Court, and not the Arizona
5 Family Court, to rule on the Delaware fiduciary duty
6 issues. The company has told the Court there that
7 there are fiduciary duty issues here, but at this
8 point, the company is just being asked to intervene.
9 I also note that on the same day that
10 Miss Glassman said, you know, in these proceedings
11 that we should be required to go litigate these issues
12 before the Arizona court, we got an e-mail from Miss
13 Glassman's counsel in Arizona saying she intends to
14 object to the company's participating in those
15 proceedings or, in her words, to have any voice
16 whatsoever in those proceedings. So we don't think
17 that she can have it both ways, but just to be clear,
18 we are certainly not trying to get two bites at the
19 apple here. We want this Court to rule on the
20 Delaware fiduciary duty issues.
21 THE COURT: Right. But if you are
22 allowed to intervene, aren't you arguing that
23 fiduciary duty issues should influence the Court in
24 not lifting its stay of sale of assets?
CHANCERY COURT REPORTERS
19
1 MR. CONNELLY: I think that the
2 purpose of intervening in the Arizona court -- I am
3 not counsel in that action so I can only speak to what
4 I know, but the purpose of intervening there is so
5 that the company can show the Court how the company as
6 a separate entity would be harmed if this transaction
7 went through. And the papers certainly informed the
8 Court that there are fiduciary duty claims existing
9 here, but that's -- you know, our position is the
10 Arizona court is going to decide whether, as a matter
11 of Arizona family law, Arizona divorce law, and
12 Arizona community property law, she can be permitted
13 to go forward with this sale. Our position is, even
14 if she is given that right by the Arizona court, there
15 are separate Delaware fiduciary duty law reasons why
16 the sale should not go through as a matter of Delaware
17 corporate law.
18 THE COURT: All right. I understand
19 that position, Mr. Connelly. Do you know or have an
20 expectation as to when the Arizona court will decide
21 the issue of whether Mrs. Glassman can alienate her
22 stock? Is that something that you expect today, or is
23 that something that will take further litigation, or
24 do you know?
CHANCERY COURT REPORTERS
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1 MR. CONNELLY: I don't know, Your
2 Honor. I am giving you my best information. I know
3 that the hearing is at 2:00 today Arizona time. And
4 that we don't know if the Court is going to rule right
5 at the hearing, if the Court is going to take it under
6 advisement, and there is also, in complete candor, a
7 chance that the entire hearing may be kicked, because
8 if Miss Glassman is objecting to whether the company
9 can intervene, to allow that issue to be decided. We
10 don't know any better than that.
11 THE COURT: All right. The status quo
12 in the Arizona suit is that these shares of stock
13 cannot be sold, correct?
14 MR. CONNELLY: That is correct. They
15 are owned 100 percent jointly by Mr. and
16 Mrs. Glassman. They are community property. Neither
17 of them can sell without either the other's consent or
18 permission from the Court.
19 THE COURT: All right. Mr. Connelly,
20 you have been very patient with me. Anything else?
21 MR. CONNELLY: I sort of got jumped
22 around.
23 I did want to note -- I wanted to
24 respond to this again on the Schoon case, just to
CHANCERY COURT REPORTERS
21
1 point out that not only in that case did the
2 shareholder actually tell the company why he wanted
3 the information, that shareholder wasn't a director.
4 We would point the Court to Holdgreiwe v. Nostalgia
5 Networks Incorporated. That's a case where a director
6 made a 225 demand, and the company wanted to make the
7 director sign a confidentiality agreement as a
8 condition of getting the documents. And Chancellor
9 Allen ruled that wasn't necessary because, as a
10 director, he was already under an obligation to
11 maintain the confidences of the corporation.
12 THE COURT: All right.
13 MR. CONNELLY: And that was
14 overarching. That's true here too.
15 THE COURT: Thank you.
16 MR. CONNELLY: And I do have one more
17 point I wanted to make, which is about the NDA. As I
18 said before, we don't think telling us after the fact
19 we have an NDA is sufficient. It doesn't solve the
20 harm, but in addition, as we said in the papers, the
21 company doesn't have the right to enforce the NDA. If
22 you look at the NDA, which is Exhibit 2 to our motion,
23 it actually expressly permits Anthos to share the
24 confidential information with affiliates, with
CHANCERY COURT REPORTERS
22
1 consultants, and with advisors as long as they sign an
2 equally strong confidentiality agreement. That
3 doesn't protect the company at all. If one of their
4 affiliates is a competitor and they get our
5 confidential information, it doesn't help us that they
6 then keep it a secret. They have it at that point.
7 It doesn't give the company any protection.
8 THE COURT: I am struck once again by
9 the disconnect between the harm that the breach of
10 duty allegedly has caused and the remedy. Because
11 this information, which should have remained
12 confidential in your view, is now in the hands of
13 Anthos, liable to be circulated as you said to
14 advisors. I am not sure how restricting the sale
15 remedies that breach.
16 MR. CONNELLY: I think the question
17 is: How else can it be remedied? There shouldn't be
18 a right without a remedy. And at this point, you
19 know, we think that under the doctrines that were
20 articulated by the Supreme Court in Kahn and the
21 strength of this policy of preventing directors from
22 doing this, we think that that militates in favor of
23 the remedy of taking away the transaction. It should
24 not have happened, and they ought to be required to go
CHANCERY COURT REPORTERS
23
1 back to square one and start over.
2 THE COURT: All right. Anything else,
3 Mr. Connelly?
4 MR. CONNELLY: No, Your Honor. Thank
5 you very much for your patience with me.
6 THE COURT: I appreciate it.
7 Mr. Trainer, who is going to argue the
8 TRO motion from your side?
9 MR. TRAINER: I am, with Your Honor's
10 permission.
11 THE COURT: I would be happy to hear
12 from you.
13 MR. TRAINER: Thank you, Your Honor.
14 First off to address Your Honor's
15 question about Arizona, it's my understanding that the
16 matter is ripe for decision so justice in this court.
17 The Arizona judge could rule from the bench, could
18 take it under advisement. There are various
19 possibilities. Obviously, no one knows what he will
20 do, but that is at 2:00 this afternoon.
21 THE COURT: Okay.
22 MR. TRAINER: Also in the Arizona
23 proceeding, Your Honor, as we mentioned in our papers,
24 they filed the very same affidavits, Mr. Saran and
CHANCERY COURT REPORTERS
24
1 Mr. Smith, in support of their motion to intervene in
2 Arizona. So it is -- the same issues are very much in
3 front of the Arizona court as are before Your Honor.
4 And there's been no suggestion, nor I think could
5 they, that the Arizona court cannot deal appropriately
6 with the matters between Mr. and Mrs. Glassman.
7 It's also, I think, sort of supremely
8 ironic that they indicate that the company has a
9 separate vested interest in what occurs in Arizona
10 inasmuch as we suggested repeatedly to them that the
11 company might have interests separate and apart from
12 Mr. Glassman, and nonetheless, they are still
13 represented by the same counsel. But we think that
14 Arizona can certainly handle everything that's been
15 put before it both by Miss Glassman, Mr. Glassman and
16 CrossFit.
17 Your Honor asked about the laches, and
18 I am not sure Mr. Connelly was able to articulate a
19 particularly good response on that because we think
20 it's egregious in this situation. They have known of
21 the sale by Miss Glassman to Anthos since July 20th.
22 THE COURT: Before we move on,
23 Mr. Trainer -- I am sorry to not have stopped you
24 sooner -- but before we move on, how do I know that
CHANCERY COURT REPORTERS
25
1 the court in Arizona can handle these issues? I am
2 assuming, without knowing, that like most family
3 courts, Arizona Family Court is a court of limited
4 jurisdiction. Can it take into account the interests
5 of the corporation when the corporation is a hundred
6 percent owned by the divorcing couple? Are you
7 representing to me that is within their statutory
8 purview?
9 MR. TRAINER: It's my understanding it
10 is, Your Honor, and certainly I think CrossFit feels
11 that way, as much as they intervened with the same
12 arguments or attempted to intervene with the same
13 arguments here.
