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Klig v. Deloitte LLP, et al., C.A. No. 4993-VCL (Del. Ch. Sept. 7, 2010) (Vice Chancellor Laster)

September 7, 2010

In this memorandum opinion, the Court of Chancery declined to certify for interlocutory appeal its August 6, 2010 bench ruling directing defendants to produce documents listed on their privilege log (the “Discovery Ruling”) because the Discovery Ruling did not present a conflicting decision, an original question of law, or an unsettled question. The narrow matter at issue in this opinion concerned the adequacy of Deloitte’s privilege log which consisted of 35 pages and 342 entries, 332 of which (97%) repeated verbatim one of five identical phrases under the “Description” heading and failed to identify any of the parties on the privilege log who were attorneys. In the Discovery Ruling, Vice Chancellor Laster noted that the Court’s previous willingness to allow practitioners to redo their privilege logs after such inadequacies was a “terrible idea” because it failed to provide any incentive for attorneys to act responsibly in preparing a privilege log in the first place. As such, the Court stated in the Discovery Ruling that “[a]n improperly asserted claim of privilege is no claim at all. It’s waived” and ordered Deloitte to produce the inadequately described documents.

In seeking certification of its interlocutory appeal, Deloitte argued that the Court’s Discovery Ruling conflicted with other trial court decisions by creating a new “one-strike-and-you’re-out” rule for parties asserting privileges in the Court of Chancery and also by making clear that such a harsh rule would apply in all cases going forward. In rejecting this argument, the Court first pointed out that Deloitte itself had previously recognized in its motion to compel papers that “a party must include information on its privilege log identifying ‘the subject [matter] of the  communication sufficient to show why the privilege applies’” and that waiver was an appropriate remedy for an inadequate description. The Court then clarified that the Discovery Ruling did not mandate the production of inadequately described documents for every case involving inadequate descriptions and that an order requiring the supplementation of entries could very well be the appropriate remedy for a party that has attempted in good faith to provide meaningful descriptions. In the Court’s mind, however, Deloitte fell woefully short of a good faith effort given that they failed to provide anyone’s corporate position, did not identify the parties who were attorneys, did not provide sufficient facts in its descriptions and refused to supplement its log when initially asked by Klig to do so.

The Court failed to find any conflict between the Discovery Ruling and the Cephalon and Continental Casualty decisions cited by Deloitte as those cases actually provided a ringing endorsement of both the Court’s “meaningful oversight of the privilege log process” and its discretion in crafting an appropriate remedy for deficient privilege logs. Additionally, the Court noted that neither placing the burden of proving that a privilege exists on the party asserting the privilege nor utilizing waiver as a remedy for an inadequate assertion of privilege were novel ideas, with both having previously been put forth in state and federal case law as well as leading legal treatises. Finally, Deloitte sought a stay of the Discovery Ruling pending appeal. While Deloitte’s likelihood of success was small, the consequences of the Discovery Ruling could not be undone once Deloitte produced the inadequately described documents. Thus, the Court granted a limited stay of 20 days, sufficient to enable Deloitte to pursue its application for certification of an interlocutory appeal to the Delaware Supreme Court.

The full opinion is available here