Court Opinion

ID: 5115810
Source: CourtListenerOpinion
Date Created: 2021-10-04 15:09:21.802277+00
Date Added: 2024-06-11T09:01:48.867144
License: Public Domain

COURT OF CHANCERY
                                          OF THE
                                    STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK                                           LEONARD L. WILLIAMS JUSTICE CENTER
        CHANCELLOR                                                         500 N. KING STREET, SUITE 11400
                                                                          WILMINGTON, DELAWARE 19801-3734

                                           October 4, 2021

     Thomas E. Hanson, Jr., Esquire                       Michael C. Heyden, Jr., Esquire
     William J. Burton, Esquire                           Tianna S. Bethune, Esquire
     Barnes & Thornburg LLP                               Gordon Rees Scully Mansukhani, LLP
     1000 N. West Street, Suite 1500                      1000 North West Street, 12th Floor
     Wilmington, DE 19801                                 Wilmington, DE 19801

                     Re:   Legent Group, LLC, et al. v. Axos Financial, Inc., et al.,
                           C.A. No. 2020-0405-KSJM

      Dear Counsel:

             The plaintiffs moved to compel the defendants and subpoena respondent Jeffrey

      Sime to comply with the plaintiffs’ document requests by producing ten previously

      withheld communications with the SEC. During the September 28, 2021 omnibus hearing,

      I ordered the defendants to produce those ten documents for in camera review. I have now

      reviewed the documents at issue, and this letter resolves the pending motion.

             The defendants and Sime withheld the ten documents from production on the basis

      of what they referred to as an “SEC Privilege.” In briefing, the defendants explained that

      their phrase “SEC Privilege” refers to what courts have called the “investigative

      privilege.”1

             The investigative privilege is a new area for me, and I have limited my discussion

      to the authorities cited by the parties in briefing. According to federal cases cited by the

      1
       See C.A. No. 2020-0405-KSJM Docket 100, Defendants’ Opposition to Plaintiffs’
      Motion to Compel.
C.A. No. 2020-0405-KSJM
October 4, 2021
Page 2 of 3

defendants, the investigative privilege “exists to encourage and shield the efforts of law

enforcement and regulatory agencies to obtain information without fear of premature

disclosure to those under investigation.”2

         Courts have applied this privilege to protect from discovery “analyses or opinions”

of investigative bodies but not “factual or statistical data” collected in the investigation. 3

In this way, the investigative privilege invokes a distinction similar to that drawn in this

state between so-called “factual work product” and “opinion work product.”4

         At least one federal court has found that “[t]here are three prerequisites to the

assertion of the privilege: (i) the head of the department having control over the information

requested must assert the privilege; (ii) the official in question must do so based on actual

personal consideration; and (iii) he or she must specify the information purportedly covered

by the privilege, and accompany the request with an explanation as to why such

information falls within the scope of the privilege.”5

         At the September 28, 2021 hearing, I expressed skepticism that the defendants

would possess the types of work product protected by the investigative privilege, setting

aside the issue of whether the defendants or Sime could assert such privilege on behalf of

2
    SEC v. McGinn, 2011 WL 13136028, at *6 (N.D.N.Y. Jan. 5, 2011).
3
    Ross v. Bolton, 106 F.R.D. 22, 24 (S.D.N.Y. Jan. 30, 1985).
4
 See, e.g., Saito v. McKesson HBOC, Inc., 2002 WL 31657622, at *11 (Del. Ch. Nov. 13,
2002) (“[T]here are two types of work product: non-opinion (factual/historical) work
product and opinion work product. Each type of work product has its own standard of
protection under Delaware law.”).
5
    In re Adler, Coleman Clearing Corp., 1999 WL 1747410, at *3 (S.D.N.Y. Dec. 8, 1999).
C.A. No. 2020-0405-KSJM
October 4, 2021
Page 3 of 3

the SEC. Giving the defendants the benefit of the doubt, I ordered an in camera review of

the documents at issue.

         The defendants provided the disputed documents to the court on September 29,

2021, along with an abridged privilege log. As I suspected, the withheld documents do not

constitute the sort of investigatory materials or analyses that are subject to protection by

the investigative privilege.    Rather, the ten disputed documents consist entirely of

communications to the SEC pursuant to Exchange Act Rule 17a-11,6 which requires notice

be given to the SEC when a broker-dealer’s net capital falls below a certain level.

         The documents at issue are not the type of documents that may be properly withheld

pursuant to the investigative privilege. The defendants shall produce the documents to the

plaintiffs.

         IT IS SO ORDERED.

                                           Sincerely,

                                           /s/ Kathaleen St. Jude McCormick

                                           Kathaleen St. Jude McCormick
                                           Chancellor

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

6
    17 C.F.R. § 240.17a-11 (2020).