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Espinoza v. Hewlett-Packard Co., C.A. No. 6000-VCP (Del. Ch. Mar. 17, 2011) (Parsons, V.C.)

March 17, 2011

In this opinion, the Court of Chancery ruled on the motion of intervenor Mark V. Hurd, the former Chairman of the Board and CEO of Hewlett-Packard Company (“HP” or the “Company”), to maintain the sealing of a letter filed with the Court relating to his well-publicized departure from HP. In August 2010, Mr. Hurd resigned from HP amid allegations of an inappropriate relationship with a former HP contractor, Jodie Fisher. Those allegations surfaced within the Company after Ms. Fisher hired attorney Gloria Allred, who sent a letter to Mr. Hurd chronicling his purported inappropriate conduct towards Ms. Fisher and otherwise outlining the potential grounds for suit against him and HP (the “Allred Letter”). Upon receipt of the Allred Letter, Mr. Hurd presented it to HP’s counsel and, ultimately, the Board, prompting an internal investigation into the alleged misconduct and resulting in Mr. Hurd’s resignation.

Following the announcement of Mr. Hurd’s resignation and the terms of his separation, stockholder Ernesto Espinoza (“Plaintiff’) made a demand upon HP for inspection of certain books and records relating to the circumstances of Mr. Hurd’s departure. Responding to his demand, HP provided the plaintiff with, among other requested documents, the Allred Letter. The issue before the Court arose when the plaintiff subsequently brought this action under Section 220 of the Delaware General Corporation Law to inspect additional books and records and attached the Allred Letter to his complaint. To Mr. Hurd’s benefit, the plaintiff provisionally filed the Allred Letter under seal, but neither the plaintiff nor the defendant HP believed that it was confidential. Mr. Hurd, therefore, intervened in the action and moved for the continued sealing of the document, claiming “good cause” under Court of Chancery Rule 5(g), which codifies the default position that documents filed with the Court are open and accessible to the public unless a party seeking to file or maintain a document under seal demonstrates “good cause.” In applying that rule, the Court must balance the public’s right to open government and judicial proceedings with the need to protect sensitive information of the parties. Generally speaking, “good cause” exists where sealed documents contain trade secrets, nonpublic financial information, and third-party confidential material. Here, the Court had to determine whether the Allred Letter constituted third-party confidential material, and particularly whether Mr. Hurd’s claimed privacy interests outweighed the public’s interest in disclosure.

Determining that California law governed and gave rise to Mr. Hurd’s claimed privacy interests, the Court considered a number of theories under California constitutional, statutory, procedural, and common law, including a right to privacy under the state’s constitution and tort law, as well as evidentiary and procedural rules affording certain protections to settlement offers, employment records, and communications made in connection with mediation. In considering Mr. Hurd’s right to and expectation of privacy, the Court found there was insufficient evidence that the parties had a reasonable expectation of privacy when the Allred Letter was sent, as it was addressed to Mr. Hurd in his official capacity as CEO of HP, was delivered to HP’s office, and contemplated claims against HP and Mr. Hurd relating to Ms. Fisher’s relationship with him as an HP contractor. Moreover, the Court found that the information in the Allred Letter was of legitimate public concern. First, disclosure of the Allred Letter “would be valuable to a society concerned with corporate governance and integrity.” Second, apart from certain statements in the letter regarding Mr. Hurd’s family life, unsealing the remaining portions of the letter would not result in an excessive intrusion into Mr. Hurd’s private affairs, as they “simply would provide more details concerning a matter of public knowledge.” Third, even if Mr. Hurd was not a public official by virtue of the fact that he was the CEO of a public company, he acceded to notoriety when he left HP, and there was a direct relationship between that accession to the spotlight and the contents of the Allred Letter, making the letter itself newsworthy.

Having determined that Mr. Hurd’s privacy rights afforded him minimal protection under the circumstances, the Court considered his argument that the Allred Letter was prepared for the purpose of, in the course of, or pursuant to mediation. Noting that none of the parties identified a California case addressing the situation before it – a party seeking to invoke the mediation privilege to protect its opening letter notifying the opposing party of claims against him, makes no mention of a desire for mediation, and precedes any discussions regarding mediation – the Court rejected Mr. Hurd’s argument.  The Court also found the settlement privilege inapplicable because any claimed settlement discussions in the Allred Letter being revealed now were not being offered to prove Mr. Hurd’s liability as to Ms. Fisher. Similarly, the California statute governing an employee’s access to his own employment file did not apply because it did not afford employees the further right to shield records from the public. Thus, these additional theories failed to provide any greater protection.

After carefully considering Mr. Hurd’s arguments under California law, the Court returned to the interests favoring public disclosure, holding that Mr. Hurd failed to demonstrate “good cause” sufficient to overcome the default rule in Court of Chancery Rule 5(g) that documents filed with the Court are open and accessible to the public. Accordingly, the Court ordered that the Allred Letter be unsealed, subject to the redaction of certain limited passages regarding Mr. Hurd’s family life.

The full opinion is available here