Court Opinion

ID: 9930641
Source: CourtListenerOpinion
Date Created: 2024-02-07 15:02:53.77559+00
Date Added: 2024-06-11T11:19:47.207781
License: Public Domain

COURT OF CHANCERY
                                       OF THE
                                 STATE OF DELAWARE
   BONNIE W. DAVID                                                COURT OF CHANCERY COURTHOUSE
MAGISTRATE IN CHANCERY                                                      34 THE CIRCLE
                                                                        GEORGETOWN, DE 19947

                                       February 6, 2024

       Steven L. Caponi, Esquire                 Richard P. Rollo, Esquire
       Megan O’Connor, Esquire                   Travis S. Hunter, Esquire
       K&L Gates LLP                             John M. O’Toole, Esquire
       600 N. King Street, Suite 901             Sandy Jing Xu, Esquire
       Wilmington, Delaware 19801                Richards Layton & Finger PA
                                                 920 N. King Street
                                                 Wilmington, Delaware 19801

            RE:   Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
                  C.A. No. 2023-0791-BWD

   Dear Counsel:

            This letter addresses the parties’ competing forms of a Final Order and

   Judgment to implement my November 21, 2023 post-trial final report (the “Post-

   Trial Final Report”) and December 4, 2023 letter report concerning Plaintiff’s

   requests for clarification (the “Letter Report”). I assume the reader’s familiarity with

   the underlying dispute as detailed in those reports.1

            The parties raise two points of disagreement. First, Paragraph 4 of Plaintiff’s

   proposed Final Order and Judgment states that “[a]s long as [Plaintiff] is a director

   1
     See Mellado v. ACPDO Parent Inc., 2023 WL 8086840 (Del. Ch. Nov. 21, 2023)
   [hereinafter, “Post-Trial Final Report”]; Mellado v. ACPDO Parent Inc., 2023 WL
   8363627 (Del. Ch. Dec. 4, 2023) [hereinafter, “Letter Report”].
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
February 6, 2024
Page 2 of 6

of ACPDO Parent, ACPDO Parent has an ongoing statutory obligation to produce

books and records to [Plaintiff] so he can reasonably be expected to perform his

fiduciary duties.” Pl.’s Jan. 31 Letter, Ex. A [hereinafter, “Pl.’s Proposed Final

Order and Judgment”] ¶ 4, Dkt. 105. Plaintiff asserts that without this language, he

will have to “serially prosecute 220 Action after 220 Action against Defendant in

order to obtain documents the Court has already found Plaintiff is entitled to

receive.” Pl.’s Jan. 31 Letter at 2. The Company, on the other hand, argues that

“Plaintiff’s proposal would require the Company to produce unenumerated ‘books

and records’ as a general matter[,]” and that Plaintiff’s position wrongly

“presupposes that the Company will reject any future inspection demands.” Def.’s

Feb. 1 Letter at 3, Dkt. 106.

       As noted in the Letter Report, “[t]he parties did not brief, and therefore the

[Post-Trial] Final Report d[id] not explicitly address, the Company’s ongoing

obligations to provide information to directors.” Letter Report at *2. While the

Letter Report acknowledged the Company’s “ongoing obligation” to produce books

and records,2 the Company represents it will comply “with its obligations under

2
  See Letter Report at *2; see also Post-Trial Final Report at *23 (quoting Bizzari v.
Suburban Waste Servs., Inc., 2016 WL 4540292, at *8 (Del. Ch. Aug. 30, 2016)); id. at
*32 (explaining that “‘access to corporate books and records is fundamentally important to
the performance of the director’s fiduciary duties’” (quoting Carlson v. Hallinan, 925 A.2d
506, 545 n.267 (Del. Ch. 2006))); id. at *41 (noting “the ‘fundamental importance’ of ‘[t]he
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
February 6, 2024
Page 3 of 6

Delaware law,” and consider future demands in good faith. Def.’s February 1 Letter

at 3. Given that the parties did not address the request in pre-trial briefing, 3 the Final

Order and Judgment will not obligate the Company to do what, in any event, the law

already requires.

       Second, Paragraph 5 of Plaintiff’s proposed Final Order and Judgment

requires the Company to “substantially complete its production of documents . . .

within 10 business days of this order becoming final,” while the Company’s proposal

contemplates substantial production “within 10 business days after the parties enter

into a confidentiality agreement.” Pl.’s Proposed Final Order and Judgment ¶ 5;

