THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MUDRICK CAPITAL MANAGEMENT, L.P., )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0351-TMR
)
GLOBALSTAR, INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: July 16, 2018
Date Decided: July 30, 2018
A. Thompson Bayliss, Michael A. Barlow, and Adam K. Schulman, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; Jordan Goldstein, David Elsberg, Joshua
Margolin, and Ron Krock, SELENDY & GAY PLLC, New York, New York;
Attorneys for Plaintiff.
Robert S. Saunders, Joseph O. Larkin, Arthur R. Bookout, Matthew P. Majarian, and
Stephen J. Della Penna, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
Wilmington, Delaware; Albert L. Hogan III, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP, Chicago, Illinois; Attorneys for Defendant.
MONTGOMERY-REEVES, Vice Chancellor.
This case involves a stockholder demand to inspect the books and records of
Globalstar, Inc. (“Globalstar” or the “Company”). On April 25, 2018, Globalstar
announced its merger with Thermo Acquisitions, Inc. (“Thermo”). In this
transaction, Globalstar will acquire assets controlled or owned by the CEO and
controlling stockholder of the Company, James Monroe. As a result of the
transaction, the controlling stockholder’s interest in the surviving entity would
increase from 53% to over 80%, while all minority stockholders would be severely
diluted.
Concerned with both the merger process and stock dilution, Mudrick Capital
Management, L.P. (“Mudrick Capital”), the Company’s largest minority
stockholder, sent a demand to inspect the books and records of the Company on May
4, 2018. The demand included seven purposes and fourteen categories of requested
documents. Globalstar rejected the demand and produced no documents. This
litigation ensued.
In an effort to resolve this litigation, the parties significantly narrowed the
issues. First, Globalstar stipulates that Mudrick Capital’s demand letter complies
with the form and manner requirements of 8 Del. C. § 220 and that Mudrick Capital
has standing to pursue this action. Globalstar also stipulates that six of the seven
purposes listed in the demand state a proper purpose to obtain books and records
1
under 8 Del. C. § 220. 1 Second, Mudrick Capital narrowed its document requests.
Third, Globalstar produced 188 documents pre-trial and an additional 1,100
documents post-trial in response to the demand.
Unfortunately, the parties’ efforts to resolve the litigation were unsuccessful,
and Mudrick Capital continues to seek (1) emails and other communications related
to Mudrick Capital’s narrowed document requests from four custodians;
(2) documents and communications related to the valuation of one of the merger
assets, FiberLight, LLC, and the 2016 failed sale of FiberLight; and (3) draft
materials, including (a) drafts of board and special committee minutes and
(b) internal drafts of the merger agreement, term sheets, and the letter of intent.
Globalstar responds that these documents are not necessary because the documents
produced provide Mudrick Capital with sufficient information to address Mudrick
Capital’s purposes.
For the reasons stated in this memorandum opinion, I conclude that Mudrick
Capital has shown that some, but not all, of the books and records it requests are
necessary to address its purposes. I hold that (1) Plaintiff may inspect (a) certain
emails and other communications and (b) documents and communications related to
1
One purpose remains disputed. The parties agree that I need not address whether
the seventh purpose is proper because none of the demanded documents are
exclusive to that purpose.
2
the valuation of FiberLight and the 2016 failed sale of FiberLight; (2) Plaintiff may
not inspect Draft Materials; 2 and (3) Defendant must produce a privilege log that
reflects documents withheld or redacted for any privilege for all productions,
including past productions.
I. BACKGROUND
The facts in this opinion reflect my findings based on admitted allegations in
the pleadings, stipulated facts, trial testimony, and 182 documentary exhibits. I grant
the evidence the weight and credibility that I find it deserves.3
A. The Proposed Merger
1. Events before the merger announcement
Defendant Globalstar is a Delaware corporation with its principal executive
offices in Louisiana. 4 Globalstar provides “mobile satellite voice and data
services,”5 and the Company has rights to use wireless spectrum bandwidth.6
2
“Draft Materials,” as used in this Memorandum Opinion, means only those draft
materials that remain in dispute. For all other draft materials, the existing
agreements of the parties remain in effect. See, e.g., infra p. 17.
3
Citations to the trial transcript are in the form “Tr. #.” Joint Trial Exhibits are cited
as “JX #.” Facts drawn from the Joint Pre-Trial Stipulation and Order are cited as
“PTO ¶ #.” Citations to the parties’ briefs are to their post-trial briefs.
4
PTO ¶ 30.
5
Id. ¶ 31.
6
Tr. 10:23-11:1.