14 THE COURT: Well, they're taking a
15 belt and suspenders approach. But I am just trying
16 to -- if you are representing to me that that is
17 within their statutory purview, that's one thing. But
18 if your evidence for that is simply that CrossFit is
19 trying to make the same arguments there that they are
20 attempting to make here, that's not particularly
21 persuasive. So I guess what I am asking you is: Have
22 you examined the statutes, and can you tell me that,
23 or are you simply relying on what CrossFit has done?
24 MR. TRAINER: Your Honor, I am relying
CHANCERY COURT REPORTERS
26
1 on what the parties have argued in Arizona and what
2 CrossFit has done, and it probably has exhausted my
3 knowledge of Arizona civil procedures.
4 THE COURT: You're ahead of me so
5 that's fine.
6 MR. TRAINER: I definitely cannot
7 represent that I've looked at the statutes and this is
8 within their purview. No one has seemed to raise
9 objection in the pleadings back and forth and the
10 arguments that this is something that is outside of
11 that court's jurisdiction.
12 THE COURT: Fair enough. Now, you can
13 move to laches, if you would.
14 MR. TRAINER: Okay. Thank you, Your
15 Honor.
16 And I mentioned that they've known of
17 the sale to Anthos since July 3rd, June 20th. I don't
18 think any of these dates are in dispute. They have
19 known that Miss Glassman shared confidential
20 information with Anthos since the 27th. They knew
21 since late July that Miss Glassman was petitioning the
22 Arizona court to sell her 50 percent interest. They
23 have known since August 3rd that the Arizona court was
24 hearing this today. And I think, Your Honor, in light
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27
1 of that, the defendants have really manufactured their
2 own emergency.
3 I know Chancellor Strine is fond of
4 saying that a party's untoward does not constitute his
5 emergency, and I think that's the very situation here.
6 They say we have suffered no prejudice. We said in
7 our papers that we have very limited time to respond
8 to this. Mr. Connelly said he finds that hard to
9 swallow. I should submit an affidavit from my wife
10 that Labor Day weekend was gone responding to this,
11 but I think that does constitute prejudice. Also, the
12 fact that we are arguing this on the very morning of
13 the hearing in Arizona. I think they had months to
14 address this and just for strategic reasons chose not
15 to.
16 THE COURT: What would those strategic
17 reasons be?
18 MR. TRAINER: Perhaps, Your Honor, the
19 fact that, as everyone in Delaware knows, it is an
20 easier road to hoe on success of the merits on a TRO
21 than it is on a preliminary injunction.
22 THE COURT: All right. I understand
23 your argument.
24 MR. TRAINER: Chancellor Allen warned
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1 of this very danger that by waiting until the last
2 minute, as I think manufacturing your own emergency,
3 you come in on an easier standard, and that is why we
4 suggest that we are looking at the likelihood of
5 success on the merits that really a preliminary
6 injunction standard should be applied here instead of
7 the standard for temporary restraining order.
8 And, Your Honor, on the merits, I
9 really think the breach of fiduciary duty claim is a
10 red herring. And Mr. Connelly described it as playing
11 gotcha with the company.
12 I am not sure where that comes from
13 because Miss Glassman's Section 220 demand was
14 abundantly clear that it was being made as a director
15 and a stockholder, and I think there might be some
16 weight to Mr. Connelly's argument if she had just been
17 utterly irresponsible with the documents she obtained
18 through that demand. The simple fact is that she was
19 not. She disclosed a subset of those documents to
20 Anthos solely in connection with Anthos' interest in
21 purchasing her stock. So she was acting as a
22 stockholder when she did that, and she had Anthos
23 execute a non-disclosure agreement.
24 So this is not as though she published
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1 the confidential information of the company. I've
2 heard nothing indicated that Anthos has done anything
3 untoward or irresponsible with the information she
4 provided. She was simply, as a stockholder, working
5 to monetize her investment. And as a director, she
6 acted responsibly in doing that. So I don't think
7 there's been a breach of fiduciary duty.
8 Delaware law has long drawn a
9 distinction between a director who is also a
10 stockholder that they certainly don't lose their
11 rights as a stockholder when they're a director. So
12 that's why I say it's a red herring. This is
13 certainly not Hollinger.
14 Hollinger, as Mr. Connelly mentioned,
15 was replete with wrongdoing. And the significant
16 thing in Hollinger was that the opportunity that
17 Mr. Black usurped from the company was a deal that the
18 company was involved in. It was a deal that the
19 company was interested in. Here, it's not a deal that
20 the company is interested in. The company is not
21 there to buy Miss Glassman's stock. It's
22 Mr. Glassman, and that overlies, not just this motion,
23 Your Honor, but all three of them, the fact that
24 Mr. Glassman is a competing bidder.
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1 And so what we have here is not a
2 breach of fiduciary duty. It's frustration being
3 voiced by a disappointed bidder. And as recently as
4 last week, Mr. Glassman was continuing to make
5 proposals to purchase Miss Glassman's interests in
6 CrossFit. So that's why I say the whole issue of the
7 plain breach of fiduciary duty is not that and,
8 frankly, a red herring throughout these proceedings.
9 And, Your Honor, in irreparable harm,
10 the test, as the Court knows, is whether the
11 irreparable injury is imminent. If the injury was the
12 disclosure of the confidential information, that
13 happened two and a half months ago. So I don't think
14 there is any imminency with that, and if the injury is
15 to sell to Anthos -- and Your Honor seemed to question
16 the connection between the claimed wrongdoing and the
17 claimed injury -- I have been mystified by that
18 connection or claim connection as well. But if there
19 is a connection, it's compensable by money damages.
20 So I don't think we have real irreparable injury here.
21 The real claimed injury that Miss Glassman will sell
22 her 50 percent stake interest, with which Mr. Glassman
23 does not see eye to eye, is not irreparable injury.
24 Mr. Connelly alluded to the affidavit
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1 of Mr. Saran, the company's general counsel, that no
2 one knows what's going to happen as far as affiliates
3 and whether they will stay loyal to CrossFit brand.
4 That's not the basis for a TRO that no one is sure.
5 Mr. Saran, to his credit, he says, "I don't know what
6 is going to happen with the affiliates." So that's
7 not a basis for granting a temporary restraining
8 order, and it's also certainly not a basis for
9 preventing Miss Glassman from monetizing her
10 investment in CrossFit.
11 And the tax claims, similarly, its --
12 I am not sure that's basis for saying you can sell
13 your interest to an entity that is not an individual.
14 I mean, if that was important to CrossFit, perhaps the
15 stockholder agreement would have been appropriate.
16 But again, it's, one, not a basis for granting the TRO
17 sought, and two, if you actually look at the numbers,
18 it doesn't seem to be that financially significant.
19 So I think that is neither here nor there.
20 Finally, on the balance of the
21 hardships, Your Honor, if the sale is enjoined -- and
22 Your Honor pointed this out -- that there is a chance
23 that Miss Glassman could lose the opportunity
24 presented by the Anthos offer. Conversely, as I just
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1 mentioned, denying the motion for temporary
2 restraining order will not cause the irreparable harm.
3 At worse, it will result in Anthos owning 50 percent
4 of CrossFit, and while we understand that Mr. Glassman
5 may not agree with that, it's not irreparable harm.
6 THE COURT: Where is it in the record
7 that there is a reasonable potential that given a
8 short-term temporary restraining order pending a
9 preliminary injunction hearing this deal will be lost,
10 or am I supposed to simply take that on faith because
11 it could happen in any deal?
12 MR. TRAINER: Your Honor, I am not
13 going to say take it on faith, but I don't think the
14 agreement representing that is in the record. But we
15 are concerned -- there is a hard-stop date of
16 December 31st on the offer. I can represent that to
17 the Court, but I think what you are faced with is the
18 risk that has been current in any deal of this type.
19 THE COURT: All right. Understood.
20 Anything else?
21 MR. TRAINER: Not from plaintiff, Your
22 Honor. Thank you.
23 THE COURT: All right. Thank you.
24 Mr. Connelly, anything else?
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1 MR. CONNELLY: Yes. On that very last
2 point, Mr. Trainer correctly pointed out, to his
3 credit, that the hard-stop date on the contract is
4 December 31, 2012. The same provision, which is
5 Section 7 of the agreement, says that, "Each party
6 shall use its good faith reasonable efforts to cause
7 each of the closing conditions set forth in paragraphs
8 5 and 6 above to be satisfied as promptly as
9 reasonably possible."
