Court Opinion

ID: 7803670
Source: CourtListenerOpinion
Date Created: 2022-08-25 20:02:13.433752+00
Date Added: 2024-06-11T16:29:42.038157
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

                                           August 25, 2022

     Peter J. Walsh, Jr., Esquire                          Edward B. Micheletti, Esquire
     Kevin R. Shannon, Esquire                             Lauren N. Rosenello, Esquire
     Christopher N. Kelly, Esquire                         Skadden, Arps, Slate, Meagher & Flom LLP
     Mathew A. Golden, Esquire                             920 N. King Street, 7th Floor
     Callan R. Jackson, Esquire                            P.O. Box 636
     Potter Anderson & Corroon LLP                         Wilmington, DE 19899-0636
     1313 N. Market Street
     Hercules Plaza, 6th Floor
     Wilmington, DE 19801

     Brad D. Sorrels, Esquire
     Wilson Sonsini Goodrich & Rosati, P.C.
     222 Delaware Avenue, Suite 800
     Wilmington, DE 19801

                    Re:    Twitter, Inc. v. Elon R. Musk et al.,
                           C.A. No. 2022-0613-KSJM

      Dear Counsel:

             This letter resolves issues raised in the August 15, 2022 letter to the court from

      Twitter, Inc. (“Plaintiff”), which this decision refers to as Plaintiff’s “Second Discovery

      Motion.” The motion seeks relief in connection with discovery directed to Defendants

      Elon R. Musk, X Holdings I, Inc., and X Holdings II, Inc. (“Defendants”) concerning

      Defendants’ data science analysts (the “Data Scientists”). 1

      1
       C.A. No. 2022-0613-KSJM, Docket (“Dkt.”) 160 (“Pl.’s Second Disc. Mot.”); see also
      Dkt. 168 (“Defs.’ Response to Pl.’s Second Disc. Mot.”); Dkt. 196 (Pl.’s Reply to Pl.’s
      Second Disc. Mot.).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 2 of 14

         Through this action, Plaintiff seeks to specifically enforce an Agreement and Plan

of Merger (the “Merger Agreement”) dated April 25, 2022, under which Defendants agreed

to acquire Plaintiff. 2 Section 6.4 of the Merger Agreement grants Defendants the right to

information from Plaintiff (subject to certain conditions, restrictions, and exceptions) “for

any reasonable business purpose related to the consummation of the transactions

contemplated by this [Merger] Agreement.” 3          In May 2022, Defendants demanded

information pursuant to Section 6.4 concerning Plaintiff’s methods of calculating

monetizable daily active usage or users (“mDAU”). 4 In response, Plaintiff provided its

“firehose” data—i.e., a live feed of data concerning public accounts on Plaintiff’s platform.

Defendants then provided Plaintiff’s firehose data to the Data Scientists, who conducted a

“preliminary analysis” of that data. 5 Based expressly in part on that preliminary analysis,

Defendants terminated the Merger Agreement on July 8, 2022. Plaintiff filed suit, and

Defendants responded with counterclaims that reference analyses performed by the Data

Scientists (with the preliminary analysis, the “Analyses”) at least eight times. 6

2
    See generally Dkt. 1 (“Compl.”).
3
    Compl. Ex. 1 (Merger Agreement) § 6.4.
4
    Pl.’s Second Disc. Mot. at 4.
5
    Id. Ex. A at 6.
6
  Dkt. 42, Countercls. ¶¶ 13 (“[P]reliminary expert estimates of the false or spam accounts
in Twitter’s mDAU population, based on the data Twitter has provided and using a publicly
available machine learning algorithm, yield findings that are shocking,” including that
“one-third of visible accounts may have been false or spam accounts[.]”), 17 (“The Musk
Parties’ preliminary analysis shed light as to why Twitter has stonewalled—Twitter did not
want the Musk Parties (or the market) to discover that Twitter has been misleading
investors regarding its ‘key metric.’”), 116 (“[C]ontrary to Twitter’s representations that
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 3 of 14

         Defendants have advanced a variety of positions to shield from discovery the Data

Scientists’ information, including the Analyses. Although they abandoned most of those

positions, they maintain that the Data Scientists’ information is insulated from discovery

by the non-testifying expert protection and the work product doctrine. Through its Second

Discovery Motion, Plaintiff seeks a declaration that no blanket protection or privilege

applies to this information.