3
Wireless spectrum is the bandwidth where wi-fi signal is transmitted.7 As more
technology uses wi-fi, this unique wireless spectrum will become scarcer and, thus,
more valuable. 8
Globalstar is controlled by non-party and majority stockholder James (Jay)
Monroe III. 9 He currently owns approximately 53% of Globalstar’s shares through
entities he controls. 10 He also serves as the Executive Chairperson of the Board and
Chief Executive Officer of Globalstar.11
Plaintiff Mudrick Capital is an SEC-registered investment advisor
specializing in distressed companies that it believes are undervalued by the stock
market.12 Mudrick Capital has been a stockholder of Globalstar since 2014 and is
currently the largest minority stockholder, beneficially owning approximately 5.6%
of Globalstar’s outstanding voting capital stock.13
7
Tr. 63:23-64:12.
8
Tr. 10:23-11:4, 156:3-7.
9
See PTO ¶ 33.
10
Id.
11
Id.
12
Id. at ¶ 26; Tr. 7:12-8:12.
13
PTO ¶¶ 27-29; Tr. 8:24-9:18.
4
Mudrick Capital’s evaluation of Globalstar as an investment is largely based
on the potential increase in value of wireless spectrum rights over time. 14 Using the
estimated value of Globalstar’s assets, including its wireless spectrum rights,
Mudrick Capital valued the stock at more than $6.60 per share as of January 2017.15
And Monroe16 agreed with this value during the January 2017 investor call. 17
Despite the possibly enormous potential of Globalstar’s wireless spectrum
rights, the Company has had liquidity issues due to a loan that requires large
payments every year. 18 To resolve the cash flow problems created by the loan,
Globalstar has raised capital through equity offerings in the past.19 But the 2017
offering was not sufficient to resolve the continuing problem. Globalstar projected
14
Tr. 11:1-4.
15
JX 3, at 13-14.
16
My usual practice is to identify individuals by their last names without honorifics.
In this case, the risk of confusion between Mr. Mudrick, the biological person, and
Plaintiff Mudrick Capital Management, L.P., warrants an exception. The same risk
does not exist for others, who are identified without honorifics. No disrespect is
intended.
17
JX 3, at 13 (Mudrick: The Company has “an equity value of $8.7 billion, which is
$6.60 per share. Does all that math sound right?” Monroe: “Yes, I understand the
math and I don’t disagree with any of it.”).
18
Tr. 18:2-5.
19
See, e.g., JX 16, at 6.
5
that it would have insufficient funds to meet its loan obligations through the end of
2018. 20
Aware of these liquidity issues, Mudrick Capital sent a proposal to the
Globalstar Board of Directors (the “Board”).21 Mudrick Capital offered to lend
Globalstar $150 million in a nonconvertible financing instrument to (1) enable
Globalstar to access liquidity to pay amounts due on the loan through at least the end
of 2019 and (2) prevent Globalstar from diluting the ownership of minority
stockholders through future equity offerings.22 In addition to sending the offer to
the Board members, Mudrick Capital publicly filed it with the SEC in an effort to
prevent Globalstar stock value from continuing to decline, as it had done for the last
three calendar quarters.23 Globalstar did not substantively respond to Mudrick
Capital’s offer. 24
20
Tr. 143:7-19.
21
JX 31, at 1.
22
Id. at 2-3; Tr. 17:10-18:10.
23
JX 30, at 16, 23-24; Tr. 188:13-190:2.
24
Tr. 20:9-21.
6
2. The merger announcement and structure of the proposed
merger
The Globalstar Board created a special committee of four purportedly
independent directors (the “Special Committee”) to investigate, negotiate, and
approve (or disapprove) a merger transaction with Thermo, an entity controlled by
Monroe. 25 The Special Committee and the Board unanimously approved the terms
of the Agreement and Plan of Merger dated April 24, 2018 (the “Merger
Agreement”).26 On April 25, 2018, Globalstar issued a press release announcing its
merger with Thermo (the “Merger”), valued at approximately $1.645 billion.27 As
part of the Merger, Thermo will merge with a wholly owned subsidiary of
Globalstar.28 Globalstar will receive the following assets:
• Nearly 100% of the outstanding membership interests of FiberLight; 29
• $100 million in cash; 30
• 15.5 million shares of common stock in CenturyLink, Inc.;31
25
JX 14, at 1.
26
PTO ¶ 51.
27
JX 38, at 78.
28
Id. at 12.
29
See id.
30
Id.
31
Id.; Tr. 22:17-22, 54:23-24.
7
• Certain property in Covington, Louisiana, together with development
and construction contracts relating to improvements of the property and
sufficient cash to complete improvements on the property; 32 and
• Minority interests in both Pivotal Commware, Inc., and Orion Labs,
Inc.33
According to the press release announcing the Merger Agreement, the summed
values of the cash ($100 million), the CenturyLink stock ($275 million), and the
Louisiana property and the minority interests in Pivotal Commware, Inc., and Orion
Labs, Inc. (combined value of $25 million) is $400 million.34 Simple arithmetic and
logic indicate that the value assigned to FiberLight is $1.245 billion.