10 So until December 31st, 2012, there is
11 an agreement that contains that provision. So I think
12 that actually negates the idea that Anthos would
13 simply walk if there was a brief adjournment for
14 purposes of a preliminary injunction motion. I note,
15 by the way, that that agreement is governed by
16 Delaware law and is subject to exclusive jurisdiction
17 in the Delaware Chancery Court. So I think the Court
18 can reach its own judgment about how successful that
19 position would be.
20 THE COURT: How long will it take you,
21 assuming we go forward to a preliminary injunction
22 hearing, Mr. Connelly, to be ready to put that case
23 on?
24 MR. CONNELLY: Well, fortunately, I
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1 think we have sort of been doing double duty in the
2 discovery we are doing in this case because some of
3 the same issues are relevant to our opposition of her
4 preliminary injunction hearing. So I don't think it
5 would take long at all. I think from our perspective
6 we will likely get the discovery that we want from the
7 depositions that are going on right now. We may have
8 collateral issues, but I think it's really a matter
9 for what the plaintiff -- what she would need, if
10 there is anything else she would need for a
11 preliminary injunction hearing, but we could do it in
12 a few weeks easily.
13 THE COURT: All right. Mr. Trainer,
14 how long would it take you to be prepared to go
15 forward to preliminary injunction hearing?
16 MR. TRAINER: I think we are in the
17 same position, Your Honor.
18 THE COURT: All right. This is what I
19 want to do, counsel. I think at this point it's
20 premature to put in a temporary restraining order.
21 The matter is pending before -- or about to be pending
22 before the Family Court in Arizona. I have no idea
23 what the decision of that court will be, whether it
24 will have res judicata effects on the decision before
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1 me because of the community property issues which may
2 supersede what the parties can do as directors or
3 stockholders. I don't know whether it will moot the
4 temporary restraining order by denying the right to
5 alienate the stock.
6 So first of all, until there is a
7 decision changing the status quo in the Arizona court,
8 there is no pending irreparable harm. So instead of
9 denying the temporary restraining order, what I am
10 going to do is continue this hearing. And I say that
11 so that if there is a decision, Mr. Connelly, from the
12 Arizona Court that in your mind places this issue
13 squarely before me, you don't need to resubmit another
14 application for TRO. You just simply need to request
15 that the continued hearing be scheduled immediately
16 for further consideration, and I will certainly do
17 that.
18 I would expect, Mr. Trainer, that
19 there won't be a sale of the property in the interim
20 between the reconstitution of this hearing and the
21 time that the Court rules, if there is that brief gap.
22 So I am keeping this TRO application
23 alive. But whatever the outcome, we should move to a
24 preliminary injunctive relief hearing. It appears to
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36
1 me that the chance of Ms. Glassman losing this deal,
2 if she is entitled to go forward with it, at least if
3 it's done on a reasonably prompt basis, is simply not
4 established.
5 I have some concerns about how this
6 information was conveyed. I have some questions about
7 whether she was acting as a stockholder or director
8 and whether she's entitled to act as a stockholder
9 given her directorial fiduciary duties with respect to
10 this confidential information. But without having a
11 real feel for the scope of what was provided as
12 compared to what would have been provided in a
13 situation where she had approached the corporation, I
14 have trouble telling at this point to what extent she
15 may have breached a duty.
16 I also note that this isn't your
17 typical situation. This is a couple who own this
18 company together. They are going through a divorce.
19 It's not clear to me what procedure would have been
20 followed if she had made a request on the corporation.
21 All those things, I think, need to be fleshed out at a
22 preliminary injunction hearing. So what I am going to
23 do -- as I said, I am continuing this hearing without
24 making a decision, and I look forward, Mr. Connelly,
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37
1 to you reconstituting it if we need to. Otherwise, we
2 are going to move to a preliminary injunction hearing,
3 and I would ask the parties to submit a form of order
4 that would schedule such a hearing.
5 MR. CONNELLY: Thank you, Your Honor.
6 And we will advise the Court of whatever happens in
7 Arizona.
8 THE COURT: I would certainly
9 appreciate that.
10 Who was just speaking?
11 MR. CONNELLY: That was Mr. Connelly.
12 THE COURT: All right. Mr. Connelly,
13 thank you.
14 Mr. Trainer, was that clear as well?
15 MR. TRAINER: Yes, Your Honor. It
16 was. Thank you.
17 THE COURT: Let's move to the
18 discovery issues then. I suppose the one that is
19 squarely in front of me is the protective order, the
20 plaintiff's protective order motion.
21 MR. TRAINER: Thank you, Your Honor.
22 Yes. The procedural background is
23 pretty straightforward that they have -- the
24 defendants have sought to take the deposition of
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38
1 Bergeson LLP as well as Miss Grace Park, who is on the
2 line, who is an associate at Bergeson.
3 There are really two levels to this.
4 The first, and the one I find most disconcerting, Your
5 Honor, is that there was a motion for commission filed
6 for both Bergeson and Miss Park. And in connection
7 with that, we were contacted by counsel for the
8 defendant, and specifically Mr. Bergeson and I were on
9 the phone, and we were told when we complained about
10 the subpoenas that it was just protective to make sure
11 that any documents that were in the possession of the
12 law firms would not be -- would be produced, and we
13 wouldn't take the position that Miss Glassman did not
14 have possession of those documents. And a letter to
15 that very effect from counsel for Mr. Glassman and the
16 company came along, and based on that, we agreed -- or
17 I personally and Mr. Bergeson agreed to accept service
18 of the subpoenas.
19 And it was only after that, that
20 counsel took the position that because Bergeson had
21 been transactional counsel in the deal with Anthos
22 that they should be allowed to depose -- take the
23 depositions, not just get documents, depose Bergeson
24 and depose Miss Park. And I think under the Delaware
CHANCERY COURT REPORTERS
39
1 law, the Kahn v. KKR case, they have a pretty high
2 burden to show that they have a need, demonstrable
3 need, to take the deposition of litigation counsel.
4 They were under the misconception that Bergeson was
5 deal counsel or transactional counsel for Miss
6 Glassman.
7 THE COURT: Let me stop you,
8 Mr. Trainer. Isn't that the issue here if Bergeson
9 was transactional counsel, they're not only subject to
10 discovery but they're probably not in a position to
11 continue as trial counsel if they were witnesses to
12 this transaction, and if the counterclaims put the
13 facts surrounding that transaction into play, then I
14 don't see how they can continue in place. If they
15 weren't transactional counsel, then there is, indeed,
16 a very high burden, and it's unlikely that it would be
17 met here.
18 So isn't this a factual question? And
19 what I have factually is the series of e-mails going
20 back and forth that seem to show that up to a certain
21 point, they were transactional counsel and then
22 perhaps the role was taken by other attorneys, so
23 maybe you can address that.
24 MR. TRAINER: Sure, Your Honor. I
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40
1 find it surprising that simply copying counsel for
2 Miss Glassman, litigation counsel for Miss Glassman,
3 on the back and forth somehow includes them as
4 transactional counsel, and I think that's defendants'
5 position and certainly the purpose of the letter that
6 was forwarded to Your Honor yesterday. When it came
7 down to the actual negotiation, when it came down to
8 the negotiation and drafting of the agreement between
9 Anthos and Miss Glassman, it was Gunderson Dettmer.
10 It was not Bergeson. Simply including them on the
11 informational loop as Miss Glassman's counsel, I don't
12 think, one, making transactional counsel or, two,
13 making them subject to discovery here.
14 THE COURT: Who is transactional
15 counsel before Gunderson was employed?
16 MR. TRAINER: There wasn't, Your
17 Honor. The communications between Miss Glassman and
18 Anthos started, I believe, it was in April. I can get
19 an exact date for Your Honor. So it came about rather
20 quickly.
21 THE COURT: All right. And Gunderson
22 is subject to discovery, of course, correct?
23 MR. TRAINER: I am not sure that's the
24 case, Your Honor. I am not going to argue for them,
CHANCERY COURT REPORTERS
41
1 but I was not aware. Transactional counsel was
2 automatically exposed to discovery.