                               Non-Testifying Expert Protection

         Court of Chancery Rule 26(b)(4)(B) restricts discovery from persons retained as

non-testifying experts in anticipation of litigation. 7 Rule 26(b)(4)(B) tracks the language

its business was minimally affected by false or spam accounts, the Musk Parties’
preliminary estimates show otherwise.”), 117 (“An analysis of Firehose data from the first
week of July, including processing visible accounts using a publicly-available machine-
learning spam detection model, shows that, during that timeframe, false or spam accounts
accounted for 33% of visible accounts.”), 118 (“[E]ven assuming that every single one of
the invisible accounts is a legitimate user, and not a false or spam account (an assumption
as conservative as mathematically possible), these preliminary findings indicate a floor for
the prevalence of false or spam accounts among Twitter’s mDAU of 10%, rendering
Twitter’s statements that less than 5% of mDAU is comprised of false or spam accounts
materially misleading.”) (emphasis in original), 119 (“[C]ontrary to the implication in the
2021 10-K that fewer than 10.85 million mDAU were false or spam accounts, preliminary
findings suggest that more than 20 million mDAU were false or spam accounts.”), 120
(“Not only does preliminary analysis reveal that Twitter’s false or spam accounts exceed
10% of mDAU, the Musk Parties estimate that false and spam accounts make up an even
more significant portion of the mDAU that actually see ads based on Twitter’s own data
regarding ad engagement among its userbase.”), 150 (“In reality, as discussed above,
preliminary estimates based on only the 30% of mDAU visible in the Twitter Firehose
already indicate that one third of visible accounts and 10% of the mDAU count may be
made up of false or spam accounts.”).
7
    Ct. Ch. R. 26(b)(4)(B).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 4 of 14

of its federal counterpart, and this court has looked to federal authorities when applying it. 8

The restriction stems from the concern that “[a]llowing routine discovery as to [non-

testifying experts] would . . . deter thorough preparation of the case and reward those whose

adversaries were most enterprising.” 9 The restriction prevents the “additional drawback”

that, after learning of experts that a party retained but elected not to have testify, “the

opponent might later seek to call them as witnesses to attest to views that the opponent

found congenial.” 10 The theory is that “[i]f the price for seeking expert consultation is

possibly to live or die by the unknown opinion of the expert first consulted, there will be

even more reluctance to consult.” 11

          Rule 26(b)(4)(B) does not provide unqualified immunity. A party may obtain

discovery from a non-testifying expert “upon a showing of exceptional circumstances

under which it is impracticable for the party seeking discovery to obtain facts or opinions

on the same subject by other means.” 12 Rule 26(b)(3), which protects work product,

8
 See, e.g., Hexion Specialty Chems., Inc. v. Huntsman Corp., 959 A.2d 47, 50–51 (Del.
Ch. 2008); In re Speedway Motorsports, Inc., 2001 WL 818169, at *1 (Del. Ch. July 10,
2001); see also State v. Figg Bridge Eng’rs., Inc., 2013 WL 5293549, at *4–5 (Del. Super.
Sept. 19, 2013); Pfizer v. Advanced Monbloc Corp., 1999 WL 743868, at *5 (Del. Super.
Sept. 20, 1999); Winchester v. Hertrich, 658 A.2d 1016, 1020–21 (Del. Super. 1995);
Harris v. Parmi Tool Co., Inc., 1990 WL 9495, at *4 (Del. Super. Jan. 3, 1990).
9
  8A Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc. § 2032 at 94 (3d ed.)
[hereinafter “Wright & Miller”].
10
     Id. at 97.
11
     Id. at 100.
12
     Ct. Ch. R. 26(b)(4)(B).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 5 of 14

contains a similar exception and permits discovery of work product “only upon a showing

that the party seeking discovery has substantial need of the materials in the preparation of

the party’s case and that the party is unable without undue hardship to obtain the substantial

equivalent of the materials by other means.” 13 The exception for non-testifying experts in