Thermo stockholders will receive “Globalstar common stock valued at”
$1.645 billion. 35 The number of shares to be issued in the Merger is determined
using the volume-weighted average market price of Globalstar common stock for
the twenty trading days immediately before the closing.36 The price of the stock is
limited by a collar; the price cannot be less than 80% or more than 120% of the
volume-weighted average market price of Globalstar common stock for the twenty
32
JX 38, at 12.
33
PTO ¶ 48; see JX 38, at 12.
34
JX 38, at 78.
35
Id.
36
PTO ¶ 49.
8
trading days immediately before the signing date of the Merger Agreement, or April
24, 2018.37 Therefore, if there is a notable increase (or decrease) in the value of
Globalstar stock during the twenty days before closing, this increase (or decrease) is
effectively capped (or floored).
Jason Mudrick, the President and Chief Investment Officer of Mudrick
Capital, testified that the price is limited to a range of $0.52-0.825.38 Using this
range, Globalstar must issue a minimum of approximately 2 billion shares and up to
a maximum of approximately 3.2 billion shares. 39 As of February 16, 2018,
approximately 1.3 billion shares of Globalstar voting common stock are
outstanding. 40 The Merger will more than double—and possibly triple—the number
of outstanding shares of Globalstar common stock.
Under the terms of the Merger Agreement, as the majority stockholder of
Thermo, Monroe will receive the majority of the newly issued Globalstar stock.41
37
Id.
38
Tr. 60:8-15, 66:9-19. Using data from JX 58 (GSAT Historical Price/Volume Data),
this Court calculates the range to be $0.55-0.83. The difference between this
calculation and Mr. Mudrick’s testimony has no impact on the parties’ arguments
or this Court’s findings.
39
These estimates are calculated by dividing 1.645 billion by 0.52 and 0.825,
respectively.
40
JX 27, at 33.
41
See JX 38, at 78, 80.
9
He currently owns, through entities he controls, approximately 53% of Globalstar
stock. 42 After the Merger, he will own 83-87% of Globalstar stock. 43 In contrast,
the minority stockholders’ percentages of ownership will be diluted. For example,
Mudrick Capital currently owns approximately 5.6% of Globalstar stock;44 after the
Merger, its ownership will be reduced to approximately 2%. 45 After the Merger
closes, Globalstar “expects to initiate” a rights offering of up to $100 million for
minority stockholders. 46
3. Mudrick Capital’s response to the proposed merger
Mr. Mudrick learned of the Merger on April 24, 2018, in a meeting with
Monroe, Kyle Pickens (Vice President of Strategy & Communications), Tim Taylor
(Vice President of Finance, Business Operations & Strategy), and Jim Lynch (CEO
of FiberLight).47 Mr. Mudrick immediately had concerns about the interested nature
42
Id. at 80; PTO ¶ 33.
43
JX 38, at 80.
44
PTO ¶ 27.
45
Tr. 66:24-67:4.
46
JX 38, at 80.
47
Tr. 21:2-23:2.
10
of the Merger for Monroe and also about Globalstar using stock to pay for the
transaction at a time when Mr. Mudrick believed the stock was undervalued.48
Mr. Mudrick contacted Moelis & Company (“Moelis”), the investment bank
that issued the fairness opinion.49 He spoke with Lawrence Chu from Moelis,
someone whom Mr. Mudrick knows both personally and professionally. 50 Chu
indicated that he did not interact directly with Monroe, but instead with the Special
Committee. 51 Chu suggested that the members of the Special Committee were not
truly independent because Monroe, as the controlling stockholder, handpicks the
board members. 52 Chu also informed Mr. Mudrick that he (Chu) had asked the
Special Committee to reach out to Mudrick Capital regarding its financing offer and
that he was surprised to hear that the Special Committee had not done so.53
48
Tr. 23:10-15; JX 31, at 2.
49
Tr. 24:17-25:3.
50
Tr. 26:5-8.
51
Tr. 26:14-16.
52
Tr. 26:19-27:10.
53
Tr. 27:13-22.
11
A few days later, on April 28, 2018, Mr. Mudrick met with Globalstar
representatives, including Monroe.54 During this meeting, Mr. Mudrick learned that
Globalstar had been planning this Merger for “a little over a year.” 55
Later that same day, Mr. Mudrick met alone with Taylor.56 He asked Taylor
why the Special Committee had not asked for a majority-of-the-minority vote to
protect the minority stockholders.57 Taylor responded that the deal was more certain
to get approval without such a provision.58
4. Other responses to the proposed merger
On April 25, 2018, the day of the Merger announcement, the price of
Globalstar stock dropped from $0.70 to $0.65.59 On the date of the trial, the stock
price was $0.47. 60 Currently, Globalstar shares are trading in the range of $0.40 to
$0.46 per share. But it is not clear whether the stock price decrease is a response to
54
Tr. 29:16-31:15.
55
Tr. 31:6-8.
56
Tr. 32:15-18.
57
Tr. 32:20-21.
58
Tr. 32:22-33:16.