3 But if that is how the Court thinks in
4 this case given the allegation of a breach of
5 fiduciary duty, so be it, but certainly Bergeson was
6 not transactional counsel and Gunderson Dettmer was.
7 THE COURT: All right. Got it.
8 Anything else, Mr. Trainer?
9 MR. TRAINER: No, Your Honor.
10 THE COURT: Thank you.
11 Mr. Connelly or whoever is going to
12 argue. I am sorry, Mr. DiCamillo.
13 MR. DiCAMILLO: Thank you, Your Honor.
14 It's Mr. DiCamillo.
15 Plaintiff makes two primary points in
16 support of their motion to quash. First, in her
17 opening papers, she stated that the defendants could
18 not show that Miss Park or Bergeson have any material
19 information that they could not obtain from
20 plaintiff's document production or plaintiff's own
21 testimony. Second, in the reply papers, and here
22 again this morning, they take the position that
23 neither Bergeson nor Miss Park was transaction counsel
24 for the plaintiff.
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42
1 What we know as of today does not
2 support either of those positions. Plaintiff's
3 counsel has told us that there are not written
4 communications between Miss Glassman and Anthos during
5 the period that the agreement was being negotiated.
6 Plaintiff's counsel has also told us that most of the
7 communications during that time period were oral. The
8 documents that have been produced show that Bergeson
9 had oral communications, which did not involve Miss
10 Glassman. The documents also show that Bergeson was
11 heavily involved in the transaction's underlined
12 litigation and were not merely copied on e-mails that
13 involved Gunderson. In fact, there are many documents
14 that don't -- that Gunderson is not on at all, but
15 before and after, Gunderson was involved.
16 THE COURT: How are these documents
17 relevant to the issue of whether there was a breach of
18 fiduciary duty in providing otherwise confidential
19 documents to a potential purchaser of stock?
20 MR. DiCAMILLO: They are relevant
21 because we don't know exactly what was discussed
22 between the two, between Miss Glassman's side -- Miss
23 Glassman's camp on one side and the Anthos' side --
24 the Anthos and its representatives on the other side.
CHANCERY COURT REPORTERS
43
1 We have alleged that Miss Glassman has breached her
2 fiduciary duties in connection with providing the
3 confidential information. We have also alleged that
4 she's breached her fiduciary duties by creating this
5 whole issue about trying to stop the purchase of the
6 plane and that she's done that merely as a pretext and
7 to create gridlock with respect to the real
8 transaction at issue, which is the sale of her stock.
9 We have also alleged, and Mr. Connelly
10 argued earlier this morning, that the transaction
11 between Miss Glassman and CrossFit -- I'm sorry -- and
12 Anthos potentially harms the company. So we are --
13 clearly conversations or communications between Miss
14 Glassman's side and Anthos' side satisfy the liberal
15 discovery standard of being reasonably calculated to
16 lead to discovery of admissible evidence.
17 I want to spend just a few minutes on
18 the documents that I sent over to the Court yesterday
19 morning. I sent them, you know, before I had the
20 opportunity really to go through them in detail. It
21 was clear from the face of them that Bergeson was
22 clearly involved in the negotiation of the underlying
23 transaction. But I just want to highlight a few of
24 them for the Court, and I am just going to go in Bates
CHANCERY COURT REPORTERS
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1 number order of a few of them.
2 First, starting with document number
3 623, there is an e-mail from an attorney at Cooley,
4 who represents Anthos, saying to Mr. Bergeson and
5 Mr. Dettmer at Gunderson, "Bryan would like to try to
6 get everyone on the phone (including Lauren and her
7 divorce attorney) to see if there is a solution that
8 works for everyone. Let me know if you think that
9 might be helpful. I'm not available on Friday, but
10 would be available on Tuesday."
11 Mr. Bergeson then responds saying,
12 "Tuesday is good for me," but says maybe we shouldn't
13 involve the clients. Let's do a lawyers call only and
14 not have the clients on the phone.
15 So clearly evidence is that there were
16 communications between Bergeson and counsel for Anthos
17 was to not involve Miss Glassman. So Miss Glassman
18 could not give us any testimony on those
19 conversations.
20 Then, if you flip to 650, there is an
21 e-mail from Mr. Bergeson to Cooley. Nobody from
22 Gunderson on it. "Mark, I spoke with Lauren. Please
23 call me." Again, evidencing conversations between
24 counsel which did not involve Miss Glassman, also did
CHANCERY COURT REPORTERS
45
1 not involve Gunderson.
2 Then, 658. There is a draft of these
3 stock -- of the purchase and sale agreement that was
4 drafted by counsel for Anthos forwarded to
5 Mr. Bergeson and also to Mr. Dettmer of Gunderson, but
6 if you go to the page before it, 657, Mr. Bergeson
7 then sends an e-mail to Miss Glassman, doesn't copy
8 anyone from Gunderson, says, "Lauren, we will review
9 and thereafter contact you with our comments."
10 Then, there is an e-mail which I am
11 struggling to find right now but --
12 THE COURT: I get the point.
13 MR. DiCAMILLO: It clearly shows that
14 Miss Park provided comments on the purchase and sale
15 agreement. So the notion that Bergeson was simply a
16 bystander in the transaction is certainly not played
17 out by the documents that have been produced.
18 And I found the e-mail, 690. There is
19 an e-mail from Miss Park to Cooley and Gunderson.
20 "Please find attached a clean redline of the transfer
21 agreement. Please note that these are being sent to
22 all counsel and may be subject to additional comments
23 and changes."
24 So it's evident that Bergeson has
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1 discoverable information that is not available from
2 other sources. There are no facts to support
3 plaintiff's claims that we are simply doing this for
4 harassment. And the point that Mr. Trainer led with
5 that somehow relied on this letter and conversation
6 saying we weren't going to seek a deposition, doesn't
7 make any sense. The notice of deposition was attached
8 to the letter that they keep referencing. And
9 following receipt of that letter, Mr. Trainer called
10 me and said, "You know, are you still going to go
11 forward with these depositions? We don't think you
12 should." So there was clearly no reliance on their
13 side that we promised for all time not to take a
14 deposition.
15 For those reasons, we oppose the
16 motion to quash be denied.
17 THE COURT: All right. Anything else,
18 Mr. Trainer?
19 MR. TRAINER: Yes, Your Honor. They
20 still have not shown any kind of compelling need for
21 this information. We have, as they requested in the
22 letter, indicated in the call, Bergeson has produced
23 all documents that it has -- that are not privileged
24 relating to this matter. So their claim that they
CHANCERY COURT REPORTERS
47
1 were just doing it for protective reasons that's been
2 satisfied. But they've shown no compelling need why
3 they have to depose Miss Glassman's litigation
4 counsel. And again, I think pointing to various
5 e-mails on which Bergeson was copied or that they may
6 have commented on the purchase agreement just doesn't
7 carry the day. They are Miss Glassman's attorney.
8 They are kept in the loop on everything, and they have
9 been. They did not negotiate the deal. They did not
10 draft the document with Anthos. So there is
11 transactional counsel. There is litigation counsel.
12 And I think the only purpose here is really to harass.
13 I am not sure I've been in litigation
14 where right off the bat they go -- the opposing side
15 goes to depose litigation counsel, and they have a
16 high burden to meet under this Court's law. And I
17 don't think they are there.
18 THE COURT: All right. Mr. DiCamillo,
19 is there any plan to depose the -- I am struggling for
20 the name now -- I can't remember what firm, Gunderson
21 firm?
22 MR. DiCAMILLO: Your Honor, we have
23 filed a motion for commission for Gunderson. So we
24 are pursuing discovery against them. Mr. Connelly can
CHANCERY COURT REPORTERS
48
1 jump in if there is anything I am missing. The short
2 answer to the question is: Yes, we are pursuing
3 information from Gunderson, but I don't think that
4 relieves -- that necessarily gets Bergeson off the
5 hook because as the e-mails demonstrate there are
6 certainly conversations pre-Gunderson that only
7 Bergeson was involved in. Even after Gunderson was
8 involved, there are still communications that Bergeson
9 was having without Gunderson people on the phone or in
10 the e-mails. So Gunderson is not going to be the
11 complete story here.