Rule 26(b)(4)(B) has been described as “more exacting” than the exception for work

product in Rule 26(b)(3). 14

         Rule 26(b)(4)(B) does not “shield testimony by a natural fact witness” from

discovery. 15 As the advisory note to the rule’s federal counterpart explains, the rule does

not protect “the expert whose information was not acquired in preparation for trial but

rather because he was an actor or viewer with respect to transactions or occurrences that

are part of the subject matter of the lawsuit. Such an expert should be treated as an ordinary

13
     Ct. Ch. R. 26(b)(3).
14
   People ex rel. Wheeler v. S. P. Transp. Co., 1993 WL 816066, at *8 (E.D. Cal. Sept. 2,
1993) (“[S]ince the exceptional circumstances condition to preclude application of
subdivision (b)(4)(B) of Rule 26 is more exacting than the substantial need requirement
found in subdivision (b)(3), the court will analyze the exception under this more stringent
standard.”); see also MeadWestvaco Corp. v. Rexam, PLC, 2011 WL 2938456, at *6 (E.D.
Va. July 18, 2011) (“Plaintiff cannot meet the standard of ‘exceptional circumstances’
because it cannot even meet the lower threshold of ‘substantial need.’”); U.S. v. 22.80 Acres
of Land, 107 F.R.D. 20, 23 (N.D. Cal. 1985) (describing the exceptional-circumstances
standard as “more demanding” than the substantial-need standard).
15
     Hexion, 959 A.2d at 51.
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 6 of 14

witness.” 16 When a party invokes Rule 26(b)(4)(B) to shield discovery of a fact witness,

this court is rightly skeptical. 17

         In this case, Defendants insist that the Data Scientists were retained by counsel in

anticipation of litigation and to assist counsel in rendering legal services as non-testifying

experts. The language of the Data Scientists’ engagement letters provides support for this

assertion, as does the timing of their retention. 18

         Yet, the Data Scientists were also “actor[s] or viewer[s] with respect to transactions

or occurrences that are part of the subject matter of [this] lawsuit.” 19 Defendants expressly

relied on the Data Scientists’ preliminary analysis to justify making additional information

requests and later terminating the Merger Agreement. 20 Defendants also rely on the

Analyses throughout their counterclaims. 21 In these circumstances, it is clear that the Data

Scientists did not act solely as non-testifying experts. Rather, at least with respect to the

Analyses, they are fact witnesses.

16
  Fed. R. Civ. P. 26(b)(4)(B) advisory committee’s note (1970) (quoted in Hexion, 959
A.2d at 50).
17
     See Hexion, 959 A.2d at 51.
18
   See Defs.’ Response to Pl.’s Second Disc. Mot. Ex. A at 1 (retaining one of the Data
Scientists’ companies “to serve as an outside expert and to support Skadden’s provision of
legal advice to Client,” to “work at Skadden’s direction and report directly to Skadden,”
and to provide “services of a character and quality which would necessarily be adjunct to
Skadden’s services as attorneys”); id. Ex. B at 1 (same); id. Ex. C. at 1 (same).
19
  Fed. R. Civ. P. 26(b)(4)(B) advisory committee’s note (1970) (quoted in Hexion, 959
A.2d at 50).
20
     Pl.’s Second Disc. Mot. Ex. M at 2.
21
     Dkt. 42, Countercls. ¶¶ 13, 17, 116–20, 150.
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 7 of 14

          The Data Scientists’ dual-natured role forces the following question: To what degree

do the protections of Rule 26(b)(4)(B) extend to persons who played a dual role as fact

witnesses and non-testifying experts?