59
JX 58, at 22.
60
Tr. 28:7.
12
the Merger or to something else entirely, as the stock price has been declining over
the past twelve months.
On April 26, 2018, the day after the Merger announcement, Cowen, an
independent investment research firm, 61 issued a report titled “An Expensive
Solution to Globalstar’s Liquidity Woe’s.” 62 Cowen’s top-line summary states:
Yesterday morning, Globalstar announced plans to buy
assets controlled by its Chairman and CEO, worth about
$1 billion on our estimates, for a nominal $1.65 billion
worth of shares many believe were already undervalued.
The best that can be said is that it’s an incredibly expensive
fix to the company’s liquidity woes; we expect
considerable push back from Globalstar’s non-affiliated
shareholders.63
The report specifically notes that minority stockholders “would see their percentage
ownership reduced to little more than a third of today’s ownership.” 64 The report
also assigns a net equity value of $336 million to FiberLight,65 a stark difference
from the $1.245 billion indicated by the press release.66
61
Tr. 49:6.
62
JX 44.
63
Id. at 1.
64
Id.
65
Id.
66
See supra p. 8.
13
B. Mudrick Capital’s Demand for Books and Records, Globalstar’s
Response to the Demand, and This Litigation
On May 4, 2018, Mudrick Capital sent its demand for books and records to
Globalstar’s Corporate Secretary and its Registered Agent. 67 The demand listed
seven purposes for requesting books and records and sought fourteen categories of
documents, not including subcategories.68
On May 11, 2018, Globalstar responded to Mudrick Capital’s demand, stating
that it “fail[ed] to state a proper purpose for inspecting the Company’s books and
records because it d[id] not demonstrate that Mudrick [Capital] ha[d] a credible basis
for suspecting wrongdoing by the directors or officers of Globalstar.” 69 It also stated
that “the requests in the Demand [were] not ‘circumscribed with rifled precision’
nor ‘essential and sufficient’ to the stated purpose of the Demand.” 70 But Globalstar
offered to meet and confer to discuss the Company’s “willingness” to provide
Mudrick Capital with documents.71
67
JX 57.
68
Id. at 1-2, 6-8.
69
JX 60, at 1.
70
Id. at 3.
71
Id. at 4.
14
On May 17, 2018, Mudrick Capital filed its Verified Complaint for Inspection
of Books and Records. 72
On June 25, 2018, eight days before trial, Globalstar produced 188 documents
to Mudrick Capital in response to the Section 220 Demand. 73
On June 28, 2018, the parties filed their Joint Pre-Trial Stipulation and Order
(“Pre-Trial Order”).74 In this document, Globalstar stipulates that six of the seven
purposes in Mudrick Capital’s demand are proper.75 The undisputed purposes relate
to investigating possible breaches of fiduciary duty by the Board and Special
Committee concerning the Merger, the Merger Agreement, and the related voting
agreement; evaluating the fairness of the Merger and the independence of the
members of the Special Committee; valuing Mudrick Capital’s stock; and
communicating with other minority stockholders regarding litigation and other
potential corrective measures. 76 Only one purpose remains disputed, but the parties
72
JX 73.
73
Pl.’s Opening Br. 1.
74
JX 122.
75
PTO ¶ 63.
76
Id. ¶ 3.
15
agree that I need not resolve this dispute because none of the demanded documents
are exclusive to this purpose.77
In the Pre-Trial Order, Plaintiff narrows its original fourteen requests for
books and records by (1) removing its request for FiberLight valuation materials
related to past litigation; (2) limiting its request regarding the valuation of Globalstar
to materials in three data rooms and documents exchanged with only two specific
entities; (3) removing two requests; and (4) amending the definition of “Selected
Books and Records” to exclude Globalstar executive officers. 78
This Court held a one-day trial on July 3, 2018. Only one witness gave
testimony: Mr. Mudrick.
The parties engaged in further discussions after the trial. Globalstar agreed to
produce the following additional documents:
77
The disputed purpose is to investigate
possible breaches of fiduciary duty, misappropriation of
information, mismanagement, corporate waste, and improper
influence and conduct by the Company’s controlling
stockholder, Chief Executive Officer and Chairman of the
Board, James Monroe III, that had the purpose or effect of
artificially reducing the share trading price of [Globalstar’s]
Common Stock, which in turn had the purpose or effect of
making the Merger highly dilutive for [minority stockholders].
JX 57, at 1-2.
78
Pl.’s Opening Br. 7; see PTO ¶ 67.
16
• All draft and final notes, agendas, and written consents;
• All drafts of the Merger Agreement and draft and final term sheets
exchanged between Globalstar and the Thermo Companies;
• All director and officer insurance documents concerning director
independence (to the extent any exist);
• All non-email material concerning Moelis’s selection;
• All draft and final non-email materials given to the Board and to the
Special Committee;
• All documents in the three data rooms; and
• All materials given to Globalstar’s advisors.79
After the parties’ resolution of several issues, Mudrick Capital seeks the
following additional documents:
• Emails and other communications transmitted or dated January 1, 2017,
to May 4, 2018, and sent to, received by, or in the possession of
Globalstar CEO and Board of Directors Chair James Monroe,
Globalstar General Counsel L. Barbee Ponder IV, Special Committee
Chair J. Patrick McIntyre, or Special Committee member John M.R.