12 THE COURT: All right. I understand.
13 Counsel, this is what I want to do.
14 First of all this material, it seems to me, is
15 discoverable under our broad discovery rules. The
16 question is whether I should allow an invasion of
17 litigation counsel, which may require ultimately the
18 recusal of that counsel on a -- what is really, it
19 seems to me, a peripheral set of issues. It may turn
20 out not to be peripheral, but this is how I want to
21 proceed. Once the defendants have taken the
22 deposition of the Gunderson firm, you can renew this
23 motion. We will have a brief telephone conference,
24 and you can tell me at that time whether you have
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49
1 sufficient evidence to go forward with your claims or
2 how the information you have gotten from Gunderson
3 effects your need to take the deposition of current
4 counsel.
5 Until then, I am going to grant
6 conditionally the motion to quash. It seems to me
7 once the record is more fully developed the defendants
8 will have a better feel for whether this information
9 is truly necessary to their case or not.
10 I am loathe, as you can tell, to allow
11 discovery that may well disqualify counsel. However,
12 if it turns out that after taking the Gunderson firm's
13 deposition that there were significant things in the
14 creation of this deal that were done by litigation
15 counsel that bear on the issues, then I think those
16 depositions will have to be taken. But I would like
17 to have the benefit of the Gunderson information being
18 developed first.
19 Was that clear enough, counsel?
20 MR. TRAINER: Thank you Your Honor.
21 MR. DiCAMILLO: Yes, Your Honor.
22 THE COURT: All right. There is one
23 more motion. I don't know whether you consider it
24 fully briefed, you want to go forward with it or not,
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50
1 and it's the motion to compel from CrossFit.
2 MR. DiCAMILLO: Your Honor, this is
3 Mr. DiCamillo. We did not have the opportunity to
4 submit a reply, but I am happy to go forward here.
5 And then once you have heard from us, you can decide
6 whether further submissions are necessary. But I
7 think it's straightforward enough that we can resolve,
8 at least part of it, this morning.
9 THE COURT: All right. I would be
10 happy to hear you. I will tell you, however, that the
11 benefit of a reply on California law involving the
12 business strategy immunity and the common interest
13 doctrine may very well be helpful, but with that
14 caveat, go ahead.
15 MR. DiCAMILLO: Sure.
16 Your Honor, as I said in connection
17 with the motion to quash, the defendants have two
18 basic claims against Miss Glassman. First, that she
19 breached the fiduciary duty by providing Anthos with
20 confidential information in furtherance of the
21 transaction that we believe is harmful to the company.
22 Also, second, that her objection to the purchase of
23 the plane is pretext designed to create gridlock.
24 In order to attempt to prove our
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1 claims, we are entitled to communications between Miss
2 Glassman and her representatives on the one hand and
3 Anthos and its representatives on the other hand.
4 Miss Glassman has produced some but not all of those
5 communications and is attempting to use various
6 privileges to shield documents that she doesn't like
7 from discovery.
8 The threshold issue here is choice of
9 law. Plaintiff contends that California law applies.
10 However, she cites no case in support of that
11 proposition, the choice of law proposition. The facts
12 that she relies on are that Anthos is a California
13 company, that Anthos hired a California law firm, and
14 that she hired a California law firm. I am certainly
15 not aware of any authority which says that the
16 location of your lawyer dictates choice of law and
17 such a rule wouldn't really make any sense.
18 The more salient facts are that
19 CrossFit is a Delaware corporation. Both Miss
20 Glassman's claims against us and our claims against
21 Miss Glassman involve issues of Delaware law.
22 Plaintiff chose to initiate this litigation in
23 Delaware. The stock purchase agreement between Miss
24 Glassman and Anthos is governed by Delaware law and
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1 has a Delaware choice of forum provision in it, and
2 that item was the subject of negotiation.
3 If you look in the documents that I
4 sent over to Your Honor yesterday morning at Bates No.
5 703, the contract originally out of California choice
6 of law and California choice of forum provision in
7 there that was changed to Delaware, Delaware in both
8 instances. Under those circumstances, Delaware law
9 should apply. And that's exactly what Vice Chancellor
10 Noble held in the 3Com case. The case I'm referring
11 to is 3Com Corporation v. Diamond II Holdings, Inc.
12 decided by the Court on May 31st, 2010. The Westlaw
13 cite is 2010 WL 2280734.
14 I will just read a paragraph from that
15 where Vice Chancellor Noble was faced with a decision
16 on what choice of law should apply to privilege
17 issues. Vice Chancellor Noble noted, "The parties
18 selected Delaware law to govern the Merger Agreement,
19 and chose Delaware as the forum for any disputes
20 arising out of the Merger Agreement. Delaware has
21 considerable interest in ensuring that corporate
22 entities seek a business combination under its laws
23 may expect consistent and predictable treatment when
24 appearing before its Courts. Most mergers and other
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1 important corporate transactions necessarily entail
2 the involvement of business people, attorneys, and
3 advisors located throughout the country, if not the
4 world. Newco's focus on the communications' location,
5 if followed, could foster inconsistency in a context
6 where predictability is at a premium. Indeed, while
7 the record shows that many of challenged
8 communications originated or were received in
9 Massachusetts, several others both originated and were
10 received outside of that jurisdiction. Applying
11 Delaware law in this context would avoid the
12 uncertainty generated by the varying loci of
13 communications involved both in this case and others
14 like it. This, in turn, would foster predictability
15 for parties to major corporate transactions that have
16 availed themselves of Delaware law."
17 So we think under that holding
18 Delaware law should be the appropriate choice of law
19 in this context. Plaintiff is clearly just using
20 California law because she likes the holding in the
21 Oxy case under the common interest privilege. It is
22 curious, however, that when discussing the business
23 strategy privilege, plaintiff makes no mention of
24 California law and argues exclusively under Delaware
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1 law, presumably because she doesn't like the
2 California law and business strategy privilege. And
3 in fact, it's my understanding that California does
4 not recognize the business strategy privilege. I am
5 not prepared to say that authoritatively because I
6 haven't completed the research, but that's at least my
7 preliminary findings.
8 So getting to the meat of the issue,
9 once you are looking at it through a Delaware law
10 lens, I think plaintiff has heavily framed the issues
11 by breaking down the disputes into three categories,
12 looking at communications prior to the signing of the
13 purchase and sale agreement, then in between signing
14 and litigation and then post-litigation. In fact, I
15 think probably only two categories are necessary. So
16 I am just going to focus on pre-signing of the
17 agreement and post-signing of the agreement.
18 Turning first to pre-signing,
19 plaintiff relies exclusively on the California Oxy
20 case to argue that a common interest exists or may
21 exist. They don't even go so far as to say, I don't
22 think, under that case that a common interest
23 definitely exists.
24 However, that case and that holding
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1 are directly at odds with Delaware law. In Zirn v.
2 VLI, this Court made very clear that communications
3 between the merging parties prior to the execution of
4 the merger agreement are not privileged. There have
5 been -- we cited to them over the weekend, a Superior
6 Court case, Titan Investment Fund, which essentially
7 reaches the same conclusions that pre-signing of a
8 contract, the parties to the contract do not have a
9 common interest that is protectable in terms of the
10 legal attorney-client privilege or business strategy.
11 So there is no basis to determine common interest
12 before the signing of an agreement.
13 Drafts of merger agreements, which are
14 exchanged between parties, are typically produced in
15 litigation in this Court. In fact, plaintiff here has
16 produced drafts of the purchase agreement. There is
17 no reason why analysis for the documents she is trying
18 to withhold should be any different from the analysis
19 for drafts of the purchase agreement. It is
20 reasonable to infer that there is something in those
21 documents she doesn't want us to see, but that's not a
22 basis for withholding them.
23 And on the overall business strategy
24 question the types of things they are trying to
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1 withhold don't really fall within business strategy.
2 Business strategy protection doesn't protect plans
3 that are already in place. Purchase agreement has
4 already been signed. The amount of the bid has
5 already been known. We have offered to take these
6 documents on an attorney-eyes-only basis.
7 And I think it's important to focus on
8 what we are not asking for. We are not asking Miss --
9 if there is an internal communication between Miss
10 Glassman and her attorneys, or anyone for that matter,
11 which says, "I would take Anthos offering me X, I am
12 going to counter at Y, but I would really take Z."
