Jose Mellado, D.M.D. v. ACPDO Parent Inc. ( 2023 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
BONNIE W. DAVID COURT OF CHANCERY COURTHOUSE
MAGISTRATE IN CHANCERY 34 THE CIRCLE
GEORGETOWN, DE 19947
December 4, 2023
Steven L. Caponi Richard P. Rollo
Megan O’Connor Travis S. Hunter
K&L Gates LLP John M. O’Toole
600 N. King Street, Suite 901 Sandy Jing Xu
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:
On November 28, 2023, Plaintiff filed a Notice of Exceptions to Post-Trial
Final Report, taking exception to and/or seeking clarification of my November 21,
2023 Post-Trial Final Report (the “Final Report”).1 Dkt. 90. On December 1, 2023,
Vice Chancellor Glasscock, to whom the exceptions are assigned, remanded
Plaintiff’s requests for clarification for me to decide in the first instance. This letter
report addresses Plaintiff’s requests for clarification of the Final Report.
First, Plaintiff seeks clarification concerning “whether the Company is
required to produce documents provided to McDowell and Herman in their capacity
1
Undefined capitalized terms herein have the same meaning as in the Final Report.
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
December 4, 2023
Page 2 of 5
as officers of the Company.” Dkt. 90 at 1. The short answer is no. The Final Report
recommends that the Court order the production of documents responsive to Request
Nos. 1, 2, 3, and 6, which seek minutes of the Company’s Board meetings, minutes
of the Company’s committee meetings, materials prepared for or shared with any
committee of the Company, and all financial records of the Company and its
subsidiaries. See Final Report at 43-44. Those are quintessentially board-level
documents. The Final Report also recommends that, in response to Request No. 4
seeking “[a]ll documents and other materials provided to Mr. McDowell and Mr.
Herman in their capacity as directors of the Company,”2 the Court order the
production of agendas, minutes, and materials from the Company’s and its
subsidiaries’ monthly “Ops” meetings, which McDowell and Herman attend in their
capacities as directors of the Company. Id. at 44. The Final Report does not
2
JX 128 at 2 (emphasis added). Plaintiffs’ other requests—which the Final Report
recommends denying—similarly seek documents provided to McDowell and Herman in
their capacity as directors, not officers. See Request No. 9 (seeking “[a]ll communications
between the Company, or the Board, or Mr. McDowell and Mr. Herman in their capacity
as directors, and any shareholders relating to the business and operations of the Company,
its subsidiaries and the dental practices”) (emphasis added); Request No. 10 (seeking “[a]ll
communications between the Company, or the Board, or Mr. McDowell and Mr. Herman
in their capacity as directors, to any employee, officer, or director of the Company, its
subsidiaries or the dental practices relating to their business and operations . . . .”)
(emphasis added).
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
December 4, 2023
Page 3 of 5
recommend the production of any documents implicating McDowell’s and
Herman’s capacity as officers.3
Second, Plaintiff seeks clarification concerning “the scope of the books and
records to be provided in response to Request Nos. 8, 11, 12, and 13 of the Demand.”
Dkt. 90 at 1. The Final Report explains that these requests “raise red flags in light
of Plaintiff’s desire to assist AHCA in its ongoing investigation and to further his
other ongoing litigation efforts,” and that “[t]he Company should not be required to
make a comprehensive, discovery-style email production” in response to them.
Final Report at 44-47 (citations and footnotes omitted). In other words, it
recommends that, in light of Plaintiff’s secondary purposes and the overbreadth of
the requests, Request Nos. 8, 11, 12, and 13 be denied in their entirety.
Third, Plaintiff seeks clarification of “the Company’s ongoing obligations to
provide directors, i.e.[,] Dr. Mellado, with information.” Dkt. 90 at 1. The parties
did not brief, and therefore the Final Report does not explicitly address, the
Company’s ongoing obligations to provide information to directors.4 The Final
3
To be clear, however, the Company may not withhold documents responsive to these
requests on the basis of a capacity distinction.
4
The Demand seeks documents “[f]or the period from January 2022 to the present.” JX
128 at 2. While Plaintiff’s Pre-Trial Opening Brief requested “that the relief in the Demand
be granted, and that Defendant be ordered to produce the documents Plaintiff requested in
the Demand, and will request in the future in his capacity as a Director of ACPDO Parent,”
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
December 4, 2023
Page 4 of 5
Report does, however, make clear that Plaintiff, as a director of the Company with
a proper purpose for inspection, owes ongoing “‘fiduciary obligations to protect and
preserve [the] corporation [and] must have access to the corporation’s books and
records if he reasonably can be expected to perform his duties.’” Final Report at 23
(quoting Bizzari v. Suburban Waste Servs., Inc., 2016 WL 4540292, at *8 (Del. Ch.
Aug. 30, 2016)); see also 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 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.
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. POB at 4 (emphasis
added).
Jose Mellado, D.M.D. v. ACPDO Parent Inc.,
C.A. No. 2023-0791-BWD
December 4, 2023
Page 5 of 5
5800-CC, at 3-4 (Del. Ch. Nov. 23, 2010) (TRANSCRIPT))). So long as Plaintiff is a
director, the Company “has an ongoing statutory obligation to produce to Plaintiff”
books and records consistent with the recommendations in the Final Report. Bruckel
v. TAUC Hldgs., LLC, 2023 WL 116483, at *4 (Del. Ch. Jan. 6, 2023).
This is a final report and exceptions may be taken pursuant to Court of
Chancery Rule 144(d)(2), within three business days.5
Sincerely,
/s/ Bonnie W. David
Bonnie W. David
Magistrate in Chancery
cc: All counsel of record (by File & ServeXpress)
5
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.”).