Kneuer relating to the Merger, the Merger Agreement, or the voting
agreement; the Merger assets or liabilities, including FiberLight and
CenturyLink; the establishment, independence, or disinterestedness of
the Special Committee; advisors or legal counsel in connection with the
Merger or alternatives to the Merger; or any alternatives to the Merger
considered by the Board or the Special Committee;
• Documents, including final and draft documents, and communications
transmitted or dated January 1, 2016, to May 4, 2018, relating to the
valuation of FiberLight or the 2016 failed sale of FiberLight; and
79
Pl.’s Opening Br. 9-10.
17
• Draft Materials dated January 1, 2017, to May 4, 2018, including
(a) drafts of Board and Special Committee minutes and (b) internal
drafts of the Merger Agreement, term sheets, and the letter of intent. 80
II. ANALYSIS
Under Section 220 of Delaware General Corporation Law, stockholders of a
Delaware corporation may inspect the books and records of a company for any
proper purpose.81 A proper purpose includes “a purpose reasonably related to such
person’s interest as a stockholder.”82 “It is well established that a stockholder’s
desire to investigate wrongdoing or mismanagement is a ‘proper purpose.’” 83 The
stockholder, however, must present “some evidence that establishe[s] a credible
basis from which [this Court] could infer there [are] legitimate issues of possible
waste, mismanagement or wrongdoing that warrant[] further investigation.”84
Mudrick Capital identifies seven purposes for its demand. 85 Globalstar
stipulates, for purposes of this litigation only and without waiver to challenge the
allegations in Mudrick Capital’s demand and complaint in any future litigation, that
80
Id., Proposed Order & J. ¶¶ 3-4.
81
8 Del. C. § 220.
82
Id. § 220(b).
83
Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del. 2006).
84
Id. at 118.
85
JX 57, at 1-2.
18
it does not contest six of these purposes. 86 Globalstar states that due to its
stipulations, “no finding of a credible basis to suspect wrongdoing or
mismanagement is required.”87 Thus, the only question for this Court to resolve is
the scope of any further inspection.
The scope of inspection is limited to only those books and records that are
“necessary and essential to accomplish the stated, proper purpose.”88 “Documents
are ‘necessary and essential’ pursuant to a Section 220 demand if they address the
‘crux of the shareholder’s purpose’ and if that information ‘is unavailable from
another source.’” 89 “[T]he burden of proof is always on the party seeking inspection
to establish that each category of the books and records requested is essential and
sufficient to the stockholder’s stated purpose.” 90 “[W]here a [Section] 220 claim is
based on alleged corporate wrongdoing, and assuming the allegation is meritorious,
the stockholder should be given enough information to effectively address the
86
PTO ¶ 63.
87
Id. ¶ 75.
88
Saito v. McKesson HBOC, Inc., 806 A.2d 113, 116 (Del. 2002).
89
Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264,
1271 (Del. 2014) (quoting Espinoza v. Hewlett-Packard Co., 32 A.3d 365, 371-72
(Del. 2011)).
90
Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).
19
problem, either through derivative litigation or through direct contact with the
corporation’s directors and/or stockholders.” 91
Mr. Mudrick gave testimony for several hours, and he testified credibly. As
an investment fund manager, his knowledge of Globalstar, a Mudrick Capital
investment, is quite extensive. Mr. Mudrick understands the business strategy of
Globalstar as it relates to wireless spectrum rights; he participates in investor
conference calls; and he meets individually with Globalstar’s Board members and
management.
Before testifying, Mr. Mudrick reviewed the 188 documents produced by
Globalstar.92 He testified that Globalstar’s production was deficient with respect to
Mudrick Capital’s demand in multiple ways. The production lacked the following
requested documents:
• Emails related to the stated purposes; 93
• Documents concerning the valuation of FiberLight;94
• Draft board minutes; 95
91
Saito, 806 A.2d at 115.
92
Tr. 76:13-20.
93
Tr. 76:21-76:23.
94
Tr. 106:13-107:2.
95
Tr. 76:24-77:2.
20
• Draft presentations; 96 and
• Draft agendas. 97
Globalstar’s production also failed to include any privilege log to indicate whether
documents were withheld or on what basis documents were redacted. 98
After Mr. Mudrick testified as to what was missing from the production, he
credibly testified as to issues and questions raised by the Merger and by documents
included in the production. A selection of those issues and questions are laid out
here:
• Monroe owns a majority of Thermo stock; 99
• Globalstar is paying $1.645 billion for the Merger assets that are
controlled by Monroe with no explanation for that valuation; in
particular, the Company valued FiberLight at $1.245 billion, although
it is likely worth $300-500 million;100
• The Special Committee valued FiberLight at $1.245 billion, but all the
information concerning FiberLight appears to have come from
Monroe;101
96
Tr. 77:3-77:6.
