Legent Group, LLC v. Axos Financial, Inc.

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).