          Plaintiff answers this question by citing Hexion, where this court declined to

recognize a party’s designation of a fact witness with knowledge about issues at the heart

of a case as a non-testifying expert. 22 There, the plaintiff-buyer terminated a merger

agreement with the defendant-seller, claiming that the seller had suffered a material adverse

effect and that the merger could not close because the buyer’s financing sources could not

be provided with a “satisfactory solvency opinion[.]” 23 The seller purported to retain its

financial advisor for the merger, Merrill Lynch, as a litigation consultant and attempted to

shield all of Merrill Lynch’s financial advice in connection with the merger from discovery

under Rule 26(b)(4)(B).

          The Hexion court rejected the seller’s argument, holding that “Rule 26(b)(4)(B)

does not apply to Merrill Lynch in its role as [the seller’s] financial advisor because in that

role Merrill Lynch has acquired and continues to acquire information as an ‘actor’ in or

‘viewer’ of the [merger] transaction, which lies at the heart of this lawsuit.” 24 Furthermore,

because Merrill Lynch did not clearly distinguish between work it performed as a financial

22
     Hexion, 959 A.2d at 52.
23
     Id. at 49.
24
     Id. at 50.
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 8 of 14

advisor and as an ostensible litigation consultant, the court declined to recognize Merrill

Lynch as a non-testifying expert for any purpose whatsoever.

         The logic of Hexion favors Plaintiff. Rule 26(b)(4)(B) does not protect the Analyses

that lie at the heart of this lawsuit. Because Rule 26(b)(4)(B) does not protect the Analyses,

it does not protect documents or communications relating to those Analyses. And if

Defendants failed to distinguish between the Data Scientists’ work performed for those

ends and any work performed in an expert capacity, Rule 26(b)(4)(B) does not protect any

of it.

         Plaintiff argues for the same result under the “exceptional circumstances” standard.

As to the Analyses, Plaintiff has demonstrated “exceptional circumstances under which it

is impracticable for the party seeking discovery to obtain facts or opinions on the same

subject by other means.” 25 Defendants relied on the Analyses as a basis for termination

and in support of their counterclaims. To probe the veracity of Defendants’ assertions,

Plaintiff requires the Analyses. Plaintiff cannot obtain those facts through any other means.

         Invoking case law interpreting the work product doctrine, Defendants argue that

“dual-purpose” documents generated by an alleged expert should be protected, even though

the materials also had a nonlitigation purpose, if the documents were prepared for

litigation. 26 Defendants urge the court to apply the “because of” test rather than following

25
     Ct. Ch. R. 26(b)(4)(B).
26
  See Defs.’ Response to Pl.’s Second Disc. Mot. at 24 (referring back to Defendants’
work-product argument); see also 8 Wright & Miller § 2024 at 512–14 (discussing the
dual-purposes scenario).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 9 of 14

Hexion. Under the “because of” test, the court asks in light of “the totality of the

circumstances” why the document was prepared. 27 “If a document was generated ‘because

of litigation,’ then it is likely privileged,” but “[i]f the document was created for some other

reason, such as a business purpose, then it is likely not protected.” 28

         Defendants cite to cases declining to compel the production of documents under the

“because of” dual-purpose test. 29 Each of the dual-purpose cases on which Defendants rely

analyzes the dual-purpose issue with some reference to the substantial-need standard of

Rule 26(b)(3). 30 As discussed above, the substantial-need standard is less exacting and

27
     Pfizer, 1999 WL 743868, at *5.
 JPMorgan Chase & Co. v. Am. Century Cos., Inc., 2013 WL 1668393, at *3 (Del. Ch.
28