97
Id.
98
Pl.’s Opening Br. 10.
99
Tr. 54:19-24; PTO ¶ 34.
100
Tr. 42:23-51:4.
101
Tr. 92:14-96:23; see JX 117, at 2.
21
• Neither the Special Committee nor Moelis appear to have included in
their analysis the failed attempt to sell FiberLight in 2016 for less than
$500 million;102
• There are unresolved accounting and governance concerns surrounding
FiberLight, which are cited in the Special Committee minutes as issues
that may affect FiberLight’s value; 103
• The Special Committee was negotiating for much of the time without
an outside financial advisor;104
• The Special Committee initially retained conflicted advisors (Allen &
Co. and Centerview Partners) to advise on the Merger, while those
advisors were also representing the Company in a possible sale of
Globalstar; 105
• Moelis in its fairness opinion disclaimed having performed “any
independent evaluation or appraisal of any of the assets included” in the
Merger transaction;106
• The Special Committee’s negotiations were very brief, and the limited
information provided in the Board and Special Committee minutes
regarding the negotiations contradicts the April 24, 2018 Moelis
presentation. 107
102
Tr. 95:2-17.
103
Tr. 105:15-19, 108:5-109:1; JX 115, at 1-2.
104
Tr. 92:14-96:23; see JX 117, at 2.
105
Tr. 126:20-127:11.
106
JX 117, at 2; Tr. 93:18-94:1.
107
Tr. 86:19-87:4; compare JX 118 with Pl.’s Opening Br., Ex. 2, at 1 (contradictory
dates of negotiation).
22
• Globalstar is paying $162 million to Thermo to transfer Globalstar’s
$1.7 billion in net operating losses to Thermo; 108
• Monroe proposed, and the Board unanimously approved, that the
members of the Special Committee receive an award of 225,000 shares
of Globalstar stock on the same day the Committee approved the price
of their one and only counteroffer, which they did without the
assistance of a financial advisor;109
• Globalstar’s Corporate Secretary, Richard Roberts, is also Thermo’s
general counsel; 110
• Monroe told Mr. Mudrick that he (Monroe) expected to get sued in
connection with the Merger, was prepared for the same, and advised
people to be careful in their writings in anticipation of litigation; 111
• Special Committee minutes reference that Monroe had contacted all of
the Special Committee members and that they were instructed not to
speak to Monroe directly; 112 and
• The Chair of the Special Committee has a son who was hired as a
regional sales manager at Globalstar during the period the Special
Committee was considering the Merger. 113
Several documents strongly support Mr. Mudrick’s testimony:
• Special Committee minutes state that “[t]he members of the Committee
asked numerous questions regarding . . . the potential conflicts of
108
Tr. 22:11-16, 52:2-55:10.
109
Tr. 123:13-124:24; JX 126, at 11-12.
110
Tr. 80:9-12.
111
Tr. 82:3-8.
112
Tr. 114:2-7.
113
Tr. 118:22-119:2; JX 123, at 12; JX 124, at 2.
23
interest and a discussion ensued” but give no information regarding
these “potential conflicts of interest”;114
• Special Committee minutes state that the members of the Special
Committee requested an evaluation of each member’s independence
and, after the evaluation, a report of the results,115 but no subsequent
minutes reference any such report;
• Special Committee minutes state that each member of the Special
Committee had conversations with Monroe about the Merger and that
the members agreed that “independent conversations with Mr. Monroe
on the terms of the contemplated [Merger] transaction should be
avoided to the extent possible”; 116
• The Special Committee’s counsel advised the Special Committee that
“it is appropriate to discuss further a minority shareholder vote
requirement given the related party nature” of the Merger,117 and the
Special Committee wanted a majority-of-the-minority provision; 118
• Thermo’s counsel advised the Special Committee against requesting a
majority-of-the-minority provision in the Merger; 119
• Special Committee minutes state that FiberLight’s accounting issues
may “result in a material change that would necessitate revisiting the
transaction value”; but no subsequent minutes address these issues, and
the value does not appear to change. 120
114
Pl.’s Opening Br., Ex. 7, at 2.
115
Id., Ex. 8, at 1.
116
Id., Ex. 10, at 1.
117
Id., Ex. 3, at 2.
118
JX 110, at 2.
119
Pl.’s Opening Br., Ex. 6, at 2-3.
120
JX 115, at 2.
24
The produced documents raise, but do not resolve, the same issues described in Mr.
Mudrick’s testimony. They also suggest that there were communications outside the
produced documents that directly relate to these issues.
