The Delaware Court of Chancery recently addressed a nearly unprecedented issue: the discovery and privilege implications of a special litigation committee’s (SLC) decision to hand over control of a company claim to a stockholder derivative plaintiff who initiated the claim and survived a motion to dismiss. In In re Oracle Derivative Litig., 2019 WL 6522297 (Del. Ch. Dec. 4, 2019), Vice Chancellor Sam Glasscock III determined that it would promote Oracle’s best interests to have the derivative plaintiff “proceed with the litigation asset” with the benefit of the enhanced asset value created by the SLC’s investigative work. The framework established by the court to provide the plaintiff with the benefit of the SLC’s work has expansive disclosure aspects and important boundaries to be understood by practitioners.

Background

Oracle stockholders brought derivative fiduciary duty claims challenging Oracle’s acquisition of NetSuite—a company approximately 40% owned by Lawrence Ellison, Oracle’s founder, largest stockholder, and board Chairman. The stockholder Lead Plaintiff survived a motion to dismiss for failure to make pre-suit demand and to state a claim, prompting Oracle to form the SLC, which consisted of three independent directors, to consider whether pursuing the derivative claims was in Oracle’s best interest. Pursuant to the framework of Zapata v. Maldonado, 430 A.2d 779 (Del. 1981), the SLC retained separate counsel and a financial advisor, and obtained a stay of the litigation while it investigated the claim. After a year-long investigation in which Oracle, individual defendants, and various third parties produced more than 1.4 million documents and the SLC conducted 34 interviews, the SLC informed the court that it had determined that it was the company’s best interest to explore settlement through mediation. The court denied Plaintiff’s request to participate in the mediation and obtain interim production of documents received by the SLC. After the mediation was unsuccessful, the SLC reported to the court that it had determined that, rather than pursue the litigation itself, the Lead Plaintiff should be allowed to proceed with the derivative litigation on behalf of Oracle.