13 That's business strategy, and same for Anthos, to the
14 extent Anthos has those internal communications. "We
15 are offering Miss Glassman X. She is countering at Y.
16 We would take Z." That's the kind of thing that the
17 business strategy has historically protected. We are
18 not asking for that.
19 What they are trying to withhold are
20 documents that were exchanged or communications that
21 were exchanged between Miss Glassman and Anthos.
22 Those are not protected by the business strategy
23 privilege, and no common interest privilege can attach
24 prior to the signing of the agreement.
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1 THE COURT: How can I tell what kind
2 of documents are being withheld without a privilege
3 log?
4 MR. DiCAMILLO: Well, Your Honor, on
5 the pre-signing agreement document I don't think you
6 need a privilege log because our position is no
7 privilege at all would possibly attach if the
8 communications were exchanged between Anthos and Miss
9 Glassman.
10 Different for the post-signing, and
11 let me turn to that now. Post-signing. We
12 acknowledge that there is at least an argument that
13 they have some common interest privilege applies
14 post-signing of the agreement. But that doesn't mean
15 that everything is immune from the discovery. Even if
16 there is a common interest that attaches after the
17 signing of the agreement, there's got to be some
18 underlying privilege to protect. For example, there's
19 got to be some rendering of legal advice if there is
20 going to be attorney-client privilege.
21 So in order to evaluate plaintiff's
22 claim of privilege post-signing, I think we do need to
23 know exactly what they are withholding, and I am
24 skeptical that everything they are purporting to
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1 withhold would be protected by any privilege.
2 For example, I am reading from
3 Paragraph 31 of their opposition to the motion to
4 compel. They say, "Counsel for Miss Glassman and
5 Anthos and counsel for Anthos also communicated and
6 strategized over the hurdles to overcome with respect
7 to effectuating the Sale and any opposition they might
8 receive from Mr. Glassman. These strategic
9 communications with respect to the reaction to the
10 Sale by CrossFit, Mr. Glassman and others are
11 protected by the attorney-client privilege, the work
12 product doctrine and the common interest doctrine."
13 That doesn't sound like legal advice
14 to me. I am not saying there couldn't be some legal
15 advice in there, but I don't think with respect to the
16 post-signing communications we need a log. We asked
17 them to provide a log on Monday, but they haven't
18 produced them. That's our argument on the motion to
19 compel.
20 But let me raise one other issue which
21 is related. The parties, as I indicated to the Court
22 in my letter yesterday, worked over the Labor Day
23 weekend. It started working before that to deal with
24 things like deposition scheduling, scope of document
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1 production, and late last week the parties sketched
2 out a preliminary plan for the scheduling of
3 depositions.
4 On Friday, Mr. Trainer, Mr. Connelly,
5 and I had a call, and we slated Miss Glassman's
6 deposition in for tomorrow. And we indicated that
7 because of the issues on the motion to compel that,
8 you know, we very well might need to change that if we
9 were going to be getting additional documents so that
10 we didn't have the need to redepose people, and we
11 also wanted to get all the documents that we were
12 entitled to prior to taking Miss Glassman's
13 deposition.
14 On Sunday, Mr. Trainer sent an e-mail
15 to Mr. Connelly and I outlining his position on
16 various of the issues, which are the subject of his
17 motion to compel. And Mr. Connelly responded back, as
18 he had on Friday, "Thanks. You know, we will look at
19 this and evaluate it, but we really think we need to
20 push off Miss Glassman." And you know, we made
21 efforts to move around some other depositions so that
22 we could fit others into scheduling for tomorrow.
23 On a call yesterday, we again
24 indicated our position that we think Miss Glassman
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1 should be moved, and for the first time, plaintiffs
2 indicated that they were not willing to move her
3 deposition.
4 So notwithstanding the fact that we
5 had mentioned it on Friday and Sunday, they never
6 said, "Oh, no. We are not moving her." They remained
7 silent. So we assumed -- obviously incorrectly --
8 that they were agreeable to moving her, and it now
9 turns out that they are not. Mr. Connelly is in
10 Phoenix. He is prepared to take her deposition
11 tomorrow, if necessary, but we really think that the
12 deposition should be pushed off. There is no reason
13 that it has to go forward tomorrow. And if there is a
14 possibility that we are going to get more documents,
15 we think that we should get those documents first
16 before we have to depose her.
17 Now, we are on obviously a schedule.
18 Plaintiffs have a brief. We have preliminary
19 injunction scheduled for the end of September.
20 Plaintiff's opening brief is due fairly shortly after
21 the close of depositions, but we can certainly move
22 around dates with respect to the briefing. And the
23 reality is -- I am not sure that we really need this
24 hearing before September 30th. Obviously, it's
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1 scheduled, and we are prepared to go forward with it,
2 but I am not sure it's really necessary in the overall
3 context of things.
4 Your Honor will recall that the last
5 time we were together on an application for TRO an
6 issue had arisen that Cirrus, the seller of the
7 aircraft, had asked us for further assurances that we
8 were going to complete the sale, complete the purchase
9 on September 30th. Plaintiffs wanted us not to
10 provide any assurances. Your Honor denied TRO and
11 told us, you know, there is a possibility that you can
12 enjoin the sale.
13 We sent a letter to Cirrus following
14 that hearing which indicated that as far as the
15 company was concerned we intended to complete the
16 purchase. We alerted Cirrus to the pendency of this
17 litigation, the fact that Miss Glassman was trying to
18 stop the purchase, and that we had -- that the
19 purchase could potentially be stopped.
20 However, Mr. Glassman indicated, as I
21 am happy to send Your Honor a copy of this letter,
22 "However, in the event that CrossFit cannot complete
23 the purchase of the airplane due to Miss Glassman's
24 litigation or for any other reason, I hereby undertake
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1 to complete the acquisition, on the same terms as
2 those previously agreed upon by you and CrossFit, in
3 my personal capacity and on my own behalf."
4 So the reality is, as I said at the
5 last hearing, they're never going to be able to show
6 irreparable harm because if the corporation can't do
7 this purchase, Mr. Glassman is committed in writing to
8 do it in his personal capacity.
9 So to the extent they are -- the
10 long-winded way, to the extent there are scheduling
11 issues, we can work them out. We don't think Miss
12 Glassman's deposition should have to go forward
13 tomorrow.
14 And, you know, on a related topic,
15 Your Honor has indicated that we need to take
16 Gunderson before we take Bergeson's deposition, and we
17 would just ask that plaintiffs assist us in
18 facilitating that deposition. We are having problems
19 scheduling the deposition of the plaintiff's financial
20 advisor. We have asked for assistance on that one as
21 well. But certainly if the Court's ruling is that we
22 have to take Gunderson before Bergeson, we need some
23 help from plaintiff to get that accomplished.
24 THE COURT: All right. Thank you.
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1 Mr. Trainer?
2 MR. TRAINER: Thank you, Your Honor.
3 If I might, can I take it in reverse
4 there?
5 THE COURT: Sure.
6 MR. TRAINER: Deal with Miss
7 Glassman's deposition first.
8 THE COURT: Sure.
9 MR. TRAINER: This is the first I've
10 heard of flexibility on the September 30th date for
11 the purchase of the aircraft, so not really ready to
12 respond to that.
13 THE COURT: I'm -- maybe I am laboring
14 under a misconception. I thought that that hearing
15 would involve only whether Mr. Glassman had acted
16 withing the scope of his authority in binding the
17 corporation or not and, therefore, whether the sale of
18 the airplane -- and there are other issues as well,
19 but that's the predicate one -- whether the sale or
20 the purchase of the airplane should be enjoined.
21 MR. TRAINER: That was my
22 understanding as well, Your Honor.
23 THE COURT: So I don't know what these
24 other -- I understand there is a theory on the part of
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1 the defendants that this litigation itself is all a
2 ruse and a stalking horse to gain leverage with
3 respect to this sale of Miss Glassman's shares, but I
4 don't know what that has to do with the preliminary
5 injunction hearing itself.
6 So I will let Mr. DiCamillo address
7 that as well, but that is why I am having a little
8 trouble understanding what difference it makes whether
9 we get all these depositions in before that
10 preliminary injunction hearing.