Apr. 18, 2013).
29
  Defs.’ Response to Pl.’s Second Disc. Mot. at 19 (citing Rohm & Haas Co. v. Dow Chem.
Co., 2009 WL 537195 (Del. Ch. Feb. 26, 2009); In re Grand Jury Subpoena (Mark
Torf/Torf Env’t Mgmt.), 357 F.3d 900 (9th Cir. 2004) (“Torf”); U.S. v. Adlman, 134 F.3d
1194 (2d Cir. 1998); U.S. Inspection Servs., Inc. v. NL Engineered Solutions, LLC, 268
F.R.D. 614 (N.D. Cal. 2010); and Hollinger Int’l Inc. v. Hollinger Inc., 230 F.R.D. 508
(N.D. Ill. 2005)).
30
   See Rohm & Haas, 2009 WL 537195, at *2 (holding that “[g]iven the information to
which it already has access, Rohm and Haas has not demonstrated a substantial need for
the Litigation Support Model”); Adlman, 134 F.3d at 1204 (rejecting the argument that
“[t]he IRS contends that even if the Memorandum qualifies as work product, it has made a
sufficient showing of substantial need and unavailability so as to overcome the qualified
protection accorded by Rule 26(b)(3)”); U.S. Inspection Servs., 268 F.R.D. at 626 (holding
that “Fulks–Graham has not contended and cannot demonstrate that a substantial need
exists for this document”); see also Torf, 357 F.3d at 904 (declining “to consider the
government's contention made in its brief filed with this court, but not presented to the
district court, that it has a substantial need for the withheld documents and that it would
incur undue hardship in obtaining substantially equivalent information”); Hollinger, 230
F.R.D. at 511 n.5 (observing that “[d]efendants have not argued that they have a substantial
need for the undisclosed material”).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 10 of 14

easier to meet than the exceptional-circumstances standard. It follows that if a court denied

protection under the lower standard, then the court also should deny protection under the

higher standard.

           Defendants’ reliance on Rohm & Haas illustrates why their reliance on the because-

of case law is misplaced. The discovery dispute there concerned a dynamic financial model

that the defendant used for corporation decision-making. The plaintiff argued that the

model was critical to its ability to understand the defendant’s representations to banks,

rating agencies, and its board. The defendant produced multiple versions of the model but

claimed that a recently updated version was protected work product because it was created

at the request of the defendant’s head of litigation for “litigation support and settlement

analysis.” 31 The court agreed with the defendant, observing that it was “hard pressed to

think of any information that warrants greater protection under attorney work product

doctrine than potential settlement strategies prepared at the direction of counsel.” 32

Applying the because-of test, the court observed that “the litigation purpose of the [model]

sufficiently permeates the business purpose of the model to warrant work product

protection.” 33 The court then factored that holding into the governing substantial-need

standard and concluded that the plaintiff failed to meet its burden.

31
     Rohm & Haas, 2009 WL 537195, at *1.
32
     Id.
33
     Id. at *2.
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 11 of 14

       Defendants parrot the “permeates the business purpose” quote of Rohm & Haas in

support of their position, claiming here that the litigation purpose of the Data Scientists’

Analyses sufficiently permeates their business purpose as to render them immune from

discovery. The court accepts Defendants’ representation to this effect. Even so, that is not

sufficient to shield the Analyses from discovery. Unlike in Rohm, Plaintiff would win

under a work product analysis because it can demonstrate substantial need for the Analyses.

The plaintiff in Rohm & Haas could not demonstrate substantial need because the plaintiff

already had access to multiple versions of the model at issue, and the model did not form

the basis for any allegations at the heart of the case. Here, Plaintiff does not have access

to any versions of the Analyses, which are central to various aspects of this case.

       Plaintiff’s ability to demonstrate substantial need for the Analyses renders

Defendants’ because-of cases inapposite on the application of Rule 26(b)(4)(B). Plaintiff

has shown the exceptional circumstances necessary to warrant production of Analyses,

even if they would otherwise be protected under Rule 26(b)(4)(B).