Def.’s Feb. 1 Letter, Ex. C [hereinafter, “Def.’s Proposed Final Order and

Judgment”] ¶ 4. The Post-Trial Final Report explained that “Plaintiff . . . repeatedly

expressed his willingness to enter into a confidentiality agreement” and directed the

rights of directors to access the corporate books and records’” (quoting Holdgreiwe v.
Nostalgia Network, Inc., 1993 WL 144604, at *3 (Del. Ch. Apr. 29, 1993), and Henshaw
v. Am. Cement Corp., 252 A.2d 125, 128 (Del. Ch. 1969))); id. at *46 n.110 (cautioning
that the Company should not interpret the Court’s denial of the Plaintiff’s request as
“‘blanket permission to withhold information from [him] going forward because he
remains a director on the board, and he’s entitled to be informed in order to make informed
decisions as a board member’” (citing Gunther v. 5i Scis., Inc., C.A. No. 5800-CC, at 3-4
(Del. Ch. Nov. 23, 2010) (TRANSCRIPT))).
3
  See Letter Report at *2 n.4 (explaining that “Plaintiff did not seek an order compelling
the Company to produce documents on an ongoing basis, or raise any argument in support
of such request”).
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
February 6, 2024
Page 4 of 6

parties to meet and confer on an appropriate confidentiality order. Post-Trial Final

Report at *18. Consistent with the Post-Trial Final Report, the Final Order and

Judgment will require production after entry of an appropriate confidentiality order.

         Relatedly, the parties have submitted competing forms of a confidentiality

order. While the parties have reached agreement on most terms, Plaintiff objects to

certain aspects of the Company’s proposal, including (1) a prohibition on Plaintiff

using Inspection Materials to conduct activities “that may constitute a violation of

[Plaintiff]’s restrictive covenants with the Company, such as the non-competition,

non-solicitation, non-interference, and non-disparagement [provisions]”; 4 (2) a

requirement that Plaintiff obtain undertakings from his advisors and his wife, Dr.

Ania Cabrerizo, before disclosing Inspection Information to them; 5 (3) a requirement

that Plaintiff destroy all Inspection Information after completing his Proper

Purpose; 6 (4) a fee-shifting provision entitling the prevailing party to reimbursement

of fees and expenses if a proceeding is initiated to enforce the confidentiality order; 7

4
 Pl.’s Jan. 31 Letter at 4; Def.’s Proposed Final Order and Judgment, Ex. D [hereinafter,
“Def.’s Proposed Conf. and NDA”] ¶ 1.
5
    Pl.’s Jan. 31 Letter at 4; Def.’s Proposed Conf. and NDA ¶¶ 1, 3.
6
    Pl.’s Jan. 31 Letter at 4; Def.’s Proposed Conf. and NDA ¶ 5.
7
    Pl.’s Jan. 31 Letter at 4; Def.’s Proposed Conf. and NDA ¶ 10.
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
February 6, 2024
Page 5 of 6

and (5) a requirement that Plaintiff advance the Company its fees and costs incurred

to remedy violations of the confidentiality order. 8

         The Company claims that because “Plaintiff is actively working with his

advisors to lobby AHCA and other regulatory agencies to take negative actions

against the Company and the dental practices,” “additional protection in the event of

a breach” is “necessary to deter non-compliance of the confidentiality agreement.”

Def.’s Feb. 1 Letter at 4-5. An undertaking requirement is reasonable in light of

Plaintiff’s secondary purposes for seeking inspection; 9 the Company’s other requests

are burdensome and overreaching, given that Plaintiff, a fiduciary, already “owe[s]

the corporation a duty to protect its information.” Schnatter v. Papa John’s Int’l,

Inc., 2019 WL 194634, at *17 (Del. Ch. Jan. 15, 2019), abrogated by Tiger v. Boast

Apparel, Inc., 214 A.3d 933 (Del. 2019); see also Kortum v. Webasto Sunroofs, Inc.,

769 A.2d 113, 121 n.17 (Del. Ch. 2000) (“it must be presumed that [the director], as

a fiduciary of [the company], will not disclose [the company]’s proprietary or

confidential information to such third parties”). The parties shall file a proposed

form of confidentiality order that (1) rejects the Company’s proposed language in

Paragraphs 1, 2, 5, 10, and 11; (2) accepts in part the Company’s proposed language

8
    Pl.’s Jan. 31 Letter at 4; Def.’s Proposed Conf. and NDA ¶ 11.
9
    See Post-Trial Final Report at *15-16.
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
February 6, 2024
Page 6 of 6

in Paragraph 3; 10 and (3) accepts the Company’s proposed language in Paragraphs 4

and 6.

         This is a final report and exceptions may be taken pursuant to Court of

Chancery Rule 144(d)(2).11

                                               Sincerely,

                                               /s/ Bonnie W. David

                                               Bonnie W. David
                                               Magistrate in Chancery

cc:      All counsel of record (by File & ServeXpress)

10
   Paragraph 3 should state: “Mellado may provide the Inspection Information to his
attorneys at K&L Gates LLP and to those professionally associated with his attorneys
within the organization, including paralegals (each such person to be deemed an
‘Advisor’); provided, however, that Mellado has received from each such Advisor a duly
executed Advisor Undertaking in the form attached hereto as Exhibit A before Mellado
provides the Inspection Information to the Advisor.”
11
  See Ct. Ch. R. 144(d)(2) (“In actions that are summary in nature or in which the Court
has ordered expedited proceedings, any party taking exception shall file a notice of
exceptions within three days of the date of the report.”).