11 MR. DiCAMILLO: Your Honor, this is
12 Mr. DiCamillo. Let me address that.
13 Certainly, the primary issue on the
14 table is plaintiff's motion for preliminary injunction
15 with respect to the sale. The other issues overlap,
16 and we've had discussions with Mr. Trainer about this.
17 We've discussed whether there were ways we could focus
18 the deposition now on just the plane issue, and both
19 parties agreed that there was really no easy way to do
20 that because a lot of our defense to the preliminary
21 injunction application is going to involve the
22 plaintiff's laches, plaintiff's unclean hands,
23 plaintiff's breach of fiduciary duty in connection
24 with all of this being a pretext and designed to
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1 create gridlock. So the issues are intertwined.
2 So while I agree with Your Honor that
3 the only thing on the table at the end of September is
4 their motion to enjoin the purchase of the plane, all
5 the issues are intertwined.
6 THE COURT: Well, tell me this,
7 Mr. DiCamillo, why do we even need -- maybe this
8 should be addressed to Mr. Trainer, but if there is an
9 undertaking by Mr. Glassman that if I ultimately
10 decide that the purchase of the aircraft by the
11 corporation is improper, that he is willing to
12 undertake to pay for the airplane himself -- and I
13 assume that would mean the entire purchase price and
14 not just the remainder after the down payment -- but
15 if that's the case, why do we even need a preliminary
16 injunction hearing?
17 MR. DiCAMILLO: That's my exact point,
18 Your Honor. I don't think we do.
19 THE COURT: All right. Let me hear
20 from Mr. Trainer then.
21 MR. TRAINER: Your Honor, a couple
22 things. I am a little confused by all of that for
23 several reasons.
24 First of all, we have not, to my
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1 knowledge, seen a final version of the further
2 assurance letter that was given to Cirrus Aircraft.
3 Second, as you will recall when we were before Your
4 Honor in early August, the issue was that the company
5 was giving further assurances, and that is what we
6 wanted to stop. The draft of the further assurance
7 letter, at least the one I had seen, had Mr. Glassman
8 giving further assurances which was certainly not what
9 we, as the plaintiffs, were led to believe or I think
10 Your Honor was led to believe when we were heard on
11 TRO.
12 THE COURT: That's correct. But
13 doesn't it obviate the potential harm that the TRO
14 would prevent?
15 MR. TRAINER: If there is going to be
16 no question that the company is not going to buy the
17 airplane, Your Honor, I agree. If Mr. Glassman has
18 the wherewithal to do what is represented in the draft
19 letter, I agree with that too. So in other words, if
20 there is no exposure to the company, I agree we do not
21 need the preliminary injunction hearing.
22 THE COURT: All right. Why don't you
23 address the other issues that have been raised in the
24 motion to compel?
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1 MR. TRAINER: Yes, Your Honor. I was
2 working backward.
3 THE COURT: I know you were. That's
4 fair enough. I am not suggesting you weren't doing
5 what you told me you would do.
6 MR. TRAINER: Thank you, Your Honor.
7 As Your Honor pointed out, the
8 defendants have this concept that the whole airplane
9 litigation was or is a way to gridlock the company. I
10 can assure the Court that there is documents and
11 e-mails from CrossFit's chief financial officer that
12 show precisely a different story and show how quickly
13 Miss Glassman moved when she did find out that the
14 plane purchase was going forward.
15 But stepping back from that, Miss
16 Glassman is not the snarky character that the
17 defendants would have the Court believe. She wants to
18 monetize her investment in CrossFit. She wants to be
19 done with CrossFit. She wants her divorce finalized.
20 She is a single mother of four. She does not enjoy
21 this litigation, and frankly, she's not wild about
22 having her deposition taken tomorrow. It's been
23 scheduled.
24 Yes, there was some indication that if
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1 there were documents that maybe we should produce
2 late, maybe we should think about rescheduling. But
3 she is ready to have her deposition taken tomorrow. I
4 am headed out there tonight. Mr. Bergeson is already
5 there. As I say, it's not something she relishes. We
6 should just do it. It's one of the big depositions in
7 this case. It's been scheduled. If there are
8 documents that Your Honor would order be produced
9 subsequent, we can do a clean-up deposition. But its
10 one that Miss Glassman has been ready for, and I don't
11 think there is any real practical need to postpone it.
12 THE COURT: All right. Let's turn to
13 the motion to compel.
14 MR. TRAINER: Your Honor, on the
15 substance of the motion to compel, Your Honor -- and I
16 alluded to this earlier -- the big difference in this
17 case is that Mr. Glassman, who is represented by the
18 same counsel that represents the company, is a
19 competing bidder. And so we do not think that he
20 should be given documents that would in anyway give
21 him an inside track to the bids that he has made as
22 recently, as I said earlier, last week. And Your
23 Honor the business strategy privilege is to prevent a
24 party from using litigation in this court to get
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1 certain advantages in the commercial world. And I
2 really do have to give defendant's counsel credit
3 since they, in their request for production, they
4 weren't subtle about it.
5 Request Number 14 says, "All documents
6 regarding Anthos' attempt to value CrossFit or your
7 equity interest therein, including any valuation,
8 analysis undertaken, and any documents or other
9 information used as inputs in such evaluation and
10 analysis."
11 Fifteen. "All documents regarding
12 Anthos' management of and/or goals for CrossFit after
13 the consummation of the purchase transaction."
14 Sixteen. "All documents regarding
15 Anthos' plans related to current senior management."
16 That's just an example, Your Honor.
17 So they are going right to the heart
18 of Anthos' strategy, right to the heart of the
19 valuation and negotiation that resulted in this deal.
20 So I think that is clearly protected for someone who
21 is, on the other side, trying to match or exceed the
22 offer that has been made by Anthos. And in all of
23 that, Your Honor --
24 THE COURT: Is that still an open
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1 possibility? I thought this transaction was set
2 except for the TRO and the prohibition on sale by the
3 Arizona court? Is this something that your client
4 views as an ongoing negotiation for the stock that she
5 owns?
6 MR. TRAINER: My client doesn't, Your
7 Honor, but I think it's pretty clear that the
8 defendants do consider it ongoing negotiations. And
9 that perhaps if they propose a price that is high
10 enough, Miss Glassman will risk breaching her
11 agreement with Anthos and accepting that offer because
12 they are continuing to bid.
13 THE COURT: All right. But isn't it
14 really your perspective that I should be interested
15 in?
16 MR. TRAINER: Well, Your Honor, I
17 think in this situation, yes, it's our perspective.
18 But they are asking for information should, you know,
19 one of the covenants not be met, should Anthos --
20 should it go past December 31st, should Anthos decide
21 that it has the right not to consummate the
22 transaction. It really puts Mr. Glassman in the
23 captain's seat because, one, he succeeded in driving
24 away Anthos, and, two, he has all the information
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1 relating to the evaluation and the bidding between
2 Anthos and Miss Glassman.
3 THE COURT: Okay. I understand your
4 argument.
5 MR. TRAINER: Okay. And so in all of
6 that, Your Honor, we have really just refused -- and
7 this is on the business strategy privilege -- refused
8 to produce a very narrow set of documents. And they
9 are specifically valuation documents for either Miss
10 Glassman or Anthos. Miss Glassman or Anthos plans to
11 bring the sale to a close because, as we've seen, the
12 defendants are working very hard to prevent exactly
13 that. We have also refused to produce documents by
14 indicating how or what manner Miss Glassman judged
15 Anthos' proposal and her decision as just how to
16 respond, and also any documents that may reflect
17 Anthos' current and future plans for CrossFit. Other
18 than that on the business strategy, Your Honor, we
19 have produced everything.
20 As to the choice of law, I am not
21 nearly as clever as Mr. DiCamillo gives me credit for.
22 It seems that the issue of what is to be produced in
23 this litigation should be controlled by Delaware's
24 business strategy, white knight, whatever, immunity.
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1 I think communications that occurred
2 prior to the litigation solely in California should be
3 controlled by the California rules of privilege. And
4 that's why we cited the Oxy Resources case and also
5 the STI Outdoor case to Your Honor. And I think it's
6 especially appropriate in this case where the other
7 side demanding the documents is a competing bidder. I
8 think it might be different if it were simply the
9 company asking for the documents and the company was
10 represented by separate counsel, but saying we have
11 agreed to attorneys-eyes-only protections for these
12 documents when the company is also represented in
13 competing bidder -- or counsel for the company is also
14 representing the competing bidder is just wholly
15 inadequate.
