Shareholder Motion to Compel Denied by District of Nebraska
In Tracy v. Telemetrix, Inc. et. al., Case No. 12-359 (D. Nebraska, Nov. 13, 2015), a shareholder derivative suit, Plaintiff sued Defendants for defrauding and mismanaging Telemetrix for the benefit of the individual and corporate defendants. At a discovery hearing, the magistrate judge ordered production of certain email threads and bank records as well as corrections to deficiencies in Telemetrix’s privilege log. However, the order did not resolve all disputes, and Plaintiff filed a Motion to Compel certain electronic communications and documents either withheld or redacted in the privilege log.
The court did not compel two of the individual defendants to produce specific communications that they swore by affidavit not to have. With regard to the privilege log, Plaintiff asserted that some of the documents weren’t privileged, and others should be produced anyway under the fiduciary exception and the fraud exception. The court found that all the documents on each privilege log were protected by the work product doctrine or attorney-client privilege.
The court next considered the fiduciary exception (whereby those in control of a closely-held business cannot shield things from minority shareholders based upon attorney-client privilege). The court declined to apply the exception, stating that Plaintiff is suing individually in addition to derivatively and would benefit personally from success in the case. Also, much of the documentation sought was created during times when Plaintiff and Defendants were “at odds” or related to the litigation. The court also declined to apply the fraud exception, as Plaintiff had not shown any misrepresentations by Defendants. The court also denied Plaintiff’s request for sanctions.