                                Work Product Protection

       In addition to using work product cases to bolster their invocation of the protection

for non-testifying experts, Defendants invoke the work product doctrine independently. To

that end, they contend that any otherwise-discoverable material in the Data Scientists’

possession was generated at least in part “in anticipation of litigation” and is thus shielded

by Rule 26(b)(3).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 12 of 14

           Rule 26(b)(3) generally protects “documents, electronically stored information, and

tangible things” that have been “prepared in anticipation of litigation or for trial by or for

another party or by or for that other party’s representative (including the other party’s

attorney, consultant, surety, indemnitor, insurer, or agent).” 34

           Rule 26(b)(3) does not provide an unqualified protection. As discussed above, the

rule permits discovery of work product “upon a showing that the party seeking discovery

has substantial need of the materials in the preparation of the party’s case and that the party

is unable without undue hardship to obtain the substantial equivalent of the materials by

other means.” 35 This decision has already explained that Plaintiff meets the substantial-

need test as to the Analyses.

           Equally important, Rule 26(b)(3) only protects the work product of the attorney.

“At its core, the work-product doctrine shelters the mental processes of the attorney.” 36

The doctrine does not shelter the mental processes of the expert, which are subject to a

separate legal analysis and framework discussed above. 37           A non-testifying expert’s

34
     Ct. Ct. R. 26(b)(3).
35
     Id.
36
     Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 261 (Del. 1995).
37
  See 8A Wright & Miller § 2029 at 17–18 (explaining that “[t]he knowledge of an expert
is not privileged” and “is not part of the work product”); see also Fed. R. Civ. P.
26(b)(4)(B) advisory committee’s note (1970) (noting that the provisions of subdivision
(b)(4) “repudiate the few decisions that have held an expert’s information privileged simply
because of his status as an expert” and “reject as ill-considered the decisions which have
sought to bring expert information within the work-product doctrine”).
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 13 of 14

information “is not itself work product.” 38 Thus, to the extent Defendants object to

production of all the Data Scientists’ documents on the grounds that they categorically

constitute protected work product, that objection is overruled.

           That said, “as a collaborator in the development of pretrial strategy, a non-testifying

expert may become a unique repository of insights into counsel’s opinion work

product[.]” 39 And while Plaintiff has demonstrated exceptional circumstances and thus a

substantial need for the Analyses, it is possible that communications with counsel

concerning the Analyses reflect work product. It is difficult to assess that possibility at this

stage because the documents at issue have not been logged. In any event, to the extent that

Plaintiff seeks a declaration that Defendants may not assert work product protection over

any of the Data Scientists’ documents, that request is denied.

                                            Conclusion

           Summing it up, to the extent that Defendants have lodged a blanket objection to

producing all of the Data Scientists’ documents as non-testimony expert materials or work

product, that objection is overruled.         At a minimum, Defendants must produce the

Analyses.

           That leaves documents and communications and drafts concerning the Analyses.

Rule 26(b)(4)(B) does not apply to those materials. To the extent Defendants claim that

any document contains work product, Defendants must identify that document on a

38
     8A Wright & Miller § 2032 at 96.
39
     Id.
C.A. No. 2022-0613-KSJM
August 25, 2022
Page 14 of 14

privilege log.   At that point, Plaintiff can seek production of specific documents. 40

Plaintiff’s Second Discovery Motion is therefore granted in part.

       This decision also has not reached the thorny question of whether Defendants may

assert privilege over the Data Scientists’ documents and communications that post-date the

Analyses. To be clear, this decision neither endorses nor rejects any arguments concerning

that discovery. Given the dual role of the Data Scientists, however, Defendants should log

any such communications withheld on privilege grounds.

       IT IS SO ORDERED.

                                         Sincerely,

                                         /s/ Kathaleen St. Jude McCormick

                                         Kathaleen St. Jude McCormick
                                         Chancellor

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

40
  As a word of caution, Defendants are reminded that a large volume of logged entries can
raise a red flag for the court. See, e.g., Mechel Bluestone, Inc. v. James C. Justice Cos.,
Inc., 2014 WL 7011195, at *6 (Del. Ch. Dec. 12, 2014).