Mudrick Capital’s stated purposes are to investigate possible breaches of
fiduciary duty by the Board and Special Committee concerning the Merger, the
Merger Agreement, and the related voting agreement; evaluate the fairness of the
Merger and the independence of the members of the Special Committee; value
Mudrick Capital’s stock; and communicate with other minority stockholders
regarding litigation and other potential corrective measures.121 The issues addressed
in Mr. Mudrick’s testimony and the produced documents go to the crux of these
purposes. And the testimony and documents suggest that communications exist
outside the produced documents that directly relate to these purposes.
A. Mudrick Capital Is Entitled to Globalstar’s Emails
Mudrick Capital seeks emails from January 1, 2017, to May 4, 2018, from
(1) C.E.O., Chair, and controlling stockholder of Globalstar, James Monroe;
(2) General Counsel of Globalstar, L. Barbee Ponder IV; (3) Chair of the Special
Committee, Patrick McIntyre; and (4) member of the Special Committee, John
Kneuer. 122
121
PTO ¶ 3.
122
Pl.’s Opening Br. 10-11.
25
For the statutory tool provided in Section 220 “to be meaningful, . . . [a]
stockholder who demands inspection . . . should be given access to all of the
documents in the corporation’s possession, custody or control, that are necessary to
satisfy [that stockholder’s] proper purpose.” 123 Generally, “[t]he source of the
documents and the manner in which they were obtained by the corporation have little
or no bearing on a stockholder’s inspection rights. The issue is whether the
documents are necessary and essential to satisfy the stockholder’s proper
purpose.” 124 Thus, where the stockholder carries its burden of establishing that
documents, including emails, are necessary for the stockholder’s purpose, those
documents must be produced.125
As the Delaware Supreme Court has held, “[d]ocuments are ‘necessary and
essential’ pursuant to a Section 220 demand if they address the ‘crux of the
shareholder’s purpose’ and if that information ‘is unavailable from another
source.’” 126 Although “[t]he starting point—and often the ending point—for a
123
Saito v. McKesson HBOC, Inc., 806 A.2d 113, 114-15 (Del. 2002).
124
Id. at 118.
125
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 792 (Del. Ch. 2016); Lavin v. W.
Corp., 2017 WL 6728702, at *14 (Del. Ch. Dec. 29, 2017).
126
Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264,
1271 (Del. 2014) (quoting Espinoza v. Hewlett-Packard Co., 32 A.3d 365, 371-72
(Del. 2011)).
26
sufficient inspection will be board level documents evidencing the directors’
decisions and deliberations, as well as the materials that the directors received and
considered,” this is a case in which the production of emails in response to a Section
220 demand is warranted.127 Here, Mudrick Capital has adequately shown that
(1) the produced documents do not allow it to adequately address the stated
purposes, and (2) the produced documents also suggest that other documents exist,
including emails, that address the crux of the stated purposes and are unavailable
from another source. Mudrick Capital has met its burden of showing that emails
from January 1, 2017, to May 4, 2018, to or from Monroe, Ponder, and McIntyre128
127
Yahoo!, 132 A.3d at 790. Defendant relies on three cases to argue that emails are
not appropriate in a Section 220 demand: In re UnitedHealth Grp., Inc. Section 220
Litig., 2018 WL 1110849 (Del. Ch. Feb. 28, 2018); In re Plains All Am. Pipeline,
L.P. Unitholders Books & Records Litig., 2017 WL 6016570 (Del. Ch. Aug. 8,
2017); and Elow v. Express Scripts Hldg. Co., 2017 WL 2352151 (Del. Ch. May 31,
2017). These cases do not support Defendant’s argument. None of those cases
prohibit the production of emails in response to a Section 220 demand. And if they
did, they would be contrary to Delaware Supreme Court precedent (see Wal-Mart
Stores, 95 A.3d 1264; Saito v. McKesson HBOC, Inc., 806 A.2d 113 (Del. 2002)),
which this Court is bound to follow, that provides emails where plaintiffs show that
emails are necessary to satisfy the stated purpose. Here Plaintiff met that burden.
128
Monroe is the Executive Chairperson of the Board and Chief Executive Officer of
Globalstar, PTO ¶ 33, and “Monroe’s central role in the Merger is undisputed,” Pl.’s
Opening Br. 11 n.5; he is the controller of both Globalstar and Thermo, PTO ¶¶ 33,
34; and Special Committee minutes reference communications between him and the
Special Committee members, Pl.’s Opening Br., Ex. 10, at 1. Globalstar’s 30(b)(6)
representative stated in his deposition that Ponder is in possession of many of the
requested documents. JX 105, at 101-02. McIntyre, in his role as Chair of the
Special Committee, was involved in Merger negotiations. See JX 014, at 1.
