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On a matter of first impression in In re WeWork Litigation, 2020 WL 4917593 (Del. Ch. Aug. 21, 2020), the Delaware Court of Chancery recently held that officers of a Delaware corporation could not preclude a director from obtaining privileged information of the company.

Authors: Brian M. Rostocki Alexandria P. Murphy

Background

A Special Committee was appointed by the board of directors of The We Company (the Company) to oversee the proposed series of transactions with SoftBank Group Corp. (SoftBank) and SoftBank Vision Fund (AIV M1) L.P. (Vision Fund).1  In April 2020, the Special Committee directed the filing of the lawsuit against defendants SoftBank and Vision Fund.2 The complaint alleged that the defendants breached contractual obligations owed to the Company to use reasonable best efforts to purchase up to $3 billion of the Company’s stock in a tender offer.3

A second committee of the Company’s board of directors, comprised of two temporary directors, was formed a month later in May 2020 (the “New Committee”), after the controlling stockholder of the Company and SoftBank requested that the Company’s board confirm that the Special Committee did not have authority to bring the above-mentioned lawsuit on behalf of the Company. At the direction of the New Committee, the Company filed a motion to voluntarily dismiss the complaint under Court of Chancery Rule 41.5  In response to this motion, the Special Committee sought discovery “relating to the circumstances under which the New Committee was established and how it may have been influenced by the Company’s management” and, in particular, “the Chief Executive Officer of which was chosen by SoftBank.”6 Management opposed this discovery, arguing that the Special Committee had shown adversity to the Company, and, as such, should not be able to review privileged materials.7