16 So we think we have taken a very
17 narrow approach to the business strategy here. We
18 also think the fact that communications regarding
19 these strategies that were shared between counsel for
20 Anthos and counsel for Miss Glassman both before and
21 after the execution of the purchase agreement fall
22 well within that privilege, and we do not believe they
23 should be produced.
24 THE COURT: All right. Thank you.
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1 Anything else, Mr. DiCamillo?
2 MR. DiCAMILLO: Just very briefly,
3 Your Honor.
4 With respect to the business strategy
5 argument, Mr. Trainer just said they're taking a very
6 narrow view of it. I think in actuality they're
7 expanding it beyond a position that its never taken
8 before. They are -- the business strategy privilege
9 is meant to protect internal communications. They are
10 trying to protect communications that went back and
11 forth between Miss Glassman and Anthos during a
12 setting when they were adversaries. That is not
13 something that the business strategy privilege has
14 ever protected.
15 With respect to the letter to Cirrus,
16 it has been produced to plaintiff. The document
17 number is CRF1123. As I said before, I am going to
18 provide a copy to Your Honor since we talked about it
19 so much today.
20 And on the note of Miss Glassman's
21 deposition, it's not just a simple matter of well
22 let's do it tomorrow and then if you get more
23 documents, we can just do it again. You know, part of
24 taking a deposition is knowing what is out there,
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1 knowing the universe of what is out there and --
2 THE COURT: I don't need anymore
3 argument on -- I understand the issues with respect to
4 the deposition. Anything else?
5 MR. DiCAMILLO: I have nothing else.
6 THE COURT: I didn't mean to cut you
7 off, but I do understand that.
8 Counsel, this is what I think we need
9 to do first, because I think there will be probably
10 more production. I think the deposition of Miss
11 Glassman needs to be rescheduled. And I say that for
12 two reasons. One is that I believe there will be
13 other documents produced, but the other involves
14 whether we are going to go forward on the schedule
15 that we have set up. It seems to me that if
16 Mr. Glassman's position is that he is -- and
17 obviously, this is going to have to be demonstrated.
18 There need to be affidavits filed or some other
19 demonstration, but if he is both willing and
20 financially able to finance the purchase of this plane
21 himself, if I ultimately determine that he did not
22 have the authority to cause the corporation to
23 purchase the plane, either because it was outside of
24 the scope of his authority as an officer or because it
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1 was a breach of fiduciary duty or some other issue, if
2 that is the case, then there can't be irreparable
3 harm, and we should simply go forward to a
4 determination of the legal issues. And I don't need a
5 preliminary injunction hearing.
6 So I expect both sides to get
7 together. Mr. DiCamillo, you are obviously going to
8 have to demonstrate those two things. I don't think
9 the letter itself has done it. But it seems to me
10 likely that, if that's the case, we are not going to
11 need a preliminary injunction hearing at the end of
12 September. So that changes the whole structure of
13 this matter it seems to me.
14 Second, I would appreciate some
15 briefing on the issue of choice of law and the
16 application of these two doctrines under California
17 law, if that proves to be the case. I also think I
18 need a privilege log in order to resolve these
19 questions in a reasonable manner. So I am going to
20 direct you to do both of those things on a schedule
21 that I am going to let you set.
22 Let me say two preliminary things. It
23 seems to me unlikely that the common interest doctrine
24 is going to prevent the production of documents that
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1 were circulated before there was an agreement when
2 there was still an adversary position between the
3 parties, number one, and number two, I have the
4 authority -- and I intend to exercise it -- to prevent
5 the production of documents where it appears to me the
6 primary purpose of that production is to give one of
7 the parties, Mr. Glassman, a leg up in the litigation.
8 He certainly is entitled to documents to prosecute in
9 his cross claims, but not in his position as a bidder
10 for Miss Glassman's shares. I am concerned about that
11 issue. And I intend to use my inherent power to
12 prevent that from happening. I am telling you this
13 before you do the additional work because it seems to
14 me that there should be an agreement between the
15 parties or among the parties as to what is producible.
16 This case is generating a lot of
17 motion practice, and it seems to me that it's not
18 helpful motion practice for the most part. I
19 understand that there are legitimate issues between
20 the parties that have to be resolved, some of them
21 have to be resolved by the Court, but issues such as
22 the timing of depositions it seems to me, if those are
23 all referred to the Court, then the process breaks
24 down and it grinds to a halt.
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1 My broader point is this, this is, at
2 its heart, a divorce matter and distribution of assets
3 between these two individuals. I don't know if there
4 is any possibility of settlement. I don't know what
5 is going on in the Arizona Family Court litigation.
6 But this is turning into a litigation where there is
7 more litigation than I think is probably warranted.
8 So I would urge you to get together, try to resolve
9 the underlying issues if you can. If you can't, try
10 to resolve the discovery issues, and to the extent you
11 can't, I am going to require and ask you to put your
12 heads together and come up with a schedule,
13 supplemental briefing, and a privilege log on the
14 common interests and the business strategy doctrines.
15 But I have given you kind of how I am
16 looking at the issue now in the hopes that it will aid
17 your settlement. So I am going to ask you for a time
18 table, Mr. DiCamillo, within which you can have
19 affidavits submitted that would tend to obviate the
20 need for the preliminary injunction hearing.
21 MR. DiCAMILLO: Certainly, Your Honor.
22 I think we could get those promptly. As you know,
23 there is stuff going on in Arizona today. So I
24 probably can't get them today, but you know,
CHANCERY COURT REPORTERS
78
1 Mr. Connelly can correct me if I am wrong, I don't see
2 any reason why we can't provide them by the end of the
3 week.
4 MR. CONNELLY: I agree.
5 THE COURT: All right. What I am
6 going to do is this: If you have your calendars
7 ready, let me set up another telephone conference in
8 two weeks, and we can discuss the scheduling going
9 forward. Two weeks from today would be the 19th. I
10 can do it in the afternoon of the 19th if that would
11 suit you.
12 MR. TRAINER: That's fine by
13 plaintiff, Your Honor.
14 MR. DiCAMILLO: Mr. DiCamillo. It
15 works for me.
16 THE COURT: All right. Let's say
17 1:00, September 19th, we will get back together. In
18 the meantime, obviously, discuss the discovery issues.
19 If you can't resolve them promptly, give me a letter
20 telling me under what schedule you are going to submit
21 privilege logs and the supplemental briefing, and I
22 will decide -- as soon as I get those, I will decide
23 that promptly, I promise you.
24 Anything else we can do here this
CHANCERY COURT REPORTERS
79
1 morning?
2 MR. DiCAMILLO: Not from the
3 defendants, Your Honor. I think all parties
4 appreciate the time and patience you've had with us on
5 this matter.
6 MR. TRAINER: Absolutely, Your Honor,
7 for plaintiff, appreciate it.
8 THE COURT: All right. Well, I
9 appreciate your willingness to work together. It
10 sounds like some of these issues may fall away. And,
11 of course, I am anxious to hear what happens in the
12 Arizona litigation if I don't talk to you before. If
13 you need me, obviously, you know how to get a hold of
14 me. Otherwise, I will talk to you at 1:00 on
15 September 19th. Thank you very much, counsel.
16 Good-bye.
17 (Teleconference concluded at 11:40 a.m.)
18
19 - - -
20
21
22
23
24
CHANCERY COURT REPORTERS
80
CERTIFICATE
I, CHRISTINE L. QUINN, Official
Court Reporter for the Court of Chancery of the State
of Delaware, do hereby certify that the foregoing
pages numbered 3 through 79 contain a true and correct
transcription of the proceedings as stenographically
reported by me at the hearing in the above cause
before the Vice Chancellor of the State of Delaware,
on the date therein indicated.
IN WITNESS WHEREOF I have hereunto set
my hand this 14th day of September, 2012.
/s/ Christine L. Quinn
-------------------------
Official Court Reporter
of the Chancery Court
State of Delaware
Certificate Number: 123-PS
Expiration: Permanent
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