Regarding Kneuer, Mudrick Capital provides only two reasons for requesting
Kneuer’s emails: (1) Kneuer was the only director to receive compensation in 2017,
27
are necessary “to effectively address the problem[s Mudrick Capital has identified],
either through derivative litigation or through direct contact with the corporation’s
directors and/or stockholders.” 129
B. Mudrick Capital Is Entitled to FiberLight Valuation Materials in
Globalstar’s Possession
Mudrick Capital has requested documents and communications transmitted or
dated January 1, 2016, to May 4, 2018, relating to the valuation of FiberLight or the
2016 failed sale of FiberLight.130 In 2016, FiberLight attempted an auction for $350-
450 million. 131 Especially in the context of an interested transaction, purchasing a
company for $1.245 billion when the company failed to garner $350 million two
years earlier with no explanation of the new valuation provides a credible basis to
investigate mismanagement, waste, or wrongdoing—a point which Globalstar does
not dispute.
The value of the Merger assets, including FiberLight, and information
regarding the process the Special Committee used to assign that value are necessary
and (2) Kneuer is a member of the Special Committee. Pl.’s Opening Br. 11 & n.5.
Plaintiff has raised no issue regarding 2017 compensation, and Plaintiff offers no
explanation for why Kneuer’s emails are necessary in addition to the production of
McIntyre’s emails.
129
Saito, 806 A.2d at 115.
130
Pl.’s Reply Br. 25-27.
131
JX 2, at 2.
28
and essential to “investigate possible breaches of fiduciary duty, mismanagement,
corporate waste, and improper influence and conduct by members of . . . the Special
Committee . . . with respect to the negotiation, execution, and approval of the . . .
Merger Agreement.” 132 FiberLight is a privately held company. 133 It is therefore
difficult, if not impossible, for Mudrick Capital to obtain accurate valuation
information for FiberLight. Even if this was possible, external information would
not explain how the Special Committee assigned a value of $1.245 billion to
FiberLight. Because this information is necessary to Mudrick Capital’s stated,
proper purpose, Globalstar must produce FiberLight valuation materials in its
possession.
C. Mudrick Capital Is Not Entitled to Draft Materials
1. Draft minutes
Mudrick Capital requests all drafts of Board and Special Committee minutes
for January 1, 2017, to May 4, 2018. 134 Mudrick Capital argues that the final minutes
are “sanitized.”135 Plaintiff supports this argument with two pieces of evidence:
132
JX 57, at 1 (purpose (i)).
133
Tr. 23:6.
134
Pl.’s Reply Br. 25-26.
135
Tr. 80:9-13. Mudrick Capital also argues that Globalstar waived any objection to
producing draft Board and Special Committee minutes by failing to respond to
Plaintiff’s arguments. Pl.’s Reply Br. 25-26. I disagree. Although Globalstar does
not specifically argue in its Answering Brief that Mudrick Capital is not entitled to
29
(1) that Monroe told Mr. Mudrick that the Company expected litigation related to
the Merger, 136 and (2) Globalstar’s Corporate Secretary, Richard Roberts, is also
Thermo’s general counsel. 137
Mudrick Capital provides no convincing explanation for why the draft
minutes are any more or less “sanitized” than the final minutes. More importantly,
however, Mudrick Capital simply has not shown that draft minutes are necessary in
light of all the documents that have been and will be produced; thus, that demand is
denied.
2. Other draft materials
Mudrick Capital provides no convincing explanation for why Draft Materials
outside of draft minutes are necessary to satisfy any of its stated purposes.138
draft minutes, Globalstar addresses Plaintiff’s argument by asserting that Plaintiff
needs no additional information generally. Def.’s Answering Br. 13 (“Mudrick
needs no further information.”); id. at 12-13 (“The [final] Board and Special
Committee Minutes disclosed significant information . . . .”).
136
Tr. 81:1-6.
137
Tr. 80:9-12.
138
See Pl.’s Opening Br. 43.
30
Because Mudrick Capital has not shown that these Draft Materials are necessary to
one of the stated purposes, that demand is denied.139
D. Globalstar Must Provide Privilege Logs
Globalstar must provide a privilege log that reflects documents withheld or
redacted for any privilege for all productions, including past productions. 140
III. CONCLUSION
For the foregoing reasons, I find that Mudrick Capital is entitled to (1) emails
and other communications related to Mudrick Capital’s revised document requests
and limited to custodians Monroe, Ponder, and McIntyre for the time period of
January 1, 2017, to May 4, 2018, and (2) documents and communications related to
the valuation of FiberLight and the 2016 failed sale of FiberLight for the time period
of January 1, 2016, to May 4, 2018; Mudrick Capital is not entitled to Draft
Materials; and Globalstar is required to produce a privilege log that reflects
documents withheld or redacted for any privilege for all productions, including past
productions. The parties shall submit an order consistent with this memorandum
opinion within three business days.
IT IS SO ORDERED.
139
If Draft Materials were found to be necessary to one of the stated purposes, then I
would be required to address privilege issues. That analysis is not required, and the
parties have not adequately briefed these privilege issues.
140
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 796 (Del. Ch. 2016).
31